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Achieving Success With Performance Based Logistics Support Strategies. Defense Acquisition University. A premier corporate university serving DoD Acquisition, Technology, and Logistics. Jerry Cothran, Program Director, PBL DAU Kate Vitasek, Lead Faculty University of Tennessee.

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Defense Acquisition University


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    1. Achieving Success With Performance Based Logistics Support Strategies Defense Acquisition University A premier corporate university serving DoD Acquisition, Technology, and Logistics Jerry Cothran, Program Director, PBL DAU Kate Vitasek, Lead Faculty University of Tennessee

    2. Agenda • Overview of Performance-Based Logistics • Attributes of a Successful PBL • PBL Successes • PBL Issues and Challenges • PBL Resources

    3. PBL WORKS! • GWOT Performance • GAO Sep 2005 Report Performance of Systems engaged in OIF/OEF • Increased availability of air-based, • close-in weapons systems from • 80 to 89% • Increased availability of F-14 targeting • systems from73 to 90% • Increased engine uptime for the F-404 • to 90% while cutting maintenance time ½ • Cut helicopter Depot Mx time from 261 • to 76 days • Reduced wait time for F-18 supplies from • 47 days to 7 days Air Force Joint STARS Air Force F-117 Nighthawk Navy Aegis Cruiser Army STRYKER Source: Lexington Institute Army Common Ground Station Navy F/18 E/F Super Hornet Performance at Optimal Cost

    4. And Reduces Cost…

    5. Samples of Navy Performance Based Logistics Success * Repair Turnaround Time Reductions in days Updated 11-21-05 NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

    6. USAF C-17 PBL Cost Savings Similar results vs. C-141; Source: USAF AFTOC 2006

    7. DoD has established a STRUCTURE and STRATEGY for Support Total Life Cycle Systems Management Performance Based Logistics TLCSM PBL STRATEGY STRUCTURE Designate a Single Point of Accountability for the Weapon System from Cradle to Grave Buy Weapon System Support As Performance Outcomes rather Than Functional Transactions

    8. DOD 5000 Policy: TLCSM PM The PM shall be the single point of accountability for accomplishment of program objectives for total life cycle systems management, including sustainment. 5000 Series

    9. PM Responsibility for TLCSM PM PM BEFORE PM ROLE DIMINISHES A C B Cost, Schedule, Performance Sustainment System Development & Demonstration Concept Refine Tech Dev EMD, Demonstration LRIP & Production Transitions To LOG INFRASTRUCTURE PM ROLE CONTINUES TODAY and into the FUTURE EVOLUTIONARY Cost, Schedule, Performance AND Supportability! A C B Sustainment System Development & Demonstration Concept Refine Tech Dev EMD, Demonstration LRIP & Production UPGRADES LOGISTICS INPUT/SERVICES

    10. DOD 5000 Policy: PBL 5000 Series “PMs shall develop and implement performance-based logistics strategies that optimize total system availability while minimizing cost and logistics footprint.”

    11. PBL Buys Outcomes DoD Manager PBL Strategy Traditional Strategy Outcomes Transactions Availability REPAIRS Reliability SPARES Mission Effectiveness …at an affordable cost ENGINEERING

    12. PBL Doesn’t Change the Basic Elements of Support • At the operational level, all of our systems still require the same resources to keep them operational • Spare, Repairs, Technical Support, etc. • PBL doesn’t CHANGE this… • What it changes is the way in which we acquire or purchase this support! • We MOVE the responsibility for determining the “HOW” (quantity, schedule, location) to a Product Support Integrator • And specify “WHAT” level of performance we need

    13. PBL Maturity Model Logistics Chain Services Performance Outcomes… Mission Assurance Mission Success Platform Whole System Availability Operational Availability Mission Performance Material Availability Supply Chain Services Weapon System Performance Delivery Speed Logistics Performance Weapons Systems Scope Platform Contract Scope Distribution Performance Integrated System + Mission Subsystem Component Component Stage 1 Stage 3 Stage 4 Stage 2 Scope of PBL Strategies

    14. PBL Implementation ScopeRange of Opportunities Logistics Support Elements There is no “one size fits all” PBL strategy

    15. PBL Implementation StatusSource: OADUSD/LPP – Updated as of Jul 2006(NOTE: Does NOT include ACAT III/Subsystem PBLs) • Counts PBL ‘in whole or part” • Includes over 170 subsystem/component PBLs • Total PBLs exceeds 250 at all levels

    16. PBL Implementation Framework 12-Steps Tailor the sequence and priority of events 1. Foundation 2. Planning 3. Execution 4. Control

    17. DoD • Forecast • Requirements • Specify Buy • Quantities • Pay for each • on a Unit Price • basis • Assume all risk for: • right parts • right repairs • right time • right quantities Parts Repairs Technical Support Typical CLS Contract Support High Risk The more I sell, the more profit I make! Low Risk CLS Contractor

    18. Motivated to: • Improve Reliability • Improve Repair • processes Parts Repairs Technical Support PBL Contract Support The less I use, the more profit I make! DoD • Forecast • Requirements • Make buy decisions • Assume all risk for: • right parts • right repairs • right time • right quantities • Specify • Performance • Outcomes Low Risk Product Support Integrator

    19. ManagementConsultants Cost-Value Benefits of PBL Traditional vs. Performance-Based Contract Total Cost for the Government is lower Investment Recovery Period Investment to improve reliability Obsolescence may offset some cost improvements anticipated at renewal Cost Average PBL Base Period Term- 3 ¼ yrs Providers’ profits are higher (Area between the lines is bigger with PBL) Term Industry Profit Traditional Gov’t Cost PBL Gov’t Cost Traditional Industry Cost PBL Industry Cost Contract Duration Incentivizes Investment in Reliability

    20. Identify Performance Outcomes and Metrics • Operational Availability Are we ready? • Mission Reliability Will we be effective? • Cost per Unit Usage What is the cost? • Footprint How much real estate do we need? • Logistics Response Time Are we sustainable? OSD PBL “Top Level” Metric Categories • USD/AT&L Memo: Performance Based Logistics; Purchasing Using • Performance Criteria 16 Aug 2004 • USD/AT&L Memo: Total Life Cycle Systems Management (TLCSM) Metrics • 22 Nov 2005 (includes formulas)

    21. The PSI is the “Single Focal Point”for Support PM Depot Repair Contract Support Contract/MOA Transportation Supply/DLA Common Commodities Organizational Maintenance Warfighter Outcomes Performance Based Agreement Product Support Integrator

    22. Accountable PSI System Expertise System Focus System Priorities Incentivized Rewards ‘at risk’ Failure has real consequences Traditional PSP Process Expertise Scattered Focus Varying priorities Not incentivized Minimal risk Failure has indirect consequences Why a PSI? “Must Do” vs. “Try to Do”

    23. PSI Scope of Responsibility Varies Commensurate with the Scope of the PBL Strategy LESS PSI RESPONSIBILITY MORE Maintenance Supply Sub-Process Process Commodity Full System Subsystem PSI SCOPE OF PSI SUPPORT DoD Risk Transition

    24. Tailor Within the: Resulting in: Start With: “TOP LEVEL” OutcomesMust Be Tailored Product Support Integrator Warfighter PBL Metrics & Performance Standards PSI Scope of Accountability Warfighter Performance Requirements • Tailored to Scope of PSI Accountability • Supporting Performance Outcomes • Few better than Many • Range of values (threshold to objective)

    25. Supply “Vertical” PSI Model Product Support Integrator Maintenance Transportation Training Engineering • Single Point Accountability with platform/system • level support responsibility • Generally most feasible with new Acquisition systems • Even “platform” PBLs seldomencompass 100%

    26. F-117 PBL Objective Metrics Top Tier Award Fee Metrics Example

    27. “Horizontal” PSI Model PM Office Product Support Manager APU MOA PSI PSI Avionics Engines Airframe M-1 Tank MOA PSI Landing Gear Radar Recuperator • Subsystem vice System/Platform Approach • Still Performance-Based, but Accountability at lower levels • Support functions may be mix of PBL, non-PBL, organic, contract • May be best approach for Legacy systems

    28. F/A-18 Awarded and Pending PBLs by OEM Warfighter’s Performance Based Agreement Awarded PBLs Pending PBLs Non-PBL Contracts * Supports Multiple A/C ** Planned FIRST FY06 • PSI’s Roles and Responsibilities • PM’s agent for implementing his sustainment vision/objectives. • Coordinates organic and private sector logistic support to maximize readiness and availability at the lowest total cost. • Manages all support contracts, MOUs, and MOAs to meet the metrics specified in the Performance Based Agreement (PBA). Warfighter’s Performance Based Agreement Virtual Program Office F/A-18 Program Office F/A-18 APML Product Support Integrator F/A-18 NAVICP IWST NATEC NI FLEET/ AIMD/MALS DLA R/C/P NADEP NI/JAX/CP FST NI/JAX/CP PMA-265 209/260 NAWC C. L. NAWC L.H. FIRST Boeing FIRST** Boeing ISS** Boeing AESA Boeing Ailerons Boeing Hooks Boeing Stabs Boeing BOAs Boeing ARF Boeing SRF Boeing ATFLIR Raytheon SHARP Raytheon TEF/Stabs Parker Hannifin ARC 210 * Rockwell HUD/DDI * Rockwell SMS * Smiths EIBU Smiths SMUG Smiths ALQ-126B * BAE/Jax ALR – 67v3 Raytheon ALE -50 * Raytheon APU * Honeywell Fuel Control Honeywell Turbines * Honeywell AMC&D * GD/Honeywell LEF Moog/NI/Jax JHMCS * VSI Support Equip * Multiple OEMs F414 Depot GE Tires * Michelin F404 GE F414 C&A GE NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

    29. F/A-18 Awarded & Pending PBLs by Subsystem HUD/DDI * Rockwell ALE-50 Raytheon LEF Moog/NI/Jax TEF/Stabs Parker Hannifin Fuel Control Honeywell F414 C&A GE F404 GE Awarded PBLs Pending PBLs * Supports Multiple A/C F414 Depot CompGE ARC 210 * Rockwell Turbines * Honeywell SHARP TBD • FIRST Boeing: 73% of E/F • 4193 E/F WRAs and SRAs • 653 I-Level Repairables • 349 Support Equip. Items • 170 DLA Consumables • 13,080 DLA Second Source • 10,970 Non-DLA Consumables SMS * Smiths JHMCS * VSI APU * Honeywell • FIRST FY06 and Beyond: • F/A-18 A through F • EA-18G • ISS • AESA • DLA Consumables • FMS • Modifications • Retrofits AESA Boeing ALR-67v3 Raytheon Tires Michelin AMC&D * GD/Honeywell EIBU Smiths SMUG Smiths ALQ-126B * BAE/Jax ATFLIR Raytheon Support Equipment * Multiple OEMs NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

    30. Best Mix Spectrum of Support Opportunities Performance Based Support Maximize use of Performance Based Strategies Best Mix of Public/Private Capabilities ORGANIC CONTRACTOR Organic Support Contractor Support • Existing Infrastructure • Best Competencies • Operational Mission • Best Value Analysis • Partnering Opportunities • Title 10 • Service Policies • OSD/Service Guidance Transaction Based Support

    31. Structure Agreements Workload Allocation Process Statutory Best Value DoD Policy Requirements Title 10 What you WANT to do What you HAVE to do PlanningProcess Sequence 3 4 2 1 Statutory Structure Requirements DoD Policy Best Value Agreements Title 10

    32. P S PME MTS AMT FCTS IN FLIGHT TRAINER S S S S SMS MCTS MISSION CREW TRAINING MSS/TMSS G G S G JSTARS Example Your Objective:A Complete WBS Public/Private Partnering GOVERNMENT CORE GOVERNMENT PRIME CONTRACTOR PRIME WITH COMPETITION AT 2ND TIER PRIME CONTRACTOR VIA SLA TSSR AUTHORITY & OVERSIGHT G GC • Contracting • Budgets • Requirements • Engineering Authority/Accountability G Combine Best Public/Private Capabilities PRIME INTEGRATOR P Partnership Partnership GSS - Ground Support System MCTS - Mission Crew Training System AMT - Aircraft Maintenance Trainer MSS - Mission Support Subsystem TMSS - Transportable Mission Support Subsystem FCTS - Flight Crew Training System SMS - Software Maintenance Subsystem COMMON SPARES ENGINES G GC Partnership Partnership E-8C SPARES PME MAINTENANCE SOFTWARE * AIRCRAFT PDM FIELD SVC REPS SUSTAINING ENG TECH DATA P S P S P G P G P GC P S GC P S GSS *Includes OFP Mx and GSS Software Merge, Block 10 Baseline Prime Contractor Integrates Government/Industry Resources

    33. Who Will Do the Work?Where will it be done?Can it be Performance Based? • Identify what is BEST for EACH support function in terms of: • Compliance with Title 10 • Compliance with Policy • Existing Baseline and Infrastructure • Capability & Skills • Opportunities for Partnering • Public/Private flexibility • Affordability – Best Value Requires a formal analysis process

    34. Contract Contract Contract Service Level Agreement MOU/MOA MOU/MOA Customer Warfighter With All Relationships And Roles Clearly Defined… PBA Program Manager TLCSM Product Support Manager Product Support Provider(s) Government Entity PBA PBA Industry PBA Product Support Integrator PBA Subcontractor DLA PBA PBA Organic Depot Public/Private Partnership Industry PBA = Performance-Based Agreement

    35. DOD 5000 Policy “Sustainment strategies shall include the best use of public and private sector capabilities through government/industry partnering initiatives, in accordance with statutory requirements.” 5000 Series

    36. Definition A public-private partnership for depot maintenance is anagreement between an organic depot maintenance activity and one or more private industry or other entitiesto perform work or utilize facilities and equipment. JDMAG Report for SECDEF Public-Private Partnerships for Depot Level Maintenance Jul 2003

    37. Subcontractor DoD Depot (Subcontractor) Subcontractor Subcontractor PBL Offers MultipleOpportunities for Partnering Contractor/Depot personnel sharing workloads Organic Depot as Subcontractor to Industry PSI Industry Prime Vendor (Product Support Integrator) Contractor utilizing Depot facilities

    38. Supply is Important!

    39. How PBL Optimizes the Logistics Chain • Focuses on an END PRODUCT vs. an inventory commodity (Customer vice Process optimization) • Leverages Commercial sector advantages in forecasting, procuring, and managing inventories • Incentivizes suppliers to do the right ‘things’ • Deliver Availability • Manage Obsolescence • Improve Reliability Leverages Commercial Competencies!

    40. Navy PBL/Partnering Material Availability And it Works! Navy Program Pre-PBL Post-PBL 90% 73% F-14 LANTIRN 62% 85% F/A-18 H-60 Avionics 71% 85% Material Availability increased an average of 30%-40% through PBL 98% 65% F/A-18 Stores Mgmt System (SMS) 85% 70% Tires APU 90% 65% AEGIS 65% 95% Improving Material Availability through PBL/Partnering

    41. PBL Logistics Response Time Navy Program Pre-PBL Post-PBL 5 Days 56.9 Days F-14 LANTIRN Aircraft and Equipment Logistics Response Times (LRTs) decreased an average of 70%-80% through PBL 22.8 Days 5 Days ARC-210 H-60 Avionics 8 Days 52.7 Days 42.6 Days 2 Days CONUS7 Days OCONUS F/A-18 Stores Mgmt System (SMS) 2 Days CONUS4 Days OCONUS 28.9 Days Tires APU 6.5 Days 35 Days Achieving Commercial Standards through PBL

    42. PBL Contracting Strategy Is CRITICAL… • Best PBL strategy can be handicapped by a poor contracting strategy • Priority actions in devising a contracting strategy are: • Contract Type, and • Contract Phasing Your primary objectives are to make the contract type correspond to: • Level of risk consistent with the phase of the program • Level of risk is associated with the maturity of the cost, resource, and system baselines Ultimate goal is a Fixed Price contract

    43. (ProgramInitiation) B A C FOC IOC Concept Refinement Technology Development Production & Deployment System Development & Demonstration Operations & Support Concept Refinement Decision FRP Decision Review Critical Design Review LRIP/OT&E Sustainment Systems Acquisition PBL Contract Phasing Transition to FP When Pricing Risk is minimum Fixed Price (FFP, FPAF) Cost Plus (CPAF or CPIF) Pre-Planning (CPFF) • Forecast Supply Data • Forecast Repair Data • Forecast Cost Baseline • Develop Initial Metrics • Develop Initial Incentives • Collect Supply Data • Collect Repair Data • Compile Cost Baseline • Apply Initial Metrics • Apply Initial Incentives • Assess Results • Finalize Metrics • Final Incentives • Assess Results

    44. Migration to a Single FIRST Firm Fixed Price Contract FIRST - NAVICP Contract FIRST - NAVAIR Contract - Program Management - Unique In Service Engineering - Hornet Support Center - Integrated Information Systems - Sustaining Integrated Logistics Support (ILS) - Support Equipment - Technical Publications - ECPs, TSPAT, Etc. - F/A-18E/F Supply Chain Management - Provisioning and Warehousing - Shipping and Transportation - Obsolescence Management - Reliability Improvements - Configuration Management - Material Support and Total Asset Visibility CY 2001 CY 2002 CY 2003 CY 2004 CY 2005 CY 2006-2015 Baseline Contract - CPI/AF$205.4 M Option Yr 1 - CPI/AF$124.6 M Option Yr 2 - FPI/AF$126.1 M Option Yr 3 - FPI/AF $136.7 M May 01 – Sep 02 Oct 02 – Sep 03 Oct 03 – Sep 04 Oct 04 – Dec 05 } • Single FIRST Contract • Single 5 year FFP Contract with 5 year option (Firm Fixed Price contracting vehicle shifts performance and financial risks to Boeing). • Provides Navy and Boeing with flexibility to resolve sustainment challenges through the most optimal combination of additional spares, training, redesign, support equipment, maintenance planning, etc. • Facilitates Execution of the F/A-18 Virtual Program Office. • Increases aircraft availability and readiness for the Warfighter while reducing contract administration. • Provides all F/A-18 Stakeholders with single focus through single contract. Traditional ILS Apr 03 – Dec 03 Jan 04 – Dec 04 Jan 05 – Dec 05 FY00 ILS CPFF/IF-$129.9M FY01 ILS CPFF/IF-$105.2M Base Contract CPI/AF-$63.4M Option Yr 1 – FPI/AF $79.3M Option Yr 2 – FPI/AF $77.4M NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter

    45. Fixed Price Award Fee (FPAF) Cost Plus Award Fee (CPAF) Fixed Price Incentive (FPI) Cost Plus Incentive Fee (CPIF) Award Term Incentive After-the-Fact Incentive Contracts Formula Incentive Contracts DoD Incentive Contract Types CAN BE COMBINED! Performance Emphasis Cost Emphasis • Failure to control cost: • you will ‘buy’ performance! • Failure to address • performance: you’ll get • low cost and low • performance! You MUST incentivize BOTH COST and PERFORMANCE!!

    46. Formula Incentive Contracts • Motivate COST focus (CPIF Example) • Cost Paid: Reimbursement for work/cost incurred • Target Cost: $1M • Target Fee: $100k • Share Ratio (cost under run): 80%/20% (Ktr/DoD) • Share Ratio (cost over run): 20%/80% (Ktr/DoD) • Actual Cost: $900k • Cost under run: $100k • Amount ADDED to Target Fee: $80k ($180k to KTR) • OR…Cost over run: $100k • Amount SUBTRACTED from Target Fee: $20k ($80k to KTR) • High administrative burden

    47. After-the-Fact Incentive Contracts • Motivate a PERFORMANCE focus • Contractual Elements • Fixed Price (FPAF) or Estimated Costs (CPAF) • Base Fee (CPAF only: No more than 3%) • Award Fee amount and schedule (e.g. 5 – 10%) • Other Elements • Award Fee Board • Fee determining official • Contractor earns Award Fee amount based on level of performance against Award Fee schedule

    48. Contract ManagementIncentive Metrics Award Fee Schedule Example NMCS DEPOT METRIC NON-NSN MICAP RSP KITS DEPOT AIRCRAFT DELINQUENT WST ITEMS DELIVERY XD DELIVERY QUALITY DRS AVAILABLE (%) (HRS) (% fill) (Days Late) (Pts.) (#) (%) WEIGHT 25 15 15 15 15 10 5 10 5.0 - below 72 96% 0 - 0.9 20 1 or Less 99.0% 9 5.1 - 5.5 73 - 84 95% 21 - 25 2 98.5% 8 5.6 - 5.0 85 - 86 94% 1.0 - 1.9 26 - 30 3 98.0% 7 6.1 - 6.5 97 - 108 93% 31 - 35 4 97.5% 6 6.6 - 7.0 109 - 120 92% 2.0 - 2.9 36 - 40 5 97.0% 5 7.1 - 7.5 121 - 132 91% 41 - 45 6 96.5% 4 7.6 - 8.0 133 - 144 90% 3.0 - 3.9 46 - 50 7 96.0% 3 8.1 - 8.5 145 - 156 89% 51 - 55 8 95.5% 2 8.6 - 9.0 157 - 168 88% 4.0 - 4.9 56 - 60 9 95.0% 1 9.1 - 9.5 169 - 180 87% 61 - 65 10 94.5% 0 9.6 & Up 181 & Up 86% 5.0 or More 65 & Up 11 & Up 94.0% S C O R E Can contain both QUANTITATIVE and QUALITATIVE assessments

    49. Fixed Price Contracts • Inherently Motivate Continuous Improvement • Contractual Elements • Firm Fixed Price (FFP) or Fixed Price Incentive (FPI) • Other Elements • Metrics and Incentive plan geared toward • DECREASING contractor payment (negative incentives) • Contractor Profit is Delta between Firm Price (minus incentive reductions if applicable) and their actual cost • Contractor invests to reduce demand & cost, leading to increased profit • “No Excuses” contracts (obsolescence, availability, repair processes, technical support are all IMPLICIT)

    50. Supply Support Metrics FY01 to FY05: FY06 and Beyond: • Disincentive Fee Metrics • Supply Response Time “with Points” • Repairables Priority 1 thru 3 • Consumables Priority 1 thru 3 • Repairables Priority 4 thru 15 • Consumables Priority 4 thru 15 • SRT “with Points” requires Boeing to: • a. Eliminate all backorders within specified time periods • b. Focus on age of each backorder vice the “average” age of aggregate backorders • c. Based on Boeing’s past backorder fulfillment times/age, the Navy has raised performance levels. • Award Fee Metrics • % of Award • Supply Response Time Fee Earned • Repairables 48 hours 39% • Consumables 48 hours 68% • Aggregate 120/360 hours 91% • Average Time on Backorder • Priority 1 thru 3 99% • Priority 4 thru 15 92% • Average Age of Unfilled BOs • Priority 1 thru 3 100% • Priority 4 thru 15 98% Incentivizes Boeing to Aggressively Manage Backorders NAVAIR, NAVICP, DLA, & Boeing - One Team Supporting the Warfighter