Changing the Military

By Kevin Fogarty  |  Posted 2006-05-29 Print this article Print

?"> Changing the Military?

Thats not to say everyone is as enthusiastic about having Lockheed Martin or any other contractor take over responsibility for a large part of the supply and maintenance of systems on which the lives of American servicemen and servicewomen depend.

While slightly less than half of all DOD sustainment operations involve some form of contractor/military integration, formal PBL arrangements are still made on a product-by-product basis.
There has been no widespread acceptance of contractors as equal partners in the sustainment of war-fighting systems, according to Jim Beggs, PBL analyst at Booz Allen Hamilton, in McLean, Va.

The GAO also has been skeptical about the cost efficiency of military/contractor shared sustainment contracts since at least 1997, when it issued a report saying cost savings could not be proved.

The agencys most recent shot at the arrangements, which revolve around PBL metrics, was a September 2005 report unambiguously titled "DoD Needs to Demonstrate That Performance-Based Logistics Contracts Are Achieving Expected Benefits."

"Theres no substantiation that any change in the DOD, in anything theyve done or for however long, has resulted in an efficiency gain," Beggs said.

Its hard to make an apples-to-apples comparison among programs because each sustainment contract is so different, according to Dave Pauling, assistant deputy secretary of defense for maintenance and depot policy at the DOD, in Washington.

Measures of effectiveness also range widely, and cost may not be the most meaningful. According to a report from supply chain specialist Lexington Institute, PBL-based arrangements increased availability of air-based, close-in weapons systems in Iraq from 80 to 89 percent; increased the availability of F-14 targeting systems from 73 to 90 percent; and increased engine uptime for the F-404 to 90 percent while cutting maintenance time by more than half.

Similar arrangements cut depot-based maintenance time—which requires a helicopter to be taken not only out of service but also often out of the country in which its operating—from 261 days to 76 days and reduced the wait for F-18 supplies from 47 days to seven days, according to a 2005 presentation from the office of the assistant undersecretary of defense for logistics.

There is little specific research within the DOD to support the idea, but sharing common systems such as pump mechanisms or wiring among several classes of Navy ships could save 30 to 40 percent on parts and maintenance. But it isnt done because designers start from scratch rather than using an inventory of parts that have already been designed and building on top of them, Grosson said.

That kind of "innovation" is a prime example of how shared sustainment contracts can benefit the military, he said.

"The money well save in IT implementation is incredible. The money well save in other implementations is considerable as well," Grosson said. "If the DOD is spending $100 billion a year on sustainment, and we can take out 10 percent, think about what you can do with that in a war-fighting infrastructure."

Performance-Based Logistics

Since 2000, the Department of Defense has been trying to add PBL arrangements to its supply contracts, with limited success. The goal is to save money and increase the uptime of weapons systems by getting the systems vendors to make cost and delivery of support more efficient.

Incentives to Integrate Supply Chains

Traditional contracts

  • Government manages design changes and continual upgrades and engineering support

  • Government pays logistics support providers to make changes to static supply plans

  • Support providers goals are limited to delivery of X number of parts by X date, not by the quality of the parts or the need for them at the time and place of delivery

  • Support providers responsibility stops when parts are delivered

  • Support provider has no incentive to make chain of supply and service more efficient

PBL Agreements

  • Support provider manages design changes and engineering upgrades

  • Support provider gets additional revenue to increase system uptime or reduce costs

  • Support providers payments depend on meeting performance requirements for the system, not delivery requirements for the parts

  • Support provider becomes responsible for the ultimate performance of the system; the more efficient the supply chain, the more money the support provider makes

DOD: PBL provides a more flexible model for weapon-system support and maintenance that may save money and deliver greater uptime by outsourcing support to product manufacturers, whose contracts include strong incentives toward speed and adaptability.

Lockheed Martin Aeronautics position: Love it, love it, love it.

PBL gives producers of complex systems the opportunity to build revenue by moving more heavily into support and maintenance contracts that last the life of a product. PBL also builds in incentives for the vendor to make its products more reliable (and therefore cheaper to support) and its service more effective (and cheaper to deploy).

Check out eWEEK.coms for the latest news and analysis of enterprise supply chains.


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