1 Defense Supply Center Philadelphia Clothing & Textiles Supply Chain AAFA Mar 2007

2 Background

3 Provide Dress/Field Uniforms, Field Gear and Personal Chemical Protective Items to the Armed Forces in Peace and War Clothing & Textiles Supply Chain Mission

4 The Big Picture Customers / Items Customers: 14,000 Orders: 3,600,000 / year Items: 31,000 Sales FY 01 - $1.0B FY 02 - $1.3B FY 03 - $1.7B FY 04 - $2.2B FY 05 - $2.2B FY 06 - $1.9B Obligations FY 01 - $1.1B FY 02 - $1.6B FY 03 - $2.8B FY 04 - $2.0B FY 05 - $2.0B FY 06 - $1.6B Personnel Employees: 302 civilian + 8 Military + 2 Europe + 50 interns Suppliers: 858 Clothing & Textiles Supply Chain

5 C&T Business Complexities

6 Customer Requirements Sales % Type I 65% – 18K to 50K of individual orders daily 18K Shirts can equal 10K requisitions – Demand based Type II 25% –Larger single customer orders 100K Helmets for RFI (phased delivery) 400K ACUs for National Guard (phased delivery) 50K BDUs for MNSTC-I (unforecasted; ASAP) –Customer Collaboration – phased delivery or ASAP Type III 10% –New Item Introduction ACU / ABU / Task Force Uniform –Customer Collaboration Difficulty: Sizes

7 From Requirements… to … Vendors Requirements –Customer Input TRADOC with CIIP inductions PMs with troop support –Demand … Past / Anticipated Trend analysis / seasonality –Demand Planner Info Major customer, eg, NTC Great Lakes Vendors Expenditures –Annual forecast for existing contracts –Mid-year forecast update –Monthly item execution reviews Demand / Inventory / Sales / Deliveries / Obligations –Still causes production fluctuations Know where every dollar is spent!

8 Inventory Growth Customers changing items based on OIF needs –‘Desert Storm’ Boot proved too soft for rocky Afghanistan terrain –Body Armor has technology infusion every 18 months –ACUs need FR capabilities More expensive items –ACU / Modular Sleep System / MOLLE / T-Shirts Forecasted Demands Overstated –ACUs / Desert Boots / ECWCS Pre-War 1.2 Turns In-War 1.2 Turns But Still … … However, Affects new $$

9 C&T Business The Lean Process – Improving Acquisition

10 Air Force Lean Event DLA and AAFES are currently participating with the Air Force in a Lean Six Sigma Event for uniform introduction. Lean is a process of identifying: –What adds value to the product from a customer’s perspective –Eliminating whatever is non-value added UASF recognized need to streamline process of introduction of new items Process: Initial development by the USAF to receipt by the customer Four events were considered necessary: –Development (Air Force) – Completed –Requirements and Funding (Air Force) - Completed –Acquisition Process (DLA) - Completed –Acquisition Process (AAFES) – Completed

11 Air Force Lean Event Areas found to produce the greatest improvements: –Increased Thresholds for Acquisition Reviews –Real-Time Acquisition Review Boards for New Item Introduction –Eliminate Factors found to have limited effect on award decision Reduces preparation and review time –Electronic submission of proposals with abstract –Two Step Negotiation Process Any changes will be communicated to Industry prior to implementation DSCP / AAFES will pursue a future lean event with Industry to discuss production leadtimes, strategic distribution, incentives, etc. –To be held in conjunction with NAUMD annual meeting in April 07

12 C&T Business Recruit Training Centers - The Challenge and Solution

13 Current Situation: –Emergency buys / Expedited shipments –Size Changes / Weekly Shipments Future Strategy: –Establishment of a VVM (Virtual Vendor Manager) expanding existing functionality under VPV (Virtual Prime Vendor) Initial Operational Capability – Increased Visibility of Business Flow Full Operational Capability – Demand Planning at Customer Site GOAL: Fill Clothing Bag Items 99% MA –Adjust Safety Levels based upon demand type: 1.Commercial Items – Socks and T-shirts 2.Normal Variability – Boots and Pants 3.Unusual Variability – All Weather Coats and Shirts (S/S and L/S) Bottom Line Up Front Warfighter Support – Stewardship to the Nation – Growth and Development of our People – Leadership Need to get back to 98% Material Availability By Service

14 The Recruit BAG Each Service Recruit Bag is different: MALE GENERIC PER MALE TRAINING SERVICEITEMS RECRUIT PERIOD (weeks) USA41 $ USAF38 $ USMC40 $ USN33 $ USCG29 $ The Service BAG is changed at the beginning of every fiscal year -Items are added / deleted / re-priced -Approved by Service Chiefs -A total of 205,000 recruits were processed in FY06 (169k male, 36k female) -Requiring 7,790,000 individual items to be issued 8400 NSNs Warfighter Support – Stewardship to the Nation – Growth and Development of our People – Leadership

15 History of Support DSCP C&T has a track record of support to RTCs –Performance since 2004 has been consistent (see example below) –Slip in end of FY06 / Beginning of FY 07 caused great concern FY 04 MA = 99% FY 05 MA = 99% FY 06 MA = 99% (thru Jun) FY 06 MA = 97.5% (Jul to Sep) FY 07 MA = 96% (Oct to Dec) Warfighter Support – Stewardship to the Nation – Growth and Development of our People – Leadership

16 ARMY RTC Bag Items Marine RTC Bag Items Green – Over 90 Days Amber – 30 – 90 Days Red – Under 30 Days Black – NIS Number of NSNs (Individual Sized Items) RTC Bag Items Status Tracking 120 Days Out Stockage Levels THE 120 DAY SUSTAINABILITY LOOK Represents the wholesale level of the universe of individual items at each Recruit Training Center for the next 120 days 26 Feb 07 5 Mar 07 USAF RTC Bag Items

17 Virtual Prime Vendor (VPV) VPV is a logistics management system In operation since excellent track record Establishing a new VVM Manager at each Recruit Center To provide logistical ‘boots on ground’ support VPV Site RTC/CIIP Use chart 1 1MC San Diego 2MC Parris Island 3NTC Great Lakes 4Lackland AFB 5Ft. Jackson 6Ft. Sill 7Ft. Len Wood 8Ft. Knox 9Ft. Benning 1Lion Vallen – All Army 2Travis NIB – AF& MC 3Peckham NISH – Navy Not shipped On time = No pay! * Chart Represents 35.5 Months Of Operation Travis VPV

18 C&T Business Briefing to Congressional Staffers

19 Meeting with Congressional Representatives –Occurred on 12 Feb 07 (9 congressional staffers present) –Purpose: To provide background on Clothing & Textile Supply Chain To provide funding projections for balance of FY 07 To provide update on new programs –New Uniforms (Army, AF, Navy) –New Troop Support to U.S. troops in Iraq »Using ADO (Army Direct Ordering) Meeting was successful –Meaningful dialogue on many issues e.g., Fire Retardant requirements in uniforms used in Iraq e.g., Knock-off uniform sales e.g., Uniform support to the Iraqi forces Bottom Line: Good idea that needs to be done on a regular basis Meeting with Congressional Staffers

20 DSCP Background 14,000 customers ordering 3.6M times per year Spending $1.7B to buy over 31,000 types of items Doing all of this with only 310 personnel Commodity Uniqueness Sized items Army Combat Boot – 133 sizes Men’s Army Dress Coat – 65 sizes Airman Battle Uniform – 155 sizes Military unique Most clothing on a specification Service driven requirements Simple garments to complex protective clothing Mix of Businesses See chart What We Told Them FY 06 $$ PIE

21 C&T Investment Plan FY 07 By Major Grouping Expenditure History: –FY 05 = $2.088B –FY 06 = $1.613B –FY 07 = $1.70B (planned) Plan adjustments: –Based on actual sales –Customer collaborative forecasts –New items introductions ITEM Group FY07 Plan Dress Clothing$165.1M Field Clothing$492.9M Individual Equipment $581.6M Organizational Clothing $481.8M Total$1,721.4M Adjustments made thru the use of automated demand and supply tools

22 C&T Investment Plan FY 07 By Minor Grouping Dress Uniforms –Shirts & Headwear $29.0M –Outerwear $76.5M –Dress Uniforms $59.9M Field Uniforms –Accessories $126.1M –Camo uniforms $239.6M –Footwear $127.2M Individual Equipment –Heraldics $9.4M –Equipment Items $305.9M –Safety Items $127.9M –Tentage $138.4M Organizational Clothing –Chemical Protective $189.8M –Cold Weather Gear $117.6M –Gloves $69.7M –Special Purpose $104.6M Adjustments made thru the use of automated demand and supply tools

23 New Programs And Issues

24 Army Fire Retardant Uniforms ONS-1 Requirement = Sep 06 –Satisfied by combination of all available FR garments Mix of Flight Suits (AF / Navy / Army) and Army Tanker Suits –Army started development efforts for FR Ground Troops Tested new fabrics in different types of blends ONS-2 Requirement = Feb 07 –Originally requested use of A2CU (Army Aircrew Combat Uniform) At that time, FR ACU was not yet developed –Army decision: Since that time a FR ACU was developed Best solution now would be to include FR ACU in solution set –DLA decision: Satisfy FR ACU thru existing contracts Modify several existing contracts to the new FR ACU These would be quantity neutral – no vendor gets more work Allows less ACUs to be produced (rebalances inventory) Creates new market for ACU producer base

25

26 USMC STATUS: Stable[MCCUU] –The most stable program (started in 2003) –Currently working on incorporating Permethrin into fabric (bug repellant) USA STATUS: Excess stock due to lower than expected demand [ACU] –Rolled out in Sales have been sluggish –16 commercial contracts awarded based on large anticipated sales –All vendors have had production cuts to slow down inventory growth –Latest action: Vendors received option contracts in late Jan / early Feb –Will allow for production into Jul 07 (6 month window) –New re-compete will better align supply with demand and result in fewer number of contract awards Award scheduled for Jul 07 - First delivery will be due Dec 07 –FR ACU will help vendor base with new product line Issues in New Uniform Introduction

27 Issues in New Uniform Introduction USAF STATUS: Building stock as per plan[ABU] –In the process of rolling out in commercial vendors and NIB / NISH (JWOD) –Current difficulties in trouser production causing delays Initial small issues in Jan 07 First deploying troops issued in Feb 07 –AF Leadership sponsoring “Lean Six Sigma’ event to streamline the process Chaired by 2-star chief of logistics – DSCP participates Includes a ‘Two-Step’ Procedure to let vendors know their competitive status early USN STATUS: Being initiated [NWU] –Navy Task Force Uniform (TFU) will change the entire uniform Includes all working and dress uniforms (will result in less total pieces) Work Uniform (NWU) will be first –Deliveries start by end of 2007 – issue to begin spring 2008 Dress uniforms will follow (fabric being bought now)

28 Clothing & Textiles Supply Chain ADO 1650 units $45M To date

29 Conclusion