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8/8/2019 FINLEY_Aerospace and Defense PBL Bench Marking Results for AIA PSC 2005 (3)
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ManagementConsultants
www.prtm.com
Leading thinking for lasting results
Aerospace and Defense IndustryBenchmarking Survey Results
2005 AIA Product Support Conference
November 9 th , 2005
For further information, contact:
Mike Finley, Director Ned Glattly, PrincipalTony Gonalves, Manager
PRTM1000 Thomas Jefferson St., NWSuite 600Washington, DC 20002
Tel: (202) 625-7200Fax: (202) 625-7256
[email protected] [email protected]@prtm.com
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]8/8/2019 FINLEY_Aerospace and Defense PBL Bench Marking Results for AIA PSC 2005 (3)
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Findings and insights on performance-based logistics inthe A&D industry
Why benchmark
How A&D industry supply chains are performing
Findings on the state of PBLs
What it means to be Performance-Based
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Seminal study of A&D industry PBLs and their associatedsupply chains
OSD and AIA sponsored
Goals of the studyDevelop a measure of PBL progress thus far
Understand which PBL practices lead to superior supply chainperformance and which do not
Develop recommendations and a path forward to improve future PBLs
Provide readouts to participants with their individual results
Over-arching Goal
Validate case for moving overall industrial base up the PBL maturity scaleGovernment win: better weapons system performanceIndustry win: shareholder value
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A&D PBL supply chain benchmarking provides insight intoPBL value
PBLs align the supply chain building blocksOrganizations
Practices
Information
Alignment and process maturity lead to logistics performance
Maturity and performance leads to uplift
Greater profits for industry and revenue from expanded service offeringsBetter performance and lower costs for government
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The study is based on the DoD standard maturity model
ContractScope
WeaponsSystem
sScope
Component
PlatformPerformance Outcome
Stage 1 Stage 2 Stage 3 Stage 4
Delivery Speed
Operational Availability
Material Availability
Mission Assurance
MissionPerformance
WeaponSystem
PerformanceLogistics
Performance
DistributionPerformance
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Benchmarks allow improvement in practices leading toperformance improvement
Interpretation of performance drivers and practices
Understanding of current practices and their impact on key metricsDevelopment of hypothesis for potential improvement areas
Understanding of performance gaps and path to close
Supply Chain Performance Versus Comparison Population
Key Perspectives
Metrics
0% - 20%
Major Opportunity
20% - 40%
Disadvantage
40% - 60%
Median
60% - 80%
Advantage
80% - 100%
Best-in-Class
Your Org.
On-Time Delivery to Request %68.8% 88.2% 87.1%
On-Time Delivery to Commit %74.7% 95.0% 94.2%
Order Fulfillment Lead Time11.0 6.4 8
Customer-facing Metrics:
Upside Production Flexibility42.0 10.8 10
Total Supply-Chain Management Cost9.0% 3.8% 1.2%
Cash-to-Cash Cycle Time93.6 42.7 15.4
Internal-facingMetrics:
Inventory Days of Supply 74.9 37.7 9.4
Net Asset Turns2.0 10.8 5.5
**There are between 25 30 organizations meeting the current criteria**This report uses the following Categories:
Industry: Electronic Equipment = XYZ Co.
Supply Chain Performance Versus Comparison Population
Key Perspectives
Metrics
0% - 20%
Major Opportunity
20% - 40%
Disadvantage
40% - 60%
Median
60% - 80%
Advantage
80% - 100%
Best-in-Class
Your Org.
On-Time Delivery to Request %68.8% 88.2% 87.1%
On-Time Delivery to Commit %74.7% 95.0% 94.2%
Order Fulfillment Lead Time11.0 6.4 8
Customer-facing Metrics:
Upside Production Flexibility42.0 10.8 10
Total Supply-Chain Management Cost9.0% 3.8% 1.2%
Cash-to-Cash Cycle Time93.6 42.7 15.4
Internal-facingMetrics:
Inventory Days of Supply74.9 37.7 9.4
Net Asset Turns2.0 10.8 5.5
**There are between 25 30 organizations meeting the current criteria**This report uses the following Categories:
Industry: Electronic Equipment = XYZ Co.
Quantitative Performance Scorecard
DOMINANT PRACTICESSupply Chain & IT Practices Assessment
Stage 1:Functional Focus
Stage 2: InternalIntegration
Stage 3: Cross-Enterprise
CollaborationStage 4: eClass
Functionality
P LA N S trategy
Demand Planning
Supply Planning
Demand/Supply Balancing & Decision-making
S O UR CE S t ra t eg y
Commodity & Process Management
Supplier Development / Management
Organization & Infrastructure
M A K E M a nu fa c tu r in g S t ra t eg y
Production Scheduling
Material Issue, Movement and Tracking
Manufacturing Process Control
D E LI VE R E n a bl e
Order Entry & Scheduling
Warehousing, Transportation and DeliveryInvoicing and Cash Collection
OVERALL Supply Chain Strategy
Supply Chain Performance Management
Supply Chain Processes
Supply Chain Organization
= Be st in Cla ss = Me dian = XYZ Co.
Sample Data for Illustrative Purposes Only
DOMINANT PRACTICESSupply Chain & IT Practices Assessment
Stage 1:Functional Focus
Stage 2: InternalIntegration
Stage 3: Cross-Enterprise
CollaborationStage 4: eClass
Functionality
PLA N S trategy
Demand Planning
Supply Planning
Demand/Supply Balancing & Decision-making
S O UR CE S t ra t eg y
Commodity & Process Management
Supplier Development / Management
Organization & Infrastructure
M A K E M a nu fa c tu r in g S t ra t eg y
Production Scheduling
Material Issue, Movement and Tracking
Manufacturing Process Control
D E LI VE R E n ab l e
Order Entry & Scheduling
Warehousing, Transportation and Delivery
Invoicing and Cash Collection
OVERALL Supply Chain Strategy
Supply Chain Performance Management
Supply Chain Processes
Supply Chain Organization
= Be st in Cla ss = Me dia n = XYZ Co.
Sample Data for Illustrative Purposes Only
Qualitative Practice and IT Assessment
Notional examples for illustrative purposes only
Practice Maturity Enables Performance Improvement
Notional Data
Notional Data
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Discrete supplychain processesand data flowswe ll
documented andunderstood
Resourcesmanaged atdepartmentlevel andperformancemeasured atfunctional level
Stage 2:
InternalIntegrati
onStage 1:Functional Focus
Company-wideprocess anddata modelcontinuouslymeasured atthe company,process, anddiagnosticlevels
Resourcesmanaged atboth functionaland cross-functionallevels
Strategicpartnersthroughout theglobal supplychaincollaborate to:
Identify jointbusinessobjectivesand actionplans
Enforcecommonprocessesand datasharing
Define,monitor,and react to
erformance
IT andeBusinesssolutionsenable acollaborativesupply chainstrategy that:
Alignsparticipatingcompaniesbusinessobjectivesandassociated
processes Results in
real-timeplanning,decision-making, andexecution of supply chainresponses tocustomer
Stage 3:ExternalIntegrati
on
Stage 4:Cross-
EnterpriseCollaboratio
n
Understanding stage of maturity helps move toward world-class performance levels
Early Stage Mature
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Results in brief
PBL Supply Chains vs. traditional aerospaceand industrial (A&I) supply chains
Have lower costs as a percent of revenue
Exhibit more mature practices
Are challenged by customer speed requirements
Cost performance and practice maturity arehighly correlated
Opportunities for improvement abound
Sharing general results
Survey sponsorsreceive more specificfeedback
Individual participantsanonymous due to non-disclosure agreements
Detailed individualfeedback to participants
Survey responses indicate that A&D PBL supply chainsare demonstrating superior performance in most areas
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Survey participants describe significantly more maturepractices than similar A&I supply chains
1.5
2
2.5
3
3.5
4
P r a c
t i c e
M a t u r i
t y S c o r e
( 1 - 4
)
S t r a t e g y
D e m a
n d P l a n n
i n g
S u p p
l y P l a n
n i n g
/ S u p p
l y B a l a
n c i n g
E n a b l e
n t r y &
S c h e
d u l i n g
S . C . P
r o c e s s
e s
T r a n s
. & D e l i v e
r y
S . C .
O r g .
Current Practices and IT Assessment
Survey Participants A&I Supply ChainsPBLs haverelatively moremature planningprocesses andSupply Chainorganizations
Order managementis the only areawhere PBLs trailthe rest of industry
4 = Collaborative3 = External Integration2 = Internal Integration1 = Functional Focus
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1.5
2
2.5
3
3.5
4
P r a c
t i c e
M a
t u r i
t y S c o r e
( 1 - 4
)
S t r a t e
g y
D e m a
n d P l a n n
i n g
S u p p
l y P l a n
n i n g
/ S u p p
l y B a l a
n c i n g
E n a b l e
n t r y &
S c h e
d u l i n g
S . C . P
r o c e s s
e s
T r a n s
. & D e l i v e
Emerging Practices and IT Assessmen
Survey Participants A&I Supply Chains
Survey participants are targeting more mature practices thansimilar A&I supply chains
PBLs are satisfiedwith order andsupply chainprocesses and do notplan to growth inthese areas
PBLs want to createvery maturedistributioncapabilities andSupply Chainorganizations
4 = Collaborative3 = External Integration2 = Internal Integration1 = Functional Focus
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PBLs out-perform A&I supply chains on cost,but encounter high customer expectations
0%10%20%30%40%50%60%70%80%90%
100%
On TimeDelivery to
Request
On TimeDelivery to
Commit
Survey ParticipantsA&I Supply Chains
0%
10%20%30%
40%
50%60%
70%80%
Supply-Chain
Mgmt Costas % of
Revenue
COGS as %
of Revenue
Survey ParticipantsA&I Supply Chains
Note: Other A&D Supply Chain assessments from PRTM historical benchmarking database
Speed Gap Cost AdvantageHigh customer expectations
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More mature practices have 42% lower supply managementcosts
Supply ChainManagement Costas a % of Revenue
Top Performing Supply Chains
Most Mature Practices
Practice Maturity
Top PerformersAll Others
InternalIntegration
ExternalIntegration
+
86%Overla
p
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Participants see Government as less keen on more maturePBLs
4%8% 10%
19%15%
32%27%
23%
43%
0%
10%
20%
30%
40%
50%
Desired PBL Contract Type Mix(as viewed by participants)
Industry Government
Participants were asked to describe both their & the governments ideal mix of PBL contracts
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Participants view Government acceptance as the primarybarrier to accelerating use and maturity of PBLs
When asked to rank the top 6 barriers to accelerating use of PBLS
(1 = most important; 6 = least important)
71% Ranked education of Government employees as number 1 or 2
57% Ranked multi-year funding as priority 1 or 2
0% Ranked education of industry employees as number 1 or 2
100% of participants said industry is more willingthan Government to use Mission Assurance PBLs !
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The study confirms known PBL challenges
Observed Examples
Payment and incentives are not well alignedto outcomesLots of metrics, often not tied to payment
PBL with 5 different performancemetrics, but only one used asbasis of payment
Government owns, but industry managesinventory
No incentive to right size inventory
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PBL contract revenue
2% 0%
40%
29%
6%
24%
52%47%
0% 0%0%
10%
20%
30%
40%
50%
60%
No Stage Stage 1 Stage 2 Stage 3 Stage 4
Revenue Classified by PBL Contract TypeNumber of Contracts by PBL Type
PBLs accounted for ~35% of the participants total revenue
Relative AnnualValue per PBL by
Type
S t a g
e 1
S t a g
e 2
S t a g
e 3
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Maturity classification vs. payment
Evaluation of PBL MaturityBased on Payment Basis
0%18%
29%
53%
0%10%20%30%40%50%60%70%80%90%
100%
S t a g e 1
S t a g e 2
S t a g e 3
S t a g e 4
PBL Maturity Based on ReportedContract Type
47%
24%
29%
0%
0%
10%20%30%40%50%60%70%80%90%
100%
S t a g e 1
S t a g e 2
S t a g e 3
S t a g e 4More than 50% of PBLs saw themselves as more mature by one
stage than what the payment basis would suggest
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The case for inventory ownership
PBL Inventor Ownership
>90
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Average PBL life is only five years, even with options
Survey Respondent PBLBase Contract Length
(in years)
0% 20% 40% 60%
0
1
2-3
4-5
Survey Respondent PBLOption Length
(in years)
0% 20% 40% 60%
0
1
2-3
4-5 AverageBase
~3.2 years
AverageOption
~1.9 years
Short option periods discourage continuous improvement
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Contract lengths are often too short to create an incentive for industry to invest to create greater value
C o s
t
Traditional vs. Performance-Based Contract
Providers profitsare higher (Areabetween the linesis bigger with PBL)
Total Cost for the Governmentis lower
Investmentto improvereliability
TermTraditional Govt Cost PBL Govt Cost
PBL Industry CostTraditional Industry CostIndustry Profit
Average PBLBase Period
Term- 3 yrs
I n v e s t m e n t
R e c o v e r y P e r i o d
Time creates incentives to invest to reduce costs
Obsolescence mayoffset some costimprovementsanticipated at renewal
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More value available
Government is missing the opportunity to unlock more valuein terms of weapons system performance and life cycle costs
53%
18%
0%
10%
20%
30%40%
50%
60%
% Reported as Stage 3% Reported with Inventory, Configuration, & Repair
Only a third of the reportedstage 3 PBLs were
responsible for the major value-chain activity drivers of
operational availability
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S h i i d li i h h f
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Synchronizing and aligning the tenets to the performanceobjective desired creates value for industry and the warfighter
The PBL MaturityFramework provides a wayto break down a PBL into
its critical parts andA-B: Alignment valuecreation
A-C: Scope value creation
A-D: Scope & alignmentvalue creation
Alignment
Performance Objective
Delivery Speed
Operational Availability
Material Availability
Mission Assurance
Stage 1 Stage 2 Stage 3 Stage 4
SharedSharedValue CreationValue Creation
SharedSharedValue CreationValue Creation
SharedSharedValue CreationValue Creation
SharedSharedValue CreationValue Creation
PerformancePerformance
IncentivesIncentives
PerformaPerformancence
IncentiveIncentivess
PerformancePerformanceIncentivesIncentives
PerformancePerformanceIncentivesIncentives PerformancePerformance
PeriodPeriodPerformancePerformancePeriodPeriodPerformancePerformance
PeriodPeriodPerformaPerformancence
PeriodPeriod
Payment BasisPayment BasisPayment BasisPayment Basis
Payment BasisPayment BasisPayment BasisPayment Basis
Value-ChainValue-ChainOwnershipOwnership
Value-ChainValue-ChainOwnershipOwnership
Value-ChainValue-Chain
OwnershipOwnership
Value-ChainValue-Chain
OwnershipOwnershipValue Scope
V al u
e C r e
a t i on
A C
D
B
Changing the objective creates more potential value, greater value is not automatic
B th g t d i d t h g t t iti t
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Both government and industry have great opportunities toimprove future performance-based relationships
Govt IndustryAlignment
Train contracts personnel on PBL concepts and metrics All payments must be tied to desired performance metricLeadership must continue to push for more mature PBLs Stage 1s should be challenged
Inventory
Use working groups to create collaborative inventory models Longer partnershipsCreate incentives for continuous performance and costimprovements in base and option periodsPrice option year risk when longer periods are needed to
recoup investmentsValue-ChainTransfer authority & responsibility industry must control allthe necessary levers to maximize value and performance