3 Spares are segmented into two categories: Spares - BackgroundSpares are segmented into two categories:WholesaleReplenish retail requirementsProvides mat’l not “allowanced” at retailSupport depot maintenanceNavy Working Capital Fund managedRetailWith end itemTied 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 partsDiverse customer baseWidely varying demand patternsInstall base varies from 2 platforms to hundreds of platformsWide range of pricesImpact on readinessNAVICP’s universe of items is very diverse with widely differing item characteristics.
5 $15.8B Annual Proc/repair budget Maritime - 256,000 NSNs NAVICP InventoryAviation ,000 NSNs$15.8B Annual Proc/repair budgetMaritime - 256,000 NSNs$4.1B Annual Proc/repair budgetThis 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 objectivesMinimize total cost to NavyProvide material when and where requiredIt 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% SMA21 days average wholesale delay time90% Operational AvailabilityWholesale inventory model uses facts and formulas to represent each component of “TVC”Formulas are balanced against each otherCost minimization occurs at balance point
8 Premise…..Repair When PossibleProcure When Necessary
9 When To OrderPlace next order when inventories drop to Reorder Level (ROL)“ROL” is amount of material needed to meet demand until next stock arrivesComposed of:Stock to cover demand during procurement and repair lead timeSafety stockReplacement 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 StockThe 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 costsHolding: Price, interest, obsolescence, storageShould be minimized i.e. least economic costEconomic Order Quantity (EOQ)Amount of material to order at ROL that balances ordering and holding costsEOQ = * attrition demand * cost to order holding costs * priceResponsible 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 RepairRepair next batch of NRFI material when on-hand RFI assets drop below repair levelRepair Level (RL):Amount of material needed to meet demand until next repaired stock arrivesComposed of:Demand during Repair Turn Around Time (RTAT)Safety LevelFormula for RL:RL = RTAT Demand + Safety StockThe 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 LevelsRequired to protect against logistic process variabilityDemand variabilityLead Time variabilityRepair Time variabilityAttrition Rate variabilityKey determinant of inventory performanceSMA, A/O, ACWT...numbers & percent misses, Backorder Delay TimeSafety 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 effortsAviation developed Statistical Demand ForecastingSPC targets items for re-forecastingDemand spikes trigger manual reviews5 years of demand historyGraphic display of demand patternsTHF data availableView demand pattern by UICFor active non-program related items onlyMore stable forecasts, reduced churnSDF 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 effortsMaritime - developed better trend detection technique - Kendall’s “S”Much better at finding Trends than old UICPPasses common sense testNormal forecasting can concentrate on stable forecastUICP 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 UICPIdentify different demand patterns example:High demand - low variabilityOne large demand observation every 3 to 4 yearsMatch forecasting technique to demand patternNow 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 operationsInventory built to cover endurance period without re-supply and time for re-supply from wholesale systemCustomer requisitions filled immediately ~75% of the time from planeside inventoryBottom line: Accurate Allowance + Filled Allowance = Backbone of Naval Aviation
17 Aviation Planeside Inventory DefinitionsAviation Allowance ListsMaterial required to support planned aircraft baseload, based on maintenance capability, for a specified period of timeAVCAL (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 hoursSHORCAL (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 InventoryMarine 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 combatCSP (Contingency Support Package)Allowances to support specific T/M/S/ for a 90-day endurance periodFOSP (Follow-on Support Package)Allowances which do not initially deploy to the area of operation.
19 Aviation Allowance Process The Rules…61% Fully Mission CapableN881 Memo dated 19 Jun 1993Guidance CNO Instruction C“O” Level - Remove and Replace … RBS Level to Support CNO Readiness Goal“I” Level - Fix Protection Fixed Endurance LevelFlying Hours CWT EnduranceCV / L-ShipsMALSOverseas P-3Overseas NASCONUS NASWar Time 25 90Peace Time 25 60Peace Time
20 Aviation Allowance Process The ToolsWeapon System Aircraft Weapons IndividualPlanning Document Equipment List System File Site FactorsQty and TypeOf Aircraft by SiteAuth Flying HoursBy A/C TypePeacetimeWartimeTop-DownBreakdown ofWeapons systemsStarts with initialProvisioning ratesupdated byAV-3M dataPlanned maint.Capability andOperating hrsPrior off-siteAttrition, on-siteRepairs andTurn-aroundtimeSpecific A/CConfiguration bysiteDetailed EquipCandidate fileCommon Rates Computation SystemCommon Allowance Development System
21 Aviation Allowance Process The ModelAviation Readiness Requirements Oriented to Weapons Replaceable Assemblies (ARROWS)Readiness Based Sparing (RBS)Allowances Based on:Specified CNO T/M/S goalsWholesale resupply timeFailure rates“I” level capabilityOperating tempoCostRetail Inventory Management for Aviation (RIMAIR)Allowances Based on:DemandEndurance periodFixed protection each line itemDoes not address MC/FMC goalsNo mission essential/cost trade-offsI Level - PAGGDO Level - PAOGDRBS Optimizes Cost Effective Readiness
22 Aviation Allowance Process How it Comes TogetherWeapon System FileOutfitting DirectiveWSPD3-M/System UsageTMS/Qty/Hours(Tailored AECL)Candidate FileReadinessSite IMRLGoals/CostsCRCS/CADSARROWS(Maintenance Capability)(RBS)FinalAllowancesConferenceAllowances
23 + + Aviation Allowance Process Critical Building Blocks Planeside AllowanceLocal RepairWholesale Resupply+Off-The-Shelf Fill RatesTurn-Around-Time PerformanceReturns to DepotLogistics Response TimeIs AllowancePlaneside?Is Local RepairSustaining the Allowance?Is Wholesale Back-up Inventoryin Place?ReadinessBased Sparingto CNO GoalsEstablish the Right Plan Fund the RequirementMeet the GoalsResponse Time & Inventory Positioning = Readiness
24 Maritime Spares … The Right Mix Increased Availability and Decreased Response Time Flow into Decreased Shipboard Allowances…Increased Decreased Lower RequirementWholesale Logistics for Shipboard SpareAvailability Response Time Parts Allowances+=Leveraging PBLs, betterprocesses, and taking onrisk to make a leanerCOSAL…More robust wholesale response paves the way to leaner shipboard inventories
25 Making COSAL Allowances Maintenance PhilosophySystem Population…RedundancyAllowancingFactorsSupport ConceptLogistic Response TimeORD Operational AvailabilityHistorical DemandOverridesDemand BasedReadiness BasedModelingComputingTechniques“Driven” to on boardSparing by a decisionin the provisioning process(PMS, safety, etc.)Forecasted demand, based on:- Estimated failure rates- Actual failure ratesRBS Model…least cost set ofspares for required OperationalAvailability (Ao)…run atsystem level (CIWS, AEGIS, etc.)COSAL ALLOWANCESFinalProduct
26 Making COSAL Allowances Output…Allowance Computation…COSAL Composition Examples…Demand BasedOverridesReadiness BasedAvailability (Ao)…run atspares for required OperationalRBS Model…least cost set ofsystem level (CIWS, AEGIS, etc.)- Actual failure rates- Estimated failure ratesForecasted demand, based on:in the provisioning processSparing by a decision“Driven” to on board(PMS, safety, etc.)Support ConceptMaintenance PhilosophyLogistic Response TimeSystem Population…RedundancyORD Operational AvailabilityCOSAL ALLOWANCESAllowancingFactorsModelingComputingTechniquesFinalProductDDG-51CVN-68LHD-1Timing…MSDInitialSustainmentSCN (Pre-delivery)OPN-8(New system)OPN 8 (Maintenance)SCN (Refueling Overhaul)O&MN (Shipboard Replen)Navy Material Support DateOverride AllowanceDemand Based AllowanceReadiness Based Allowance
27 Measuring Risk… Readiness Based Allowances Demand Based Allowances (“FLSIP” – Fleet Logistic Support Improvement Program).5+ FLSIPMod FLSIPOperational Availability (Ao)EffectivenessPrice Sensitive FLSIPCost of SparesCost of SparesRisk is measured in effectiveness……each item removed is a potential stepdown the effectiveness curveRisk is measured in Ao……each item removed is a potential step downthe operational availability curve
28 Managing Risk…Demand 1982 1993 2004 Future… MOD FLSIP COSAL.5+ FLSIP COSALPrice Sensitive FLSIP COSALExploit the opportunities to cut shipboard allowances based upon decreased resupply time with wholesale PBL performanceAllowance Reconciliation ToolShip Class Replacement FactorsCentralize both pre- and post- MSD allowancing processes at NAVICP1 Demand in 10 Years…cuts for allowance1 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 allowanceReductions: % Line Item % Cost$200M Saved4% Effectiveness ReductionReductions: % Line Item % Cost$39M Proj Savings2.5% Proj Effectiveness ReductionCurrent InitiativesTie allowance products to FRP maintenance cycleCentralize initial and interim supportMinimize Shipboard Allowance Churn and CostsStandard Model From Day OneEarly RBS Where Applicable…Maximize Effectiveness/Minimize CostCentralized Management of MAMs and INCOsMaximize Potential for PBL at Initial InstallationImproved Response Times…LRTIncentive for Reliability Improvements…Reduce Material Usage/CostsAs the Navy becomes less risk adverse, stock levels afloat can decrease.
29 Incremental cost worth Managing Risk…RBSRBS to affordable Ao (knee of curve)Max marginal rate of return for investmentRisk of sparing below OPNAV approved AoExpanded use of Multi-Echelon RBSOptimizing mix of wholesale & afloatStock high cost/low demand ashore… reduces afloat assets/costMaintaining Operational Availability (Ao)Leveraging PBL performance to reduce afloat sparesReduced OS&T & Improved reliability requires fewer shipboard spares to achieve AoAoStakeholders decide:Incremental cost worthAdded Ao?CostAoCost of Spares
30 What’s next? Transforming traditional allowance computations New platformsAllowance to changing maintenance philosophySmaller crew = maintenance ashore = fewer spares afloatIncrease use of PBLs at inceptionInvoke Price Sensitive FLSIP model at outfittingExisting platformsInvoke Price Sensitive FLSIP model for sustainment allowancesAllowance to maximum utility Ao at knee of curve for RBS systemsUse Ship Class Replacement Factors vice Fleetwide factorsAllowance Reconciliation ToolOverall approachWorking with Maritime Allowance Working Group on risk profileCollaborate with NAVSEA, PEOs to link pre and post MSD sparingIncrease multi-echelon RBS sparing
31 Multi - Indenture Allowance InitiativesMulti - Indenture AllowanceReadiness/cost trade-offs between indentures (e.g. WRAs/SRAs)Prototypes underway for NAS Lemoore and a CV deckloadCRCS/CADS implementation provided initial capabilityMulti - Echelon AllowanceKey to Single National InventoryOptimizes placement of material between wholesale/retailRequires IT system able to integrateEnterprise Resource Planning (ERP)Current SMART implementation does not address allowancingConverged 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 = $3.5MTop 25 squadron AFM = $6.0MWorking 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.
38 Cost Per Flight Hour Trend PAC FA-18 AFMCost Per Flight Hour TrendEngine 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 ObligationsAwarded PBLs# of Contracts AwardedAviation Maritime Total# of PBLs $ Value # of PBLs $ Value # of PBLs $ ValueFY $21.0M $14.0M $35.0MFY $51.0M $34.0M $85.0MFY $146.5M $98.2M $244.7MFY $228.6M $102.8M $331.4MFY $306.1M $179.7M $485.8MFY $361.5M $163.9M $525.5MFY04(to 1-31) $366.3M $57.9M $424.2MTypes 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: 2Mechanicsburg: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 TimeF/A-18 Stores Mgmt System decreased from 47 days to 7 daysAuxiliary Power Unit (APU) decreased from 35 days to 6 daysRTAT was decreased from 162 days to 38 daysGuaranteed ReliabilityRadar Warning Receiver increased 53%H-60 FLIR increased 40%Reduced InventoryTires…no wholesale, no warehouse costsAPU…no wholesale, 40% decrease in retail inventoryThe 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.