MEMORANDUM TO: The Defense Industrial Base FROM: Brett B. Lambert, Director, Industrial Policy July 13, 2010 “The Department is committed to working with our industry partners as we move aggressively to control costs, bring greater discipline to our use of the taxpayer's money, and ensure we retain a robust and financially healthy industrial base, a critical facet of our national power.” “This Efficiency Initiative, introduced by the Secretary of Defense at the Eisenhower Library on May 8, 2010, the statements that followed by Deputy Secretary Lynn, and the roll-out on June 28th by Under Secretary Carter specifying goals of the effort, are all designed to orient the Department and our nation’s industrial base in a simple direction - we must learn to do more without more.”

Objective Deliver the war-fighting capability DoD needs for the dollars they have Get better buying power for warfighter and taxpayer Restore affordability to defense goods and services Improve defense industry productivity Remove government impediments to leanness Avoid program turbulence Maintain a vibrant and financially healthy defense industry Obtain 2-3% net annual growth in warfighting capabilities without commensurate budget increase by identifying and eliminating unproductive or low-value-added overhead and transfer savings to warfighting capabilities. Do more without more.

Providing Incentives for Greater Efficiency in Industry LEVERAGING REAL COMPETITION USING PROPER CONTRACT TYPE FOR DEVELOPMENT AND PROCUREMENT USING PROPER CONTRACT TYPE FOR SERVICES ALIGNING POLICY ON PROFIT AND FEE TO CIRCUMSTANCE SHARING THE BENEFITS OF CASH FLOW TARGETING NON-VALUE-ADDED COSTS INVOLVING DYNAMIC SMALL BUSINESS IN DEFENSE REWARDING EXCELLENT SUPPLIERS

Adopting Government Practices that Encourage Efficiency ADOPTING “ SHOULD-COST” AND “WILL-COST” MANAGEMENT STRENGTHENING THE ACQUISITION WORKFORCE IMPROVING AUDITS MANDATING AFFORDABILITY AS A REQUIREMENT STABILIZING PRODUCTION RATES ELIMINATING REDUNDANCY WITHIN WARFIGHTING PORTFOLIOS ESTABLISHING SENIOR MANAGERS FOR PROCUREMENT OF SERVICES PROTECTING THE TECHNOLOGY BASE

Life Cycle Cost-Logistics Improvement Joint Task with NDIA Logistics & Systems Engeneering Div Purpose: Define/Recommend approach to institutionalize Operations and Support (O&S) cost reductions to achieve affordability and Life Cycle Cost (LCC) reductions throughout acquisition, operation, and sustainment of DOD defense systems Background: LCS Committee held a joint DoD-Industry workshop 27 April in attendance (including OSD Logistics/SE leadership) Identified 23 life cycle LCC/Affordability issues (root causes, potential solutions) Consolidated into 4 Core Issues Gap analysis vs. current OSD initiatives

NDIA LCC/Affordability Recommendations to DoD Narrow RAM/RMS focus “with intent” Other issue areas well-covered by PSAT – TOC/LCC, O&S cost, governance, BCA, partnerships, sustainment metrics, … RAM/RMS conspicuous by absence Huge gap in OSD policy on fielded operational systems Need for detailed, actionable recommendations NDIA LCS findings prominently folded into ATF analysis and initial recommendations NDIA membership on ATF core team

NDIA LCC/Affordability Recommendations to DoD NDIA is clearly influencing OSD Affordability efforts and recommendations The environment is ripe for making tangible change RAM/RMS activities and emphasis are a proven approach to reducing O&S/Life Cycle cost Dual Effort: – Submitted to DoD Efficiency Initiative – To be Submitted to OSD ATF Effort on Life Cycle Issues