1

I n t e g r i t y - S e r v i c e - E x c e l l e n c e

AFMC Sustainmen

t Transforma

tion

Mr. Edward C. Koenig, IIIMr. Edward C. Koenig, III Deputy Director for Supply

Directorate of Logistics and Sustainment and

Mr. Tom WellsMr. Tom WellsDirector, HQ AFMC Contracting

2

Logistics Transformation

Air Expeditionary Force

Agile Combat SupportMaintenance/Sustainment

100% on time delivery flowdays 25% costs 10% Zero defects

50% in sourcing cycle time 20% in supply material availability 20% in material purchase and repair costs

Adaptive & ResponsiveRadical change

Integrated

Adaptive & ResponsiveRadical change

Integrated

Rapid DeploymentSustainability

Rapid DeploymentSustainability

“…We view transformation as one of our principle missions…from headquarters down to depots and our acquisition of major systems and the conduct of operations.” AF Secretary Roche

20% in aircraft availability

10% in O&S cost

3

61.6 62.1 65.2 65.6 67.7

23.9 23.8 21.9 22.4 22.5

14.5 14.1 12.9 12 9.8

0%

20%

40%

60%

80%

100%

FY00 FY01 FY02 FY03 FY04 YTD

Availability Unit Assigned Not Available Depot Possessed

Sustainment Performance

Total AF MICAP Hours SMAG & DMAG NOR

Total AF Aircraft On-Time Delivery

($400)

($300)

($200)

($100)

$0

$100

$200

$300

$400

$500

DMAG NOR $13 ($313) ($308) ($272) ($114) $250

SMAG NOR $80 ($74) $193 $222 $427 $0

FY99 FY00 FY01 FY02 FY03 FY04

DMAG NOR Excludes Corp Reimbursements

Total AF Aircraft Availability

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

Dec-9

9

Mar-

00

Ju

n-0

0

Sep

-00

Dec-0

0

Mar-

01

Ju

n-0

1

Sep

-01

Dec-0

1

Mar-

02

Ju

n-0

2

Sep

-02

Dec-0

2

Mar-

03

Ju

n-0

3

Sep

-03

Dec-0

3

Mar-

04

Ho

urs

5945

5651

5345

6349

4957

557461426441

5460

6758

2228

1523

1217

12 6

1814

7 9 9 86 3 1

7 3 5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2-O

ct

2-N

ov

2-D

ec

3-J

an

3-F

eb

3-M

ar

3-A

pr

3-M

ay

3-J

un

3-J

ul

3-A

ug

3-S

ep

3-O

ct

3-N

ov

3-D

ec

4-J

an

4-F

eb

4-M

ar

4-A

pr

4-M

ay

% P

roduced

•War-winning capabilities…On Time, On Cost

4

Net Sales$5.76 Billion

1.7M Items

Delivere

d

$1.37B

760K Items

Delivered $3.2B

25 ALC Supply Chain Management Organizations

Organic & Contract Depots

DEPOTDEPOT

AFMC Supply Business Area (FY03)

AIR FORCEAIR FORCE TRANSCOMTRANSCOM FMSFMS

$3.3B Repair Orders

$1.4B BuyOrders

157,000 Line Items

Manufacturers

Source: FY03 sales data came from Keystone.

ARMY/NAVYARMY/NAVY

AF Supply System

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Organic & Contract Depots

PSCM Value Proposition

Manufacturers

Source: FY03 sales data came from Keystone.

Streamlined

Order AgreementsStrategic

Partnerships

Jointly Forecasted

Production &

Deliveries

Jointly

Forecasted

Requirements

Lower Unit

Prices

Fewer Contracts

Optimized Supply

Base

Eliminate NVA

Transactions &

Cycle Time

Optimize

Inventory

Levels

Lower Supply Chain

Cost

Demand Reduction

Lower Inventory

Levels

AF Supply System

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Commodity Schema Development StepsCollaborative Approach

Conducted enterprise spend analysis for MSD and Support EquipmentSep 03

Oct 03

ESG Approval of FSC Based GroupingNov 03

Benchmarking to validate Schema

Nov 03

Dec 04 Reworked Groupings With ALCs

Final ESG review Final ESG review

Nov 03 ESG Approval of Selection Criteria

Jan 04ESG Commodity Schema

Approval

5 Feb 04

Alternatives for grouping MSD and Support Equipment items

ESG Review of Proposed Commodity Groups

Feb 04

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# Contract Actions

3136

4018

1591

7111

1576

1154

253

5106

23945

# Contracts

2148

1689

1148

4271

1128

905

180

4159

15628

Stock #s

3417

3121

2358

11138

1862

1034

253

3641

26824

# of CAGEs

460

411

261

808

324

130

45

910

TOTALS 3349

Lead ALC

Oklahoma City

Oklahoma City

Warner-Robins

Warner-Robins

Oklahoma City

Ogden

Ogden

Warner-Robins

Commodity Group

Aircraft Accessories

Aircraft Engines

Aircraft Structural

Communications Electronics

Instruments

Landing Gear

Secondary Power Systems

Support Equipment

Commodity Councils

Lead ALC

OC

OC

W-R

W-R

OC

OO

OO

W-R

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Commodity Council Roles

Commodity Expert

• Engineering and technical expert

• TDA + Engineer• Commodity

Standardization

Commodity Council Director

• Executes CC Mgt • Formulates Accountable

for CAMP• Accountable for Goals

Commodity Council Deputy Director

• Manages council• Coordinates the matrix

support team• Responsible for

assembling the CAMP• Goals and Stds POC

Commodity Sub-Council Manager

• Manages commodity sub-group

• Formulates strategies for sub-group

Sourcing Supply Analyst

• Conducts spend and strategy analysis

• Develops/manages Supplier Scorecards

Procurement Manager

• Develops contract and sourcing strategy

• Executes contract

Data Specialist

• Performs data analysis• Ensures quality and

availability of data

Business Requirements Analyst

• Customer Relations POC• Interpret customer needs

Market Intelligence Analyst

• Research, analyze and interpret market research

• Builds knowledge repository

Commodity Supply Chain Analyst

• Commodity SC Strategic Planning

• Continuous Process Improvement POC

Materiel Governance BoardCo-Chairs : AFMC/PK & LG

ALC/PKs and CSW DirectorGovernance Policy•Set overall CC objectives and goals•Approve CC strategies, plans and measurements•Evaluate on-going CC performance

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Commodity Councils Launched

MGB reviewed initial CAMPs:

• LG Sole Source – approved• LG Competitive – approved with comments• SE Honeywell – approved with comments• SE Oscilloscopes – approved

MGB reviewed initial CAMPs:

• LG Sole Source – approved• LG Competitive – approved with comments• SE Honeywell – approved with comments• SE Oscilloscopes – approved

Completed Commodity CouncilPosition Descriptions & Core Docs

Completed Commodity CouncilPosition Descriptions & Core Docs

Accomplishments:Wave 1 Stand-up - Aircraft Accessories, Landing Gear, Support EquipmentWave 2 Stand-up - Instruments, Power Systems, Electronics/Communications Material Governance Board stood up - Initial commodity strategies validated

Commodity council implementation & support strategy developed

Contracts In Place

Wave 1Wave 2

Wave 3A (Engines)

Strategies Defined

Contracts in Place

Strategy Development Contracts In Place / Monitor

Launch Strategy Development Contracts In Place

Strategy Development

Launch

Launch

Future Launch

Council Launched

Wave 3B (Aircraft Structures) Strategy DevelopmentLaunch

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Strategy Development

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Commodity Council Eight-Step Process

How will our strategies be different?

• Short answer: Depends on analysis

• 8 Step process a framework

• Notional Examples

Strategy Development and ExecutionStrategy Development and Execution

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Strategy Optimization(Notional)

• Current Environment– Large Supply Base

• 2000 Vendors/ 7,200 Items• 75% of vendors supply three or fewer items

– No long-term agreements • Current Market Assessment

– Competitive Market– Many vendors– Small Business Opportunities

• Future Strategy– Competitive long-term contracts– Consolidate sourcing for similar items– Increase small business spend– Incentives to reduce lead-time

Supply Base • Current Environment

– 150+ configurations– Individual orders – Three primary suppliers, but few

Long-term contracts– Steady forecasted demand – Related requirements purchased

separately• Market Assessment

– Commercial product– Requirements satisfied by three

configurations• Future Strategy

– Utilize three configurations for standardization

– Long-term contracts w/competitively selected suppliers

Configuration

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Demand Reduction(Notional)

• Current Environment– 150 items, contract repair spend totaling $25M - $30M forecasted– Mean-time between failures (MTBF) is decreasing – No root cause for the trend identified– Customers demanding better reliability

• Current Market Assessment– Limited Sources, many sole source– Many items repaired by OEM

• Future Strategy– Cooperative effort between suppliers and customers to determine root

causes– Pursue Long-term performance-based agreements to incentivize MTBF

improvement

• Execute/Monitor Strategy

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Consolidated Contract Strategy(Notional)

• Current Environment– OEM has 30 selling units under corporate umbrella– Provides 1200 stock numbers across 8 commodity groups– 600 contracts and $600M in total spend with AFMC– Known source for 500 forecasted stock numbers, $200M spend– Averaging 130 days ALT and 250 days PLT

• Current Market Assessment– Supplier interested in corporate-level contracts– Supplier aligned in four principle market segments

• Future Strategy– Align contracts with commodity and market requirements– Consolidate requirements to fewer long-term strategic contracts

• Execute/Monitor Strategy – Collaborative forecasting and incentives to reduce lead time

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Expected Outcomes

• Benefits to the Warfighter– More responsive to mission demands– Lower cost products– On time deliveries– Fewer items in depots, more at the field units– High quality products

• Benefits to the Air Force– Easier to execute purchasing arrangements– Reduced cycle times– Less transaction “thrash”– Lower Unit Prices– Accountable to AF Corporate Structure

• Benefits to Suppliers– More predictable, longer-term business– Strategic, focused relationship with AFMC– Fewer, higher-value contracts– Lower overhead costs