Performance Based Logistics“What’s Worked, What Hasn’t, What’s Next”

October 25, 2006

Panel Members

• Randy Fowler,

• Jerry Cothran,

• Jeff Heron,

• Bob Dickie,

Panel Areas of Inquiry

• Genesis and evolution of PBL• Partnering as an integral concept• Range of PBL options• Proven successes• Training and education• Issues with financial enablers• Business case analysis confusion• Contracting for PBL• Increased warfighter/operational connection• Auditors’ observations• PBL way ahead• Audience dialogue

Where did PBL start and how has it developed?

30 PilotPrograms

DoD 5000

Policy

Oversight viaDAB/DAES

DAB New programImplementation (120 Pgms)

OperationalDemonstrations

LessonsLearned

Adjustments

Oversight viaR-TOC Forum

ReengineerProduct Support

• F/A-18 E/F• EFV (AAAV)• F-22• F-35 (JSF)• FCS• CVN-21• V-22

DAES Process (84 Pgms)• Health of Logistics

A joint, disciplined program to successfully implement & sustain PBL!

JACG

IND/Gov’t Forums• PEO/SYSCOM• PM Roundtable• AIA Product Support• NDIA Sys Engr & LOG

Defense

Acquisition

Guidebook

Performance-Based LogisticsRoadmap (1998 – 2005)

Customer Support MilitaryCustomer Support Military

Aerospace

Information contained herein is privileged or confidential information of Parker Hannifin Customer Support, Inc. and exempt from public disclosure under subsection (b)(4) 5 USC 552, subsection (b). Do not disclose outside recipient organization of the U.S. Government.

PerformanceBased

BusinessEnvironment

PerformanceBased

Contracting

LogisticsChain

Management

Supply ChainManagement

Total SystemPerformance

ResponsibilityClear Accountability

in Design

Performance Based Logistics

RiskManagement

PrimeVendorSupport

Prime VendorVirtual Prime

Vendor

Third PartyLogistics

Life CycleProgram

Management

SystemsEngineering

Life CycleLogistics

Life CycleCosting

Flexible Sustainment

Reliability BasedLogistics

Trigger BasedAsset Management

F3I Changes

Sustained Maintenance PlanningReliability Centered

Maintenance

Price perFlight Hour

TeamingProcess Improvement

Business ReengineeringTechnology Insertion

DVD (Repairables)Direct Vendor Delivery

Past PerformanceMetrics / Incentives

Award Term Contracts

Metrics / Incentives forProduct Improvement

Long Term Contracts

F3I Responsibility

Logistics Management Information

Total AssetVisibility

How did PBL evolve How did PBL evolve ––CUSTOMER FOCUSED!CUSTOMER FOCUSED!

When did partnering come on the scene, and what’s the relationship

between PBL and depot maintenance partnering?

Role of Partnering

Contractor Support

Organic SupportCLSORGANIC

More Organic More Commercial

MAJORITYORGANICSUPPORT

MAJORITYCONTRACTSUPPORT

Public/PrivatePartnering

Opportunities

MIX

GOAL: Leverage Innovative Concepts of the Private and Public Sectors to Support the Warfighter at the Best Value for the Department of Defense and the Taxpayer

PBL Offers MultiplePBL Offers MultipleOpportunities for PartneringOpportunities for Partnering

Industry Prime Vendor(Product Support Integrator)

Subcontractor

Subcontractor

Subcontractor

DoD Depot(Subcontractor)

Organic Depot as Subcontractor

to Industry PSI

Contractor utilizingDepot facilities

Contractor/Depotpersonnel sharing

workloads

Government Relationships Are Closer With Industry

Contractors Understand Benefits of PBL RelationshipsShared PBL Objective Requires Trust and Development of Mutually Beneficial Arrangement… “Partner Vice Adversary”RelationshipIndustry Has Better Understanding of PBL Process…OSD, NAVICP, NAVAIR and AIA, etc, PBL Training, Meetings and Working GroupsPositive Relationship Affects All Business…Traditional USN and FMS Support Improves As Well

PBL- What We Have Learned

How did PBL evolve into being applicable to a wide range of

options (e.g., platforms, subsystems, and components?)

PBL Implementation ScopePBL Implementation ScopeRange of OpportunitiesRange of Opportunities

Single Multiple AllSystem Level

Single elementfor an entire system

Multipleelementsfor entire system

All elements for entire system

Sub-SystemLevel

Single element for a singlesub-system

Multipleelementsfor sub-system

All elementsfor sub-system

Component Level

Single element for a single component

Multipleelementsfor a single component

All elementsfor a single component

Logistics Support Elements

There is no There is no ““one size fits allone size fits all”” PBL strategyPBL strategy

Few Long Term, Firm Fixed Priced Contracts at System Level- With Most System Level PBLs, Financial Risk Remains With the USG

F/A-18 FIRST, Covering 73% of the Super Hornet, is the “First”, Long Term, FFP System Level PBL Contract (Awarded 23 Dec 05)

Industry Risk Aversion To FFP for Total System Support

Addition of Components to FIRST Is Based on a BCA and Value Provided by the Airframe OEM

Some Major Sub-System and GFE are Under Separate PBL Contracts

Cost Effectiveness is the Determining Factor, and Must Be Validated by the BCA

Considerations Include Value-Added and Pass Through Costs

Some Aircraft Manufactures, While Proficient in Manufacturing and Systems Integration, Have Little Experience in Sustainment and PBL, and Have Performed Poorly in Pre-MSD Interim Contract Support

Current Issue- System vs. Sub-System Level PBLs

PBL Maturity ModelThe DoD classifies PBLs in 4 stages of Maturity.

Con

trac

t Sco

pe

Wea

pons

Sys

tem

s Sc

ope

Stage 1 Stage 2 Stage 3 Stage 4

Delivery Speed

OperationalAvailability

MaterialAvailability

MissionAssurance

MissionPerformance

Weapon System

Performance

LogisticsPerformance

DistributionPerformance

Logistics Logistics Chain ServicesChain Services

SupplySupplyChain ServicesChain Services

Whole SystemWhole SystemAvailabilityAvailability

Mission SuccessMission Success

Level 1 Level 2 Level 3 Level 4Source: Adaptation of the PRTM Maturity Model framework/benchmarking study presented at Fall 2005 AIA conference

What are some outstanding examples of PBL successes?

Army PBL Army PBL Performance SuccessesPerformance Successes

Navy PBL Navy PBL Performance SuccessesPerformance Successes

Air Force PBL Air Force PBL Performance SuccessesPerformance Successes

And Optimizes Cost…

• Proven Operational Readiness improvements from PBL • Clear signs that PBL has positive impacts on cost as well

Why They Work:We Buy a Comprehensive Performance Package… Not Individual Parts, Repairs, ECPs, etc.This Approach Changes the Provider Incentive Paradigm

Fixed Price “Pay for Performance” Contract Now Motivates Provider to Reduce Failures / ConsumptionLong Term (5-15 years) Commitment Enables Provider to Balance Risk Vs. Investment

Improves Parts Support … Material Availability Increases + Logistics Response Time (LRT) Decreases Resulting in Improved ReadinessOptimizes Depot Efficiency … Build Specs, Repair Turn Around Time (RTAT), Awaiting Parts (AWP), & Work in Process (WIP) DecreaseInvests in Reliability … Mean Time Between Failures (MTBF) ImprovesProactive in DMSMS Management … Must Resolve DMSMS and Obsolescence Issues to Achieve Outcome Based Performance Metrics

PBL- What We Have Learned

Provider Actions