Funding the Future Force Supply, Ordnance & Logistics Operations United States Navy Sea Enterprise: Funding the Future Force by RDML Al Thompson Director Supply, Ordnance & Logistics Operations 19 May 2004

GEORGE WASHINGTON (CVN) The United States Navy Today The United States Navy Today 17 MAY RONALD REAGAN (CVN) OPS GEORGE WASHINGTON (CVN) VST JEBEL ALI TARAWA (LHA) OPS ESSEX (LHD) OPS KITTY HAWK (CV) OPS WASP (LHD) OPS USNORTHCOM USSOUTHCOM COMUSNAVSO USEUCOM USCENTCOM USPACOM USPACOM/ USNORTHCOM 2ND FLT 6TH FLT 5TH FLT 7TH FLT 3RD FLT 40 SHIPS 3 SHIPS 13 SHIPS 18 SHIPS 28 SHIPS 35 SHIPS 295 SHIPS ACTIVE DUTY END STRENGTH: 376,713 RESERVE END STRENGTH: 84,378 UNDERWAY: 137 (46%) 3 CV, 3 LHA/LHD DEPLOYED: 97 (33%) 2 CSG, 2 ESG TOTAL PERSONNEL: 33,302

Leadership & Management Covenant Leadership Productivity Efficiency Cost Reductions Consumption Best Business Practices Lean Six Sigma Mission Accomplishment “Product” “Output” $$ People Return on Investment Assessment “Metrics” Right Output? Right Cost?

Navy vs. Corporate Model for Risk Taking IRCA Corporate Headquarters Product/Business Units Risk/reward trade-off Profit Obj -Risk LOBs selected Business plans outlined Qualified/quantified: Risk ROI Risk established Cost determined Risk accepted Funding allocated Headquarters Product/Business Units Business lines driving strategy Risk drives cost Slow to market Unbalanced Slow death syndrome Lack of accountability Strategy driving business lines Risk drives decisions Time to market key consideration Diversify/balance to minimize risk Cut losses quickly…eliminate failures Accountable for achievement “Success is the ability to go from failure to failure without losing your enthusiasm.” Winston Churchill (as quoted by John Peterman)

Risk Management and Leadership Tyranny of cascading risk aversion Are risk decisions made at the “right” level? How do we incentivize risk taking at all levels? How does accountability/responsibility impact risk calculus? Is risk being “bought out” at every level of the organization? Zero risk is neither achievable nor affordable What is the right level of risk? Can we continue to buy down risk today at the expense of the future? Leaders can’t avoid risk…need to decide what risks to accept Leadership’s Role: Understanding the risk Quantifying the risk Decision-making Managing the risk We need to rethink what we are doing… re-imagine our organizations & challenge all assumptions!

Sea Enterprise…Balancing Our Priorities What is Sea Enterprise? Balancing our Priorities Sea Enterprise…Balancing Our Priorities Sea Enterprise Offsite September 2002 Right Force “Transforming our force must occur within existing resources.” Efficiency Effectiveness Right Readiness “Our focus must be on readiness and productivity… readiness at any cost is not the answer.” Right Cost “Allowing cost growth at the rate of inflation is not an option.”

Spending vs Force Structure Why Sea Enterprise? #3. Right thing for the Navy! Why Sea Enterprise? Spending vs Force Structure

Sea Enterprise…What’s Changing? What’s Changing with Sea Enterprise? Sea Enterprise…What’s Changing? Enterprise-wide: Approach to transformation View of targeted cost reductions and efficiencies Energized decision-making considering risk Senior leaders focused on execution Savings directed to recapitalization We are positive, optimistic…and we believe

FY05 Sea Enterprise Results… Achieved $3.7B in Cost Savings/Avoidance $1.1B Fleet Readiness $0.7B Shore Readiness $0.8B Navy Spares Inventory Augmentation (FRP) $0.4B Navy Working Capital Fund Cash Infusion $0.4B Level of Effort $0.3B Defense Logistics Agency Inventory Augmentation $3.7B Total Cost Savings/Avoidance 3-4 Ships…or 1-2 Ships + 40 F/A-18 Strike Fighters

QUESTIONS?