Performance Based Logistics (PBL)

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What’s PBL mean to you?

PBL is a tool to help achieve the mission through “cost effective readiness” and help you reduce impact of declining resources and steady or increasing mission – Greatest opportunities for using PBL in the logistics community

Develop your skills and increase your value to the Air Force – Broaden your understanding of how functional areas, work (inside

and outside Logistics)

Develop skills that industry values when you leave the Air Force

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We Live in a Challenging Environment

“In the future, we will only have the Air Force we can afford” –LTG Bruce Litchfield

Sequestration

China

Al Qaeda & ISIS

Afghanistan Pakistan

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Purpose: To discuss Performance Based Logistics (PBL) and provide a perspective

What is PBL?

Why is PBL important?

How is PBL being used today?

Conclusions

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What is PBL? - Definition

PBL is synonymous with performance-based life cycle product support, where outcomes are acquired through performance-based arrangements that deliver Warfighter requirements and incentivize product support providers to reduce costs through innovation. These arrangements are contracts with industry or intergovernmental agreements…Not the same as Contract Logistics Support (CLS)

OSD PBL Guidebook Dated May 27, 2014

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PBL & Public Private Partnership Models in DoD

Source: OSD Public Private Partnering for Sustainment Guidebook date 1 Feb 2012

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Why is PBL Important? Source: June 23, 2014 Aviation Week

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Why isn’t PBL used more Widely? Lack of understanding and advocacy within the Services

Lack of supporting processes and tools

Lack of training

Past perceived failures

Number of PBL arrangements steady or declining

Sequestration, budget cuts, personnel cuts

YET…it is more important than ever to use all the tools available to become more efficient so Services can provide the Nation’s defense

Source: June 23, 2014 Aviation Week

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Why is PBL Important?

≈ 60-70% of DoD equipment life cycle costs are in sustainment The Annual DoD Sustainment Spending is $200B+ – $33B depot maintenance; $51B field-level; $28B other maintenance – $74B supply – $24B transportation

5% of DoD systems, sub-systems and components covered by a PBL

Fewer than 90 PBLs today: ≈ 1/2 the number of PBLs in ‟05

Few new PBLs being pursued - some existing PBLs not renewed

Savings potential = 5 - 20% over life of PBL arrangement

PBL- A Potential Tool to drive “Cost Effective Readiness”

Source: OSD PBL Proof Point Study. 2011

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PBL Improves Integration

• Technical management priorities

• Implement technical changes

• Manage processes across all functional support areas

Incentives to Integrate Under

Traditional Approach

Incentives to Integrate Under PBL Approach

• Govt. manages design change and overall engineering support

• Govt. provides logistics support providers funding to make changes

• Support provider is only required to meet Statement of work (SOW)

• Support provider is not accountable to downstream system performance

• Support provider is not incentivized to integrate the supply chain

• Support provider manages design change and overall engineering support

• Support provider invests in changes that improve system readiness or reduce cost

• Support provider profitability is tied to meeting requirements specified in the Statement of Objectives (SOO)

• Support provider is accountable to downstream system performance

• Support provider is incentivized to integrate supply chain

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What is meant by Integration?

Technical Management (How to repair and build. Priorities for technical improvement/refresh)

Optimal Logistics Support

The functional areas of logistic support are dependent on each other. Example: Priorities of technical management impact the what, when, and how to buy for inventory requirements. These technical priorities also affect capacity, cost, and “repair versus buy” decision making at the maintenance facility.

Note: A functional support provider cannot be held accountable to metrics that are not under its control.

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Why is integration so important? Real world example:

Technical evaluation identifies a material property issue causing premature cracking in fan blades

Fan

Fan Blade Status (current configuration): • Over $2M of spare fan blades in inventory • $500K of blades on order. Lead time is 18

months. • Maintenance facility refurbishment process

has a 60% yield at 45% cost of new per repaired blade

• A new configuration design, test, approval, and manufacturing process development will cost $5M. Project timeline - 9 months.

• Life expectancy analysis results in projection of part shortages with impact to warfighter readiness within two years.

Traditional support tradeoffs New configuration Redesign, remanufacture and “throw away” the old blades when new become available. Or Manage the old configuration Focus on improving repair yield and order more of the old configuration blades – Keep up with the increased demand caused by shorter life.

However, a thoroughly integrated support structure lends itself to more complex analysis and creative solutions

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PBL Tenents- OSD “Proof Point” Study

Contract type incentivizes cost reduction behavior and shares the risk from the government to the provider

Incentives and/or penalties aligned to support desired outcome(s) (Key Performance Indicators)

Key Performance Metric(s) manageable and measurable

Agreed upon Key Performance Metric target level(s) for cost, reliability, and availability

Contract length appropriate to support recovery of investments

Source: OSD PBL Proof Point Study. 2011

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Source: OSD PBL Proof Point Study. 2011

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Source: Proofpoint study

The NAVSUP Enterprise

F404 Program Overview

• F404 Engine used on F/A-18 A-D (2 engines per aircraft) • Two configurations – 400 and -402 • Organizational & Intermediate level maintainers supported

by depot level component repair • Engine Profile FY03… over 1500 installs and spares • Pre- PBL: -Material Availability: 43% -Backorders: 718 total…including 436 high priority -Repair Turn Around Time (RTAT): 116 days

The NAVSUP Enterprise

• Current PBL: -FFP requirements contract- one 3 yr base period (2013)

-Covers 35 HOF NIINs -Depot Partnership: FRC Southeast provides touch labor -Performance Metrics – 80% availability…100%(May 14) -WIP reduced by 75%, RTAT reduced by 25% -Backorders consistently in single digits -Contract coverage expires 31 Dec 2015 -Present profile over 1500 installs and spares

F404 Program Overview

The NAVSUP Enterprise

• Repair/overhaul/ replace decision

• Requirements determination/forecasting

• Consumable piece parts

• Warehousing • Transportation

• Configuration management*

• Technology/reliability insertion

• Engineering/tech services

• Obsolescence management PBL Supplier Roles

A Reengineering Tool to Improve Readiness through Reliability

Purpose

Lower Response Time Lighten Logistics Footprint

Increase Availability

Cultivate Long Term

Partnerships With Industry

Leverage Commercial

Supply Chain Solutions

Alternative logistics support solutions that transfer traditional DoD inventory management, technical support, and supply chain functions to the provider for a specified level of performance at the same or reduced

cost.

* Navy retains configuration control

Performance Based Logistic (PBL) Refresher - Background

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PBL Challenges Recognition of Benefits- “What’s in it for me?”

Organization & Culture- Reluctance to relinquish control, lack of effective functional integration,

Complexity- Lack of experience and training, lack of supporting processes and tools, limited resources and time, & accounting practices

Flexibility- Title 10 (50/50 & Core), contract length and type of contract, resource constraints

Inertia- Perception of risk to the organization

“OSD Next Gen PBL IPT” Working Issues

Source: Proof Point study, 2011

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Conclusions

PBL holds great promise but so far, has not achieved significant results

Organizational, policy, day to day priorities, and cultural barriers have frustrated progress

BUT, the environment has changed significantly and PBL is a tool that can help preserve mission capability

Consider benchmarking other Services PBL approach

Change is difficult…but if not us, then who?

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Backup

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How is PBL being used today?

Total = 52

Source: GovWin

Abundant Opportunities for Growth

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What is PBL?

PBLs are part of the DOD “Better Buying Power” initiative

Source: Guidebook dated 27 May 2014

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Industry View- PBL with the Government

Purpose: What outcomes do you want? Lower cost? Reliability? More readiness?

Metrics: It is critical to establish metrics that drive the right outcomes (no magic formula)

Contracts: Contract type (Firm Fixed Price, Cost Plus) Give it some context – Match the contract incentives to the situation – Longer term contracts (5 years +) essential to success so that the contractor has the

ability to recoup investments

Risk: A thorough assessment of risk and uncertainty should shape your strategy – Increase Risk= Increased cost – Data availability will drive what you can accomplish – PPP may induce risk if the “Implementing Agreement” doesn’t hold parties

accountable

Industry can only be held accountable for things they control