1. Navy Sparing
CAPT Mike Fabish
N412
11 January 2005

2. Agenda Navy Sparing Background Wholesale Sparing Aviation Retail
Maritime Retail
Initiatives

3. Spares are segmented into two categories:
Spares - Background
Spares are segmented into two categories:
Wholesale
Replenish retail requirements
Provides mat’l not “allowanced” at retail
Support depot maintenance
Navy Working Capital Fund managed
Retail
With end item
Tied directly to procurement (APN-6/OPN-8/WPN-6)
NAVICP’s universe of items is very diverse with widely differing item characteristics.

4. Wholesale System Characteristics
Managed by Naval Inventory Control Point (NAVICP)
Nearly four hundred thousand parts
Diverse customer base
Widely varying demand patterns
Install base varies from 2 platforms to hundreds of platforms
Wide range of prices
Impact on readiness
NAVICP’s universe of items is very diverse with widely differing item characteristics.

5. $15.8B Annual Proc/repair budget Maritime - 256,000 NSNs
NAVICP Inventory
Aviation ,000 NSNs
$15.8B Annual Proc/repair budget
Maritime - 256,000 NSNs
$4.1B Annual Proc/repair budget
This data is from the September 2003 Supply System Inventory Report and Master Data File Data.
It illustrates the size of the Navy inventory.
The Ships community manages twice as many items as the Aviation community, but Aviation repairable items are extremely expensive.

6. Requirements Determination Objectives
Support Operational Availability objectives
Minimize total cost to Navy
Provide material when and where required
It has always been our objective to minimize costs to the Navy customer.

7. Wholesale Inventory Model
Minimize the Total Variable Costs (TVC) of holding, ordering and customer shortages for a stated objective...i.e. ;
85% SMA
21 days average wholesale delay time
90% Operational Availability
Wholesale inventory model uses facts and formulas to represent each component of “TVC”
Formulas are balanced against each other
Cost minimization occurs at balance point

8. Premise…..
Repair When Possible
Procure When Necessary

9. When To Order
Place next order when inventories drop to Reorder Level (ROL)
“ROL” is amount of material needed to meet demand until next stock arrives
Composed of:
Stock to cover demand during procurement and repair lead time
Safety stock
Replacement stock due to wearout (attrition stock)
Offset by:
Repairs during lead time...regenerations (REGN’s)
Formula for ROL:
ROL = Lead time Demand - Lead Time REGN’s + Demand During Repair Time + Safety Stock
The UICP Supply Demand Review (SDR) B10 program computes procurement requirements for the NAVICP. This program is run at least once per quarter.

10. How Much To Order Balance ordering and holding costs
Ordering: Administrative cost to buy, setup costs
Holding: Price, interest, obsolescence, storage
Should be minimized i.e. least economic cost
Economic Order Quantity (EOQ)
Amount of material to order at ROL that balances ordering and holding costs
EOQ = * attrition demand * cost to order holding costs * price
Responsible management of inventory demands that costs be balanced.
Ordering costs are directly related to the Order Quantity. As ordering costs rise, the EOQ will also rise.
Holding costs are indirectly related to the EOQ. As holding costs increase, the EOQ will decrease.

11. When To Repair
Repair next batch of NRFI material when on-hand RFI assets drop below repair level
Repair Level (RL):
Amount of material needed to meet demand until next repaired stock arrives
Composed of:
Demand during Repair Turn Around Time (RTAT)
Safety Level
Formula for RL:
RL = RTAT Demand + Safety Stock
The repair level is computed by the UICP Cyclic Levels and Forecasting application/operation, D01.
The Level Schedule, Workload Forecasting and the B08 Repair programs use the Repair Level to schedule timely repair inductions.

12. Required to protect against logistic process variability
Safety Levels
Required to protect against logistic process variability
Demand variability
Lead Time variability
Repair Time variability
Attrition Rate variability
Key determinant of inventory performance
SMA, A/O, ACWT...numbers & percent misses, Backorder Delay Time
Safety Level cushions us against the variability in the logistics process. Without this cushion, we cannot achieve our readiness goals.
We are funded for a specific amount of Safety Level (expressed in days of safety level) to achieve certain target goals.
To function as a Safety Level, our safety level stock must be on hand, in ready for issue condition. Assets due in on contract or in M or G conditions, are not functioning as safety level stock.

13. Aviation developed Statistical Demand Forecasting
Mitigation efforts
Aviation developed Statistical Demand Forecasting
SPC targets items for re-forecasting
Demand spikes trigger manual reviews
5 years of demand history
Graphic display of demand patterns
THF data available
View demand pattern by UIC
For active non-program related items only
More stable forecasts, reduced churn
SDF applies Statistical Process Control (SPC) to the demand process.
Although we do not have control over our customer’s demand patterns, with SPC we can better analyze and understand the nature of the demand process.
This enables us to make more stable forecasts and to monitor those forecasts for accuracy. The forecast in file is applied as a mean to the incoming demand observations. Using SPC, SDF compares the forecast/mean to the new observations collected after the forecast selection date. As long as the forecast is “in control”, it is kept in file, unchanged. In this way, SDF maintains a stable forecast and eliminates churn.
When the forecast fails our SPC bias tests (incoming demand is running consistently above or below the forecast), or when a recent demand observation spikes higher than the upper control limit, the item is considered “out of control” and SDF signals a manual review of the item or creates a new forecast.

14. Maritime - developed better trend detection technique - Kendall’s “S”
Mitigation efforts
Maritime - developed better trend detection technique - Kendall’s “S”
Much better at finding Trends than old UICP
Passes common sense test
Normal forecasting can concentrate on stable forecast
UICP tried to follow each variation as if it were a trend. This jerked the forecast up and down. It was a very reactive forecasting technique.
Ships had set the UICP smoothing weight to .1 to dampen the strength of the UICP reaction. This caused UICP to be less reactive but still did not help detect true trends.

15. Demand Forecasting What’s Left to Do?
Combine SDF and Kendall into UICP
Identify different demand patterns example:
High demand - low variability
One large demand observation every 3 to 4 years
Match forecasting technique to demand pattern
Now that SDF and Kendall have been used for a decade, the concepts are proven. A hybrid forecasting model should be the result.
This would allow us to have the best of both worlds. Non trending items could be kept stable using the SDF logic. Trending items could be either forecasted in an automated mode or sent out for a manual review with the trending signal.

16. Aviation Planeside Inventory
Inventory positioned on ships and at air stations / Marine activities to support intermediate maintenance / local operations
Inventory built to cover endurance period without re-supply and time for re-supply from wholesale system
Customer requisitions filled immediately ~75% of the time from planeside inventory
Bottom line: Accurate Allowance + Filled Allowance = Backbone of Naval Aviation

17. Aviation Planeside Inventory
Definitions
Aviation Allowance Lists
Material required to support planned aircraft baseload, based on maintenance capability, for a specified period of time
AVCAL (Aviation Consolidated Allowance List)
Allowance lists for material to support embarked aircraft aboard CVs and L-ships for a 90- day endurance period at wartime flying hours
SHORCAL (Shore based Consolidated Allowance List)
Allowance lists to support shore sites for a 30-day endurance period at peacetime flying hours

18. Marine Aviation Logistics Support Package
Aviation Planeside Inventory
Marine Aviation Logistics Support Package
(MALSP)
FISP (Fly-in Support Package)
Allowances to support specific Type/Model/Series (T/M/S) aircraft for the first 30 days of combat
CSP (Contingency Support Package)
Allowances to support specific T/M/S/ for a 90-day endurance period
FOSP (Follow-on Support Package)
Allowances which do not initially deploy to the area of operation.

19. Aviation Allowance Process
The Rules
…61% Fully Mission Capable
N881 Memo dated 19 Jun 1993
Guidance CNO Instruction C
“O” Level - Remove and Replace … RBS Level to Support CNO Readiness Goal
“I” Level - Fix Protection Fixed Endurance Level
Flying Hours CWT Endurance
CV / L-Ships
MALS
Overseas P-3
Overseas NAS
CONUS NAS
War Time 25 90
Peace Time 25 60
Peace Time

20. Aviation Allowance Process
The Tools
Weapon System Aircraft Weapons Individual
Planning Document Equipment List System File Site Factors
Qty and Type
Of Aircraft by Site
Auth Flying Hours
By A/C Type
Peacetime
Wartime
Top-Down
Breakdown of
Weapons systems
Starts with initial
Provisioning rates
updated by
AV-3M data
Planned maint.
Capability and
Operating hrs
Prior off-site
Attrition, on-site
Repairs and
Turn-around
time
Specific A/C
Configuration by
site
Detailed Equip
Candidate file
Common Rates Computation System
Common Allowance Development System

21. Aviation Allowance Process
The Model
Aviation Readiness Requirements Oriented to Weapons Replaceable Assemblies (ARROWS)
Readiness Based Sparing (RBS)
Allowances Based on:
Specified CNO T/M/S goals
Wholesale resupply time
Failure rates
“I” level capability
Operating tempo
Cost
Retail Inventory Management for Aviation (RIMAIR)
Allowances Based on:
Demand
Endurance period
Fixed protection each line item
Does not address MC/FMC goals
No mission essential/cost trade-offs
I Level - PAGGD
O Level - PAOGD
RBS Optimizes Cost Effective Readiness

22. Aviation Allowance Process
How it Comes Together
Weapon System File
Outfitting Directive
WSPD
3-M/System Usage
TMS/Qty/Hours
(Tailored AECL)
Candidate File
Readiness
Site IMRL
Goals/Costs
CRCS/CADS
ARROWS
(Maintenance Capability)
(RBS)
Final
Allowances
Conference
Allowances

23. + + Aviation Allowance Process Critical Building Blocks
Planeside Allowance
Local Repair
Wholesale Resupply +
Off-The-Shelf Fill Rates
Turn-Around-Time Performance
Returns to Depot
Logistics Response Time
Is Allowance
Planeside?
Is Local Repair
Sustaining the Allowance?
Is Wholesale Back-up Inventory
in Place?
Readiness
Based Sparing
to CNO Goals
Establish the Right Plan Fund the Requirement
Meet the Goals
Response Time & Inventory Positioning = Readiness

24. Maritime Spares … The Right Mix
Increased Availability and Decreased Response Time Flow into Decreased Shipboard Allowances…
Increased Decreased Lower Requirement
Wholesale Logistics for Shipboard Spare
Availability Response Time Parts Allowances + =
Leveraging PBLs, better
processes, and taking on
risk to make a leaner
COSAL…
More robust wholesale response paves the way to leaner shipboard inventories

25. Making COSAL Allowances
Maintenance Philosophy
System Population…Redundancy
Allowancing
Factors
Support Concept
Logistic Response Time
ORD Operational Availability
Historical Demand
Overrides
Demand Based
Readiness Based
Modeling
Computing
Techniques
“Driven” to on board
Sparing by a decision
in the provisioning process
(PMS, safety, etc.)
Forecasted demand, based on:
- Estimated failure rates
- Actual failure rates
RBS Model…least cost set of
spares for required Operational
Availability (Ao)…run at
system level (CIWS, AEGIS, etc.)
COSAL ALLOWANCES
Final
Product

26. Making COSAL Allowances
Output…
Allowance Computation…
COSAL Composition Examples…
Demand Based
Overrides
Readiness Based
Availability (Ao)…run at
spares for required Operational
RBS Model…least cost set of
system level (CIWS, AEGIS, etc.)
- Actual failure rates
- Estimated failure rates
Forecasted demand, based on:
in the provisioning process
Sparing by a decision
“Driven” to on board
(PMS, safety, etc.)
Support Concept
Maintenance Philosophy
Logistic Response Time
System Population…Redundancy
ORD Operational Availability
COSAL ALLOWANCES
Allowancing
Factors
Modeling
Computing
Techniques
Final
Product
DDG-51
CVN-68
LHD-1
Timing…
MSD
Initial
Sustainment
SCN (Pre-delivery)
OPN-8(New system)
OPN 8 (Maintenance)
SCN (Refueling Overhaul)
O&MN (Shipboard Replen)
Navy Material Support Date
Override Allowance
Demand Based Allowance
Readiness Based Allowance

27. Measuring Risk… Readiness Based Allowances Demand Based Allowances
(“FLSIP” – Fleet Logistic Support Improvement Program)
.5+ FLSIP
Mod FLSIP
Operational Availability (Ao)
Effectiveness
Price Sensitive FLSIP
Cost of Spares
Cost of Spares
Risk is measured in effectiveness…
…each item removed is a potential step
down the effectiveness curve
Risk is measured in Ao…
…each item removed is a potential step down
the operational availability curve

28. Managing Risk…Demand 1982 1993 2004 Future…
MOD FLSIP COSAL
.5+ FLSIP COSAL
Price Sensitive FLSIP COSAL
Exploit the opportunities to cut shipboard allowances based upon decreased resupply time with wholesale PBL performance
Allowance Reconciliation Tool
Ship Class Replacement Factors
Centralize both pre- and post- MSD allowancing processes at NAVICP
1 Demand in 10 Years…cuts for allowance
1 Demand in 2 Years…cuts for allowance
< $1,000 Item Demand in 2 Years…cuts for allowance
> $1,000 Item Demands in 1 Year …cuts for allowance
Reductions: % Line Item % Cost
$200M Saved
4% Effectiveness Reduction
Reductions: % Line Item % Cost
$39M Proj Savings
2.5% Proj Effectiveness Reduction
Current Initiatives
Tie allowance products to FRP maintenance cycle
Centralize initial and interim support
Minimize Shipboard Allowance Churn and Costs
Standard Model From Day One
Early RBS Where Applicable…Maximize Effectiveness/Minimize Cost
Centralized Management of MAMs and INCOs
Maximize Potential for PBL at Initial Installation
Improved Response Times…LRT
Incentive for Reliability Improvements…Reduce Material Usage/Costs
As the Navy becomes less risk adverse, stock levels afloat can decrease.

29. Incremental cost worth
Managing Risk…RBS
RBS to affordable Ao (knee of curve)
Max marginal rate of return for investment
Risk of sparing below OPNAV approved Ao
Expanded use of Multi-Echelon RBS
Optimizing mix of wholesale & afloat
Stock high cost/low demand ashore… reduces afloat assets/cost
Maintaining Operational Availability (Ao)
Leveraging PBL performance to reduce afloat spares
Reduced OS&T & Improved reliability requires fewer shipboard spares to achieve Ao Ao
Stakeholders decide:
Incremental cost worth
Added Ao?
Cost Ao
Cost of Spares

30. What’s next? Transforming traditional allowance computations
New platforms
Allowance to changing maintenance philosophy
Smaller crew = maintenance ashore = fewer spares afloat
Increase use of PBLs at inception
Invoke Price Sensitive FLSIP model at outfitting
Existing platforms
Invoke Price Sensitive FLSIP model for sustainment allowances
Allowance to maximum utility Ao at knee of curve for RBS systems
Use Ship Class Replacement Factors vice Fleetwide factors
Allowance Reconciliation Tool
Overall approach
Working with Maritime Allowance Working Group on risk profile
Collaborate with NAVSEA, PEOs to link pre and post MSD sparing
Increase multi-echelon RBS sparing

31. Multi - Indenture Allowance
Initiatives
Multi - Indenture Allowance
Readiness/cost trade-offs between indentures (e.g. WRAs/SRAs)
Prototypes underway for NAS Lemoore and a CV deckload
CRCS/CADS implementation provided initial capability
Multi - Echelon Allowance
Key to Single National Inventory
Optimizes placement of material between wholesale/retail
Requires IT system able to integrate
Enterprise Resource Planning (ERP)
Current SMART implementation does not address allowancing
Converged ERP – single configuration and maintenance database many users

32. CSFWP Cost Review AFAST Data
CPH: Since December, we have gone from 15% under-execution of flight hours to less than 1% under-execution. AVDLR CPH increased $400 per flight hour over March.
Green in Fuel, yellow in AFM, yellow in AVDLR, and yellow in Total Cost.
Over head costs are $16.9M, of which $6.4M are AFM overhead.
AIMD AFM is $26.7M that includes that $6.4M in AFM overhead.
Squadron AFM is $15.1M.
Top 4 squadron AFM = $3.5M
Top 25 squadron AFM = $6.0M
Working the top 4:
1. Pylon poppet valve: used on Super Hornet station 6 centerline for drop tank or ARS. Consumable, $67K each. Used 17 FYTD. CSFWP/CNAP issued price challenge. $1.14M FYTD.
2. ECS Ejector valve: two per Super Hornet. Consumable, $20K each. Used 52 FYTD. VFA-115 directed by CSFWP to change out 22 prior to deployment to offset engine pull. VFA-122 used 30 as aircraft went through mods with engine already removed. AYC1019 direct change prior to 1400 flight hours. Since this was a TD, why didn’t NAVAIR pay for this vice the FHP? $1.03M FYTD.
3. Pitot-static tube: two per Super Hornet. Consumable, $16.5K each. Used 42 FYTD. 23 of 42 in VFA Students tanking? The tubes are damaged, not failing.
4. Flameholder: Used on F engine. PPC104 in August 2002 changed this from AIMD to squadron level maintenance. AFM charge has followed suit. VFA-151 is only upper lot squadron in Lemoore and used 11. VFA-27 – 2, VFA-192 – 13, and VFA-195 – 11.

33. CSFWP FA-18A-F Cost/Readiness Rating

34. Maintenance Plan Reviews

35. Reliability Reviews

36. AVDLR Consumption Review

37. AFM Consumption Review

38. Cost Per Flight Hour Trend
PAC FA-18 AFM
Cost Per Flight Hour Trend
Engine support is driving total FY04 cost variance

39. PBL Applications System Level ILS Elements Sub-system Level
NAVICP is the Navy’s Center of Excellence for PBLs and is actively pursuing a strategy to increase the scope of PBLs, with the ultimate goal to move toward Total Life Cycle Systems Management (TLCSM). The TLCSM approach emphasizes an early focus on weapons system sustainment within the overall acquisition life cycle. PBL is the preferred TLCSM execution tool, as it translates life cycle requirements into an affordable performance package that optimizes system readiness and operating costs.
To achieve the end result, NAVICP is aggressively engaging Hardware Systems Commands (HSCs), Program Offices, and Fleet Commanders as partners in the way ahead. To enable progress to the end state, NAVICP has adopted a phased approach that adds support for additional ILS elements and increases PBL coverage to include full systems and platforms.
Performance-based support from cradle-to-grave is the future of Naval logistics. Progress made by current NAVICP efforts must spread to cover more systems, more complete platforms, and more ILS elements. Current efforts on the F/A-18E/F Integrated Readiness Support Teaming (FIRST) program, H-60 “Tip to Tail” (T2T) and the DDG-51 Class Flight IIA Ship's Stores Refrigeration system will be expanded and become the rule in PBL support. The FIRST contract with Boeing covers over 100 aircraft systems and over 130 suppliers on one contract with guaranteed availability and reliability improvements. The H-60 T2T PBL contract signed 30 December 2003 places 540 airframe, avionics and dynamic components in the hands of a single integrator, the Maritime Helicopter Support Co., with plans to expand to over 1,331 items in support of over 325 H-60 various aircraft. The Refrigeration System contract with Bath Iron Works (which essentially “buys cold air”) covers all ten ILS elements and moves responsibility for total system support to the PBL integrator.
These efforts align with Total Life Cycle Systems Management guidance that mandates integrated performance-based support from acquisition through sustainment to disposal. Cost-wise readiness requirements compel incorporation of PBL solutions during the acquisition process with sustainment performance and costs addressed up front.
CAPT: This slide does somewhat repeat message of slides 8 and 9. The intent of this slide is to show where the Navy is moving towards PBL for all ACAT I and II weapons systems in accordance with TLCSM guidance. Slides 8 and 9 demonstrate that NAVICP is already going in that direction.
Component Level

40. System/Component Level
NAVICP PBL Obligations
Awarded PBLs
# of Contracts Awarded
Aviation Maritime Total
# of PBLs $ Value # of PBLs $ Value # of PBLs $ Value
FY $21.0M $14.0M $35.0M
FY $51.0M $34.0M $85.0M
FY $146.5M $98.2M $244.7M
FY $228.6M $102.8M $331.4M
FY $306.1M $179.7M $485.8M
FY $361.5M $163.9M $525.5M
FY04(to 1-31) $366.3M $57.9M $424.2M
Types of PBLs in FY03 Total:
Philadelphia:
Total: 62 Full: 31: Partnership: 9 (Partnership same as full with organic depot involvement);
Mini Stock Point: 10; Organic: 8; CLS: 2; Commercial: 2
Mechanicsburg:
Total: 76 Full: 12; Mini Stock Point: 11; Organic: 26; CLS: 1; Commercial: 26

41. PBL Successes Improved Availability Better Response Time
CIWS improved from 80% to 89%
F-14 Targeting System improved from 73% to 90%
Better Response Time
F/A-18 Stores Mgmt System decreased from 47 days to 7 days
Auxiliary Power Unit (APU) decreased from 35 days to 6 days
RTAT was decreased from 162 days to 38 days
Guaranteed Reliability
Radar Warning Receiver increased 53%
H-60 FLIR increased 40%
Reduced Inventory
Tires…no wholesale, no warehouse costs
APU…no wholesale, 40% decrease in retail inventory
The CIWS (Close In Weapons Support) PBL (full) was awarded to Raytheon in Mar 2000 for $97M over 5 years. The PBL has guaranteed availability of 85%. Contractor is responsible for inventory management and warehousing, Class II ECP authority, and makes all build/repair/buy decisions. 
The F-14 LANTIRN Targeting System PBL (full) was awarded to Lockheed Martin in Jan 2001 for $66M. LANTIRN is the F-14’s night targeting system. The PBL is an eight-year FFP contract that covers inventory management, warehousing, and obsolescence. The contract includes guaranteed availability. All 843 requisitions received since contract award have been filled within five days. The contract provided outstanding surge support during OEF and OIF.
The F/A-18 Stores Management System PBL (full) was awarded to Smiths Industries in Sept 1999 for $99M. The SMS controls weapons release on the F/A-18A/B/C/D aircraft. The PBL is a 15-year, Firm Fixed Price (FFP) contract The contract includes guaranteed availability, obsolescence management, contractor field reps, contractor FOB destination transportation, and reliability incentives. 
The Auxiliary Power Unit PBL (partnership) was awarded to Honeywell in June 2000; $202.7M for 10 years. APUs covered by the PBL are used on the P-3, C-2, F/A-18, and S-3 aircraft. It is a partnership effort with NADEP Cherry Point. The APU contract is a ten-year FFP contract with guaranteed reliability improvement and availability. The contract also covers obsolescence management and product engineering support.
 The ALR-67(v)3 Radar Warning Receiver PBL was awarded to Raytheon in October 1999; $58.4M over 5 years. ALR-67(v)3 is an F/A-18E/F production system. PBL awarded prior to IOC. NAVAIR funds part of contract. Firm-fixed price contract with guaranteed reliability improvements. Contract includes inventory management, obsolescence management, and loaner spares if required.
 The H-60 FLIR was awarded to Raytheon in September 2003; $123M contract for 10 years. PBL is a partnership with NADEP Jacksonville. Contract covers three major components; turret, electronic unit, hand control. The contract is a firm-fixed price with guaranteed reliability improvement and availability. The contract also covers obsolescence management and product engineering support.
The Tires PBL (full) was awarded to Michelin in Feb 2001 for $257M (Managed in Common Avionics – covers 23 different tires used on 17 different platforms). The PBL is 15-year FFP with guaranteed availability.