1. Gulf Coast Chapter of the American Society of Military Comptrollers (ASMC) and the Northwest Florida Chapter of the National Contract Management Association 8 March 2012 I n t e g r i t y - S e r v i c e - E x c e l l e n c e Kenneth D. Merchant, Maj Gen, USAF Program Executive Officer for Weapons Commander, Air Armament Center 1 96ABW-2012-0013

2. Balancing Capability / Affordability to meet Warfighter Needs Overview Air Armament Center Mission Re-Organization at Eglin Better Buying Power Initiatives Weapon Buying Opportunities 2 96ABW-2012-0013

3. AAC Mission To develop, acquire, and test war-winning weapons. We deliver state-of-the-art weapons to the warfighter, provide top quality installation support to all AAC and tenant units, and serve as responsible stewards of our resources. 3 96ABW-2012-0013

4. Transition Technology to Weapon Systems and Provide War Winning Capabilities On Time, On Cost 4 The Weapons Life Cycle Developmental and Operational Test and Evaluation Training Future Pilots, Maintainers, EOD Personnel and others Training Training Testing Testing Acquisition AcquisitionTechnology Science and Technology with AFRL and others Product Support and Weapon Lifecycle Development 96ABW-2012-0013

5. Balancing Capability / Affordability to meet Warfighter Needs Overview Air Armament Center Mission Re-Organization at Eglin Better Buying Power Initiatives Weapon Buying Opportunities 5 96ABW-2012-0013

6. FM Functional Operating Location (Eglin AFB, FL) AQ EN DP SB PK XR Air Force Test Ctr (AFTC) AF Life Cycle Mgmt Ctr (LCMC) HQ Air Force Materiel Command HQ Air Force Materiel Command SAE Air Armament Center (AAC) Eglin AFB, FL Air Armament Center (AAC) Eglin AFB, FL AAC Now…to Proposed Armament Directorate Eglin AFB, FL AIR DOM DIR ATTK LR SYS MINI MUN ADV PRGM TST & TRNG AQ EN SB XR PK FM DP JA EO SE XP 46 OG 46 MXG 46 RANG AF Seek Eagle Ofc 46 TG (Holloman AFB, NM) 46 Test Wing 96 Air Base Wing AAC Center Staff CS 96 MDG 96 MSG 96 CPTS 96 CEG 96 CPTS HC IG PA XP Museum IP CP Air Force Test Ctr (AFTC) Edwards AFB, CA Air Force Test Ctr (AFTC) Edwards AFB, CA AF Life Cycle Mgmt Ctr (LCMC) WPAFB, OH AF Life Cycle Mgmt Ctr (LCMC) WPAFB, OH 96 Test Wing Eglin AFB, FL 96 Test Wing Eglin AFB, FL CCC CS CCP CCQ CAG HO CSH 96 MDG 96 MSG 96 CPTS 96 CEG 96 OG 96 MXG 96 RANG AF Seek Eagle Ofc PA IG Museum IP XP EO JA SE CP 46 TG (Holloman AFB, NM) XP Mun Sust (Hill)

7. Balancing Capability / Affordability to meet Warfighter Needs Overview Air Armament Center Mission Re-Organization at Eglin Better Buying Power Initiatives Weapon Buying Opportunities 7 96ABW-2012-0013

8. Context for 5 th Gen Air Armament Change Reduced Budgets = Program Cancellations Smaller Workforce Increased Competition Increased Collaboration for Better Business Deals Increased Focus on Process Improvement Increased Focus on Leadership 8 96ABW-2012-0013

9. 9 Comprehensive reviews of Indirect Costs with focus to increase buying power Maximizing efficiencies through competition and business strategies Identifying cost drivers and developing should costs for production programs Analyzing benefit/need of weapons warranties Better Buying Power Initiatives 96ABW-2012-0013

10. Members (SESs & PMs): NAVAIRNAVSEA MDADCMA Armament CenterArmy PEO for Space and Missiles Capitalize on targets of opportunity for large savings Synchronizing awards for alignment between programs Multiple year contracts -- Base year plus options Bundled material procurements Common contract requirements language Value Engineering Proposals/cost reduction initiatives Jointly benchmarking warranty approaches Explore cross-cutting efficiencies and "Better Buying Power" opportunities with our main industry partners 10 Maintaining momentum of Joint Management Council (JMC) DCMA & Joint Buying Command Fully Engaged to Establish Better Rate Structure Better Buying Power Initiatives 96ABW-2012-0013

11. Balancing Capability / Affordability to meet Warfighter Needs Overview Air Armament Center Mission Precision Strike Weapon Status Better Buying Power Initiatives Weapon Buying Opportunities 11 96ABW-2012-0013

12. Today’s Weapons Purchases 12 96ABW-2012-0013

13. Unstable buys cause the closure of production lines and the laying-off of skilled full-time workers. Specialized manufacturing capacity and human capital cannot be regenerated without great cost and significant time. (USA007065-11, pg1) Quantity, Quality, and Price 13 Quantity Quality Price EOQMin Quantities Current Practice 96ABW-2012-0013

14. AIM-XXX Data (notional) 14 Costly inventory lost to non-critical Test & Training (WSEP) Unstable buys drive up per unit cost and reduce the industrial base’s ability to sustain itself These inefficiencies ultimately extend the process allowing inflation to consume valuable TOA dollars 96ABW-2012-0013

15. AIM-XXX Data (notional) 15 Practical weapon substitutions for WSEP Avoided inflation and lower WSEP costs free TOA to enable competition/carry another contractor Avoided inflation and lower WSEP costs free TOA to enable competition/carry another contractor Stable buys drive down cost and steady demand provides a stable revenue flow & basis for long-range strategic investment 96ABW-2012-0013

16. A-A Enterprise Look 16 Missed opportunity to leverage buying efficiencies AMRAAMNGM 96ABW-2012-0013

17. Summary Current practice of unstable purchases inhibits our ability to leverage buying power Effective upfront spending, stable buy quantities, and effective WSEP use are vital to correction Predictable spending leads to smarter break points Enterprise view of each capability is critical to leveraging better buying power 17 96ABW-2012-0013

18. Final Thoughts Declining Budgets Will Present Significant Opportunities Rapidly Changing Defense Landscape Programs That Can’t Keep Up Will Not Survive The Defense Team Needs to Innovate –Not just on technology, but how we maximize procurement funds 18 96ABW-2012-0013

19. QUESTIONS? 19 96ABW-2012-0013