Performance-Based Logistics

Document Sample
Performance-Based Logistics Powered By Docstoc
					Performance-Based Logistics (PBL):
    Innovating the Supply Chain
  for Current and Future Defense
       Department Programs

       Bill Johnston & Atif Mirza
                         Why are we here?
The importance of Defining Success: the Evolving Landscape of PBL
 •   Performance-based logistics (PBL) is the Department of Defense’s preferred product
     support strategy to deliver improved weapons systems readiness at the same or lower
     total cost (DODD 5000.1, Paragraph E1.17, The Defense Acquisition System,
     May 12, 2003)
 •   Goal: Weapons Systems should be designed, maintained and modified to continuously
     reduce the demand for logistics
                                      •   DoD Definition: PBL is the purchase of
                                          support as an integrated, affordable
                                          performance package designed to optimize
                                          system readiness and meet performance
                                          goals for weapons systems through long-
                                          term support arrangements with clear lines of
                                          authority and responsibility (Defense
                                          Acquisition Guidebook (Section 5.3))
                                            • Customer Vision - Availability and Affordability
                                            • Industry Vision - Integrated activities
                                                                  and reasonable profit

                         PERFORMANCE OUTCOMES
                 (NOT Acquisition of Individual Parts and Services)



                                                                                                 2
                                  Agenda
• Welcome and introduction of PBL
   – How are we defining success?
   – Baseline definition of PBL
   – Key messages
• PBL overview & State of PBL
   – Status of agencies in PBL adoption and application
   – Status of contracting community
• What is your business model?
   – An integrated approach
   – Transitioning the contract
• Rewarding the right program behaviors
   – Supply chain management is the foundation of the PBL contract
   – Innovating the supply chain
• Summary




                                                                     3
                                         Welcome and introduction of PBL

 Baseline definition of Performance-Based Logistics (PBL)
           Traditional Logistics   Performance-Based
           Process Contractor      Logistics Contractor
            Paid for Breakage        Paid for Usage

               Aircraft Flies         Contractor Paid
                                        to Support
              Aircraft Breaks         XX Flight Hours

Aircraft                                Aircraft Flies                Aircraft
                Maintainer
                Identifies           Airplane notifies maintenance
             Fault & Replaces          a part will fail in XX hours
                Failed Part
                                       Maintainer decides when
                Failed Part                 to replace part
              Sent for Repair
                                        Maintainer replaces part
             Part Repaired &           Failed part sent for repair
            Returned to Supply
                                    Contractor repairs part with goal
             Contractor Paid         of reducing repair frequency
               For Repair             and repair cost. Improved
                                       part is returned to supply


                                                                             4
                                                         Welcome and introduction of PBL


                Models for various levels of sustainment
                                                              • Assuring aircraft mission
                                                                capability, engineering
                                                                services and system
Industry                               Synchronization          reliability
                                                               Mission Capable Aircraft
                                             (Level 4)
                                                              • Assuring subsystem
                           Collaboration                        availability, parts
                                 (Level 3)                      availability and engineering
                                                                services
                                                                Subsystem Availability
 Risk             Integration
Focus                (Level 2)                                 • Engineering services and
                                                                 meeting parts availability
                                                                Fill rates
           Engineering                                          Award/ Incentive Fees
             (Level 1)
                                                              • Engineering services in
                                                                modifications and sell
                                                                parts
 Govt.                                                          Lead time availability of parts
                                                                % complete of software
                     Increasing Industrial Performance          upgrades
                                                                Engineering changes rate




                                                                                                  5
                                               Welcome and introduction of PBL


       What the levels mean - Sustainment metrics


• At Level 1, where the Performance Objective is Delivery Speed,
  inventory levels are high to achieve an acceptable Logistics
  Response Time (LRT).
• At Level 2, where the Performance Objective is Availability,
  reliability improvements (Value Engineering) and the development
  of repair capabilities allow for reduced inventory levels and the
  achievement of acceptable Material Availability metrics.
• At Level 3, where the Performance Objective is Operational
  Availability, investment is made in Configuration Management and
  Maintenance capabilities as Life Cycle Support responsibilities
  transfer to the PBL provider.
• At Level 4, where the Performance Objective is Mission Reliability,
  the focus changes from weapon system support to investments
  that allow for successful mission outcomes.



                                                                             6
                                                                             Welcome and introduction of PBL


                  Key Messages - PBL incentivizes the right things
•   Readiness                                PBL pay for PERFORMANCE, not transactional good (parts)
                                             and services (repairs)
•   Reliability                              Minimizing repairs and spares increases profit for the support
                                             provider
•   Accountability                           There is a SINGLE focal point responsible for integrating all
                                             sources of support to provide performance outcomes
•   Improved Systems                         Same or lower cost
                                             DoD gets guaranteed results at a fixed price; the Support
•   Win-Win Relationships                    Provider gets the authority and flexibility to maximize their
                                             profit; partnering
•   Optimizes for the Warfighter             PBL is vertical (weapon system) oriented, versus horizontal
                                             (commodity) oriented

                            HOW DO WE DEFINE SUCCESS?
                          • Accountability – Product Support Integrator (PSI), Product Support Provider (PSP),
                            Original Equipment Manufacturer (OEM), Suppliers
      KEY                 • Balancing flexibility, sustainment, and affordability
    MESSAGES              • Ensuring performance objectives are met
                          • Structuring the right business deal that meets the customers needs and allows
                            financial success



                                                                                                                 7
                                  Agenda
• Welcome and introduction of PBL
   – How we are defining success?
   – Baseline definition of PBL
   – Key messages
• PBL overview & State of PBL
   – Status of agencies in PBL adoption and application
   – Status of contracting community
• What is your business model?
   – An integrated approach
   – Transitioning the contract
• Rewarding the right program behaviors
   – Supply chain management is the foundation of the PBL contract
   – Innovating the supply chain
• Summary




                                                                     8
                                                           PBL Overview & State of PBL


Status of agencies in their adoption and application of PBL
                          Recent History of PBL
Agencies need to find a way to reduce cost and increase performance
               BRAC decisions consolidations of depots
Office of Secretary of Defense drives for Performance Based Logistics
• Hon Jack Bell (DUSD L&MR) Delivered the Defense Department’s
    Keynote Address on “Maintaining Warfighter Readiness” at the Annual
    DoD Maintenance Symposium – October 28, 2008
• Air Force… mandates that Business Case Analyses (BCA’s) be
    developed for all PBL contracts (Instruction 65-509) – Sept 19, 2008
    – Specific guidance on PBL BCA requirements found in AFI 63-107 on Integrated
      Product Support Planning and Assessment
    – AFI 63-107 spans the entire public and private spectrum on sustainment, from
      Depot Maintenance Management to Contractor Support for systems and equipment
• Acquisition, Technology and Logistics (ATL) PBL Guidance Document
  on “Implementing a Life Cycle Management Framework”
  Memorandum for Secretaries of the Military Services – July 2008
   PBL institutionalized as the ‘preferred strategy for weapon system sustainment’



                                                                                     9
                                                  PBL Overview & State of PBL


Status of agencies in their adoption and application of PBL
 • Congressional Requirement
   – 2001, 2006 Quadrennial Defense Review
 • DoD policy
   – Requires PBL, no going back, no status quo
   – Aggressive PBL implementation for weapons systems platforms
     starting in fiscal year 2006
 • Military Services & Defense Agencies (DLA)
   – Wide range of application (learning curve)
   – Major Weapon Systems
   – Sustainment of fielded systems
 • Differences in Weapon Systems (and employment of them)
   – “One Size Does NOT Fit all”



                                                                           10
                                                                                PBL Overview & State of PBL


Status of agencies in their adoption and application of PBL
   “PBL is the Department’s near-term strategy to increase
    weapon system readiness through integrated logistics
            chains and public/ private partnerships”

      January 23, 2004 Memo from Acting USD, AT&L
                     Michael Wynne




                                    “Certain PBL arrangements such as short-term
                                  contracts, unstable requirements and funding, DOD
                                  ownership of inventory and the lack of cost metrics
                                   and effective incentives… could limit the ability of
                                          contractors to reduce support costs”

                                December 19, 2008 GAO Report to Subcommittee on
                                    Readiness, Committee on Armed Services



             DoD Still Mandating its Program Managers to Implement
              Performance Based Logistics…despite recent criticism



                                                                                                         11
                                                              PBL Overview & State of PBL

 Status of agencies in their adoption and application of PBL
          Major contractors obtaining PBL sustainment contracts
• Lockheed Martin
  –   F-117 Nighthawk
  –   Joint Strike Fighter
  –   C-130J Super Hercules
  –   F-22 Raptor
• Boeing
  – F/A-18E/F
      • F414 Government industry Logistics Support (GILS)
      • F/A-18 Integrated Readiness Support Teaming (FIRST)
  – C-17 Globemaster III Flexible Sustainment
• Northrop Grumman
  – Joint STARS Total System Support Responsibility (TSSR)
  – B-2 Total System Support Partnership (TSSP)
• BAE Systems
  – Typhoon Support Contracts




                                                                                       12
                                                                   PBL Overview & State of PBL


Status of agencies in their adoption and application of PBL
 • Navy experience
   –   25% of business now on PBL (NAVICP)
   –   Essentially all to OEM of equipment
   –   Public-private partnerships (PPPs) required with existing organic depot
   –   FFP supply contracts (similar to DLA)
   –   Joint Strike Fighter – Leading the way for PBL future
 • Air Force experience
   – PBL concepts driven into new systems
   – PPPs required
   – Cost type contracts in beginning
   – Embracing concepts, but slow to execute
        • Long-term contracts
        • Award fee/ award terms/ incentive contracts
        • Single systems integrator
   – F-22, C-17
 • Army experience
   – Commodity driven
   – Low price, competition
   – Embracing PBL



                                                                                            13
                                                           PBL Overview & State of PBL

 Status of agencies in their adoption and application of PBL
                         Concerns in recent months
• New Congress
  – Greater emphasis on transparency and insights into contractors
  – Congressional oversight
     • TINA
     • Option Contracts
     • Funding Constraints
• Deputy Administrator (Lesley Field), Office of Federal
  Procurement Policy
  –   Greater use of competition
  –   Limited sole source
  –   Firm fixed price
  –   Appropriate outsourcing
• GAO questions PBL effectiveness on reducing support costs –
  December 2008 Defense Logistics Report to Congress
           Flexibility of PBL concepts in light of changing environment



                                                                                    14
                                                  PBL Overview & State of PBL

               Status of Contracting Community
                    What is the PBL expectation?

From the government’s/ Prime contractors perspective:
• Near-term
  – Increased readiness/ sustainment capability
  – Significantly reduced implementation cost
  – Lower support cost
• Over Life Cycle
  – Continuous improvement in sustainment performance to warfighter
  – Continuous improvement in affordability
  – Reduced requirements for government investment




                                                                           15
                                                   PBL Overview & State of PBL

                Status of Contracting Community
                      What is different in PBL?
• Contractors make X% return with old, low risk
  sustainment approach
• PBL approach to sustainment transfers support risk to
  contractor
  – Performance requirements/ guarantees
  – Long term affordability improvements
  – Front end investment to reduce support costs
• Increased risk = Increased return
• Contract provisions to eliminate unnecessary risk
  –   Long term contracts
  –   FAR / CAS Accounting
  –   Metrics
  –   Contract Terms


                                                                            16
                                                        PBL Overview & State of PBL

                 Status of Contracting Community
                    What are the issues and concerns?
                                Priorities
•   Performance Objectives            •   Accountability
•   Responsibilities                  •   Metrics
•   Term of Contract                  •   Minimum number of CLINs (5-10)
•   Flexibility (range of support)    •   Caps on liabilities
•   DMS/ Obsolescence                 •   Risk mitigation
•   Continuous Modernization/         •   Long-term (5 years +) Multi-year
    Improvement                       •   Incentives
•   Incentives/ Penalties             •   Return on Net Assets (RONA)
•   Cost reduction; Cost stability    •   Clarity and Flexibility
•   Contractor Investments            •   Priced Based Contracting
•   Title 10 Compliance               •   Investments with Returns
•   Technical Data                    •   Depot maintenance for Repairs
                                      •   Technical Data Important Company
                                          Assets




                                                                                 17
                                  Agenda
• Welcome and introduction of PBL
   – How we are defining success?
   – Baseline definition of PBL
   – Key messages
• PBL overview & State of PBL
   – Status of agencies in PBL adoption and application
   – Status of contracting community
• What is your business model?
   – An integrated approach
   – Transitioning the contract
• Rewarding the right program behaviors
   – Supply chain management is the foundation of the PBL contract
   – Innovating the supply chain
• Summary




                                                                     18
                                           What is your business model?

                 An integrated approach
                 The PBL Business Principles

                  Sustainment objectives

• Increase performance of Warfighter and Improved
  Aircraft Availability
• Reduction in life-cycle costs and affordability
• Ensuring organic capability
• Increase operational tempo capability
• Stability in financials, workforce and supplier base




                                                                     19
                                                                 What is your business model?

                                An integrated approach
                  The PBL Business Principles – PBL Elements

    Shared Risks & Rewards between Customer & Contractor
•   High level measurements (PBL metrics) reflecting system performance
•   Reduction of life-cycle costs and affordability
•   Clear line of authority/ responsibility (Product Support Integrator)
•   Commitment to organic depot workload
     – Title 10        50/50       Core Workload
     – Accountability of deport performance agreements
     – Public-Private Partnerships (PPP)
• Operational tempo capability and levels of performance
     – Theater of operations
     – Duration of conflict
• Commercialization of function
     –   Long-term relationship
     –   Commercial like pricing/ contract
     –   Minimal oversight
     –   Usage based principles
     –   Technical data




                                                                                           20
                                                                    What is your business model?

                            An integrated approach
      The PBL Business Principles – Proposed PBL Business Approach
Contract Type               Fixed price, platform level PBL performance incentives

Contact Duration and        Long-term contracting/ multi-year contracting
Extensions
Payments                    Usage based allocated into fixed price and variable
                            components
Spares                      Contractor owned and managed

Cost Control                Recovery and price improvement curve, contractor
                            investment incentives, FAR Part 12 or commercial like pricing
Title 10 Compliance         Public-private partnership with U.S. organic depot – core,
                            50/50
Government prime contract   Single line of funding/ long-term funding/ flexibility
funding
Performance metrics         Availability, reliability, cost per unit usage, logistics footprint,
                            logistics response time




                                                                                                   21
                                                            What is your business model?

                           An integrated approach
                                    Terms & Conditions
• Contract type
   –   FFP commodity level, if all factors are defined
   –   Cost Plus when all factors are not known or proven
   –   Award term contract
   –   Multi-year/ award term/ requirements contracting
• Competition
   – At the component level
   – Purchasing power from volume discounts
   – Sole Source – Long-term Contracting, OEM, Tech Data
• Contract Length
   – 5-25 years
• Pricing Structure
   – Menu of services price table
   – Cost per unit – (Flying hour)
   – Options
        • Firm pricing
        • Price improvement curve
        • Rolling pricing



                                                                                      22
                                                                What is your business model?

                             An integrated approach
                         Terms & Conditions (continued)
• Pricing Structure
   – Menu of services price table
   – Cost per unit – (Flying hour)
   – Options
      • Firm pricing
      • Price improvement curve
      • Rolling pricing
• Incentive Structure
   – Award fee – Objective, subjective, not subject to disputes, base fee, fee percentage
   – Incentive fee
   – Award term
• CLIN Structure
   – Most in a single CLIN
   – Flexibility??




                                                                                            23
                                                            What is your business model?

                           An integrated approach
                       Terms & Conditions – Critical Items
• Payment Provisions
     – Flight per hour       – Recovery of Depot Advanced Payments
     – Milestone             – Cash Neutral Payments
     – Performance Based
•   Define Roles ( Product Support Integrator & related support)
•   Clearly Defined Statement of Work
•   Incentive Provisions
•   Default/ Remedies
•   Off Ramps
•   Depot Partnering – incorporate in Contract
•   Funding Exclusions (Title 10, Propulsion)
•   Program Interdependencies
•   Investment Recovery
•   Accounting Issues
•   Subcontract terms and conditions – proper flow downs including depots

        Success is having a clear understandable contract


                                                                                      24
                                                        What is your business model?

                          An integrated approach
                          Ensuring organic capability

Depots have record of outstanding performance and low costs
•   Depots could be Product Support Integrators
•   Prime Contractors are Product Support Integrators
•   Workload versus Direct Sales Agreements
•   Title 10 – Payment Liability/ Compliance
    – Core        10 U.S.C. 2464
    – 50/50       10 U.S.C. 2466
    – Services account differently
• Effort to be performed by Depot
• Investments
• Rates are not firm

                         Success is in Partnering


                                                                                  25
                                                       What is your business model?

                         An integrated approach
                                  Incentives
Goal: To incentivize contractor to improve products and processes
                     •   Increase sales
                     •   Long-term customer base
       WHY?          •   Increase profitability
                     •   Market leader
                     •   The right thing to do
                     • Long-term Contract – (10 + years)
                     • Performance (Award term, award fee (objective),
                       incentives (in increased performance and reliability)
       HOW?          • Fixed Price
                     • Less Oversight
                     • Use of Commercial Like Pricing, TINA tailored or
                       wavered, FAR Part 12, Commercial Accounting (GAAP),
                       Price Based Contracting

 Success is incentivizing the contractor to make investments to have less
     breakage, increased performance which reduces overall costs



                                                                                 26
                                 Agenda
• Welcome and introduction of PBL
  – How we are defining success?
  – Baseline definition of PBL
  – Key messages
• PBL overview & State of PBL
  – Status of agencies in PBL adoption and application
  – Status of contracting community
• What is your business model?
  – An integrated approach
  – Transitioning the contract
• Rewarding the right program behaviors
  – Supply chain management is the foundation of the PBL contract
  – Innovating the supply chain
• Summary




                                                                    27
                                                        What is your business model?

                     Transitioning the contract
                     Inhibitors and tools to address
CONTRACT TRANSITION ISSUES
• Policy, Regulatory, and/ or Statutory Changes
   – Long-term Contract
        • Multi-year Contract w/ Contract Extension
   – Product Support Integrator (PSI)
   – Competition in Contracting Act: CICA (sole source contracts)
   – Commercial like pricing
   – FAR Part 12
   – TINA
   – FAR-Based Accounting
   – Technical Data
• Alternative approaches (TO/DO, Award Term, CLIN Pricing)
• US Depot Partnering




                                                                                  28
                                                   What is your business model?

                      Transitioning the contract
                      Inhibitors and tools to address
CONTRACT TRANSITION ISSUES (continued)
• Business Case Analysis (plus Validation and Updates)
• Business and Information Systems
  – Reliability of Contractor Cost Data
  – Verification of Performance
• Contract Management
  – Multiple LRIPs
  – Multiple Line Items
  – Overlapping Years
• Price Improvement Curve (PIC)
• Provisions for Operational Tempo




                                                                             29
                                                   What is your business model?

                     Transitioning the contract
                     Inhibitors and tools to address
CONTRACT TERMS AND CONDITIONS
•   Contract Type – Cost Reimbursable to Fixed Price
•   Fee Structure
•   Funding
•   Payment (biweekly/ interim)
•   U.S. Depot Partnering
•   Over and Above Items
•   Government Requirements – GFP/ GFE
•   Deployment of Aircraft and Personnel Overseas
•   Import/ Export/ Tax Duties


                        Address issues today


                                                                             30
                                 Agenda
• Welcome and introduction of PBL
  – How we are defining success?
  – Baseline definition of PBL
  – Key messages
• PBL overview & State of PBL
  – Status of agencies in PBL adoption and application
  – Status of contracting community
• What is your business model?
  – An integrated approach
  – Transitioning the contract
• Rewarding the right program behaviors
  – Supply chain management is the foundation of the PBL contract
  – Innovating the supply chain
• Summary




                                                                    31
                                             Rewarding the Right Program Behaviors

      Supply chain management is the foundation of PBL
                  Two guys in a bicycle shop could do it
• The first federal aircraft acquisition contract
  –   Date: 1909
  –   Supplier: The Wright Brothers
  –   Target Price: $25,000
  –   Target Speed: 40 MPH
  –   Incentive Contract Structure:
        • $2,500 for every MPH over target
        • ($2,500) for every MPH under target
        • Minimum acceptance requirement of $36 MPH


• A Win/ Win result
  – Delivered performance at 42 MPH
  – Incentive pay-out of $5,000




                                                                                32
                                                                         Rewarding the Right Program Behaviors

   Supply chain management is the foundation of PBL
                     Supply chain is a bit more complex today
• Government is customer, partner and competitor
  – DoD depots must provide touch labor
  – Defense Logistics Agency is preferred source

• There is a broader dynamic in the buyer-seller relationship
  – All the armed services have Performance-Based Logistics programs at some level
  – Prime A&D contractors have received PBL awards since the Defense Dept. started
    their annual recognition event

• The export controls environment is more challenging
  – Marked increase in license applications and caseloads across the State and
    Commerce Depts.
  – As portions of US aerospace production goes offshore, companies will be
    motivated to work around the constraints of the licensing process
  – Technical Assistance Agreements (TAAs) are adding to the ‘systemic stress’ in the
    export regulatory system

Source: Center for Strategic and International Studies, Defense-Industrial Initiatives Group paper (2008)




                                                                                                            33
                                                             Rewarding the Right Program Behaviors

   Supply chain management is the foundation of PBL
              The need for innovation has never been greater
• Supply chain is a major priority for the US Government
    – DoD spent approx. $178 billion on its supply chain in FY07 (including $84B on
      maintenance)
    – The nature of acquisition is changing (fewer programs on the horizon, more resets)
    – Renewed geo-political alliances will require different structures for defense
      cooperation… and this may drive a new wave of supplier consolidation

                            US Army Reset Costs (FY04 to FY13)
                   Equip restructured modular          6%
                   units
                                                                    23%
                   Equip and Increase # of
                   new Army units
                   Reset the force                                        10%

                   Reconstitute prepositioned
                   stocks
                                                       62%
Source: DoD Maintenance Fact book and
        Estimates from Army data, GAO-08-669T (2008)




                                                                                                34
                                                                  Rewarding the Right Program Behaviors
         Supply chain management is the foundation of PBL
                   Deployment is still a work in progress, increasing
                         focus on higher impact programs
              PBL Strategy - Evolution                                       … to Outcomes
                                                       Platform                   Mission success
                             Subsystem                  Level
      Component                                                                        Availability
                               Level
        Level                                                                 Life cycle cost mgt.
                                                    (major weapons
                           (minor weapons,           and System-of-       Govt.- industry teaming
                             major subs)               Systems)

                                                                          Systems eng. approach
                                                                               Footprint reduction
                                                                               Obsolescence mgt.
                                                                        Reliability, maintainability
                                                                               and supportability
T700 Aircraft         Improved Target    F-22 Raptor
Engine                Acquisition System (Lockheed, Boeing,
(GE / Navy)           (Raytheon / Army) Pratt & Whitney / USAF)
Note: OSD Award Winners for PBL Excellence (various years)




                                                                                                       35
                                                Rewarding the Right Program Behaviors

   Supply chain management is the foundation of PBL
                 Debate now focuses around delivery

                  Shift in risk and reward model
• Traditional Contracting                  • PBL Contracting
  (Cost Of Input Measures)                   (Cost Of Output Measures)
  – Focus                                    – Focus
     • Parts                                    • System availability
     • Inventory                                • System performance
     • Maintenance                              • User satisfaction
  – Risk Drivers                             – Risk Drivers
     • Cost to produce/deliver
                                   SHIFT
                                                • Alignment with performance
     • Operational failure                        requirements
  – Key Success Factors                         • Performance optimization delivery
     • Manufacturing learning curve          – Key Success Factors
     • Low cost design
                                                • Supply chain alignment
     • Operations excellence
                                                • Supplier incentives
                                                • Modeling and predictive accuracy




                                                                                      36
                                                    Rewarding the Right Program Behaviors

     Supply chain management is the foundation of PBL
End Game – Optimizing the entire value chain to the point of application
  • Today, emphasis is mainly on repairables, but major programs are
    moving the concepts upstream into System Architecture & Design
  • Value potential and risk increases for both the buyer and supplier as
    this moves forward
          System Development and Support Lifecycle – PBL Progressions

                                      System
        Concept     Technology      Development /      Production       Operations
      Development   Development    Demonstration      & Deployment      & Support

                             Multi-System Platforms
                                    Systems
                                  Subsystems
                                  Repairables
                                  Consumables
                                    Services



                                                                                       37
                                                  Rewarding the Right Program Behaviors

   Supply chain management is the foundation of PBL
                Winning in the changing PBL environment
• Not just a contracting issue – PBL is one of fifteen lifecycle sustainment
  enablers for materiel readiness
• Requires an enterprise view of acquisition, technology and logistics
   Condition-based maintenance                                 Product
   Continuous process improvement                            Management
   Corrosion prevention
   Data management                   Product
   Depot maintenance plan            Support
   Diminishing mfg sources          Integrator
   Integrated supply chain mgt         (PSI)      All Integrated by
   Item unique identification                      real-time asset
   Long-term agreements                             visibility and
   Performance-based logistics                    communication
   Predictive modeling                              (Technology)      Engineering
   Radio frequency identification                                          &
   Technical data                                                     Development
   Title 10 requirements                 Supply Chain
   Training                              & Operations




                                                                                     38
                                                      Rewarding the Right Program Behaviors

  Supply chain management is the foundation of PBL
                    Investment horizons enable ROI
                                Contractual Investment Window
“Illustrative”
       Only
                        1 Year           3 Year          5 Year           10 Year

  OVERALL        Performance         Operations       Focused Logistics   Total System
  FOCUS          Requirements        Excellence       Enhancement         Optimization

  Capital        Sustainment         Cost Reduction   Operational         Supply Chain
  Expenditures                                        Flexibility         Asset Optimization

  Human          Contract            Relationship     Extended            Expertise
  Resources      administration      management       enterprise teams

  Engineering/   Address Failures    Poducibility     Life Cycle Design   PHM and continual
  Innovation                                                              improvement

  Information    Configure           Key metrics      Process             Real time
  Technology     reporting           monitoring       automation and      Enterprise
                                                      visibility          information and
                                                                          decision systems




                                                                                               39
                                                  Rewarding the Right Program Behaviors

   Supply chain management is the foundation of PBL
                          Product support integrator
• Rigorous configurations management of
  definition and interplay of system                        Customer
  requirements, support baseline and
  product support strategy
                                                          Product Support
• Integrate capabilities horizontally and                    Integrator
  flexibly
  – Leverage long term agreements
  – Maximize value of stable cash flow         Common                         Major
                                                Items                     Subcontractors
  – Creative problem solving
  – Eliminate non-value added administrative      OEM                       SCM Sub/
    processes                                                                Vendor
• Identify and leverage the best of the best        Depot
                                                 Partnerships               DLA
  capabilities
• Recognition of gaps between performance                       SCM
  requirements and control requirements
                                                  Balance Integrator Accountability,
                                                          Authority & Risk




                                                                                       40
                                                             Rewarding the Right Program Behaviors

     Supply chain management is the foundation of PBL
                              Cross-functional agenda

   Program     –   Dynamic relationships and agreements up and down the supply chain
Management     –   Long term agreements enable appropriate investments and risk horizons
               –   Integrated teams across customer, internal organization, contractors & government
               –   Team connected throughout lifecycle of program from competition to sustainment

               –   Integrated product teams
 Engineering   –   Design for Supportability: the support system as an integrated technical requirement
Development    –   Failure mode analysis
               –   Predictive maintenance inputs: using sensors, diagnostic software and system
                   performance models

               –   Anticipating requirements: condition-based and reliability-centered maintenance
Supply chain   –   Design for PBL: collaboration tools, standardization, network modeling
& operations   –   Business process focus: PBL alignment, data availability, continuous improvement
               –   Optimization tools: system dynamics, life cycle cost analysis, data mining
               –   Collaborative planning and forecasting tools
        IT &   –   System-wide logistics portal
 governance    –   Unique item identification and performance data capture
               –   Knowledge sharing and warehousing




                                                                                                          41
                                             Rewarding the Right Program Behaviors
Supply chain management is the foundation of PBL
 Contracting – establishes the core SCM relationships and
          enables the cascading of requirements
  DoD           Prime




                        SI-1


                        Subsys Int-1   Subsys Int-2   Subsys Int-3




                        SI-2


                        Subsys Int-1   Subsys Int-2   Subsys Int-3




                                                                                42
                                  Agenda
• Welcome and introduction of PBL
   – How we are defining success?
   – Baseline definition of PBL
   – Key messages
• PBL overview & State of PBL
   – Status of agencies in PBL adoption and application
   – Status of contracting community
• What is your business model?
   – An integrated approach
   – Transitioning the contract
• Rewarding the right program behaviors
   – Supply chain management is the foundation of the PBL contract
   – Innovating the supply chain
• Summary




                                                                     43
                                                             Rewarding the Right Program Behaviors

                         Innovating the supply chain
                             Ensuring enterprise capability
• Develop a portfolio approach to determining what drives PBL desired outcomes
• Optimize by leveraging external relationships and defining what is core in your
  business
                                       Support                                          Modeling
                Conceptual    System                                     Information
                                       System    Logistics      Repair                  & Option
                  Design      Design                                       Visibility
                                       Design                                           Analysis

    Platform


     System


   Subsystem
                                  Make/ Buy/ Develop
   Repairable


   Consumable


     Service




                                                                                                   44
                                                                                                Rewarding the Right Program Behaviors

                                                   Innovating the supply chain
                                      Align and deploy PBL supply chain relationships
                               Supplier Collaboration Model:                                          PBL Success Factors:
Description




                               •   Alignment with PBL                              Mission            •   Dynamic Planning & Scheduling
                               •   Tailored relationship categories                Critical           •   JIT Deliveries
                               •   New operational ground-rules                                       •   Product reliability improvements
                               •   New contractual framework                                          •   Asset rationalization
                               •    New collaboration & communication                                 •   Information transparency
                                   “connectivity”

                                       Align and Deploy PBL Supply Chain Relationships
                                Step 1                         Step 2
Implementation Strategy




                                                                                              Step 3                          Step 4
                                    Re-Evaluate                                                   Deploy
                                                                  Integrate Into                                                Contract
                                     Supplier                                                    Business
                                                                  PBL Strategy                                                 Compliance
                                    Against PBL                                                 Agreements
                                                                                                                                Reviews
                                   Requirements


                          • Align new value            • Involve in full program life-   • New communication         • Conduct compliance audits
                            model with PBL               cycle from capture through        and collaboration
                                                         phase-out                         links                     • Update agreements as
                            requirements                                                                               program lifecycles and risk
                          • Cascade contractual        • Define role in each stage       • New JIT rules               profiles change
                            approach                   • Establish as part of PSI        • New payment triggers
                          • Focus on PBL                 team
                            capability set




                                                                                                                                                     45
                                     Rewarding the Right Program Behaviors

               Innovating the supply chain
             Contracting incentives and flowdown
• Flow down strategy is dictated by the nature of the supply
  relationship


               Performance           Cascade
High Risk
                 Focused             Full PBL




Low Risk        Price Focus        Cost Sharing



               Transactional       Performance
                                  Criteria Critical



                                                                        46
                                                     Rewarding the Right Program Behaviors

                       Innovating the supply chain
               Applying the right business model is critical
• Lose/ Lose
  – Input based organization deployment
     • Unit costs driven down
     • Inventory deployed to cover contingencies
     • Vertically integrated to ensure control
  – Results
     • Total system costs rise
     • Buyer realizes lower performance
     • Contractor realizes lower profit
• Win/ Win
   – Output based organization deployment
     • Sustainment costs driven down
     • Logistics optimized around predictive and signaled requirements
     • Leveraging of portfolio capabilities to optimize deliverables
  – Results
     • Total system costs reduce
     • Buyer realizes higher performance
     • Contractor realizes higher profit




                                                                                        47
                                  Agenda
• Welcome and introduction of PBL
   – How we are defining success?
   – Baseline definition of PBL
   – Key messages
• PBL overview & State of PBL
   – Status of agencies in PBL adoption and application
   – Status of contracting community
• What is your business model?
   – An integrated approach
   – Transitioning the contract
• Rewarding the right program behaviors
   – Supply chain management is the foundation of the PBL contract
   – Innovating the supply chain
• Summary




                                                                     48
                                                                                  Summary

                       Transitioning the contract
                Buying the right predetermined package

               Determine your PBL Offering

       Adjust for changes, levels of performance, funds

                 Ensure proper metrics and performance

         Structure contract, bound risks in terms and conditions, price

                                 Perform, monitor, deliver

• New Programs
   – Use “walk before your run”, techniques, transition slowly, proving metrics and
     costs as you go.
• Legacy Programs
   – Industry only uses PBL on older systems when costs and criteria are well known



                                                                                        49
                                                                          Summary

                      Transitioning the contract
                        Balancing Risk & Reward
In balancing risk and reward ask (and answer), the following:
•   What is your program’s sustainment strategy?
•   How is the sustainment strategy being accomplished?
•   What are the short and long-term milestones?
•   Explain the business and contractual provisions to accomplish
    sustainment strategy?
•   What are the incentives?
•   What are the metrics?
•   What are the funding provisions?
•   What is the supplier, vendor and subcontract strategy?

Success is understanding your business model in light of government, customer
   pressures, and define accordingly your contractual and financial obligations



                                                                                  50
                  Thank You!




Bill Johnston             Atif Mirza
Managing Director         Advisory Manager
Aerospace & Defense       Aerospace & Defense
Regulatory & Compliance   Business Performance Services
KPMG LLP                  KPMG LLP
wjohnston@kpmg.com        atifmirza@kpmg.com
678-602-7713              703-300-7051




                                                          51

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:36
posted:5/24/2012
language:English
pages:51