Performance Based Logistics Initiatives Carlo Montemayor 29 April 2015

Performance Based Logistics Initiatives Agenda Topics PBL Efforts PBL Strategy PBL Office Honeywell Enterprise PBL

Current DLA PBL Contracts Project Vendor Value (then year) Projected Savings KPI/Metric Boeing COI Phase 1 – Performance Based Material Boeing $293M (Phase 1) 5 year total 20% 90% Material Availability GE F Series Engines COI GE $349M 6.5% 95% Order Response Time Boeing COI (all phases) – Boeing/DLA approach for DoD to save 20% by increasing Boeing’s role in management of supply chains for its platforms by providing faster and more cost-efficient delivery of logistics services. Phase 1 awarded: 17 Sept 14 Phase 1 (SS Cons/DLR Spares) First increment settled at $295M for 5 years with projected savings of 20%. Firm Fixed Price Incentive (FPI) contract with ~20% or $76M in potential savings (Savings at $52M or 14% at max ceiling of 121% of target price) Phase II in planning and will include Depot support Aircraft supported: AH-64, AV-8, B-1, B-52, C-17, CH-47, E-3, E-6, F-15, F/A-18, KC-135 and associated support equipment - - GE F Series: Firm Fixed Price with Incentive and shared savings Contract awarded 24 Nov 14. Value for 5 year base $349M, 3 year option available. ~6.5% or $25M in potential savings over 5 years (Performance Based Material Support for OK-City Depot (OK-ALC) KPI is 95% Air Force Metrics: Order Response Time (ORT) with an incentive to reach 100% for Depot Support and 95% MA on Worldwide Support . COI – Captains of Industry

Planned DLA PBL Contracts Project Description Projected Value Boeing COI Phase II Depot support Reduce inventory levels, material cost reduction, increase availability and improve reliability 12.6B over 10 years for all phases CFM F108 COI Improve reliability, enhance depot turn around times, reduce inventory, and reduce material costs. $1.6B over 8 years Honeywell PBL Prototype multi service effort from the Big Ideas Initiative. $3.5B over 10 years Raytheon Radar Initiative Phase 1 covers Raytheon sole source depot level reparable (DLR) assemblies and their associated consumable parts that are used to maintain multiple radar systems. $2.3B (all 3 increments) 6 year total Project Description Projected Value Boeing COI Phase II Strategic acquisition to reduce inventory levels, improve customer service, improve obsolescence management, and decrease transactional workload. $8B-$12.6B over 10 years for all phases CFM F108 COI Strategic acquisition to improve performance, reduce inventory, reduce workload, and reduce material costs. Honeywell PBL Prototype multi service effort from the Big Ideas Initiative. $3.5B over 10 years Raytheon Radar Initiative Phase 1 covers Raytheon sole source depot level reparable (DLR) assemblies and their associated consumable parts that are used to maintain multiple radar systems. $2.3B (all 3 increments) 6 year total BLUF: Total DoD Valued at $19.4B over average of 8 years for a total value per year of $2.4B or 6-10% (value = J&A value) Boeing COI: - Results in faster and more cost-efficient delivery of logistics services. - Phased in approach with Phase 2 (Depot Platform Support) expanding from SS consumables and DLR spares to Depot focused support to full Platform PBL support. - Second increment estimated value $200M with similar savings projected - More phases to come – growth potential up to $8-$12.6B – J&A is at $12.6B - Aircraft supported: AH-64, AV-8, B-1, B-52, C-17, CH-47, E-3, E-6, F-15, F/A-18, KC-135 CFM F108 Engine CFM the company name (not an acronym) is the OEM for F108 engines used on the KC135 (Tinker AFB) Valued at $1.6B over 8 years Strategy in work with the AF meetings being held next week. Initial strategy was similar to the Boeing COI. Included holistic consumable support followed by AF requirements; however, DLA is reviewing a more cost effective path with a more integrated approach with the AF up front. Raytheon Radar – covers multiple platform radars (F18/F15, etc) - Valued at $2.3B over a 6 year period

Planned DLA PBL Contracts Project Description Projected Value GDLS Integrated Platform Support (IPS) Covers Abrams Main Battle Tank, Stryker Famliy of Vehicles, Light Armored Vehicle Family of Vehicles, Cougar, Buffalo, RG31 $75M BAE Integrated Platform Support (IPS) Covers M88, M109, M113, Bradley, FMTV, RG-33 and Caiman. Effort is in planning stage with discussions with BAE anticipated in April/May 2015.   TBD

Honeywell EPBL Initiative Acquisition Strategy 10-Year Est. at $3.5–$4.0 Billion Single Joint PBL Contract Leverages Economies of Scale Utilizes Organic Depots Std. & Commercial Best Practices Incentivizes PBL Outcome Incentivizes Industry Investment Expected Benefits 10-20% Projected Savings Product Reliability Improvements Reduce Inventory Spend by ~75% Shorter Logistics Response Time Metrics Linked to Outcomes Streamlined Supply Chains Consistent Contract Terms

Honeywell EPBL Requirement Portfolio Value Proposition Platforms / Components Aviation Ground Power Unit B-1 APU & A/C Mounted Accessory Drives A-10 APU E-3 AWACS APU H-60 APU F-15 Jet Fuel Starter & Acc Drives (SPLS II) C-5 APU F/A-18 EnCS & Wheel and Brakes V-22 Env Control Sys, IR Suppressor, Valves & Avionics Existing PBL USAF SPLS I C-130, Ground Cart APUs Existing PBL Navy TLS F/A-18 APU & MFC P-3 APU & EDC C-2 APU CH-47 T-55 Engine AH-64 Apache Clutch Assembly M1 Abrams Tank – AGT1500 Gas Turbine Engine F-16 Turbine Power Unit E2/C2 ECS Additional Opportunities (not included in savings calculations) P-8A Poseidon – all HON Components KC-767 – all HON Components And associated FMS Customer orders

Contract Planning and Evaluation Contract Strategy Single Long-Term Arrangement Commercial & Non- commercial Mechanism for Adding Items All Items Priced for the Period Supply Response Time and Reliability Metrics Metrics Linked to Payment Structure with Disincentives Evaluation Process 10-12 Month Process Initial Proposal BCA & Decision Point DLA/Service Managed Evaluation & Negotiations Pricing: Services/DCAA/DCMA DLA/Service’s Approval Process Final Assessment

Status Outlook Where Are We Now HW Evaluated Supplier Quotes Flowing to DCAA/DCMA HW Proposal Due 27 April 2015 Way Forward Complete Proposal, BCA, & Analysis Finalize Proposed Solution Receive Stakeholder Buy-In Determination to Proceed

Proposed PBL Strategy – PBL Office PBLs - Better Buying Power Cornerstone Discussion Topic at upcoming Supply Chain Summit Intent to stand up a DLA HQ PBL Office

PBL Office Objectives Policy influence… vice program execution Policy Logistics Operations (Drawdown, Counterfeit Risk Mgt, Planning) Acquisition (alignment of processes to support PBLs) Financial (Wpn System BCA integrated w/DLA costs, Compliance) Governance (Strategically aligned) Policy influence… vice program execution Customer Engagement Develop PBL opportunities Leverage DLA capabilities to pursue PBL opportunities SME support to DLA PBL efforts Strategic Communications Support Service PBL efforts Interface with OSD/Industry Workforce Development Ensure adequate resources for PBL execution Create a single DLA PBL Environment Influence DAU/Svc PBL Training Develop DLA internal PBL training DLA PBL Working Group Source: DLA PBL Strategic Plan dtd 13 May 2011

DEFENSE LOGISTICS AGENCY AMERICA’S COMBAT LOGISTICS SUPPORT AGENCY WARFIGHTER SUPPORT STEWARDSHIP EXCELLENCE WORKFORCE DEVELOPMENT