Banking on Outcomes

Written by Karen E. Thuermer

Today DoD is looking at a systems design interface approach to PBL contracting that will enable increased requirements transparency for support and production at the design level, thereby reducing logistics infrastructure and life cycle ownership costs. Prior to the release of the new DoDI 5000.02 on December 8, 2008, it was the exception and not the rule that the program manager and the system engineer would directly involve the logisticians in the system design process early in the life cycle.

“Most of the time, especially during the concept refinement phase and even into the technology development phase, we had very little interface with the design team,” said Ron Ashton, principal and industrial base practice lead Enterprise Lifecycle Solutions, SRA International. “Our first real exposure to the design was in the system development and demonstration phase. Frankly, by that time it was almost impossible to ‘design in’ cost-saving supportability processes.”

A former deputy director of an integrated materiel management center, Ashton commented on how the post milestone C transition became known as “throwing the system over the transom.” He said, “We supported a system that was not designed with the logisticians or field maintenance personnel in mind.”

FROM TOP DOWN

Today PBL arrangements are regarded a perfect vehicle to further increase reliability, durability and availability. “The Army has been looking into PBL because it is driven from the top down,” commented Gary H. Salomon, U.S. Army CECOM Life Cycle Management Command Logistics and Readiness Center, Fort Monmouth, N.J. “PBL is an outgrowth of performance standards that are measured by defined metrics.”

The basic idea behind PBL is the purchase of support to sustain weapons systems as an integrated package based on quantifiable measures, such as weapons system availability, rather than merely parts and technical services. Whereby the driving requirements for PBL started with acquisitions forms, the emphasis today is on achieving the final outcome. “We look at performance metrics and start with warfighter requirements,” Salomon said.

PBL allows the Army to partner with the depot that works with industry. “It could be a contractor, or an organic or government entity,” Salomon said. “Or, as it evolves, it could be a partnership between the government entity and the contractor. We determine which metric is going to be the requirement to make delivery, then link incentives— financial or work load, to meet those performance measurements.”

There are several examples. At CECOM, SRA has been fully supporting the PBL Center of Process Excellence (COPE) for over a year.

“Several weapons systems have been part of BCA studies, and PBL governance environments have been and are being implemented,” said Jane H. Malin, principal and technical program lead, PBL and Supply Chain Excellence, Enterprise Lifecycle Solutions, SRA International. “As CECOM prepares for its relocation [Base Realignment and Closure] to Aberdeen, Md., it is vitally important that the core competencies associated with implementing PBL be documented and transported to the new world without losing a step. Resources need to fully understand and demonstrate their knowledge of these new policies and procedures.

SRA is working diligently with the Army resources (program executive officers, PMs, etc.) to perform a full PBL-skills maturity assessment, establish the training collateral and guidebooks required, and to ensure a smooth transition, while supporting more and more weapons systems as they actively move to the PBL sustainment model.

Other areas involve where the Army employs highly advanced systems to synchronize, deconflict, and integrate airspace management on the battlefield and during Department of Homeland Security missions such as the Tactical Airspace Integration System (TAIS). As a mission-critical system, TAIS must have a supportability strategy that is agile and flexible enough to keep up with its broad mission requirements.

Four years ago the materiel developer for TAIS—the U.S. Army product manager for air traffic control Systems (PM ATC), Program Executive Office Aviation, Redstone Arsenal, Ala.—selected PBL as the strategy to achieve the task. A PBL contract was awarded to General Dynamics C4 Systems (GDC4S) as the product support provider (PSP) in June 2005, with PM ATC designated as the product support integrator (PSI). PM ATC has developed a performance-based agreement for the TAIS program.

As a result, the TAIS team has achieved 90 percent operational readiness for TAIS worldwide and gained 100 percent customer satisfaction with the PBL program. It has reduced the maintenance and supply chain cycle times, has established a first-rate logistics management database for tracking faults and for trend analysis, and has reduced the total cost of TAIS ownership through PBL. TAIS PBL program critical success factors include access to logistics data, a help desk, life cycle engineers (LCEs)—formerly called contractor field support representatives— and integrated product and process development (IPPD). PBL flexibility and success made it possible for the TAIS team to immediately begin preparatory actions to deploy a TAIS LCE when Hurricane Katrina began strengthening offshore in 2005.

STRATEGIC IMPLEMENTATION

Application of PBL may be at the system, subsystem or major assembly level, depending on program-unique circumstances and appropriate product support strategy analysis. PBL can help program managers optimize performance and cost objectives through the strategic implementation of varying degrees of government/ industry partnerships. This means that instead of paying for goods and services, a supplier is paid for a guaranteed level of performance and system capability. The supplier often has to guarantee the performance at lesser costs, but has more control over all logistics elements.

The C-17 PBL contract is considered the first system-level program of its kind and has become a model for other PBL programs. With a mission-capable rate at or above 85 percent, the C-17 is the most available and reliable transport aircraft in the world.

On October 1, 2008, Boeing was awarded $514 million of the estimated $3 billion PBL contract of a new three-year U.S. Air Force contract to continue the C-17 Globemaster III Sustainment Partnership (GSP) program following a decade of comprehensive logistics support of C-17 fleets around the world. Boeing’s proposal included a significant decrease in dollars per flight hour that will save the Air Force more than $200 million over three years compared with the previous GSP contract.

Through the GSP program, Boeing and the Air Force work together closely to manage a full range of C-17 sustainment activities, from field support to depot-level maintenance to supply-chain management, as well as aircraft modifications and upgrades. The PBL-style contract allows customers to pay for a specified level of readiness versus individual parts or services.

By implementing PBL contracts, defense contractors develop a body of knowledge with lessons-learned and best practices. These are shared as new partnerships are developed. One example is Honeywell’s use of commercial best practices to implement improvements over the life of the contract.

“By using a commercial contract approach [FAR Part 12], we can leverage the military supply chain requirements with our commercial integrated supply chain and receive Class 2 Design Authority,” comments Katell Thielemann, Honeywell international general manager, platform logistics. “This enables us to implement the same improvements we are making for our commercial customers for our military customers.”

Honeywell participates as an industry representative from the Aerospace Industries Association in the DoD’s product support assessment team. The team is sponsored by Randy Fowler, assistant deputy under secretary of defense (ADUSD) materiel readiness. This group of defense officials and industry representatives are working together to create a future framework for life cycle product support management that is charged with three objectives: 1) identify current status of life cycle product support across DoD, 2) identify areas for improvement, and 3) recommend a way forward for life cycle product support and sustainment.

Honeywell supports the current DoD industrial base requirements at the centers of industrial and technical excellence by implementing PBLs that employ government artisans at government facilities.

“We have developed an approach that supports the Title 10 requirements that not more than 50 percent of depot-level maintenance funds may be used to contract for maintenance by non-federal government personnel, and as well as one that protects the core logistics capability of government-owned and government-operated facilities,” Thielemann said. “We believe that maintaining strong centers of industrial and technical excellence will create more opportunities for industry to enter into partnerships that leverage the best of government and industry to provide world class sustainment support to our military.”

DLA INVOLVEMENT

The Defense Logistics Agency (DLA) supports PBL as part of its overall logistics life cycle.

“We do this through a structured process where each DLA activity has a specific role in supporting each phase of the logistics life cycle management framework,” said DLA officials.

DLA is committed to providing 21st century support to the warfighter. Old weapons platforms such as the F/A-18 A-D models are being phased out. Meanwhile, DLA is modernizing its information technology systems, developing its people, and improving its processes to be able to support such new systems as the Joint Strike Fighter and Joint Light Tactical Vehicle.

“These weapon systems will require much different support than legacy systems due to their technological advances, interoperability, joint use across the military services, expanded life, and to meet current DoD worldwide needs,” said DLA officials.

The military services are responsible for the design interface process for new and modified weapons systems. However, DLA partners with the services to offer an array of support. For example, DLA’s Defense Logistics Information Service (DLIS), Battle Creek, Mich., provides cataloging support for new national stock numbers (NSNs) and ensures these items contain the proper technical information.

“DLIS also ensures NSNs are not duplicated across military services or weapons systems,” DLA sources explained. DLIS works with the services to ensure new items are provisioned correctly and visibility is maintained across DoD for each item throughout its life.

“Our technical specialists at the DLA supply chains work with the military services’ engineering support activities throughout a weapons system’s life cycle to maintain proper technical, quality and packaging data,” top DLA officials added.

DLA’s involvement in the early phases of the life cycle assists the program managers and program executive officers during the design phase to ensure support will be available during the operations and support phase. DLA’s involvement also assists in reducing weapons system ownership costs by proactive support plans that will ensure material availability from weapons system deployment through disposal.

In the past when DLA was not involved in the early phases of the logistics life cycle process, the possibility always existed for degraded support when systems are deployed and reach the sustainment phase, and increased costs to maintain systems and a degradation of interoperability due to technical data not being cataloged and properly maintained.

Cases in which a military service awarded a PBL contract to an original equipment manufacturer (OEM) for support to a maintenance and production line at a military maintenance depot and did not involve DLA early in the logistics life cycle process resulted in the contractor paying higher prices from its commercial sources. Some items were on back order to the military service from the contractor, while DLA had stock on the shelf. Higher prices and weapons system down time while awaiting parts increased the service’s cost of support. “In addition, because stock that DLA had already procured to meet the service’s historical demands and forecasts were not used, costs also increased due to the cost to maintain unused inventory,” DLA officials said.

In contrast, when the military services invited DLA into the early planning for a PBL contract, this enabled DLA to partner with the contractor as a source of supply and services. For example, a military service awarded a PBL contract to the OEM for an aircraft engine and enabled the contractor to look to DLA for parts support. The contractor used DLA as a major source of supply. This agreement leveraged the buying power of DLA across the entire population of NSNs—particularly those on DLA longterm contracts—leading to cheaper prices for each individual item.

“Over a one-year period, the total price for the items used on the PBL decreased by 4.78 percent,” DLA sources revealed. “DLA’s supply availability exceeded 96 percent. Using DLA also provided the contractor a predictable cost for the entire repair contract and resulted in reduced costs to the military service. DLA’s price encompasses the entire cost of maintaining a complete supply chain, from initial cataloging through distribution.”

MULTIPLE BENEFITS

DLA and the military services have realized many benefits from PBL contracts. DLA officials pointed to the F404 PBL as a specific example.

“DLA’s Defense Supply Center Richmond developed a performance-based logistics concept in support of the General Electric Aircraft Engines’ F404 engine, and established an F404 synchronized supply chain team comprising personnel from the DLA enterprise in aviation, land, maritime and construction and equipment supply chains,” DLA sources said. The common goal is for the successful development, implementation and execution of the F404 PBL synchronized supply chain contract to achieve the highest level of warfighter operational readiness.”

Defense Supply Center Richmond awarded the contract to General Electric Aircraft Engines in September 2005. The contract has a base of three years and one two-year option period, and is a specialized support contract for logistical services and parts that includes availability guarantees and metrics, providing worldwide continued parts support to the warfighter.

The objectives and goals of this contract are to achieve increased material availability, inventory and backorder reductions and improvements in services such as forecasting, system reliability and obsolescence management. The indefinite delivery/indefinite quantity contract covers 2,753 consumable items. GEAE provides a subset of this parts population directly and DLA provides the remainder. GEAE is responsible for forecasting all items, improving reliability on engine support, managing obsolescence and coordinating and synchronizing the supply chain, while exceeding historical small business goals.

“This approach results in estimated savings of about $19.9 million over the contract’s five-year period,” DLA officials said. “DLA has also realized an inventory reduction savings of $23 million to date, with further reductions anticipated.”

According to DLA sources, the contract increases support to the warfighter and reduces inventory holding costs, while expanding small businesses’ role in support of the F404 engine. Since inception, the contractual metrics have achieved desired outcomes: material availability, since contract implementation parts availability has averaged 94 percent; inventory reduction, as inventory has decreased from $167.7 million to $144.1 million; reliability incentive, since engine reliability has increased, as verified by the Navy in 2006, and GEAE accordingly received incentive payments for overall support and improvements; and small business subcontracting, as participation, has increased from 12 percent to 35 percent.