Naval Inventory Control Point 1 Performance Based Logistics: A New Business Paradigm Ready....

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Naval Inventory Control Point

Performance Based Logistics:A New Business Paradigm

Ready. Resourceful. Responsive!


Director, Integrated Logistics Support3 October 2002

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Agenda

• PBL Background

• Acquisition Process

• Business Case Analysis

• Statutory Requirements

• Awarded PBLs

• PBLs on the Horizon

• Lessons Learned

• Take-Aways

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PBL Background

Concept: Single Supplier / Integrator

(Commercial or Organic) Provide Fleet Improved Weapon System Support Through:

•Cost: Reduced Total Ownership

•Obsolescence Management

•Reliability Improvement/Tech Refreshment

•Availability Improvements

Comply with USC Title 10 CORE Statues:

• Partner with Government (e.g. Depots)

Must pass Business Case Analysis (BCA):

• Sound Business Decision

• Merits Must Stand-up to Audit

Reduced Total Cost to the Fleet

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PBL BackgroundA Necessary Transformation

A Fundamental Change in the way NAVICP provides Weapons System Support!!!

Philosophy Drives Perspective ICP Role

Historically

Today

InventoryBased

PerformanceBased

Lowest Price

Best Value

ManageSupplies

ManageSuppliers

Results

Focus Exclusively on Supply Availability

More Infrastructure Higher Total Costs No Incentive to

Improve Reliability or Quality

Focus on Customer Service, Reliability and Readiness

Less Infrastructure Lower Total Costs Increased Reliability Higher Quality

Change Driven by:Fewer Resources,

Acquisition Reform,& Technology Advances

The Result...High Yield Logistics

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PBL BackgroundA Necessary Transformation

Guaranteed Warehousing Obsolescence Availability Management

Inventory Mgmt Transportation Reliability Improvement

Engineer/Technical Warranties Configuration

Support Control Piece Part Support

Roles

PurposePurpose

Reduce CostLower Response TimeLighter Logistics TailIncrease Availability

Buying Performance … Not Parts

CultivateLong Term

PartnershipsWith Industry

LeverageCommercial

Supply ChainSolutions

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PBL BackgroundThe Support Spectrum

Mini-stock point

Commercial Off-the-shelf

“Full Service” Contractor Logistics Support

Increasing supplier responsibilities

Increasing supplier responsibilities

PBL Support SpectrumPBL Support Spectrum

ORGANIC SUPPORT

Warehousing Rqmts Determination Some Level of Repair

Warehousing Rqmts Determination Wholesale Ownership Config Mgmt Some Obsolescence

Mgmt Some Repair /

Overhaul / Replace

Vendor Manages ILS Elements

Warehousing Rqmts Determination Wholesale Ownership Config Mgmt Obsolescence Mgmt Reliability Guarantees Eng / Tech Support Govt / Industry Partnership Repair / Overhaul / Replace

COMMERCIAL SUPPORT

Traditional MSP Full PBLPBL-CPBL-O CLS

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Acquisition Process

Cultivate Long Term Partnerships:• Promote Supplier Investment• Technology Infusion• Enable Supplier ROI

Leverage Best Business Practices • Supply Chain Management• Warehousing• Forecasting• Other?

Obsolescence Management Reward Performance Metrics: Meaningful and Measurable

• Joint Review Boards Manage Supplier NOT Supplies

Contract Type:• Fixed, Cost, Both, …Hybrid• Requirements, IDIQ

Length:• 5–15 Years; Base & Option(s)

Metrics:• Cost, Availability, Reliability, Availability

Incentive:• Profit (Monetary, Non-Monetary, Gain Sharing

Risk Sharing:• Ramp-up Periods• Exit Provisions

PBLs: One Size Does NOT fit All …Each is Unique!

Procuring the Performance End-State …NOT the How To

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Acquisition Process Acquisition Process Candidate SelectionCandidate Selection

New ItemsCommercial for Life

Obsolescence ChallengesLow Reliability

Poor AvailabilityHigh Cost/High Demand

NAVICPTargets

NAVICPTargets

SYSCOM(Program Office)

FLEET

OSD(ACAT I, II, and

New Start Programs)DON APR 02 MEMO

Industry

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Mission Need

IdentifiedHSC Selects

OEM E&MDFull Rate

Production IOC MSD

TraditionalIdeal

RINU/AHRSNGS ALR-67 (V)3 SCADC

Acquisition Process Acquisition Process Systems… earlier is betterSystems… earlier is better

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0.010

0.100

1.000

0.010 0.100 1.000Low

Hig

h

Good Poor

Performance Index = RI + SI

Cos

t In

dex

= D

CI

Median = 0.033

Median = 0.79

AAS-38 F-18 FLIR

AWG-9 F-14 Radar

H-53 Xmission

ASN-92 INS (Common)

APG-73 F-18 Radar

APG-71 F-14 Radar

F-18 MLG

Performance

Cos

t

APU

Cost-Performance Matrix - Top 200 Aviation SystemsCost-Performance Matrix - Top 200 Aviation Systems

AAR-50 F-18 Infrared

APG-65 F-18 Radar

00

H-53 MRHP-3 Prop

APS-120 E-2 Radar

F-18 Arresting Gear

AWG-9 Ctrls and Displays

EA-6B LongitudinalPitch Ctrl Surface

Acquisition Process Acquisition Process Targeting Legacy SystemsTargeting Legacy Systems

E-2 Signal Processor

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Work with all stakeholders early in the PBL formulation process to ensure that Core issues are being addressed:• Is the system Core?• Is there Navy/DoD core logistics capability?• What is depot impact?• What is Core strategy?

Address Core compliance strategy in the J&A

Obtain buy-in from ASN (RD&A) on strategy to address Core statute compliance early in PBL development process

Initiate Congressional Notification as early as possible

Acquisition ProcessIntegrated Process Team

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Business Case Analysis

Business

Case

Analysis

Proposal

•Material: Procure Repair

•Inventory Control

•Management OH

•Warehousing

•PHS&T

•Asset Visibility

•Engineering

•Other

Material Costs

•Procure Repair

Other Costs•Inventory Control

•Management OH

•Warehousing

•PHS&T

•Asset Visibility

•Engineering

•OtherPBL Proposal Should Target Performance Improvements

and Not Cost More Than Tradition Support

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Not more than 50 percent of the funds made available in a

fiscal year to a military department or a Defense Agency

for depot-level maintenance and repair workload may be

used to contract for the performance by non-Federal

Government personnel of such workload for the military

department or the Defense Agency. Any such funds that

are not used for such a contract shall be used for the

performance of depot-level maintenance and repair

workload by employees of the Department of Defense

10USC § 2466

Statutory RequirementsThe 50/50 Rule

Applied at the Service (DON) levelApplied at the Service (DON) level

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Core Logistics Capabilities shall include those capabilities that are

necessary to maintain and repair the weapon systems and other

military equipment (including mission-essential weapon systems or

material not later than four years after achieving initial operational

capability, but excluding systems and equipment under special

access programs, nuclear aircraft carriers, and commercial items)

that are identified by the Secretary, in consultation with the

Chairman of the Joint Chiefs of Staff, as necessary to enable the

armed forces to fulfill the strategic and contingency plans prepared

by the Chairman of the Joint Chiefs of Staff.

If system is Core, DoD must have Core logistics capabilityIf system is Core, DoD must have Core logistics capability

10USC § 2464

Statutory RequirementsCLC Rule

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Notification must address:

1. The competitive procedures used to award the contract

2. The cost/benefit analysis demonstrating savings

3. Conformance with 10 USC 2466 (50/50 rule)

4. Conformance with 10 USC 2464 (CLC requirement)

Statutory Requirements Congressional Notification

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The Wave Of The FutureThe Wave Of The FutureThe Wave Of The FutureThe Wave Of The Future

Awarded PBLs

35.185.3

244.7

331.4

425

600

0

100

200

300

400

500

600

700

FY98 FY99 FY00 FY01 FY02(Est)

FY03(Est)

Obligations$M

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Awarded PBLs

E-2 Mission Computer

• $16M obs over 5 years• Contractor will manage

piece part inventory• Guaranteed availability

2 days • reliability guarantee of

10,000 hours MTBF (15 year warranty, 5 years priced, 2 other 5 year periods are options

• loaner spares clause if reliability is not met

• $14M savings over 15 years

Aircraft Tires

• $266M obs over 15 years

• 23 types...17 platforms

• Inv mgmt / warehousing transportation

• Guaranteed availability 95% in 2 days CONUS / 4 days OCONUS

• First performance review… filled over 8000 reqn… 96.43% availability!

• $48.8M savings over 15 years

Aviation Successes

• $66M obs over 8 years

• Inv mgmt/warehousing

• Obsolescence mgmt

• Contractor manages wholesale (forward- positioned) ship stock

• Guaranteed availability 90% in 5 days…ipg1s in 2 days

• $33M savings over 8 yrs

F-14 Night Target System

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Awarded PBLs

50 Person Life Raft

• $6.6M Obs over 5 years

• COTS replacement for MILSPEC item

• Vendor owned inventory

• Commercial technology

• Replacement for MK 6 25-Person Life Raft (2:1)

• Over 50% cost avoidance for CV/CVNs

•4-year base contract w/ one 4-year option; $33.5M for 4-year base

•1600 line items; Transitioned from a Mini Stock Point to Full PBL; minimum fill rate of 87% …

•Contractor Responsibilities: material requirements determination, requisition support, CONUS transportation and tracking, Class II ECP authority

AEGIS Spy 1 Radar ARC-210 Radio

• $35.9M Obs Over 5 Years

• Inv Mgmt/warehousing

• Config/Obsolescence Mgmt...MTBF Guarantees… Growth Incentivized

• Guaranteed Availability 85%/90% with Incentives… 2 Days Pri 1-3...5 Days Pri 4-15

• $5.4M Savings over 5 years

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• Supports C-2, F/A-18, S-3 and P-3.

• Public / Private Partnership– Honeywell... Program Management– NADEP Cherry Point... Sub-contractor

performing touch labor

• 10-Yr Performance Based, Firm Fixed Price (5 year base & 5 one-year options)

• 25% - 45% Reliability Improvement

• Delivery Guarantees... 2 Days (IPG 1)

• Obsolescence Management

• Surge Capability...120% of Annual FH’s

• Product Support Engineering

On-Line Shipping & Inv

Mgmt

Title 10Compliant

Auxiliary Power UnitAuxiliary Power Unit

Awarded PBLs

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F/A-18E/F Integrated Readiness Support Teaming (FIRST) concept, an alternative support strategy emphasizing Government/Industry partnerships, risk management and shared accountability.

Awarded May 01

Features:•Guaranteed response time•Teaming arrangement with three NADEPs•Reliability improvements-targeted at 10%•Streamlined configuration control and obsolescence mgmt•Industry support for E/F peculiar WRAs, lower assemblies and piece-

parts•Reduced cycle time•Reduced cost of ownership•Integrated funding streams

F/A-18 E/F FIRST

Awarded PBLs

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• PBL Features – 116 NIINs ... –400 / -402 series – Availability / reliability incentives– 20% surge requirement– 5 year base

• Pre-Solicitation Conference /Competitive RFP Issued– Two approved sources– Orenda declined– J&A modified / sent to ASN

• Next Steps– Finalize BCA– Complete PWS– Alpha contracting ... Dec '02 Award

F404 7R Components

Next step ...Consumables for

I-level / whole engine repair

PBLs on the Horizon

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Avionics Dynamic Components Tip-to-Tail- Lockheed Martin - Sikorsky - MHSCo- 42 Avionics - 14 major dynamic - 1331 total

components components components- Awarded May 02 - Est. award Oct 02 - Est. award Dec 02- $5M contract - $150M contract - $1.3B contract- Guaranteed - Guaranteed - Guaranteed response time response time response time- Obsolescence - Obsolescence - Obsolescence

Management Management Management - $456K in savings - Firm-fixed price per - Firm-fixed price per

flying hour flying hour - Guaranteed reliability

improvements

PBLs on the Horizon

H-60 PBL Evolution

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Lessons Learned

PBL process is time and labor intensive Work within Govt funding structure and BCA framework

Rqmt is enhanced performance at less cost Teams must work at taking advantage of supply chain consolidation Initiatives underway to review BCA process… Day with Industry

planned Can work… APU and Tire PBLs good case studies

Challenge of aging and inherently unreliable systems Inserting technology upgrades… big cost issue Combining efforts with LECP program may provide opportunities

Bring all corporate resources to the table Idea sharing across business areas Large private investment may be needed to make efforts work

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Take-Aways

• NAVICP is teaming with Systems NAVICP is teaming with Systems Commands and fleet customers to Commands and fleet customers to develop innovative support develop innovative support alternatives.alternatives.

• NAVICP is making significant NAVICP is making significant investments of NWCF and personnel investments of NWCF and personnel to accomplish this goal.to accomplish this goal.

• PBLs… Procuring the performance PBLs… Procuring the performance end state, not the how toend state, not the how to

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