1. 1 Performance-Based Logistics (PBL) aka - Performance-Based Life-Cycle Product Support

2. 2 CH-47 Cost of Operation Growth over 4 years (7/99-6/03) Flight Hours

3. 3 Demands CH-47 Cost of Operation Growth over 4 years (7/99-6/03)

4. 4 Flight Hours Demands Component Cost CH-47 Cost of Operation Growth over 4 years (7/99-6/03) (7/99-6/03) Can PBL Help?

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6. 6 “PBL is the purchase of support as an integrated, affordable, performance package designed to optimize system readiness and meet performance goals for a weapon system through long-term support arrangements with clear lines of authority and responsibility.” PBL Definition Source: Defense Acquisition Guidebook (Section 5.3) The Essence of PBL is Buying Performance Outcomes, Not Individual Parts & Repair Actions

7. 7 1.“PBL doesn’t work”… PBL Misconceptions Actually, there is ample data from the Services, OSD PBL Awards, various data calls, and published material showing PBL to be a successful product support strategy.

8. 8 2.“PBL equals outsourcing”… PBL Misconceptions In fact, the vast majority of support is a blend of public/private partnering, and the organic base is protected by law, policy, and guidance.

9. 9 3.“PBL is a threat to the Depots”… PBL Misconceptions PBL can actually be an enabler for the depots. The depot workforce is protected by Law. PBLs (implemented with Partnerships) enable depots to get vital assistance in areas where they traditionally have had problems – getting needed spares and on-site technical support.

10. 10 4.“PBL doesn’t produce savings”… PBL Misconceptions Even GAO has not been able to disprove the savings/cost avoidance numbers provided by PBL programs – only saying it is difficult to validate the savings (cost accounting systems).

11. 11 5.“PBL is easy”… PBL Misconceptions Nope, it’s hard work! PBL is not just about slapping metrics and incentives on a current contract. It’s a business model shift – and a mindset shift. Both the Government and the Product Support Provider must be on board, or it won’t work!

12. 12 PBL Has Evolved 2001 1998 2003 2004 2006 Section 912, 1998 NDAA: DoD to report back to Congress on “Product Support Reengineering” Product Support Reengineering Report to Congress Program Managers Guidebook published DoD 5000 policy updated: PBL is “preferred” Support Strategy OSD PBL Policy memos: BCA’s used to evaluate transition to PBL 1999 F-117, APU PBLs 30 RTOC Pilot Programs DoD QDR mandates “PBL” – First official Use of Term ACAT 1 & 2 systems to use PBL or justify non-use DAU PBL Course Launched Over 200 current or planned PBL Programs Univ of Tenn Course Launched 2008 2012 > Revised DoDI 5000.2 Issued Product Support Assessment Team Launched AR 700-127 Revised

13. 13 PBL is not a Choice E1.17. Performance-Based Logistics. PMs shall develop and implement performance-based logistics strategies that optimize total system availability while minimizing cost and logistics There are degrees of freedom in how much to implement, not whether to implement. DoDD 5000.01 The Defense Acquisition System May 12, 2003

14. 14 PBL is not a Choice  DoDD 5000.01 The Defense Acquisition System best use Performance-Based Logistics. PM’s shall develop and implement performance-based logistics strategies that optimize total system availability while minimizing cost and logistics footprint... shall include best use of public and private sector capabilities  DoDI 5000.02 Operation of the Defense Acquisition System 28 best strategic approach The PM shall employ effective Performance-Based Life-Cycle Product Support (PBL…PBL offers the best strategic approach for delivering required life cycle readiness, reliability, and ownership costs. Sources of support may be organic, commercial, or a combination, with the primary focus optimizing customer support, weapon system availability, and reduced ownership costs.  Defense Acquisition Guidebook best-value determination PBL optimizes the best public and private sector competencies based upon a best-value determination, evidenced through an appropriate analysis of the provider's product support capability to meet set performance objectives. Best Value is Central to PBL

15. 15 What does “best value” really mean? From the FAR: 2.101 Definitions “Best value” means the expected outcome of an acquisition that, in the Government’s estimation, provides the greatest overall benefit in response to the requirement.

16. 16 PBL Requirement is in Army Policy 2–12. Program executive officer and program managers g. Ensure that PBL is considered as a support alternative and used if it is determined to be economically and operationally feasible. 4–2. General policy Performance-based product support strategies are preferred for weapon system/materiel that employ either blended (organic and vendor) or vendor support as an integrated performance package designed to optimize system readiness.

17. 17 DoD’s Primary Reference May 2014 PBL Guidebook To download complete document, go to – https://acc.dau.mil/pbl-guidebook FIX PBL Guidebook

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19. 19 The Motivation for PBL Budget pressures…do more with less. ‒ We are buying fewer systems and keeping them longer, creating additional upward pressure on Operations and Support cost. ‒ Aging systems bring along baggage: obsolescence, decreasing reliability, diminishing manufacturing sources, and increasing prices. DoD must use innovative strategies and incentives to fund both current requirements and continuing readiness investments - mandates don’t work.

20. 20 Fact: The Times Have Changed There are fewer new systems…and they are expected to last longer. Out of Service Aircraft In Service Aircraft Planned Aircraft Source: Pratt and Whitney

21. 21 Augustine’s Laws “Why can’t we buy just one aeroplane and let the aviators take turns flying it?” President Calvin Coolidge, 1928

22. 22 Augustine’s Laws Source: Norman Augustine, Augustine’s Laws, 1983

23. 23 Augustine’s Laws Source: Norman Augustine, Augustine’s Laws, 1983 Law Number XVI In the year 2054, the entire defense budget will purchase just one aircraft. This aircraft will have to be shared by the Air Force and Navy 3-1/2 days each per week except for leap year, when it will be made available to the Marines for the extra day.

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25. 25 “Of the 15 programs, 10 reported that performance levels exceeded contract requirements, and 5 reported that performance levels were meeting contract requirements.” PBL WORKS! Even the GAO Admits It…  GAO PBL Report 05-966 Sep 2005  Examined 15 PBL programs  USAF (C-17, F-117, JSTARS, C-130J), ALR-67 (V3)  Navy APUs, F/A-18 E/F, F-404 engine, T-45 engines, V-22 Engines, KC-130J  Army HIMARS, Javelin, TOW ITAS, Shadow TUAV

26. 26 Navy PBL Growth NAVICP PBL Profile $M $85 $245 $331 $481 $525 $712 $739 $919 $35 $1040 Business Scope 143 contracts/51 MOAs Mech = 69 contracts/42 MOAs Phil = 74 contracts/9 MOAs 38,940 NSNs Mech = 15,190 Phil = 23,750 24.4% of total demand (FY09) Mech = 13.1% Phil = 31.3% * through May ’09 $1067 $1156

27. 27 Logistics Response Time Successes F-14 LANTIRN Navy Program Pre-PBL H-60 Avionics F/A-18 Stores Mgmt System (SMS) Tires APU 56.9 Days 5 Days 22.8 Days5 Days 52.7 Days 8 Days 35 Days 6.5 Days 28.9 Days 2 Days CONUS 4 Days OCONUS Logistics Response Times (LRTs) decreased an average of 70%-80% through PBL Post-PBL 42.6 Days2 Days CONUS 7 Days OCONUS ARC-210

28. 28  Mission Capable (MC) rates 15% improvement  Ownership Cost $14B projected savings over the life of the aircraft 14% improvement in repair costs per flight hour in 2007 50% reduction in diagnostics ambiguity and a 15% reduction in faulty isolation  Footprint Reduction 47 % projected reduction from 2007 to 2010 Reduction factors include electronic technical orders, highly reliable diagnostics and molecular electronics and technological advances in aircraft components and reliability  Reliability, Maintainability and Supportability Improvements Over past 3 years, increased MTBM 69% across the F-22 fleet - life cycle program improvements and CIP in weapon system reliability and maintainability Robust PBL: F-22 Raptor

29. 29 Department of Defense PBL Award Winners YearLevelDepartment of Defense PBL Award WinnersServiceCommercial Partner 2005SystemF-117USAFLockheed Martin Sub-SystemF-404 EngineUSNGeneral Electric ComponentNavy APUUSNHoneywell Special GWOTShadow 200 Tactical UAS USAAAI 2006SystemHIMARSUSALockheed Martin Sub-SystemH-60 FLIRUSNRaytheon ComponentF/A-18 & F-14D Cockpit DisplaysUSNRockwell 2007SystemF/A-18 (FIRST)USNBoeing Sub-SystemITASUSARaytheon ComponentGE T700 EngineUSNGeneral Electric 2008SystemF-22USAFLockheed Martin Sub-SystemARL-67 Radar Warning SystemUSNRaytheon ComponentTAIS ATC SystemUSAGeneral Dynamics 2009SystemCASSUSNLockheed Martin SystemHIMARSUSALockheed Martin Sub-SystemAN/ALQ-126B ECSUSNBAE Systems Sub-SystemF-404 Synchronized Supply ChainDLAGeneral Electric ComponentAN/UYQ-70(V) Display SystemUSNLockheed Martin 2010SystemTUAS- ShadowUSAAAI Corp Sub-SystemAH-64D ApacheUSABoeing ComponentH-46 Sea Knight& H-53 Sea Stallion APU’sUSNHamilton Sundstrand

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31. 31 Traditional Support Approach Forecast Requirements Specify Buy Quantities Pay for each on a Unit Price basis Assume all risk for: − right parts − right repairs − right time − right quantities DoD Product Support Manager Parts Supplier Repair Provider Technical Support Provider

32. 32 PBL Buys Outcomes PBL Approach: Desired Outcomes Materiel Availability Materiel Reliability Ownership Cost DoD PM Product Support Integrator Product Support Provider(s)

33. 33 PBL rewards good behavior PBL can provide the incentives to apply a long term continuous improvement strategy for product support Under PBL, DoD pays for system performance and outcomes, not transactions. A shift in business strategy that creates a cost avoidance opportunity. The PBL multi-year strategy uses this cost avoidance opportunity as an incentive to drive investments in affordability, reliability, & availability. Support Providers with system knowledge and investment oriented business models innovate to convert cost avoidance into performance gains. PBL leverages rational economic behavior to drive readiness investments:

34. 34 Cost-Value Benefits of PBL Cost Traditional vs. Performance-Based Contract* Industry’s profits are higher with PBL Total Cost to the Government is lower Investment to improve reliability or service costs Time Traditional Industry Price PBL Industry Price PBL Industry CostTraditional Industry Cost Industry Profit PBL Investment Starts to Pay Back Investment Recovery Period Contract Duration is Key Source: PRTM Management Consultants *Notional Example

35. 35 No Cookie Cutter Approach

36. 36 The Scope of a PBL Can Span Various “Levels” Subsystem Full System Sub-Process or Parts Complexity

37. 37 Spectrum of PBL Strategies PBL: Performance-Based Logistics DVD: Direct Vendor Delivery CLS: Contractor Logistics Support TSPR: Total System Program Responsibility Traditional TSPRCLSDVD PBL Government Responsibility Government Risk Supplier Responsibility Government Risk Public / Private Partnering Opportunities ORGANIC SUPPORT COMMERCIAL SUPPORT PBL can fall anywhere along the spectrum (PBL  CLS) … depends on System Age, Life Cycle Phase, Existing Infrastructure, Organic / Commercial Capabilities, Legislative & Regulatory Constraints

38. 38 Key Roles in PBL  Warfighter  DoD PM  Contracting Officer  Product Support Provider  Product Support Integrator

39. 39 The PSI Integrates System Support Across the Various PSP(s) Supply/DLA Depot Repair Technical Support Transportation Organizational Maintenance DoD Manager Product Support Integrator Commodities DoD PM The DoD Program Manager works with a Product Support Integrator to align the various support providers to meet agreed upon performance requirements

40. 40 Who can be a PSI?  Prime Vendor/OEM  Has knowledge of system; technical data, proprietary rights & licenses; unique parts; maintenance expertise  3PL (Third Party Logistics Provider)  Good candidate for narrow scope, supply chain management services work  Good “integration” skills could potentially make them a good candidate for “System of Systems” platforms without one “Prime”; a Neutral Party  Program Management Office  Organic Depot or ICP  Good for legacy systems with large organic support infrastructure in place, and for small systems or sub-systems with no real OEM or Prime Vendor

41. 41 Summary  PBL doesn’t CHANGE this…  What it changes is the way in which we acquire the support!  We move away from transaction- based support where the Government assumes all risk…  At the operational level, all of our systems still require the same resources to keep them operational…Spare, Repairs, Technical Support, etc.  To buying long-term support packages based on performance.

42. 42 Questions? “We’ve brought you young men into the government for your creative ability and bold new concepts!...First, you’ll memorize the rules!”