PERFORMANCE-BASED LOGISTICS

PERFORMANCE BASED LOGISTICS



Streamlining the Supply Chain to Save Time and Money.

by Tom Marlowe, MLF Correspondent

The Defense Logistics Agency (DLA) has been institutionalizing processes this year to streamline its supply chains while boosting the quality assurance of components and systems it acquires by formally establishing offices responsible for making operations leaner. The ultimate goals of these leaner operations would be to save money through the elimination of unnecessary links in the supply chain as well as speed better products to warfighters on the front lines.

To that end, DLA has stood up an office dedicated to continuous process improvement (CPI) headed by Army Colonel Randy Hinton within its Strategic Planning and Enterprise Transformation (J-5) directorate, staffing it with analysts with a mastery of process improvement, knowledge management and other areas necessary to implement CPI and lean operations, Mike Scott, DLA J-5 acting director, told Military Logistics Forum.

The CPI office works with an agencywide CPI board made up of senior officials from every element of DLA, which oversees the execution of CPI processes and the use of the Lean Six Sigma process to streamline operations while producing higher quality products. The CPI board works with the DLA director and the Office of the Secretary of Defense, as appropriate, to integrate its efforts across the agency and the entire Department of Defense. An executive committee made of top officials sets strategic direction and chooses enterprise goals for implementation.

“We started this renewed thrust working directly with the director and vice director. We laid out proposals for staffing, size, funding, budget,” Scott described. “Once we had both of those gentlemen comfortable, it moved into a corporate board environment. It was a leadership commitment issue. Were we going to do this or not? Like anything of this size and complexity there was much discussion of how much money, how many people, can we handle this along with other things we are doing? At the end of the day, we came to agreements.

“The challenge continues as we are not done standing that office up. It is an ongoing initiative,” he added.

The CPI office has a number of robust initiatives well underway, Scott elaborated, including a major effort with tailored vendor processes for medical supplies. Working with defense supply experts in Philadelphia, Pa., DLA has been seeking to exercise tighter controls over medical supply chains, seeking cost savings and boosting quality. At press time, the team working on that project had completed its first task, the value stream mapping of the process.

A second major CPI thrust area involves the supply discrepancy reporting business process. J5 has staffed three Lean projects in the process area, where military planners also have completed a value stream map.

A third ongoing CPI initiative is based out of the Defense Supply Center (DSC) Philadelphia, where the focus is on uniforms and textiles.

“They are taking an end-toend look from the time of initial requirements development to requirements planning all the way through procurement and production of the uniforms by the commercial clothing industry as well as the funding and end of life cycle aspects of that process. They are also finished their mapping efforts,” Scott revealed.

In addition to running numerous other projects, Hinton and CPI office staff are providing CPI classes to defense executives.

“In an effort to facilitate and propagate CPI as a way of doing things throughout DLA, we are developing and providing training,” Hinton told MLF. “We are providing a ‘green belt’-level course in Philadelphia. We are going to teach all of the supervisors in Columbus in a four-hour orientation. We are going to give a champion-level course in Columbus to all of their Senior Executive Service and senior leadership. We are teaching additional courses on a rotating basis throughout the agency. We are going to conduct a ‘black belt’ course facilitated through our own internal assets.”

INTRODUCING PBL

Although DLA did not formalize its CPI office until last January, CPI and performance-based logistics were not entirely new to the agency. Retired Admiral Keith Lippert, now chief strategy officer at Accenture, was the last agency director before Army Lieutenant General Robert Dail, himself an active supporter of performance-based logistics, or PBL.

Lippert, who retired from the Navy with almost 38 years of service in September 2006, began working at Accenture the next month. But during his last five years of service at DLA, Lippert was very much involved in a large enterprise research planning (ERP) contract. Accenture held this systems modernization contract, which, among other things, mapped existing processes across the DLA supply chain.

“During the end of my tour at DLA, the Lean Six Sigma process itself became institutionalized within the Department of Defense,” Lippert told MLF. “We started doing Lean Six Sigma projects with black belts primarily in the last year of my time at DLA. Informally and formally, we were using Lean Six Sigma at DLA.”

The Lean part of the process focuses on the elimination of waste and shortening of process times, Lippert explained. Six Sigma, once largely a separate if related concept, focuses on improving quality and durability in processes. The combination of the two has yielded Lean Six Sigma, a PBL methodology that provides a structure for organizations like DLA to meet desirable goals, established as performance metrics along supply processes.

Lippert seized the clothing and textiles initiative as an example of how PBL benefits DLA. “Clothing and Textiles” is one of eight different supply chains managed by DLA. DSC Philadelphia spends about $2.2 billion annually in this area while managing 31,000 items in it, Lippert revealed.

“From the time that the requirements are determined for a new uniform until the soldier, sailor, airman or Marine actually gets the material was more than six years under the ‘as is’ process,” the admiral described. “That’s from the requirements determination, the development of the uniform, the procurement process, the manufacture and production process, and then the delivery to the warehouse and the customer. That’s a terribly long time.” DLA teamed up with Accenture and its subsidiary the George Group to examine the process and figure out how to reduce that sixyear time frame. DLA also wanted to optimize processes and inventories while improving communications. DLA formally launched the process in April 2008 and hopes to review recommendations starting in September.

But the application of PBL helps DLA with more than just items. It also assists with human capital management, Lippert noted. DLA sought to improve the work environment at its 26 distribution depots worldwide—19 depots in the United States and seven overseas.

“While I was at DLA, we did corporate climate surveys to ask people how they feel about working with DLA, what can be improved and those types of things. That continues today. The things that always came out worse were the warehousing area or the defense distribution command. There were teams put together to address the employees’ concerns. These teams consisted of Lean Six Sigma experts, DSC employees and management itself to see what we could do to improve the problems we saw on the corporate climate survey,” he recalled. “We went through some significant improvements.”

LEAN SIX SIGMA

The George Group, headquartered in Dallas, Texas, emerged as a thought leader in PBL and Lean Six Sigma in particular in the 1980s. That expertise led to its recent acquisition by Accenture, George Group senior consultant Michael Higgins told MLF. Founder Michael George introduced Lean methodology to much of the United States through his study of processes involved in Toyota manufacturing in Japan, then The George Group coupled Lean with Six Sigma sometime around 2000.

“Lean Six Sigma is based on two things: processes and people,” Higgins elaborated. “The Lean side focuses on speed by eliminated wasteful steps in the process. If you are in an acquisition program and you are buying something and there are five or six different approvals to get permission to buy something that is wasteful in our minds. Too many approvals in a process are bad.

“Six Sigma, on the other hand, focuses on variations in processes. If I work in a particular organization, how you do something and how I do something could be very different. As a result, the outputs are going to be very different,” he added.

Leveraging Lean Six Sigma properly involves a study of a business process and then a study of how to optimize that existing process.

The George Group was able to utilize Lean Six Sigma to assist the Marine Corps with the production of their mine resistant ambush protected vehicles, Higgins said. In April 2007, Marine Corps suppliers were producing only 10 vehicles per month, despite an urgent need for the vehicles to protect warfighters from improvised explosive devices.

“So we looked at how the whole process worked from end to end. We identified the constraints. We went into some of the OEMs. Six months later, by the end of December, they were producing 50 units a day. So they went from 10 units a month to 50 units a day. That’s significant process that can happen,” Higgins commented.

PBL CONTRACTS

Given the potentially significant benefits of applying PBL to military projects, the individual services have stood up PBL efforts and awarded contracts to individual PBL contractors. For example, the U.S. Navy has received bids for a major PBL contract anticipated for award later this summer.

Manufacturer Honeywell Inc. has maintained its flagship PBL contract with the Navy since 2000, Paul Meade, director of business development at Honeywell Defense & Space Logistics, told MLF.

Around 1998, the U.S. Navy had some auxiliary power units it wasn’t happy with.

“The Navy objective for the program was to increase availability, reduce costs and increase reliability,” Meade recalled. Those defined the metrics of a PBL contract that would be awarded to Honeywell.

“The workload supporting the product at the time was about 70 percent organic as the Navy provided many repairs for the product. So we had to include them in the solution to the problem. So we created a partnership with them where they subcontracted to Honeywell to provide the repair with private materials and engineering so the Navy could achieve a 90 percent availability rate and to deliver these items anywhere in the world within four business days,” Meade stated.

Under a fixed price contract, Honeywell met those metrics, partly through the application of commercial processes and technologies to the power unit. Successes with the Navy had led Honeywell into PBL contracts with the U.S. Air Force as well. The contractor must tailor its processes to the needs of individual clients in each case, Meade explained.

“You must have the ability to have good baseline performance data or the ability to generate good baseline performance data. That means things like product performance, product reliability, product cost, an understanding of the technical requirements of the products,” Meade said. “So there has to be some understanding of what you expect to get out of PBL. And it has to be something that can be modeled financially. There must be a business case analysis on the government side to determine whether or not any savings would come from the application of performance-based logistics.

“Sometimes it may be just performance outcomes you are interested in or it might be, such as in our Navy contract, a very comprehensive product support strategy. In each case, both sides have to be very aware of what the objectives are. Once there is a good understanding of what you hope to achieve out of PBL, then both sides have to step back and determine whether they can support those objectives and how they would support those objectives,” he continued.

The military and its contractor must work together to determine which improvements are achievable and to balance affordability of the contract with the performance goals. “It’s an open exchange of information. The government has access to our best available data,” Meade remarked.

PERFORMANCE METRICS

Aerospace giant Northrop Grumman Corp. also has developed a cutting edge PBL program to support the U.S. Air Force. In particular, the Air Force sought, about 10 years ago, to apply PBL methods to its airframes supporting the Joint Surveillance and Target Attack Radar System (JSTARS).

“Northrop Grumman came in and helped the Air Force design a program for a longterm life cycle with PBL and the right kind of metrics to emphasize the fact that we wanted to reduce the costs on a yearly basis on the aircraft and to also give more availability back to the Air Force so that the airframe could be operationally ready at a higher ready,” Joe Stein, director of fleet depot maintenance within the Lifecycle Optimization and Engineering Group of Northrop Grumman Technical Services, told MLF.

“Northrop has won 100 percent of its award fee by meeting all of those metrics outlined under the PBL contract and also included in this particular contract is what was called a term award,” Stein elaborated. “If the metrics were met, not only did you get your fee but you would get another year added to the contract to support that.”

The operational availability rate of JSTARS airframes lagged around 60 or 70 percent before the PBL contract, Stein said. The Air Force established a rate around 90 percent as its performance metric and awarded a PBL contract to Northrop Grumman, which successfully maintains that rate. Stein has seen the programmed depot maintenance (PDM) rate of the aircraft drop from 250 days to 87 days under the program.

“When we return the aircraft back to the operational unit, they inspect the aircraft to see if it is ready to fly and we have provided them with an aircraft that is 99 percent ready to go once it comes out of the PDM flow back to the unit,” he observed.

Northrop Grumman also assists with identifying the best opportunities for modifications to aircraft that would produce the most benefits to the warfighter, Stein added. In that process, they help the Air Force to develop funding streams for those modifications to keep the aircraft current.

“It is a very close working relationship. That is the key to PBL,” Stein declared. “Our team is embedded with a government team to do the things that are best for the warfighter and to give that warfighter the opportunity to have the best platform at the right time at the right cost.”

Interestingly, DoD currently estimates that it requires 27 months to set up a PBL contract, Stein noted, but the department is trying to reduce that time to 14 months.

PBL SCORECARD

SupplyCore Inc. of Rockford, Ill., provides logistics support to DLA and other defense agencies. The company recently celebrated 20 years as a supply chain manager and logistics services provider, David Hahn, SupplyCore vice president of corporate development, told MLF.

“There are different aspects to PBL, one of which is wrench-turning and one of which is leaning out the supply chain,” Hahn commented. “We have supported DoD in both aspects.”

For “wrench-turning” operations, SupplyCore has supported DoD in managing parts and maintaining vehicles in support of military operations at its facilities in Iraq and Kuwait. For lean operations, SupplyCore has trimmed supply chains to rush delivery to the hands of warfighters.

“That has let them streamline the ordering process. They have no issues on visibility and tracking and transit. They are not trying to manage 250 points of deportation. They have one button to push to see if stuff is in route because a guy in Balad needs it in two weeks,” Hahn said.

These operations require a cadre of statisticians, economists, supply chain experts and logisticians all under one roof, Hahn acknowledged “We have more than 20 years in supply chain management from manufacturing to raw materials forecasting to production and packaging to distribution and delivery. We have integration engineers to make certain any system used by DoD can be integrated with our systems so they do not have to supply dual entry into things,” he said.

“We can track OEMs and their parts and engage them in the supply chain. We can do it anywhere in the world. We have operations in Europe, Asia, the Middle East and the United States,” he added.

Every month, the Defense Department provides SupplyCore with a scorecard on how it has performed on its PBL metrics. The scorecard notes the targets of delivery of specific materials to specific locations, rating the actual performance against target performance. The scorecard proved so successfully that SupplyCore internalized it.

“We have mimicked those and ratcheted them up a bit internally. We can look at any given point at any given day to see if one contract vehicle is in danger of slipping from a ‘green’ to a ‘yellow,’ and if so why,” Hahn described. “Is there a problem with throughput? Is there a constraint caused by availability of metals or a natural disaster that is causing the price of lumber to spike? Is there a danger of taking that metric from green to yellow? Then you have to allocate resources to alleviate that constraint to keep that from happening.”

The internal metrics relate directly to the government metrics as the company uses them to maintain or improve its high scores in the government reports.

“We are a small business. For us to compete on the global stage as we have for the past 20 years, we must have efficiencies in operations. We have a transactional throughput that most commercial companies couldn’t begin to compete with. We have developed that using technology and automation where possible. We have a business process optimization manager in our corporate office whose job is to constantly tie in the processes and figures out where are the constraints and then removed the constraints,” Hahn revealed.

BREAKING NEW GROUND

AAI Corp. manufactures the Shadow Tactical unmanned aircraft system (TUAS) for the U.S. Army and the U.S. Marine Corps. AAI has applied PBL to supporting the Shadow, combining original manufacturing operations with repair depot operations, Russ Walker, AAI division vice president for the Shadow TUAS, told MLF.

“The real benefits of performance- based logistics is that everything is integrated in one place,” Walker said. “So if I have a recurring problem with the system and it looks like I have one failing part, then with PBL I have the ability to engage and do that, replace the part and field a new part then build stock levels to support that new part and basically eliminate the problem.”

PBL programs where the OEM serves as the depot manager usually save about 30 percent or so on life cycle costs of a system, Walker noted.

The Army measures AAI’s success with performance metrics, such as reliability growth rate. The reliability growth rate requires AAI to reduce the number of accidents associated with the Shadow aircraft every year by half.

Another metric looks at repair times. The military requires AAI to maintain a low turnaround time to repair an aircraft and get it back into the field. Yet another metric measured by the Army is system status readiness. That measures the field readiness on every component of the system every day. AAI would receive a poor PBL score should any of its components fail to fully function on any given day.

“Our operational readiness is one of the highest of any aviation asset. We typically run between 95 and 97 percent of all components up every day,” Walker stated. “That’s extremely important for a system like ours. It is so important to the fight. The troops literally do not go outside the gates without a Shadow. We are launching and recovering a Shadow every 20 minutes around the clock. We are 24/7 at some locations. It’s extremely important that we are on our game all of the time.”

AAI runs review boards internally to address any issues before they arise. The company’s high readiness for maintaining aspects of PBL led to an award from the Office of the Secretary of Defense for PBL in 2005.

“We have broken the ground with UAV PBL support,” Walker said. “In this uncertain time in war, the government is able to change direction quickly with performance-based logistics. We don’t always know from time to time how many systems we will have deployed. At times, we could on very short notice be told to deploy say five more systems. This model of having everything integrated in one place allows us to react to that much quicker than if they have to go back on an open solicitation to a number of different suppliers and depots and try to do that.” ♦