Gulf Coast Chapter of the American

Society of Military Comptrollers (ASMC)

and the Northwest Florida Chapter of

the National Contract Management

Association

8 March 2012

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

Kenneth D. Merchant, Maj Gen, USAFProgram Executive Officer for WeaponsCommander, Air Armament Center

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Balancing Capability / Affordability to meet Warfighter Needs

Overview

• Air Armament Center Mission

• Re-Organization at Eglin

• Better Buying Power Initiatives

• Weapon Buying Opportunities

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AAC Mission

To develop, acquire, and test war-winning weapons. We deliver state-of-the-art weapons to the warfighter, provide top quality installation support to all AAC and tenant units, and serve as

responsible stewards of our resources.

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Transition Technology to Weapon Systems and Provide War Winning Capabilities On Time, On Cost 4

The Weapons Life Cycle

Developmental and Operational Test and Evaluation

Training Future Pilots, Maintainers, EOD Personnel and others

Training Testing AcquisitionTechnology

Science and Technology with AFRL and others

Product Support and Weapon Lifecycle Development

96ABW-2012-0013

Balancing Capability / Affordability to meet Warfighter Needs

Overview

• Air Armament Center Mission

• Re-Organization at Eglin

• Better Buying Power Initiatives

• Weapon Buying Opportunities

596ABW-2012-0013

FM

Functional Operating Location

(Eglin AFB, FL)

AQ

EN DP

SB PK

XR

Air Force Test Ctr (AFTC)

AF Life Cycle

Mgmt Ctr (LCMC)

HQ Air ForceMateriel Command

SAE

Air Armament Center(AAC)

Eglin AFB, FL

AAC Now…to Proposed

Armament Directorate

Eglin AFB, FL

AIR DOM

DIR ATTK

LR SYS

MINI MUN

ADV PRGM

TST & TRNG

AQ

EN

SB

XR

PK

FM

DP

JA

EO

SE

XP

46 OG

46 MXG

46 RANG

AF Seek Eagle Ofc

46 TG(Holloman AFB, NM)

46 Test Wing 96 Air Base Wing AAC Center Staff

CS

96 MDG

96 MSG

96 CPTS

96 CEG

96 CPTS

HC

IG

PA

XP

Museum

IP

CP

Air Force Test Ctr (AFTC)

Edwards AFB, CA

AF Life Cycle Mgmt Ctr (LCMC)

WPAFB, OH

96 Test WingEglin AFB, FL

CCC

CS

CCP

CCQ

CAG

HO

CSH

96 MDG

96 MSG

96 CPTS

96 CEG

96 OG

96 MXG

96 RANG

AF Seek Eagle Ofc

PA

IG

Museum

IP

XP

EO

JA

SE

CP

46 TG(Holloman AFB, NM)

XP

Mun Sust (Hill)

Balancing Capability / Affordability to meet Warfighter Needs

Overview

• Air Armament Center Mission

• Re-Organization at Eglin

• Better Buying Power Initiatives

• Weapon Buying Opportunities

796ABW-2012-0013

Context for 5th Gen Air Armament

• Change• Reduced Budgets = Program Cancellations• Smaller Workforce• Increased Competition• Increased Collaboration for Better Business Deals• Increased Focus on Process Improvement• Increased Focus on Leadership

896ABW-2012-0013

9

• Comprehensive reviews of Indirect Costs with focus to increase buying power

• Maximizing efficiencies through competition and business strategies

• Identifying cost drivers and developing should costs for production programs

• Analyzing benefit/need of weapons warranties

Better Buying Power Initiatives

96ABW-2012-0013

• Members (SESs & PMs):• NAVAIR NAVSEA • MDA DCMA • Armament Center Army PEO for Space and Missiles

• Capitalize on targets of opportunity for large savings• Synchronizing awards for alignment between

programs• Multiple year contracts -- Base year plus options• Bundled material procurements• Common contract requirements language• Value Engineering Proposals/cost reduction

initiatives• Jointly benchmarking warranty approaches

• Explore cross-cutting efficiencies and "Better Buying Power" opportunities with our main industry partners

10

Maintaining momentum of Joint Management Council (JMC)

DCMA & Joint Buying Command Fully Engaged to Establish Better Rate Structure

Better Buying Power Initiatives

96ABW-2012-0013

Balancing Capability / Affordability to meet Warfighter Needs

Overview

• Air Armament Center Mission

• Precision Strike Weapon Status

• Better Buying Power Initiatives

• Weapon Buying Opportunities

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Today’s Weapons Purchases

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Unstable buys cause the closure of production lines and the laying-off of skilled full-time workers. Specialized manufacturing capacity and human capital cannot be regenerated without great cost and significant time. (USA007065-11, pg1)

Quantity, Quality, and Price

13

Quantity

Quality

Price

EOQ Min Quantities Current Practice

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AIM-XXX Data (notional)

14

FY1FY2

FY3FY4

FY5FY6

FY7FY8

FY9FY10

FY110

20

40

60

80

100

120

140

160

0

200

400

600

800

1000

1200

1400

Profile (60 to 150/yr) WSEP Use (25/yr)Total Buys Real Inventory

Costly inventory lost to non-critical Test &

Training (WSEP)

Unstable buys drive up per unit cost and reduce the industrial

base’s ability to sustain itself

These inefficiencies ultimately extend the

process allowing inflation to consume valuable TOA dollars

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FY1FY3

FY5FY7

FY9FY11

0

20

40

60

80

100

120

140

0

200

400

600

800

1000

1200

Profile (125/yr) WSEP Use (18/yr)Total Buys Real Inventory

AIM-XXX Data (notional)

15

Practical weapon substitutions for

WSEP

Avoided inflation and lower WSEP costs free TOA to enable competition/carry another contractor

Stable buys drive down cost and steady

demand provides a stable revenue flow & basis for long-range strategic investment

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A-A Enterprise Look

16

Missed opportunity to leverage buying efficiencies

AMRAAM NGM

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Summary

• Current practice of unstable purchases inhibits our ability to leverage buying power

• Effective upfront spending, stable buy quantities, and effective WSEP use are vital to correction

• Predictable spending leads to smarter break points• Enterprise view of each capability is critical to

leveraging better buying power

1796ABW-2012-0013

Final Thoughts

• Declining Budgets Will Present Significant Opportunities• Rapidly Changing Defense Landscape• Programs That Can’t Keep Up Will Not Survive• The Defense Team Needs to Innovate

– Not just on technology, but how we maximize procurement funds

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QUESTIONS?19

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