There is little margin for error in the supply chain with the urgency and immediacy of conflict and virtually no wiggle room with the quality of parts or equipment that must withstand exacting conditions.

Often, what is sought in their value chains is unique to the military too, which means that the pool of suppliers is shallow. It’s a dynamic that is equally risky for both parties. What is interesting is that these factors combine and compound to create a scenario that we don’t often see in commercial settings.

Military specific challenges

“Our supply chain has the potential to be unresponsive,” says Lieutenant Colonel Rob Fekete, speaking on behalf of his logistics experience in the United States Air Force. “We deal with a lot of obsolescence and a lot of diminishing sources of manufacturing and sole source manufacturing. At the same time, we are bound by a lot of regulations that don’t allow us to go out to a larger vendor base in a lot of cases.”

The last point is especially salient because it highlights the often inflexible nature of military value chains. That they are highly competitive, even among allied nations, adds yet another challenge to an already complex demand cycle.

“We have competing customers for programs beyond the United States,” Rob says. “For example, the F35 weapon system is flown by many countries in Europe. They are flown in different environments and different ways.

“It creates a different demand from a finite pool of spares or suppliers. You end up with competing demands – and who’s to say who gets what and when? In that scenario, a demand isn’t necessarily a demand either – it could be foresight into something entities don’t want to share with each other. That makes it hard to decide who gets what and when.”

To an extent, it gives rise to a contractual game of Russian roulette. If agreed service levels are not met then, owing to the limited pool of suppliers, penalizing your supplier can also be like penalizing yourself, especially if they are an exclusive supplier.

By the same token, if they have a fixed-term contract you are in the same boat. Push them too hard and they become less profitable and back out. Then tension is constant, but as Rob points out, it is mutually felt.

“Contractors often want us to commit to a particular demand and we can’t because of our regulations and the way our budgeting cycle works. They want to go out and they want to buy raw materials at the cheapest price. They want economies of scale and multi-year production, but we can’t commit to that because of our regulations.

“We have to ask for what we want that meets our requirements then and there and return when we want more. Very rarely do prices go down when you come back later.” 

Efficient v Effective

A military value chain, when all is said and done, has to deliver effective combat power. That means delivering in the right place, at the right time, and with the right resources to execute objectives. That means that being effective is often prioritized over being efficient, as Colonel Merlijn Heiligers of the Dutch Ministry of Defence points out.

“With what we do there is an opponent trying to disrupt us. When Sony is supplying PlayStations, Microsoft is not deliberately disrupting their supply chain – but we have that.

“And, because we mostly operate in an international setup, we only control parts of the value chain; we know that there are limits to what we can influence. In that instance, we prioritize being effective over being efficient.

“We have to be more results-oriented rather than being cost-efficient, for example. We have to adapt to what our end units need. Because of the different kinds of threats in Europe, we now see countries thinking about having stock pre-located in Europe.”

Heiligers acknowledges that that kind of safeguarding is less efficient – in essence, it’s the Just-in-Case model we see in commercial value chains – but it is overall necessary because it affords flexibility.

He adds that part of the challenge the Dutch military has now is scalability. After years of cutting back spending, they need to find solutions that can support a large deployment without wasting a lot of resources. To that end, they are embarking on a mission to build a network that can support daily operations and deploy in a combat zone.

“We took the initiative and we’re trying to bring the civil markets parties together to establish what we need and what they can support with. We have a big challenge to bring this to market because it needs to be of a certain commercial value and must be attractive to the participants.

“They’ll have to be open-minded, supportive of the government, and have the same kind of values so that they are aligned. It’s a challenge because it’s a new concept, but the market is interested, and they are aware that it’s complex.

“There’s definitely a commercial drive to make it happen because there’s a commercial value to participating. The military has recognized that if you work with civil partners, there’s a commercial value altogether.”

By making this move, it reduces the dependency on parts of the supply base in the value chain. In turn that builds agility and flexibility, and moreover reduces risk. This collaborative effort is echoed by partnerships between allied European nations that work similarly to buying consortia. For instance, smaller nations like Holland and Belgium can partner to buy equipment. It works Heiligers says, because a lot of resources are scarce.

“It has given rise to all kinds of alliances where people work together to be efficient in one area and effective in another,” he says. “For 10 years, my unit chartered a ro-ro vessel. It was primarily for our use. But if we didn’t need it, we leased it to EU or NATO partners and were even able to outsource it to the market again. In that way, we were able to build a business case for resources and develop partnerships.”

An obvious comparison

It is natural to compare commercial and military value chains. They have obvious similarities– cost pressures, regulations, and supply shortages for example – but they differ significantly in several ways, and it is in those differences where each can find improvements to make to their own.

“Our strongest part is that we do a lot of analysis, and we are very focused on the objective,”

says Heiligers. “We analyze the assignment, its intention, and the assignment behind the assignment, so to speak.

“Then as commanding officer, I give my intent and the effects I want to achieve to the people who work for me; they know the ways and means that are available and are able to conduct the operations using the intent.

“We focus on effects and provide people the freedom to achieve them, within operational boundaries. Generally, I would say that everyone’s aims are always aligned because we are trying to resolve conflict. In the civil environment, people might focus on their own results instead of the total outcome.”

The rigor and attention to detail are what you would expect in a military environment. It is interesting to note however that it dovetails with a sense of autonomy and trust – simply because the end goal is crystal clear.

As a whole, it has a reinforcing effect on the workforce and allows talent to flourish as a result. Could that be a take-home for commercial value chains? “I think we go out of our way to grow leaders and not just managers,” Fekete says. “We develop leaders that are capable of thinking critically and that are able to take input, process it and broaden it out to related fields.

“We’re also good at growing people that can take dissimilar ideas and figure out the connection. We also do a good job of pushing down decision-making to the lowest level, which allows us to iterate a lot faster. That offers a lot of fulfillment and opportunity for growth.”

Tellingly, when asked what the ultimate value chain is for them, both Heiligers and Fekete offer an altruistic ideal. On closer inspection, everything they have discussed leads to the characteristic, that the greater good is always what they are striving for.

“The ultimate value chain delivers for all parties in the chain and achieves what the chain has been set up for,” Heiligers says. Fekete agrees.

“It has to be responsive, minimize lead time, and be customizable for the demand,”

he concludes. “Ultimately it is utopian in nature.”

It’s a high ideal, but one that is worth striving for. Few would bet against them realizing it.

This article is part of the ultimate value chain series. Journalist Tom Holmes and Professor Michiel Steeman embark on a journey, interviewing academics, corporations, NGOs, and various industry experts to delve into the multifaceted dimensions of the ultimate value chain.

Our Experts

The authors