LMI 2008 Annual Report by LMI

TECHNOLOGY • INTELLIGENCE PROGRAMS • LOGISTICS • ORGANIZATIONS AND HUMAN CAPITAL • ECOLOGY • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING • DEPOT • HUMAN CAPITAL MANAGEMENT • OPERATIONS PREPOSITIONED ASSETS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • OPERATIONS INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT • CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS • ORGANIZATIONAL ANALYSIS • COMPETENCY MODELING LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING • PERFORMANCE MANAGEMENT • ECOLOGY • ACQUISITION ENVIRONMENT • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING • LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS • PREPOSITIONED ASSETS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS • IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS AND ORGANIZATIONAL ANALYSIS COMPETENCY MODELING • STAFFING • LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING • PREPOSITIONED ASSETS ECOLOGY • ACQUISITION • ENVIRONMENT • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS • IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS AND ORGANIZATIONAL ANALYSIS COMPETENCY MODELING • LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING • PERFORMANCE MANAGEMENT ECOLOGY • ACQUISITION • ENVIRONMENT • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS • PREPOSITIONED ASSETS • SUPPLY CHAIN INNOVATION MODERNIZATION • DEPOT MAINTENANCE • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS • IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY CHANGE MANAGEMENT • CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS AND ORGANIZATIONAL ANALYSIS • COMPETENCY MODELING • LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING PERFORMANCE MANAGEMENT • ECOLOGY • ACQUISITION • ENVIRONMENT • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING • LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS • PREPOSITIONED ASSETS SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRON• HEALTH RECORDS • IMPROVED VETERANʼS HEALTH CARE INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT • CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS AND ORGANIZATIONAL ANALYSIS • COMPETENCY MODELING • LEADERSHIP DEVELOPMENT EXECUTIVE COACHING • PERFORMANCE MANAGEMENT • ECOLOGY • ACQUISITION • ENVIRONMENT • GREEN BUILDINGS ISO 9001 • BUSINESS PROCESS REENGINEERING • LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS PREPOSITIONED ASSETS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS • IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT • CONTINUITY OF OPERATIONS STAFFING • PUBLIC MANAGEMENT NETWORKS AND ORGANIZATIONAL ANALYSIS COMPETENCY MODELING • LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING • PERFORMANCE MANAGEMENT • ECOLOGY • ACQUISITION • ENVIRONMENT GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING • LOGISTICS • HUMAN CAPITAL MANAGEMENT OPERATIONS • PREPOSITIONED ASSETS •SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS

INNOVATION IN A TIME OF CHANGE

2008 ANNUAL REPORT

PREPOSITIONED ASSETS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • OPERATIONS INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT • CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS • ORGANIZATIONAL ANALYSIS • COMPETENCY MODELING LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING • PERFORMANCE MANAGEMENT • ECOLOGY • ACQUISITION ENVIRONMENT • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING • LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS • PREPOSITIONED ASSETS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT

Contents 1 4 16 31 32 33 36

Letter from the Chairman Energy and Climate Change Client Studies Board of Trustees Officers Program Directors Financial Review

ACQUISITION • FACILITIES, ENVIRONMENT AND ASSET MANAGEMENT • FINANCIAL MANAGEMENT • INFORMATION AND TECHNOLOGY • INTELLIGENCE PROGRAMS • LOGISTICS • ORGANIZATIONS AND HUMAN CAPITAL • ECOLOGY • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING • DEPOT • HUMAN CAPITAL MANAGEMENT • OPERATIONS • PREPOSITIONED ASSETS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • OPERATIONS • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS • IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT • CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS • ORGANIZATIONAL ANALYSIS • COMPETENCY MODELING • LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING • PERFORMANCE MANAGEMENT • ECOLOGY • ACQUISITION • ENVIRONMENT • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING • LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS • PREPOSITIONED ASSETS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS • IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT • CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS AND ORGANIZATIONAL ANALYSIS • COMPETENCY MODELING • STAFFING • LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING • PREPOSITIONED ASSETS • ECOLOGY • ACQUISITION • ENVIRONMENT • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING • LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS • IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT • CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS AND ORGANIZATIONAL ANALYSIS • COMPETENCY MODELING • LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING • PERFORMANCE MANAGEMENT • ECOLOGY • ACQUISITION • ENVIRONMENT • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING • LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS • PREPOSITIONED ASSETS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS • IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT • CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS AND ORGANIZATIONAL ANALYSIS • COMPETENCY MODELING • LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING • PERFORMANCE MANAGEMENT • ECOLOGY • ACQUISITION • ENVIRONMENT • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING • LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS • PREPOSITIONED ASSETS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRON• HEALTH RECORDS • IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT • CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS AND ORGANIZATIONAL ANALYSIS • COMPETENCY MODELING • LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING • PERFORMANCE MANAGEMENT • ECOLOGY • ACQUISITION • ENVIRONMENT • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING • LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS • PREPOSITIONED ASSETS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS • IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT • CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS AND ORGANIZATIONAL ANALYSIS COMPETENCY MODELING • LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING • PERFORMANCE MANAGEMENT • ECOLOGY • ACQUISITION • ENVIRONMENT • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING • LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS • PREPOSITIONED ASSETS •SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE •

INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT • CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS • ORGANIZATIONAL ANALYSIS • COMPETENCY MODELING LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING • PERFORMANCE MANAGEMENT • ECOLOGY • ACQUISITION ENVIRONMENT • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING • LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS • PREPOSITIONED ASSETS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH

Letter from the Chairman In 2008, LMI continued helping government leaders and managers improve the management of their agencies. The environment was challenging, but even in the face of the complex and ongoing military efforts in Iraq and Afghanistan, global economic turmoil, federal election campaigns, sharp fluctuations in energy prices, and concern over global climate change, LMI found new ways to help. As an independent, not-for-profit consulting firm, LMI’s focus is on helping government leaders and managers make decisions that make a difference.Through the extraordinary depth of our experienced staff and use of state-of-the-art tools, LMI is able to develop unique and meaningful solutions to the significant challenges facing government. Our broad capabilities enable us to support nearly every federal agency, including the defense, homeland security, intelligence, and civil sectors of the government. In 2008, LMI expanded its capabilities for serving the community of government intelligence agencies with the acquisition of Jasmah Consulting, a highly regarded consulting firm within the mission side of the intelligence community. Jasmah Consulting’s expertise in advanced analytical techniques and strategic consulting services complements our expertise in assisting intelligence agencies with facilities, logistics, human capital management, and other issues. LMI’s work covers a broad range of issues, and many of our findings have potentially significant impacts. One example of such an impact is our work for the Secretary of

William S. Norman Chairman of the Board

L M I 2 0 0 8 A N N U A L R E PO RT

Energy that resulted in developing an alternative strategy for the Plutonium Preparation Project.When implemented, that strategy will save taxpayers more than $500 million over the original plan. LMI also helped the Department of Defense prepare the DoD Logistics Roadmap, which serves as the Department’s logistics strategic plan and provides a foundation for future logistics capability assessments and investment analyses. Equally illustrative of our strong logistics capabilities was our assistance to the U.S. Navy in broadening the scope of expertise and intellectual resources in the new Fleet Readiness Centers. In addition, our information technology capabilities were brought to bear on the Department of Labor’s requirements for an enterprisewide modernization effort involving the replacement of a 15year-old system with a more robust, cost-effective solution. LMI was grateful to receive special commendations for its service to federal agencies throughout the year, including from the Department of the Navy, National Oceanographic and Atmospheric Administration, and National Aeronautics and Space Administration. The LMI Research Institute continued to build its reputation for innovative thinking, inventive work, and thought leadership throughout the year. Some of these efforts are highlighted in this annual report, where our special focus is on energy and climate change.This report summarizes some of the key findings in our recently released book, A Federal Leader’s Guide to Climate Change; identifies critical issues facing the federal government in these areas; and suggests some solutions to these daunting challenges. As part of our effort, we developed a protocol for assessing the impact that federal agencies have on greenhouse gas emissions, and this protocol is now being adopted as a national standard by the World Resources

2 L M I 2 0 0 8 A N N U A L R E PO RT

Institute.We believe this work will have an enduring, beneficial effect upon the government’s ability to reduce its environmental footprint. This was also a year of transition for LMI’s leadership. Early in 2008, LMI was greatly saddened by the death of its distinguished President and CEO, Admiral Donald L. Pilling (USN Ret.). Admiral Pilling’s strong commitment to excellence and LMI’s mission will be difficult to replace, and we extend our condolences to his friends and family. At the end of 2008, LMI bid farewell to two outstanding members of its Board of Trustees: General William G.T.Tuttle Jr. (USA Ret.), and Philip A. Odeen. General Tuttle served as LMI’s President and CEO (1993–2002), and Mr. Odeen served as Chair of LMI’s Governance and Nominating Committee. Each brought broad experience and clear insight to the Board during a time of great change in the company. Our new leaders will continue building LMI’s reputation for innovative solutions to government management problems. In January 2009, the Honorable Nelson M. Ford, former Under Secretary of the Army, began serving as LMI’s eleventh President and CEO. Also, the Honorable Kenneth J. Krieg (former Under Secretary of Defense for Acquisition,Technology and Logistics) and LTG Robert T. Dail (USA Ret.), former Director, Defense Logistics Agency, have been elected to LMI’s Board of Trustees. For 47 years, LMI has contributed to the federal government’s effort to preserve national security, secure the blessings of our country, and improve the welfare of its citizens.This annual report highlights some of those activities in 2008 with the commitment to continue meeting those challenges in the years ahead.

L M I 2 0 0 8 A N N U A L R E PO RT

Energy and Climate Change THE TROUBLED

ECONOMY

is grabbing the headlines, but the most

complex, large-scale, and long-term problems facing the new administration involve energy and climate change.Talk on these topics has moved from the halls of science to the dinner table. Most acknowledge

the need to confront these problems, but deciding how and when to do so is frequently debated, and those decisions will have far-reaching financial, national security, and environmental consequences. Energy and climate change issues are complex and intertwined; decisions concerning one will surely affect the other. LMI performs research and analysis to inform our clients and advance the dialogue on these issues. As we search for practical solutions, we develop and hone our skills to better help federal leaders anticipate emerging and future energy and climate change challenges.

4 L M I 2 0 0 8 A N N U A L R E PO RT

Helping DoD Set a Course In an environment of uncertainty about the price and availability of traditional energy, DoD faces increasing energy demand and support requirements it must meet to achieve its broader strategic goals, particularly the establishment of a more mobile and agile force. However, recent advances in energy efficiency and alternative energy technologies offer a unique opportunity for DoD to reconcile its strategic goals with its energy requirements through reduced consumption of fuel—especially foreign fuel.

persistence, and agility for our forces; (3) fiscal, reducing the operating costs of the current force; and (4) environmental, addressing the carbon footprint and global climate change. From our research, we concluded that DoD has the opportunity to address the four disconnects by transforming its approach to obtaining and using energy. Many actions are needed to make this transformation, but the highest-level requirements are straightforward: incorporate energy considerations (energy use and logistics support requirements) in the department’s key corporate

To capitalize on this opportunity, DoD needs to

processes, establish a corporate governance struc-

implement an energy strategy that encompasses

ture with policy and resource oversight to focus

the development of innovative new concepts and

the department’s energy efforts, and apply a struc-

capabilities to reduce energy dependence while

tured framework to address energy efficiency.

ENERGY• COST OF FUEL • TRANSPORT • PETROLEUM • GROUND SYSTEMS • COST EFFECTIVE • TRANSFORM MILITARY WASTE ETHANOL • BIODIESEL • ALTERNATIVE FUEL • FEDERAL FLEET • FUELING STATIONS • HYBRID ELECTRIC • COMPRESSED NATURAL GAS • BIOFUEL • CLIMATE CHANGE • GREENHOUSE GAS • EMISSIONS • GREENSCOR • SUPPLY CHAIN OPERATIONS • ACTION We found four areas where DoD’s current energy ENERGY• COST OF FUEL • TRANSPORT • PETROLEUM • GROUND SYSTEMS • COST EFFECTIVE • TRANSFORM MILITARY WASTE ETHANOL • BIODIESEL • ALTERNATIVE FUEL • FEDERAL FLEET • FUELING STATIONS • HYBRID consumption practices are disconnected fromELECTRIC • COMPRESSED NATURAL GAS • BIOFUEL • CLIMATE CHANGE • GREENHOUSE GAS • EMISSIONS • GREENSCOR • SUPPLY CHAIN OPERATIONS • ACTION the •capability requirements ENERGY• COST OF FUEL • TRANSPORT • PETROLEUM GROUND SYSTEMS • COST EFFECTIVE • TRANSFORM MILITARY WASTE ETHANOL • BIODIESEL • ALTERNATIVE FUEL • FEDERAL FLEET • FUELING STATIONS • HYBRID ELECTRIC • COMPRESSED NATURAL its goals.• GREENSCOR • SUPPLY CHAIN OPERATIONS • ACTION GAS • BIOFUEL • CLIMATE CHANGE • GREENHOUSE GAS • of EMISSIONS ENERGY• COST OF FUEL • TRANSPORT • PETROLEUM • GROUND SYSTEMS • COST EFFECTIVE • TRANSFORM MILITARY WASTE ETHANOL • BIODIESEL • ALTERNATIVE FUEL • FEDERAL FLEET • FUELING STATIONS • HYBRID ELECTRIC • COMPRESSED NATURAL

maintaining or increasing overall warfighting effectiveness. Recognizing that DoD must

We offered options for energy actions related

change how it views, values, and uses energy—a

to DoD’s corporate processes, and several have

transformation that will challenge some of the

been or are being executed.To coordinate

department’s most deeply held assumptions,

component efforts, provide strategic direction,

interests, and processes—the Office of Force

focus research and development initiatives, and

Transformation and Resources, Under Secretary

monitor compliance with energy-efficiency

of Defense for Policy, asked LMI to help estab-

guidelines, DoD needs an effective energy

lish a DoD energy strategy.

governance structure.We recommended that DoD establish a coordinating body with policy

We found four areas where DoD’s current

and resource oversight authority. Considering

energy consumption practices are disconnected

the need for collaboration among the military

from the capability requirements of its goals:

services and DoD, we found that an empowered

(1) strategic, shaping the future security environ-

committee would be more effective than a sin-

ment; (2) operational, effecting greater mobility,

gle leader.

L M I 2 0 0 8 A N N U A L R E PO RT

From our survey of emerging energy technologies, we found that DoD has a wide range of options for addressing energy efficiency and alternate sources of energy. Under proper governance, DoD could begin a structured analysis of how to apply organizational, process, and technology changes to execute a strategy to reduce energy dependence. Although assessing the strategic, operational, fiscal, and environmental impacts of such a change would provide a mechanism to value potential choices, the impacts may not provide sufficient insight to be determinative. To promote the changes that could have the greatest utility in addressing the disconnects, we recommended that DoD begin by focusing on three areas: greatest fuel use (aviation forces), greatest logistics difficulty (forward land forces and mobile electric power), and greatest warrior impact (individual warfighter burden). For the energy transformation to be successful, DoD’s senior leaders would need to articulate a clear vision for the change and ensure—through their sustained commitment and active participation—that it becomes engrained in the department’s ethos. In view of the long period FIGURE 1. Average DESC Standard Price of JP-8 Source: DESC Standard Prices (current and previous years), www.desc.dla.mil.

required to develop and populate the force with new concepts and capabilities, DoD should begin now to shape the force for an uncertain energy future.

Contributing to Defense Energy Economics The cost of energy to the federal government has been rising rapidly in recent years, and DoD is the major government consumer.The Defense Energy Support Center’s (DESC’s) “standard price” for fuel, which reflects costs in the marketplace, has increased steadily over the past several years. Figure 1 shows that its average price for JP-8, a jet fuel, has risen rapidly in the last 5 years. The increased cost of fuel has affected the DoD budget. Figure 2 shows that DESC’s energy purchase costs almost doubled from FY03 to FY07, from $6.7 billion to $12.9 billion. (Although precise figures are not yet available, the standard price certainly increased in FY08.) 6 L M I 2 0 0 8 A N N U A L R E PO RT

These figures tell only a part of the story. LMI researchers have been aware for some time that energy economics for DoD differ from those of most other government agencies. Our analysis has shown that the cost of supplying energy to forces in the field is far higher than the purchase cost of the fuel because defense assets deliver fuel to the front lines and protect its transport from enemy interdiction. Further, the assets necessary to deliver fuel to and within a theater must be maintained in peace as well as war, so this portion of the cost of fuel does not disappear when the nation is at peace. $ Billion

Estimates of the “fully burdened cost of fuel (FBCF),” which include these transport and protection costs, vary by operational scenario.The estimates in Figure 3 are for an FY07 ground scenario and include peacetime as well as three wartime scenarios, each more intense than the preceding (and hence requiring more protective assets). As can be seen, although the purchase cost of fuel was

FIGURE 2. Annual DESC Energy Purchases Source: DESC Fact Book (various issues), www.desc.dla.mil.

$2.30 per gallon in FY07, estimates of the fully burdened cost in that year ranged from $5.61 per gallon in peacetime to as much as $19.00 per gallon in a high-intensity conflict. $ per gallon

Recognition that the true cost of fuel to DoD is much higher than the purchase price has dramatic implications for weapon systems acquisition choices and operational practices. Even small efficiencies in energy use can greatly influence operational effectiveness because they reduce the need for fuel transport through dangerous terrain and the use of helicopters and ground vehicles for protective purposes. LMI has been intimately involved in the development

Purchase Cost

Peacetime

LowIntensity Conflict

MediumIntensity Conflict

High-Intensity Conflict

FIGURE 3. Estimated Fully Burdened Cost of Fuel Source: “Fully Burdened Cost of Fuel—Ground Systems,” Summary Notes on IDA Modeling, January 5, 2007.

of the FBCF concept and its application to specific defense problems.We participated in a 2008 Defense Science Board study on DoD energy strategy, More Fight—Less Fuel, which emphasized the potential for DoD to achieve large gains from fuel efficiency. In that study, we contributed an entire chapter on energy-efficient weapons platform technologies.We also participated in DoD efforts to institutionalize the FBCF concept L M I 2 0 0 8 A N N U A L R E PO RT

in its weapon systems acquisition process.That

fuel use in federal fleets. None of the four key

process will take many years to complete.

federal fleet regulations—Energy Policy Acts of 1992 and 2005, Executive Order 13423, or

In addition, we have applied many of these

Energy Independence and Security Act of

concepts in studies for DoD agencies. For exam-

2007—mandates a comprehensive petroleum

ple, we used FBCF in an analysis of the cost-

reduction strategy. Instead, each addresses only

effectiveness of a centralized power supply to

one or two components of a fleet’s approach:

tactical operating centers, finding that the extra

acquisition of alternative fuel vehicles, petroleum

investment needed for such central power was

reduction targets, alternative fuel use goals, and

more than justified by the returns in fuel savings

alternative fuels infrastructure development.

after considering the burdened cost of fuel. As a result, federal fleets are failing to meet We also employed estimates of FBCF in a cost-

petroleum reduction mandates. Although the

effectiveness analysis for the Defense Advanced

Energy Policy Acts created an inventory of more

Research Projects Agency.That analysis, which

than 137,000 alternative fuel vehicles in FY08

involved technologies for transforming military waste into fuel on the battlefield, showed that such transformation would be cost-effective in battlefield situations with a high FBCF.

(23 percent of the federal fleet), alternative fuel constitutes only 3.1 percent of total fuel use. At the heart of the problem is the low use of ethanol (E85) in E85 flex-fuel vehicles: more than 90 percent of the fuel used in these vehicles

Helping Reduce Federal Petroleum Use

was gasoline.The clear culprit is the lack of E85

As the nation’s dependence on foreign petrole-

fueling stations, commercial and on federal facili-

um—much from unstable parts of the world—

ties. However, our analysis revealed that another

grows, the federal government is focusing on

component of the problem was the fleet’s limited

opportunities to open, integrate, and diversify

use of nearby E85 stations.

energy markets to ensure energy security. One key component of this strategy is promoting the

In recognizing these difficulties, DOE and

use of alternative fuels, such as ethanol and

NREL asked LMI to formulate a comprehensive

biodiesel, as substitutes for conventional

fleet petroleum reduction strategy for DOE,

petroleum-based fuels. LMI is in the thick of this

implementing the Secretary’s Transformational

effort, working with DoD and the Department

Energy Action Management initiative to establish

of Energy (DOE) to formulate and execute

DOE as a leader in exceeding the goals of all

strategies to reduce federal use of petroleum and

applicable fleet requirements. Our strategy con-

increase use of alternative fuels.

sisted of four core elements, which we evaluated and implemented at each fleet location:

DOE Petroleum Reduction Strategies

❚ Alternative fuel vehicle acquisition and alternative

Working with the National Renewable Energy

fuel use. Install or convert to a new alterna-

Laboratory (NREL) and DOE, we are helping

tive fuel infrastructure at high-use sites,

federal agencies navigate through the complex,

replace light-duty gasoline vehicles with

piecemeal, and often contradictory legislation

alternative fuel vehicles, and increase alterna-

promoting petroleum reduction and alternative

tive fuel use.

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❚ Use of biodiesel blends. Install or convert to a new B20 (20 percent biodiesel) infrastructure at high-use sites, replace medium- and heavy-duty gasoline vehicles with diesel vehicles, and increase B20 use in diesel vehicles. ❚ Acquisition of high-efficiency, advanced technology vehicles. Acquire hybrid electric vehicles at sites where no E85 infrastructure is present or planned. ❚ Fleet efficiency improvements. Reduce fuel use by implementing fleet efficiencies, such as reducing vehicle miles traveled, increasing fleet fuel economy, teleconferencing, ride-sharing, and acquiring neighborhood electric vehicles. Considering data from the 20 largest DOE facilities, we found that implementation of this strategy would reduce DOE’s petroleum use by 39 percent and increase alternative fuel use by more than 250 percent from FY07 levels. We have already visited some of these sites and drafted site-specific executable plans.Those visits and plans have helped uncover many additional opportunities for reducing petroleum use. For example, after visiting DOE’s largest fleet location—Idaho National Laboratory—we discovered the potential to displace almost 450,000 gasoline gallon equivalents of diesel use per year by accelerating replacement of older diesel buses with those that run on compressed natural gas.We project that implementation of our recommendations at just this one national laboratory would reduce DOE’s overall petroleum use by 11 percent. DoD Congressional Biofuels Study In FY07, DESC asked LMI to perform a congressionally required study of DoD use of biodiesel, ethanol, and other biofuels and to recommend ways to increase their usage through FY12. Congress saw DoD as a prime candidate for increasing alternative fuel use because it consumed roughly 136 million barrels of petroleum in FY06, or 1.8 percent of the national total.

L M I 2 0 0 8 A N N U A L R E PO RT

From the start, we saw that DoD’s potential future use of biofuels was likely to have only a minimal direct impact on reducing the nation’s petroleum usage. DoD’s use of biofuels is limited to nontactical vehicles, which in FY06 constituted only 1.4 percent of its petroleum usage. Currently, biofuels are not capable of replacing the two largest components of DoD’s petroleum consumption, jet fuel and marine diesel, and are prohibited from use in military tactical vehicles due to operational and mission-readiness concerns. Nonetheless, we concluded that DoD was capable of greatly increasing its use of biofuels over the next 5 fiscal years. By FY12, DoD could increase its use of E85 by an estimated 19.6 million gasoline gallon equivalents and its use of B20 by 6.4 million gasoline gallon equivalents by fully implementing the report’s five recommendations, almost a fourfold increase over FY06 levels. This study further showed that one of the best opportunities to increase biofuel use was to focus on the current fleet rather than on expanding the composition of biofuel-capable nontactical vehicles.We also found that the measures for increasing DoD biofuel use concern two primary underlying issues: (1) fleet operators do not know that their vehicles can use biofuels or where commercial biofuel stations are located, and (2) commercial fueling stations, DoD exchanges, and DoD installation fueling sites lack a biofuel infrastructure. Three of the study’s recommendations centered on the use of commercial biofuel stations, which is the most costeffective means for DoD to increase its use of biofuels: ❚ Direct operators of nontactical vehicles to use the biofuel pump at biofuel stations. Using individual DoD nontactical vehicle fuel transaction data for FY06 at commercial stations, we found that fleet operators use the conventional fuel pump more than the biofuel pump when filling up their E85 flex-fuel and diesel vehicles at commercial biofuel stations.

L M I 2 0 0 8 A N N U A L R E PO RT

❚ Divert fueling of biofuel-capable nontactical vehicles from conventional stations to biofuel stations when nearby. A geographic information system analysis of DoD fuel transaction data suggested that when near E85 stations, operators of flex-fuel vehicles used gas stations more than 90 percent of the time. ❚ Deploy E85 flex-fuel vehicles near E85 stations.

Leading the Dialogue on Energy and Climate Change Any approach to analyzing either energy usage or climate change must consider the other: they are clearly intertwined. LMI is committed to helping the government understand and mitigate climate change.Through our climate change program, we are demonstrat-

These actions would enable DoD to increase its

ing thought leadership at the federal level.

use of E85 by almost seven times FY06 levels and B20 use by 16 percent. Commercial biofuel infrastructure, however, is limited: the nation has only a little more than 1,000 publicly accessible E85 stations and 600 publicly accessible B20 stations. Most of these stations are located far from DoD locations (primarily in the Midwest), so most DoD sites would need a new biofuel refueling infrastructure to increase biofuel use. DESC and LMI identified candidate DoD fuel-

Two internally funded projects are leading this effort. First, LMI recently published A Federal Leader’s Guide to Climate Change, a major new book on this topic being distributed to leaders in the new administration as they take office. Members of our Energy and Environment group prepared this book, which addresses all aspects of the climate change issue from the perspective of the federal leader. In a related project, we partnered with the

ing sites for new biofuel infrastructure, including

World Resources Institute to develop a Public-

79 potential DoD exchanges and 107 military

Sector Protocol for Greenhouse Gas Accounting,

fueling sites with new E85 pumps, as well as 11

which is based on the institute’s corporate stan-

DoD exchanges and 60 military fueling sites

dard, recognized worldwide as the best approach

with new B20 pumps.We are currently helping

to greenhouse gas accounting.Through stake-

DESC complete detailed site-specific evaluations

holder meetings, we engaged representatives

to confirm the identified potential increase in

from each federal agency active in greenhouse

biofuel use; determine whether DoD policy can

gas accounting to identify issues unique to the

be met; decide whether conversion or installa-

federal government.That protocol soon will be

tion of infrastructure is appropriate; and evaluate

available to guide federal agencies to consistent

the cost, feasibility, and advisability of the new

results as they implement their own efforts.

biofuel infrastructure. Moving beyond this protocol, we anticipate Even small changes in biofuel refueling behav-

that the new president will expect all agencies to

ior and limited installation of biofuel infrastruc-

report their greenhouse gas emissions as a first

ture could drastically increase DoD’s use of bio-

step to reduction.To prepare for the expected

fuels. Those efforts would also support expansion

executive order and related regulations, we host-

of the biofuel industry and move the nation for-

ed an executive forum on Federal Greenhouse

ward in promoting energy security.

Gas Accounting in mid-October 2008; the

L M I 2 0 0 8 A N N U A L R E PO RT

forum was attended by members of the Senior

will impact all government operations, and

Executive Service who will play a major role in

efforts to reduce greenhouse gas emissions or

crafting any executive order. Such preparations

adapt to climate change will challenge agencies

leverage our experience creating the protocol

for the foreseeable future.We will continue to

and should help ensure that any executive order

offer thought leadership and a range of tools that

is soundly conceived and effective.

all branches of government will be able to use to address the challenge.

In 2008, we also advised DESC on the implementation of the Energy Independence and Security Act elements related to greenhouse gas

Managing Energy in the Supply Chain

emissions from fuel supplies.The primary con-

Energy management is a critical issue that organ-

cern we explored was the current and anticipated

izations, both public and private, need to address

increase in the use of Canadian tar sands–derived

to secure long-term growth. Energy use is close-

crude oil and further introduction of Fischer-

ly linked to greenhouse gas emissions, which are

Tropsch–derived fuels in the DoD fuel supply

a primary cause of climate change. Although

chain.We estimated the current amount of the tar

managing energy and greenhouse gas emissions

sands crude oil making its way to the U.S. market

internally benefits an organization, larger benefits

and the distribution within the current list of

are reaped by managing them throughout the

DESC suppliers. From current and planned fac-

organization’s supply chain.That management

tors, we forecast the potential for increased use of

involves collaboration with upstream and down-

the tar sands oil and the potential consequences

stream supply chain partners to reduce environ-

for DESC and DoD.

mental impacts while optimizing supply chain

ENERGY• COST OF FUEL • TRANSPORT • PETROLEUM • GROUND SYSTEMS • COST EFFECTIVE • TRANSFORM MILITARY WASTE ETHANOL • BIODIESEL • ALTERNATIVE FUEL • FEDERAL FLEET • FUELING STATIONS • HYBRID ELECTRIC • COMPRESSED NATURAL GAS • BIOFUEL • CLIMATE CHANGE • GREENHOUSE GAS • EMISSIONS • GREENSCOR • SUPPLY CHAIN OPERATIONS • ACTION ENERGY• COST FUELwe • TRANSPORT • PETROLEUM • GROUND SYSTEMS • COST • TRANSFORM MILITARY WASTE InOF 2008, also advised DESC on the implementation of theEFFECTIVE Energy Independence ETHANOL • BIODIESEL • ALTERNATIVE FUEL • FEDERAL FLEET • FUELING STATIONS • HYBRID ELECTRIC • COMPRESSED NATURAL Security Act elements to greenhouse gas emissions GAS • BIOFUEL • CLIMATEand CHANGE • GREENHOUSE GASrelated • EMISSIONS • GREENSCOR • SUPPLY CHAIN OPERATIONS • ACTION ENERGY• COST OF FUEL • TRANSPORT • PETROLEUM • GROUND SYSTEMS • COST EFFECTIVE • TRANSFORM MILITARY WASTE from fuel• FUELING supplies. ETHANOL • BIODIESEL • ALTERNATIVE FUEL • FEDERAL FLEET STATIONS • HYBRID ELECTRIC • COMPRESSED NATURAL GAS • BIOFUEL • CLIMATE CHANGE • GREENHOUSE GAS • EMISSIONS • GREENSCOR • SUPPLY CHAIN OPERATIONS • ACTION ENERGY• COST OF FUEL • TRANSPORT • PETROLEUM • GROUND SYSTEMS • COST EFFECTIVE • TRANSFORM MILITARY WASTE ETHANOL • BIODIESEL • ALTERNATIVE FUEL • FEDERAL FLEET • FUELING STATIONS • HYBRID ELECTRIC • COMPRESSED NATURAL

performance. We are now working with the office of the Architect of the Capitol to help it meet a goal

LMI has embraced an integrated approach that

mandated by Congress to reduce energy use (and

draws from our expertise in energy and environ-

greenhouse gas emissions). Our work also extends

mental management as well as in supply chain

to nonfederal entities: we recently began working

management. Our thought leadership in this area

with the office of the Mayor of New York City,

began with the development of GreenSCOR,

advising on energy use and greenhouse gas emis-

which integrates environmental management

sions from city-operated buildings.

principles with the Supply Chain Operations Reference model, a standard supply chain man-

The challenge of climate change is daunting,

agement framework embraced by federal agen-

and a solution is not near. A changing climate

cies and the commercial industry.The result is a

L M I 2 0 0 8 A N N U A L R E PO RT

fully integrated framework that allows managers to consider environmental and business issues simultaneously rather than separately. We continue to build on the GreenSCOR concept by adding greenhouse gas and environmental footprint metrics to enable use of the framework to assist with managing climate change impacts in the supply chain.We are also continuing to work with the World Resources Institute and World Business Council for Sustainable Development to develop a standard protocol for measuring climate change impacts of supply chain operations. By having a standard protocol, every organization could focus on greenhouse gas emissions issues with partners across all supply chains using a single data foundation. In support of this protocol development, we conducted a series of case studies on companies that are measuring greenhouse emissions throughout their supply chain.We found that they encounter several major barriers: â?&#x161; Difficulty in defining relevant activities. Scoping the supply chain for measuring greenhouse gas emissions can be difficult. Project leaders need to identify material activities among the myriad direct and indirect activities involved. Should the data center be included? Employee business travel? Headquarters facility heating? With no standards to guide the scoping process, managers must rely on their experience and expertise to decide. â?&#x161; Lack of partner data. More organizations are measuring their corporate greenhouse gas emissions, but this practice is far from ubiquitous. Companies have found that many supply chain partners, especially smaller firms and those located in developing countries, do not account for their greenhouse gas emissions. Without readily available data, managers must work with their partners to develop emission estimates. â?&#x161; Lack of standard practices. Although greenhouse gas accounting is being performed by a growing number L M I 2 0 0 8 A N N U A L R E PO RT

of companies, the absence of standards means

measuring greenhouse gas emissions

that a variety of methods are used, so collec-

throughout their supply chains start with a

tion of emissions information from partners

structured action plan with a realistic time-

needs to be accompanied with an explana-

line. These plans typically include the meth-

tion of the methods used. Overall, these dif-

ods and standards used to measure emissions

ferent methods make comparing supply

as well as a clear project scope and objective.

chain partner greenhouse gas emissions per-

❚ Move beyond the buyer-seller relationship. Most

formance difficult without undergoing an

companies have a transactional, often adver-

effort to normalize the data across the supply

sarial, buyer-seller relationship with their

chain.

supply chain partners. By moving beyond

❚ Lack of allocation methods for emissions. When

this relationship—through environmental

measuring greenhouse gas emissions, much

managers talking with environmental man-

like measuring activity costs, overhead activi-

agers—the sharing of greenhouse gas infor-

ties need to be allocated to assess their impact

mation and data is smoother.

on unit-level emissions. For example, in a facility that supports several supply chains, how should the facility heating and lighting be allocated to each? Multiply this question by the number of nodes on a supply chain and the need for standard guidance is clear. ❚ Difficulty in capturing use and disposal emissions. Companies tend to have a good handle on the path a product takes to get into a customer’s hands.What the customer does with the product and how it is disposed of is murkier. However, most greenhouse gas accounting programs attempt to measure these phases of the product life cycle.

❚ Select a standard. Successful companies often start their greenhouse gas measurement projects by selecting a standard. A standard makes the information needed from partners and internal organizations clear, greatly streamlining the measurement process. ❚ Start small. Collecting and processing greenhouse gas emissions data throughout a supply chain is a resource-intensive effort that requires significant learning. Companies that start with a pilot study and then expand improve the overall measurement process. ❚ Get help. Measurement of greenhouse gas

Without proven methods for estimating use

emissions throughout a supply chain is an

and disposal emissions, this task is extremely

emerging practice. A company is unlikely to

difficult.

possess enough internal expertise for this effort. Successful companies recognize this

The barriers are not the whole story.We found that the companies that best measured greenhouse gas emissions in their supply chain shared common attributes.We identified the following success factors for measuring the greenhouse gas

situation and often bring in outside experts to help collect and process the data.They also have internal personnel learn directly from the outside experts and build internal expertise.

footprint of a supply chain: ❚ Prepare a structured action plan. It should be no surprise that the companies successful in

L M I 2 0 0 8 A N N U A L R E PO RT

Measuring and managing greenhouse gas emissions in the supply chain is an emerging practice.

The organizations that have been successful tout benefits ranging from the money saved through reduced energy use to the operational advantages gained from more strategic relationships with suppliers and customers. More important, these companies have also found innovative ways to

Summary The depletion of traditional energy sources is inevitable. Eventually, new alternatives must be found, but, in the meantime, federal leaders should take intermediate measures to decrease energy use and find innovative sources of energy.

change supply chain operations.Those innovations often go beyond reducing environmental impacts and into customer value creation.

An even graver problem is global climate change, which will continue even if we stop emissions now. Federal executives need a famil-

We will stay on the forefront of sustainable supply chain management.Working with our clients and organizations like the World

iarity with the science behind the changes and a working knowledge of measures for mitigation and adaptation.

Resources Institute and the World Business Council for Sustainable Development, we can

LMI is thereâ&#x20AC;&#x201D;with our deep knowledge and

build supply chains that effectively meet cus-

broad experienceâ&#x20AC;&#x201D;to perform the research and

tomer requirements for services and material

analysis that will result in practical solutions to

while reducing environmental impacts and

help the federal government respond to these

energy consumption.

daunting challenges.

L M I 2 0 0 8 A N N U A L R E PO RT

Client Studies THROUGH RESEARCH AND ANALYSIS, LMI has helped a broad range of clients enhance their government management processes.The cases that follow demonstrate the multifaceted expertise we offer to enable them to find lasting, practical solutions to the complex problems of public administration.

L M I 2 0 0 8 A N N U A L R E PO RT

Acquisition Naval Supply Systems Command

Evaluating PBL Business Case Analysis The Naval Supply Systems Command (NAVSUP) asked LMI to evaluate its use of a business case analysis (BCA) when comparing the costs and benefits of traditional maintenance support with a performance-based logistics (PBL) contract proposal. The objective of the BCA was to provide the information necessary to make a fully informed decision, helping choose an outcome that improves system availability while reducing costs. Our evaluation consisted of three major tasks: reviewing the processes and methods currently used, validating their conformance with government policy guidance, and comparing the PBL BCA model with government and industry benchmarks.

After reviewing BCA documents and assessing their efficacy, we concluded that NAVSUP should use net present value to compute the time-weighted costs and benefits of a PBL arrangement; omit the nonrelevant costs that BCAs currently contain, such as inventory control point costs; and subject the PBL arrangements to periodic postaward audits to determine whether actual performance matches that predicted in the BCA. Department of Homeland Security

Incentivizing Better Procurement Requests The Director of the Office of Procurement Operations (OPO), Department of Homeland Security (DHS), L M I 2 0 0 8 A N N U A L R E PO RT

wanted to change how DHS charged its customers for executing contract actions on their behalf. We were asked to evaluate OPO’s current fee-for-service pricing model and to design an alternative that incentivized customers to furnish better inputs to the acquisition system. These improved inputs would allow OPO to promulgate solicitations more quickly and cheaply. The specific objectives of this 3-month study were to (1) assess the OPO pricing model, (2) explore and test alternative pricing models, and (3) investigate whether it was feasible and desirable for OPO to offer discounts to customers on the basis of the quality of the acquisition request documents they submitted to OPO. We began our assessment of OPO’s operations by looking at the composition of its total annual operating costs. We then examined the current and projected workload in the OPO divisions that directly perform procurement activities for customers in DHS and gathered information about cost models used by other fee-for-service procurement organizations in the federal government. We used these findings to develop an alternative cost model, which we applied to the current and projected composition of OPO’s business base. The OPO director was well satisfied with our recommendations, stating that the alternative model would improve financial management operations and enable more businesslike, productive customer relationships. The director further commended us for delivering a high-quality product that responded to all requirements. We are currently helping the OPO staff implement the new cost model.

(DOT&E), Office of the Secretary of Defense (OSD), commissioned LMI in 2007 to assess the costs to the government of acquisition programs failing to achieve adequate levels of operational suitability. DOT&E sought to establish the empirical relationships between reliability investment and life-cycle support costs. That assessment, which was performed by our Investment and Cost Analysis group, showed a strong relationship between investment and reliability improvement. We concluded that prospects are good for capturing the predictive properties of this relationship in a forecasting model. During the second phase of this effort, we developed an intermediate-level model that captures the trend of cost as a function of improvement reasonably well. We are continuing the effort by obtaining data from more reliability programs to improve the calibration of our model and better understand the relation between reliability improvement and cost in the design period. We are also building a more detailed design model to grasp how the maturity of reliability engineering affects the efficiency with which an investment in reliability is translated into a reliability improvement.

Facilities and Asset Management Corrosion Office

Understanding Corrosion Impacts on Weapon Systems and Infrastructure As a strategic partner with DoD’s Office of Corrosion Policy and Oversight, we formulated a method for establishing a corrosion cost baseline and then collected and assessed detailed corrosion

Operational Test and Evaluation

information. The data are weapon system specific

Developing a Reliability Investment Model

down to the work unit code or work breakdown

Because of alarming unsuitability trends,

structure or parts, labor or material, and mainte-

the Director of Operational Test and Evaluation

nance level (depot or field).

L M I 2 0 0 8 A N N U A L R E PO RT

structure level and are further segmented into

Our cost-of-corrosion studies have been universally acclaimed because, for the first time, DoD has credible and actionable corrosion cost data available for making resource allocation decisions. Consequently, the military services are now able to focus on their high corrosion cost and readiness drivers. For example, using our method, we identified the corrosion costs of Army aircraft, helicopters, missiles, and ground combat vehicles ($3.6 billion); Navy ships and submarines ($2.4 billion); Marine Corps ground combat vehicles ($0.7 billion); Navy and Marine Corps aviation and missiles ($3 billion); and DoD facilities worldwide ($1.8 billion). The DoD science and technology community is now using our findings as a basis for jointly funding corrosion mitigation research and development projects with the military services.

CORROSION • WEAPON SYSTEMS • INFRASTRUCTURE • BASELINE • COST DATA • RADIOACTIVE WASTE CLEANUP• FUTURE TECHNICAL EFFORTS • SECURE BORDERS • CIVIL ENGINEERING • SUPPLY CHAIN MANAGEMENT • ENVIRONMENTAL Our cost-of-corrosion studies have been REGULATIONS • VALUE ENGINEERING • PERFORMANCE MEASUREMENT • CUSTOMER SERVICE • BUSINESS CASE ANALYSIS NET PRESENT VALUE • ACQUISITION SYSTEM • PRICING MODEL • WORKLOAD • FORECASTING MODEL • SYSTEMS ENGINEERING universally acclaimed because, GOVERNMENT COMPLIANCE • GLOBAL ACQUISITION SYSTEM • REMEDIATION PLAN • DATA REPOSITORY • COST EFFECTIVE TREATMENT EFFECTIVENESS •DRUG QUALITY OF CARE • SOFTWARE • RECORDS MANAGEMENT • LOGISTICS for the first EFFICACY time, DoD• has credible READINESS • 360-DEGREE LOGISTICS • ENTERPRISE VALUE STREAM • WATERCRAFT DEVELOPMENT • MARITIME • READINESS actionable corrosionSEAPORT cost data available CAPABILITY-BASED and LOGISTICS • STRATEGIC • PORT AUTHORITIES • READINESS-BASED SPARING • ENTERPRISE RESOURCE PLANNING • SERVICE PARTS • DOMESTIC FREIGHT DISTRIBUTION NETWORK • 3PL • PETROLEUM • BIODIESEL for making resource allocation decisions. SYSTEMS • COST EFFECTIVE • TRANSFORM MILITARY WASTE • ETHANOL • BIODIESEL • ALTERNATIVE FUEL • FEDERAL FLEET FUELING STATIONS • HYBRID ELECTRIC • COMPRESSED NATURAL GAS • BIOFUEL • CLIMATE CHANGE • GREENHOUSE GAS

The Government Accountability Office (GAO) was sufficiently impressed with the quality of our analysis to recommend in its report, High-Level Leadership Commitment and Actions Are Needed to Address Corrosion Issues, GAO-07618, that DoD develop an action plan to use the results of our study. In addition, DoD Instruction 5000.67, Prevention and Mitigation of Corrosion on DoD Military Equipment and Infrastructure, has recently institutionalized the effort by requiring recurring assessments of cost-of-corrosion baseline studies. Department of Energy

Planning Radioactive Waste Cleanup The Department of Energy (DOE) has an ongoing project at its Hanford Site near Richland, WA, to build a plant to treat approximately 53 million gallons of chemically hazardous and radioactive wastes for subsequent disposal at more permanent repositories. Established in 1943, the Hanford Site, a former nuclear production complex L M I 2 0 0 8 A N N U A L R E PO RT

on the Columbia River, was also home to the first fullscale plutonium production reactor in the world. The magnitude and complexity of the cleanup are unprecedented. Planners are faced with overlapping technical, political, regulatory, and cultural interests. Consequently, DOE (along with the Washington State Department of Ecology and U.S. Environmental Protection Agency) launched an effort to evaluate a wide range of technologies as potential options for building a second low-activity waste treatment facility. The Assistant Secretary of Energy for Environmental Management commissioned an independent review panel of five subject matter experts from industry and government to ensure all viable options have been considered and appropriately evaluated. We provided one member of the panel to help review the technical plans from the engineering economics and financial perspectives. This staff member’s probabilistic methods of analyzing the likely costs of the various alternatives and the projected budget levels required to finance those alternatives added a unique insight to the panel’s assessment. The panel’s recommendations affected DOE priorities for planning future technical efforts. The panel also briefed its results to the staff of the congressional committees responsible for overseeing the waste treatment plant operations.

CORROSION • WEAPON SYSTEMS • INFRASTRUCTURE • BASELINE • COST DATA • RADIOACTIVE WASTE CLEANUP• FUTURE TECHNICAL EFFORTS • SECURE BORDERS • CIVIL ENGINEERING • SUPPLY CHAIN MANAGEMENT • ENVIRONMENTAL We provided• one member of the •panel REGULATIONS • VALUE ENGINEERING • PERFORMANCE MEASUREMENT CUSTOMER SERVICE BUSINESS CASE ANALYSIS NET PRESENT VALUE • ACQUISITION SYSTEM • PRICING MODEL • WORKLOAD • FORECASTING MODEL • SYSTEMS ENGINEERING help review PLAN the technical plans GOVERNMENT COMPLIANCE • GLOBAL ACQUISITION SYSTEM •toREMEDIATION • DATA REPOSITORY • COST EFFECTIVE TREATMENT EFFECTIVENESS • DRUG EFFICACY • QUALITY OF from CAREthe • SOFTWARE • RECORDS MANAGEMENT • LOGISTICS engineering economics READINESS • 360-DEGREE LOGISTICS • ENTERPRISE VALUE STREAM • WATERCRAFT DEVELOPMENT • MARITIME • READINESS• CAPABILITY-BASED LOGISTICS • STRATEGIC SEAPORT • PORT AUTHORITIES • READINESS-BASED and financial perspectives. SPARING • ENTERPRISE RESOURCE PLANNING • SERVICE PARTS • DOMESTIC FREIGHT DISTRIBUTION NETWORK • 3PL • PETROLEUM • GROUND SYSTEMS • COST EFFECTIVE • TRANSFORM MILITARY WASTE • ETHANOL • BIODIESEL • ALTERNATIVE FUEL • FEDERAL FLEET

Customs and Border Protection

Securing America’s Borders We are helping the U.S. Customs and Border Protection (CBP) execute its Secure Border Initiative, a comprehensive multiyear plan to secure America’s borders and reduce illegal entry. Our support includes overseeing the program management for the design and construction of physical fences and barriers on the U.S. southwest border. We are providing support in four broad areas: civil engineering, 20

L M I 2 0 0 8 A N N U A L R E PO RT

real-estate management, environmental engineering and sciences, and supply chain management. In the area of civil engineering, we led the development and organization of the project delivery teams. We also had a major role in the day-to-day management oversight of the project, including value engineering. We developed and managed the real-estate acquisition strategy for three distinct barrier projects consisting of more than 500 miles of fence. We are also continuing to support planning and everyday management of the real-estate activities associated with those projects. In the area of environmental engineering and sciences, we developed and managed a strategy for complying with environmental laws and regulations. We are now managing the daily review and monitoring of environmental activities. Finally, we are assisting with the development and management oversight of the construction-related supply chain activities for the three projects. U.S. Postal Service

Realigning the Facilities Organization The U.S. Postal Service (USPS) manages 30,000 facilities and properties nationwide. At the end of FY07, we entered into a partnership with USPS to develop standard operational processes for its facilities, analyze its organizational structures, and develop a plan for optimizing personnel use. After collecting and reviewing sample data, we found no standard output expectations for employees or standard management and reporting structures. We further found that output rates for measurable processes varied by location and that these processes were performed by a crosssection of employees drawn from a variety of classification types. We used an iterative process to develop performance measurements and goals using a statistical analysis of performance across the USPS Facilities organization. We also estimated the number and types of employees needed to perform the work at each location and recommended restructuring through a combination of outsourcing, consolidation, and centralization to improve Facilities customer service and increase efficiency and effectiveness. L M I 2 0 0 8 A N N U A L R E PO RT

Financial Management U.S. Agency for International Development

Checking Compliance with FFMIA In November 2006, as part of the annual internal review of financial statements, the U.S. Agency for International Development (USAID) inspector general asked LMI to test the recently completed core financial system (referred to as Phoenix) to confirm its compliance with Federal Financial Management Improvement Act (FFMIA) requirements. To do so, we developed a checklist-based test method as a cost-effective alternative to a detailed transaction-based test. We also engaged the services of an independent public accounting firm to ensure that the documentation we produced would withstand an audit.

pliance are necessary for its business and, if so, that it make use of any functionality already available in the GLAS/Phoenix system, configuring or upgrading it to support USAID in these areas.

Information and Technology Centers for Medicare and Medicaid Services

Deterring Medicare and Medicaid Fraud and Abuse The Centers for Medicare and Medicaid Services (CMS) asked LMI to help manage the implementation of a data repository of integrated Medicare and Medicaid data from all of the states and territories. The repository will allow investigators—for the first time—to perform detailed cross-state and cross-program analyses.

CORROSION • WEAPON SYSTEMS • INFRASTRUCTURE • BASELINE • COST DATA • RADIOACTIVE WASTE CLEANUP• FUTURE TECHNICAL EFFORTS • SECURE BORDERS • CIVIL ENGINEERING • SUPPLY CHAIN MANAGEMENT • ENVIRONMENTAL REGULATIONS • VALUE ENGINEERING • PERFORMANCE MEASUREMENT • CUSTOMER SERVICE • BUSINESS CASE ANALYSIS WeSYSTEM recommended USAID develop• aFORECASTING remediationMODEL • SYSTEMS ENGINEERING NET PRESENT VALUE • ACQUISITION • PRICING that MODEL • WORKLOAD GOVERNMENT COMPLIANCE • GLOBAL ACQUISITION SYSTEM • REMEDIATION PLAN • DATA REPOSITORY • COST EFFECTIVE plan that addresses the requirements with which TREATMENT EFFECTIVENESS •DRUG EFFICACY • QUALITY OF CARE • SOFTWARE • RECORDS MANAGEMENT • LOGISTICS READINESS • 360-DEGREE LOGISTICS • ENTERPRISE VALUE STREAM • WATERCRAFT GLAS/Phoenix does not comply. DEVELOPMENT • MARITIME • READINESS• CAPABILITY-BASED LOGISTICS • STRATEGIC SEAPORT • PORT AUTHORITIES • READINESS-BASED SPARING • ENTERPRISE RESOURCE PLANNING • SERVICE PARTS • DOMESTIC FREIGHT DISTRIBUTION NETWORK • 3PL • PETROLEUM • GROUND SYSTEMS • COST EFFECTIVE • TRANSFORM MILITARY WASTE • ETHANOL • BIODIESEL • ALTERNATIVE FUEL • FEDERAL FLEET

In its annual report (GAO-07-914) on govern-

We prepared the business case for the data repos-

ment compliance with FFMIA, GAO singled out

itory, which CMS had projected would provide a

USAID as the only Chief Financial Officers Act

minimal savings of $25 billion when imple-

agency that produced positive assurance that its fi-

mented (although analysis of the business value

nancial management systems were substantially in

during the proof-of-concept phase indicated that

compliance with requirements.

the savings estimate may be low).

We further found that USAID’s Global Acquisition System (GLAS)/Phoenix integrated system complies with approximately 72 percent of the Acquisition/Financial Systems Interface Requirements issued in 2002 by the Joint Financial Management Improvement Program. We recommended that USAID develop a remediation plan that addresses the requirements with which GLAS/Phoenix does not comply. We specifically suggested that USAID determine whether the areas of noncom-

By the end of FY09, the project will move to production with data on 44 million beneficiaries and 12 billion claims. CMS will then expand the use of the data to a broad range of health care analyses, such as treatment effectiveness, drug efficacy, quality of care, and cost metrics. Although these analyses have been performed in the past, no assemblage of data has even remotely equaled the size and breadth of the information that this project will make available to CMS.

L M I 2 0 0 8 A N N U A L R E PO RT

Occupational Safety and Health Administration

Launching a New Information Management System This year, LMI worked with the Occupational Safety and Health Administration (OSHA) to replace its aging information management systems with a single enterprise-wide software solution: OSHA Information System (OIS). This new web-based system integrates several market-leading technologies to provide Department of Labor and state occupational safety and health personnel with the process-driven data collection, document and records management, and sophisticated business intelligence reporting tools needed to maximize effectiveness in 22 separate business areasâ&#x20AC;&#x201D;from compliance enforcement to safety management consultation. In support of this effort, we designed and configured the new OIS and successfully deployed a pilot version to a nationwide community of more than 150 stakeholders.

Logistics Army G-4

Mapping 360-Degree Logistics Readiness LMI helped the Army G-4 develop an enterprise-level value stream map of 360-degree logistics readiness to identify metrics and recommend actions to institutionalize process improvements. Within the Army, 360-degree logistics readiness entails the capability to see, assess, and synchronize corporate enterprise assets in support of warfighting operating forces. In this effort, we reviewed Army policies associated with building a 360-degree materiel readiness picture to determine the components of logistics readiness, especially outside of brigade combat teams. Combat service support commands, units, and activities are particularly important to Army 360-degree awareness. The enterprise value stream map we developed featured overlays of areas of interest for six specified readiness indicators: unit materiel readiness, enterprise inventory visibility, operational requirements versus sustainment resources, sustainment base production, retrograde, and Army equipment loss replacement.

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U.S. Army

Watercraft Planning and Sustainment For the Combined Arms Support Command, LMI authored, staffed, and published Army Watercraft Master Plan, which sets the course for watercraft development within the Army through the year 2025. We also assisted the Army Sustainment Command with planning for the use of prepositioned Army watercraft during exercise Pacific Reach 08 in Japan. Also for the Army Sustainment Command, we provided technical, analytical, and planning assistance in implementing Army sustainment initiatives supporting the Global War on Terror. We further recommended performance metrics for the Army organizations responsible for reporting status and developed a plan of action and milestones required to institutionalize process improvements.

CORROSION • WEAPON SYSTEMS • INFRASTRUCTURE • BASELINE • COST DATA • RADIOACTIVE WASTE CLEANUP• FUTURE TECHNICAL EFFORTS • SECURE BORDERS • CIVIL ENGINEERING • SUPPLY CHAIN MANAGEMENT • ENVIRONMENTAL REGULATIONS • VALUE ENGINEERING • PERFORMANCE MEASUREMENT • CUSTOMER SERVICE • BUSINESS CASE ANALYSIS Also for the Army Sustainment Command, NET PRESENT VALUE • ACQUISITION SYSTEM • PRICING MODEL • WORKLOAD • FORECASTING MODEL • SYSTEMS ENGINEERING provided technical, analytical, GOVERNMENT COMPLIANCE • GLOBAL ACQUISITION SYSTEM •we REMEDIATION PLAN • DATA REPOSITORY • COST EFFECTIVE TREATMENT EFFECTIVENESS • DRUG EFFICACY • QUALITY OF CARE • SOFTWARE • RECORDS MANAGEMENT • LOGISTICS and planning assistance in implementing READINESS • 360-DEGREE LOGISTICS • ENTERPRISE VALUE STREAM • WATERCRAFT DEVELOPMENT • MARITIME • READINESS• CAPABILITY-BASED LOGISTICS • STRATEGIC SEAPORT • PORT READINESS-BASED SPARING • ENTERPRISE ArmyAUTHORITIES sustainment• initiatives supporting RESOURCE PLANNING • SERVICE PARTS • DOMESTIC FREIGHT DISTRIBUTION NETWORK • 3PL • PETROLEUM • GROUND SYSTEMS • COST EFFECTIVE • TRANSFORM MILITARY WASTE • ETHANOL • BIODIESEL • ALTERNATIVE FUEL • FEDERAL FLEET the Global War on Terror. FUELING STATIONS • HYBRID ELECTRIC • COMPRESSED NATURAL GAS • BIOFUEL • CLIMATE CHANGE • GREENHOUSE GAS EMISSIONS • GREENSCOR • SUPPLY CHAIN OPERATIONS • ACTION • ENTERPRISE VALUE STREAM • DATA REPOSITORY • GROUND

Defense Logistics Agency

Sustaining Aging Weapon Systems LMI manages and executes the Defense Logistics Agency’s (DLA’s) Weapon System Sustainment Program (WSSP), which conducts research and development (R&D) to improve readiness and reliability and reduce the cost of aging weapon systems. The 5-year-old DLA Aging Systems Partnership (DASP) focuses on providing technology development, demonstration, and specialized analyses. The effort provides WSSP with a firm, fact-based understanding of DLA’s business challenges and opportunities for organizational improvement and of the quantitative impact of R&D outcomes on customer service, inventory investment, and procurement workload. Under DASP, we conducted several short-term projects to improve DLA support to the warfighter through the development and implementation of tools, methods, techniques, data, and 24

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products. Projects are approved on the basis of the assessed likelihood that their results will directly affect critical customer support metrics, such as backorders, customer wait time, and cost. We have overseen more than 40 short-term projects supporting the development and execution of more than $10 million in DLA R&D projects. We built and continue to maintain a unique and extensive array of business data spanning more than 10 years. In-house data allow timely access and rapid analysis of performance measures that drive DLA leadership decisions. We regularly delivered detailed characterizations of DLAâ&#x20AC;&#x2122;s business trends for the aviation, land, and maritime supply chains, and we conducted numerous quick turnaround and what-if analyses in business areas such as long-term contracts, quality, suppliers, and new item entry. We further provided DLA

with the unique ability to mine data, organize unstructured or free-text data, and develop coherent views of data from multiple sources, allowing DLA to enhance its understanding of the items and customers it supports. Department of Defense

Analyzing Capability-Based Logistics Costs LMI continues to support the Assistant Deputy Under Secretary of Defense for Supply Chain Integration in efforts to improve visibility and analysis of DoDâ&#x20AC;&#x2122;s logistics resources. Our support has produced an analytic foundation for improving and expanding DoDâ&#x20AC;&#x2122;s ability to link both programmed and budgeted resources with logistics capabilities, while allowing for greater visibility into program financing for informed decision making. Our work began with an assessment of the accuracy of previous DoD efforts to identify logistics resources in supL M I 2 0 0 8 A N N U A L R E PO RT

porting management decision making. Using the results from that assessment, we next reviewed DoDâ&#x20AC;&#x2122;s current financial regulations, processes, and reporting systems. We then developed business rules through which logistics operations and maintenance resources can be more accurately and consistently reported from current financial reporting systems. Using a similar method, we are now expanding our work into procurement; research, development, test, and evaluation; and military personnel appropriations, as well as into logistics Defense Working Capital Fund operations. Although this is a long-term effort, we are achieving results that have near-term value in helping DoD understand the costs of logistics capabilities. Surface Deployment and Distribution Command

Analyzing Seaport Capabilities The House Armed Services Committee directed the Secretary of Defense, through House Resolution 1585, to develop and implement a plan to optimize the use of U.S. strategic seaports. The Surface Deployment and Distribution Command (SDDC) asked LMI to analyze the capabilities of the strategic seaports to handle DoD current and future requirements to deploy military equipment and supplies during contingency surge operations. We determined the optimum number of commercial and military seaports, identified the best strategic seaport locations, identified full-time manning targets for SDDC, and validated the 48-hour port planning order availability timeline. These results enabled DoD to submit a welldocumented and substantiated plan to Congress in response to H.R. 1585. In addition, SDDC is implementing our recommendations, which will improve port readiness, achieve better resource use, increase stakeholder understanding of the strategic seaport program, and greatly improve communications between port authorities and federal agencies. Military Services

Supporting Readiness-Based Sparing LMI is supporting the Assistant Deputy Under Secretary of Defense for Supply Chain Integration and Air 26

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Force Materiel Command in implementing readinessbased sparing (RBS) in the enterprise resource planning (ERP) context. RBS allows the military services to optimize inventories on the basis of their impact on weapon system availability—rather than suboptimizing on the basis of individual item performance—enabling the services to achieve the required availability with the smallest inventory investment. We are developing a joint approach to RBS that will synchronize requirements computations across multiple services. In March 2007, we hosted a joint RBS symposium for Air Force, Army, Navy, and DLA representatives that resulted in the development of a paradigm for synchronizing joint requirements. We are continuing to work with the military services to refine and implement these concepts.

CORROSION • WEAPON SYSTEMS • INFRASTRUCTURE • BASELINE • COST DATA • RADIOACTIVE WASTE CLEANUP• FUTURE TECHNICAL EFFORTS • SECURE BORDERS • CIVIL ENGINEERING • SUPPLY CHAIN MANAGEMENT • ENVIRONMENTAL REGULATIONS • VALUE ENGINEERING • PERFORMANCE MEASUREMENT • CUSTOMER SERVICE • BUSINESS CASE ANALYSIS are developing a joint approach to• RBS NET PRESENT VALUEWe • ACQUISITION SYSTEM • PRICING MODEL WORKLOAD • FORECASTING MODEL • SYSTEMS ENGINEERING GOVERNMENT COMPLIANCE • GLOBAL ACQUISITION SYSTEM • REMEDIATION PLAN • DATA REPOSITORY • COST EFFECTIVE that will synchronize requirements TREATMENT EFFECTIVENESS •DRUG EFFICACY • QUALITY OF CARE • SOFTWARE • RECORDS MANAGEMENT • LOGISTICS READINESS • 360-DEGREE LOGISTICS •across ENTERPRISE VALUE STREAM • WATERCRAFT DEVELOPMENT • MARITIME • READINESS computations multiple services. CAPABILITY-BASED LOGISTICS • STRATEGIC SEAPORT • PORT AUTHORITIES • READINESS-BASED SPARING • ENTERPRISE RESOURCE PLANNING • SERVICE PARTS • DOMESTIC FREIGHT DISTRIBUTION NETWORK • 3PL • PETROLEUM • BIODIESEL

We are also working to ensure the parts management portion of the Air Force’s newly selected ERP system will meet its requirements. We implemented the parts management software and are collaborating with the Air Force to generate test scenarios and compare the software’s performance with the current requirements system.

Organizations and Human Capital U.S. Army

Establishing a 21st Century Business Structure The 160,000 contractors in Iraq, Afghanistan, and Kuwait represent more than half of the “total force.” If this situation is any predictor of the future, successful 21st century military operations must acknowledge the impact of the many contractors involved in expeditionary operations and their potential influence on L M I 2 0 0 8 A N N U A L R E PO RT

mission success. The Secretary of the Army established a Commission on Army Acquisition and Program Management in Expeditionary Operations to assess the current, in-theater system and provide forward-looking recommendations for an Army business structure that would best enable 21st century military operations. We supported the commission throughout its review and subsequent monitoring of implementation initiatives. The commission’s analysis—conducted within a compressed 45-day time frame indicative of the immediate challenges facing the Army—resulted in a report, Urgent Reform Required: Army Expeditionary Contracting. Its key findings included the observation that the Army—and, more broadly, DoD—faces systemic challenges in executing expeditionary operations, from both operational and

CORROSION • WEAPON SYSTEMS • INFRASTRUCTURE • BASELINE • COST DATA • RADIOACTIVE WASTE CLEANUP• FUTURE TECHNICAL EFFORTS • SECURE BORDERS • CIVIL ENGINEERING • SUPPLY CHAIN MANAGEMENT • ENVIRONMENTAL REGULATIONS • VALUE ENGINEERING • PERFORMANCE MEASUREMENT • CUSTOMER SERVICE As a direct result, for the first time •inBUSINESS more CASE ANALYSIS NET PRESENT VALUE • ACQUISITION SYSTEM • PRICING MODEL • WORKLOAD • FORECASTING MODEL • SYSTEMS ENGINEERING than a decade, Congress increased the • COST EFFECTIVE GOVERNMENT COMPLIANCE • GLOBAL ACQUISITION SYSTEM • REMEDIATION PLAN • DATA REPOSITORY TREATMENT EFFECTIVENESS • DRUG EFFICACY • QUALITY OF CARE • SOFTWARE • RECORDS MANAGEMENT • LOGISTICS Army’s authorized number of general officers READINESS • 360-DEGREE LOGISTICS • ENTERPRISE VALUE STREAM • WATERCRAFT DEVELOPMENT • MARITIME • READINESS• CAPABILITY-BASED LOGISTICS • STRATEGIC SEAPORT • PORT • READINESS-BASED by AUTHORITIES five and added five joint generalSPARING • ENTERPRISE RESOURCE PLANNING • SERVICE PARTS • DOMESTIC FREIGHT DISTRIBUTION NETWORK • 3PL • PETROLEUM • GROUND SYSTEMS • COST EFFECTIVE • TRANSFORM MILITARY WASTE • ETHANOL • BIODIESEL • ALTERNATIVE FUEL • FEDERAL FLEET or flag officer positions. FUELING STATIONS • HYBRID ELECTRIC • COMPRESSED NATURAL GAS • BIOFUEL • CLIMATE CHANGE • GREENHOUSE GAS EMISSIONS • GREENSCOR • SUPPLY CHAIN OPERATIONS • ACTION • ENTERPRISE VALUE STREAM • DATA REPOSITORY • GROUND

institutional vantage points. The report calls for a change in culture, through which the Army rapidly recognizes the importance of contracting. A key recommendation was to increase the stature, quantity, and career development of military contracting personnel. As a direct result, for the first time in more than a decade, Congress increased the Army’s authorized number of general officers by five and added five joint general or flag officer positions. Because many of the commission’s recommendations apply to the rest of the armed forces, we are helping DoD implement these broader recommendations. We continue to be part of a dedicated DoD contingency contracting workforce focused on enabling effective and efficient contracting in support of deployed forces, humanitarian and peacekeeping operations, and disaster relief through inno28

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vative policy, guidance, and oversight. We are focused on continuity of contracted support to the warfighter, from deployment throughout a contingency operation; seamless integration of contracted assets with deployed forces is critical in today’s military environment. Defense Media Activity

Transforming Public Affairs

cant materiel distribution transportation effort affecting DoD since the ocean container revolution of the 1960s, and LMI had a key role in its development. Before DTCI, numerous DoD shippers in the continental United States initiated freight movements using commercial freight transportation providers to hundreds of destinations. Multiple information systems were employed to execute and manage shipment

The Defense Media Activity (DMA)—estab-

activity, with no centralized planning, coordina-

lished in response to the 2005 Defense Base Closure and Realignment Commission (BRAC) legislation—integrates media service and production functions across DoD. The Assistant Secretary of Defense for Public Affairs asked LMI to help exploit the full transformational potential of BRAC to achieve unprecedented synergy and efficiency in the defense media community.

tion, or control. DoD shippers acted unilaterally,

Following a comprehensive assessment of DMA’s strategic direction, business position, and functional configuration, we concluded that the newly established DMA offered DoD multiple opportunities for organizational consolidation, improvement, and innovation. We recommended several options that supported DMA’s commitment to customer service and its desire to be a thought leader in the media industry.

freight distribution network. In the new model,

DMA is now positioned to leverage new technology and business practices to apply media convergence principles that combine multiple sources of media content in one product. As DMA transitions to interim operating capability in 2009 and full operating capability in 2011, it should be prepared to communicate with both traditional military audiences and young service members who consider themselves “digital natives.”

transportation spending by leveraging the large

independently selecting mode, level of service, and transportation provider. DTCI is replacing the current contractors with a single coordinator for most continental U.S. shipments, creating a more effective and efficient business model for managing the domestic DoD hired a single third-party logistics (3PL) coordinator for the day-to-day domestic freight management. The 3PL coordinator receives shipment requirements, identifies efficiencies, produces a shipment plan, arranges for the carrier, and ensures carrier quality. This approach will increase DoD shipment visibility and consistency of delivery performance, while decreasing overall volume of business. These transportation savings, estimated at more than $300 million through 2014, will be used to support other requirements in direct support of the warfighter, while realizing better transportation performance. LMI has been a core member of the DTCI effort since its inception. With the help of a leading industry 3PL provider, we supported the DTCI

Department of Defense

Supporting the Defense Transportation Coordination Initiative The Defense Transportation Coordination Initiative (DTCI) is perhaps the most signifi-

Program Management Office (PMO) in the formulation of a 3PL provider strategy that eventually will cover more than $270 million of DoD domestic shipments annually. We analyzed the initial business case, researched the 3PL industry L M I 2 0 0 8 A N N U A L R E PO RT

market, and developed the information technol-

management. To date, we have trained more than

ogy integration concept. We helped guide the

2,800 personnel throughout the Bureau of Naval

project management team through complex de-

Personnel and Navy Recruiting Command or-

bates involving DoD and the carrier industry, in-

ganizations. The training focuses on improving

quiries from GAO and Congress, and the overall

job objective development skills for supervisors,

acquisition support process, which eventually led

self-assessment writing skills for all civilian staff

to the award of a 7-year contract with a potential

members, and performance appraisal production

value of $1.6 billion. We further designed, devel-

skills for rating officials.

oped, and implemented the DTCI change management and communications programs. We are

U.S. Courts

continuing in our central DTCI role via imple-

Transforming Executive Positions

mentation assistance and PMO support. With the

LMI is supporting the U.S. Courts in a bold

first two phases of implementation under way, the

initiative to create a unique judicial executive

initiative is on track to exceed our expectations.

cadre and transform the way that its executive positions are structured, recognized, and com-

U.S. Navy

Modernizing the Personnel System

pensated. Our effort includes the design of a customized compensation system based on pre-

LMI provided performance management support to the Navyâ&#x20AC;&#x2122;s Manpower, Personnel,

vailing best practices, recommendations for

Education, and Training enterprise in two critical

fication of strategies that will enhance executive

areas during its transition to the National Security

recruiting and retention.

Personnel System (NSPS). NSPS modernizes a 50-year-old civil service system, allowing DoD to better attract, recruit, retain, compensate, reward, and manage employees. We developed compensation strategies, business rules, and tools to support implementation of NSPS. In addition, we trained Navy civilian personnel who have converted to NSPS in performance

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strengthening executive management, and identi-

Our comprehensive approach to assessing executive pay for the U.S. Courts included analyzing current executive positions using court-tailored executive criteria, reviewing executive recruitment and retention results, and recommending new position and compensation structures and management methods. We also provided specific steps for implementing the recommendations.

Board of Trustees

Seated, left to right: Joseph S. Nye Jr.; Alice C. Maroni; William S. Norman, Chairman of the Board; Joseph E. Kasputys; and Michael A. Daniels. Standing, left to right: William G. T. Tuttle Jr.; Kenneth J. Krieg; Jonathan B. Perlin; Douglas K. Bereuter; Daniel P. Burnham; Patricia McGinnis; Philip A. Odeen; and Robert F. Raggio. The Board accomplishes much of its business through the following standing committees: Audit and Finance Committee: Joseph E. Kasputys (Chair), Daniel P. Burnham, Michael A. Daniels, Alice C. Maroni, and Robert F. Raggio. Board Governance and Nominating Committee: Philip A. Odeen (Chair), Douglas K. Bereuter, Patricia McGinnis, Jonathan B. Perlin, and Robert F. Raggio. Executive Committee: William S. Norman (Chair), Joseph E. Kasputys, Joseph S. Nye Jr., and Philip A. Odeen. Human Resources and Compensation Committee: Joseph S. Nye Jr. (Chair), Douglas K. Bereuter, Daniel P. Burnham, Patricia McGinnis, and William G.T. Tuttle Jr.

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Officers

From left to right: Manik K. Rath, Vice President, General Counsel, and Corporate Secretary; Jeffery P. Bennett, Vice President, Logistics Management; William B. Moore, Vice President, Infrastructure Management; Donna D. Bennett, Acting Vice President, Resource Management; and Anthony J. Provenzano, Vice President and Chief Financial Officer.

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Program Directors Infrastructure Management LMIâ&#x20AC;&#x2122;s Infrastructure Management practice helps clients meet their responsibilities for the environment, energy conservation, and occupational safety and health; improve management of buildings and other capital infrastructure; and enhance the nationâ&#x20AC;&#x2122;s public health care system. Members of this operating unit also are skilled in upgrading programs for personnel and education and in improving the organizational health of government agencies.

Energy and Environment We assist DoD, the General Services Administration, and the U.S. Postal Service with lowering their environment, safety, and occupational health management costs by performing studies and analyses and by benchmarking their practices against industry.

Infrastructure and Engineering Management We help federal managers more effectively manage their infrastructure, from acquisition through disposal, using cutting-edge technologies and best practices to maximize performance and mitigate risk.

David R. Gallay

Steven J. Stone

John B. Handy

Health Systems Management We help clients develop better business practices that extend their health care capabilities or resources. We give federal health care providers, payers, and insurance programs policy analysis, research, and implementation expertise. We help solve universal health care problems, such as higher costs and limited access.

Sue E. Tardif

Human Capital Management We provide civil and military agencies with approaches and tools to develop and implement human capital strategies and to conduct workforce planning, and we assist with their human capital transformation efforts, including change management, succession planning, pay for performance, recruitment and retention, executive coaching, and human capital metrics.

Teresa L. Smetzer

Intelligence Programs We offer specialized services targeted at helping the intelligence community better perform its mission as well as consulting services that address every facet of agency management. Our understanding of the unique challenges and demands placed on this community enable us to offer effective, comprehensive, and customized services appropriate to its needs. Organizational Improvement We help to create highperforming organizations by improving their efficiency and effectiveness. Our work encompasses the strategic, business, service delivery, and continuous process improvement activities that affect the entire structure and inner workings of an organization.

Larry J. Conner

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Program Directors Maintenance and Readiness Management We help civilian agencies, DoD, and the military services measure, monitor, and influence the materiel readiness of weapons systems, equipment fleets, and repair parts to keep inventories in optimum operable condition.

Logistics Management LMI has long been renowned for its expertise in logistics management. Our success in logistics stems from a deep institutional knowledge; an expertise in best practices; and the employment of proprietary analytic tools, techniques, models, and simulations. Our expertise spans the entire logistics domain.

Dennis J. Wightman Combatant Logistics We develop, coordinate, and assist with the implementation of effective logistics and acquisition policies, processes, procedures, and plans to improve support to all geographic combatant commanders.

James A. Weiss

Eric L. Gentsch

Raymond A. Schaible Logistics Analysis We assist organizations with improving the flow of materials and information needed to design, produce, distribute, and sustain products. We use process models to characterize our clientsâ&#x20AC;&#x2122; business operations, analytical models to optimize key management decisions, and computer simulations to explore complex relationships in logistics operations.

Strategic Logistics We furnish DoD with experts in strategic logistics planning and resource analysis. Viewed in the context of joint logistics, we integrate capabilitybased portfolio management across all components, encompassing the full spectrum of logistics functions needed to meet warfighter requirements. Peter J. Thede

Logistics Technology We provide expertise in proven and emerging logistics technologies that enable significant improvement in logistics capabilities and practices. We are proficient in developing the required supporting policies.

William R. Ledder

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Operational Logistics We support the Office of the Secretary of Defense, Joint Staff, and military services by providing program support, studies and analyses, and modeling and simulations to help clients make policy and programming decisions that result in innovative, costefficient, and operationally effective solutions to their challenges in improving logistics support to the warfighter.

Supply Chain Management We support all federal civil agencies and DoD in achieving balanced, effective supply chain support with a variety of organic and outsourced resources at an affordable cost. We use the Supply Chain Operations Reference (SCORÂŽ) model, among others, to improve supply chain management practices. David P. Keller

Program Directors Resource Management Government decision makers face extraordinary challenges managing their resources, particularly in the wake of increased congressional and public pressure to do more with less. To meet these challenges, LMI pairs federal expertise with industry best practices, resulting in a targeted set of mission-oriented services.

Financial Management We support federal financial managers through strategic assessments, streamlined decision processes, development and execution of budgets, and creation of financial management policies and systems.

Ronald H. Rhodes

Thomas P. Hardcastle

Shahab Hasan

Resources and Acquisition We advise federal acquisition and grants managers on improving their policies, streamlining their procedures, and reducing their costs. Our support enables the government to acquire goods and services more effectively and to better execute the grant programs authorized by Congress. Wilhelm A. Hansen Jr.

Information Management We help federal information technology (IT) managers develop strategic plans, manage programs and IT portfolios, independently verify and validate services, build enterprise architectures, and meet information assurance requirements. We also prepare business cases to help agencies secure funding or choose among competing IT priorities.

Joseph M. Zurlo

Systems Development We produce ISO 9001â&#x20AC;&#x201C; certified systems using cross-functional teams that understand government business and how to effectively apply technology to improve performance. We also design, develop, and execute web-based surveys that provide population-wide indicators critical to government decision makers.

Investment and Cost Analysis We employ rigorous economic techniques that compare costs of programs with intended returns and agency benefits. We evaluate sourcing alternatives, prepare financial alternatives analysis, use modeling and simulation to estimate benefits, and project long-term life-cycle costs.

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Financial Review Revenues by Category ($ Million)

Revenue Growth 1994–2008 ($ Million)

Staff—2008 Research 745 Administrative 108 Total Staff 853

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Additional LMI Locations LMI Park View Center I 7104 Ambassador Road Suite 280 Baltimore, MD 21244 LMI 4690 Millennium Drive Suite 200 Belcamp, MD 21017 LMI 5053 Ritter Road Suite 102 Mechanicsburg, PA 17055 LMI 804 Omni Boulevard Suite 103 Newport News, VA 23606 LMI 10541-43 South Crater Road Petersburg, VA 23805

The LMI 2008 Annual Report was produced on recycled paper with soy inks by a printer that is carbon neutral and 100% wind-powered.

Photography Jim Douglass, Los Angeles, CA Pages 1, 25, and 31–35 Courtesy of the U.S. Air Force Page 25 Courtesy of the U.S. Army Front cover and pages 16 and 17 Courtesy of the U.S. Navy Pages 17, 19, 25, and 26

LMI 1777 NE Loop 410 Suite 608 San Antonio, TX 78217 LMI 703 Seibert Road Building 4, Suite 1 Scott AFB, IL 62225

LMI Research Institute 2000 Corporate Ridge McLean, VA 22102-7805 800.213.4817

2000 Corporate Ridge McLean, VA 22102-7805 800.213.4817 www.lmi.org

ACQUISITION • FACILITIES, ENVIRONMENT AND ASSET MANAGEMENT • FINANCIAL MANAGEMENT • INFORMATION AND TECHNOLOGY • INTELLIGENCE PROGRAMS • LOGISTICS • ORGANIZATIONS AND HUMAN CAPITAL • ECOLOGY • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING • DEPOT • HUMAN CAPITAL MANAGEMENT • OPERATIONS PREPOSITIONED ASSETS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • OPERATIONS INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT • CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS • ORGANIZATIONAL ANALYSIS • COMPETENCY MODELING LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING • PERFORMANCE MANAGEMENT • ECOLOGY • ACQUISITION ENVIRONMENT • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING • LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS • PREPOSITIONED ASSETS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS • IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS AND ORGANIZATIONAL ANALYSIS COMPETENCY MODELING • STAFFING • LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING • PREPOSITIONED ASSETS ECOLOGY • ACQUISITION • ENVIRONMENT • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS • IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS AND ORGANIZATIONAL ANALYSIS COMPETENCY MODELING • LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING • PERFORMANCE MANAGEMENT ECOLOGY • ACQUISITION • ENVIRONMENT • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS • PREPOSITIONED ASSETS • SUPPLY CHAIN INNOVATION MODERNIZATION • DEPOT MAINTENANCE • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS • IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY CHANGE MANAGEMENT • CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS AND ORGANIZATIONAL ANALYSIS • COMPETENCY MODELING • LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING PERFORMANCE MANAGEMENT • ECOLOGY • ACQUISITION • ENVIRONMENT • GREEN BUILDINGS • ISO 9001 • BUSINESS PROCESS REENGINEERING • LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS • PREPOSITIONED ASSETS SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRON• HEALTH RECORDS • IMPROVED VETERANʼS HEALTH CARE INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT • CONTINUITY OF OPERATIONS • STAFFING • PUBLIC MANAGEMENT NETWORKS AND ORGANIZATIONAL ANALYSIS • COMPETENCY MODELING • LEADERSHIP DEVELOPMENT EXECUTIVE COACHING • PERFORMANCE MANAGEMENT • ECOLOGY • ACQUISITION • ENVIRONMENT • GREEN BUILDINGS ISO 9001 • BUSINESS PROCESS REENGINEERING • LOGISTICS • HUMAN CAPITAL MANAGEMENT • OPERATIONS PREPOSITIONED ASSETS • SUPPLY CHAIN INNOVATION • MODERNIZATION • DEPOT MAINTENANCE • INFORMATION SYSTEMS • INTELLIGENCE PROGRAMS • INFORMATION ASSURANCE • ELECTRONIC HEALTH RECORDS • IMPROVED VETERANʼS HEALTH CARE • INCREASED EFFICIENCY • ENERGY• CHANGE MANAGEMENT • CONTINUITY OF OPERATIONS STAFFING • PUBLIC MANAGEMENT NETWORKS AND ORGANIZATIONAL ANALYSIS COMPETENCY MODELING • LEADERSHIP DEVELOPMENT • EXECUTIVE COACHING • PERFORMANCE MANAGEMENT • ECOLOGY • ACQUISITION • ENVIRONMENT