Chain of Thought

Budget Surgery is Scary—Especially if the Cutter is Blind

One good thing that could come out of this misfiring budget-cutting scheme called sequestration (automatic spending cuts) is a new respect from public-sector bureaucrats for private-sector logistics professionals. This notion came to me after reading a letter to the editor in today’s Wall Street Journal from someone who works for the Medina, Ohio Metropolitan Housing Authority. This person writes that his agency helps 1,000 households every month, including “young families struggling to gain a foothold in this economy.” He continues: “Taxpayers historically prod government agencies to run like a business, but those agencies can’t ramp up production or seek out new markets. … What’s needed is some sense of predictability in funding so the agencies can plan, act and evaluate with a certain level of confidence. Agencies, like businesses, have contracts to honor and cash flow to manage.”

What this letter writer screams for is visibility, but unfortunately he’s looking to Washington—where blind housing bureaucrats are marching side by side with blind defense bureaucrats toward the next fiscal cliff. At least this letter writer knows the remedy for blindness, even if he’s not allowed to administer it. He obviously has enough vision to see how private sector companies put their foresight to good use.

Maybe he got it by dealing with businesses that are diversified—as more and more companies have to be if they’re government contractors. I had the pleasure of interviewing Dave Brantner, vice president of supply chain strategic sourcing for Pratt & Whitney, which supplies engines for both military and civilian aviation. He told me sequestration worries his company and other defense contractors who believe the U.S. needs to be a leader in military technology and must maintain or replace its current inventory of old and obsolete military equipment.

Besides, the military represents a quarter of his company’s business. That means defense contractors will have to be more innovative in anticipating and meeting the government's priorities if they want to maintain that business. One example from Pratt & Whitney should get a sharp salute from our current commander-in-chief.

The company developed a brand new family of jet engines called Purepower, which Brantner characterizes as game-changing technology. He says it delivers 15% better gas mileage, produces less noise, spews fewer emissions and “leap frogs the technology the airlines want.”

“We’re on five different platforms with this series and we’ll face an industrial ramp that is unprecedented in our company’s history,” he told me. “Even as the military sequestration goes on, we will double what we buy in the supply chain in the next five years.”

The key to making this engine soar will be in sharing his vision with the company’s hundreds of suppliers. Visibility means sharing demand signals and production schedules.

“We take it upon ourselves to make sure our strategy is clear in our own house before we step outside,” Brantner said.

That means a gathering of the company’s strategic sourcing review board which decides where to source from. They’ll determine what the company will source to its own divisions and what it will put out on contract to its supply chain. Then it executes agreements with key suppliers. That’s where visibility comes into sharp focus.

“The key for visibility is making sure suppliers understand the demand, and in our case the significant industrial ramps that will be necessary over the next three or four years,” he added. “These players need to be willing to invest. So we’re backing up from a production readiness standpoint and saying not only when they have to produce parts for us but when we’ll need a contract in place—and backing up from there, when they’ll have to invest in equipment and hire and train people to be ready for this ramp.”

So kudos to that Housing Authority official from Medina. He clearly stated for WSJ readers what Mr. Brantner described for MH&L readers: what it will take for government to get the biggest bang for the taxpayers’ bucks. Let’s hope our blind bureaucrats aren’t deaf as well.

 

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