1. Performance Based Logistics: A New Business Paradigm
Naval Inventory Control Point
Performance Based Logistics:
A New Business Paradigm
Director, Integrated Logistics Support
3 October 2002
Ready. Resourceful. Responsive!

2. Agenda PBL Background Acquisition Process Business Case Analysis
Statutory Requirements
Awarded PBLs
PBLs on the Horizon
Lessons Learned
Take-Aways

3. PBL Background Concept: Comply with USC Title 10 CORE Statues:
Single Supplier / Integrator
(Commercial or Organic)
Provide Fleet Improved Weapon System Support Through:
Cost: Reduced Total Ownership
Obsolescence Management
Reliability Improvement/Tech Refreshment
Availability Improvements
Comply with USC Title 10 CORE Statues:
Partner with Government (e.g. Depots)
Must pass Business Case Analysis (BCA):
Sound Business Decision
Merits Must Stand-up to Audit
Reduced Total Cost to the Fleet

4. PBL Background A Necessary Transformation
A Fundamental Change in the way NAVICP provides Weapons System Support!!!
Philosophy
Drives Perspective
ICP Role
Results
Manage
Supplies
Focus Exclusively on Supply Availability
More Infrastructure
Higher Total Costs
No Incentive to Improve Reliability or Quality
Inventory
Based
Lowest Price
Historically
Change Driven by:
Fewer Resources,
Acquisition Reform,
& Technology Advances
Focus on Customer Service, Reliability and Readiness
Less Infrastructure
Lower Total Costs
Increased Reliability
Higher Quality
Manage
Suppliers
Performance
Based
Best Value
Today
The Result...
High Yield Logistics

5. PBL Background A Necessary Transformation
Buying Performance … Not Parts
Roles
Guaranteed Warehousing Obsolescence
Availability Management Inventory Mgmt Transportation Reliability
Improvement
Engineer/Technical Warranties Configuration Support Control
Piece Part Support
Purpose
Cultivate
Long Term
Partnerships
With Industry
Leverage
Commercial
Supply Chain
Solutions
Reduce Cost
Lower Response Time
Lighter Logistics Tail
Increase Availability

6. PBL Background The Support Spectrum
PBL Support Spectrum
Traditional
MSP
PBL-O
PBL-C
Full PBL
CLS
ORGANIC SUPPORT
Increasing supplier responsibilities
COMMERCIAL SUPPORT
Mini-stock point
Commercial
Off-the-shelf
“Full Service”
Contractor Logistics Support
Warehousing
Rqmts Determination
Some Level of Repair
Warehousing
Rqmts Determination
Wholesale Ownership
Config Mgmt
Some Obsolescence Mgmt
Some Repair / Overhaul / Replace
Warehousing
Rqmts Determination
Wholesale Ownership
Config Mgmt
Obsolescence Mgmt
Reliability Guarantees
Eng / Tech Support
Govt / Industry Partnership
Repair / Overhaul / Replace
Vendor Manages ILS Elements

7. Acquisition Process PBLs: One Size Does NOT fit All …Each is Unique!
Contract Type:
Fixed, Cost, Both, …Hybrid
Requirements, IDIQ
Length:
5–15 Years; Base & Option(s)
Metrics:
Cost, Availability, Reliability, Availability
Incentive:
Profit (Monetary, Non-Monetary, Gain Sharing
Risk Sharing:
Ramp-up Periods
Exit Provisions
Cultivate Long Term Partnerships:
Promote Supplier Investment
Technology Infusion
Enable Supplier ROI
Leverage Best Business Practices
Supply Chain Management
Warehousing
Forecasting
Other?
Obsolescence Management
Reward Performance
Metrics: Meaningful and Measurable
Joint Review Boards
Manage Supplier NOT Supplies
Procuring the Performance End-State …NOT the How To

8. Acquisition Process Candidate Selection
FLEET
New Items Commercial for Life Obsolescence Challenges Low Reliability Poor Availability High Cost/High Demand
NAVICP
Targets
SYSCOM
(Program Office)
OSD
(ACAT I, II, and
New Start Programs)
DON APR 02 MEMO
Industry

9. Acquisition Process Systems… earlier is better
Mission
Need
Identified
HSC Selects
OEM
Full Rate
Production
E&MD
IOC
MSD
Ideal
Traditional
The earlier in a system’s life cycle that we implement a PBL solution, the better
The 3 examples you are about to see come from our Common Aircraft Systems Integrated Weapons Systems Team and show how we are able to do more to improve the performance received by the Fleet when we implement a PBL solution earlier...
All of these systems are used on numerous aircraft
RINU/AHRS
NGS
ALR-67 (V)3
SCADC

10. Acquisition Process Targeting Legacy Systems
Cost-Performance Matrix - Top 200 Aviation Systems
Median = 0.033
AAS-38 F-18 FLIR
High
P-3 Prop
H-53 MRH
APG-65 F-18 Radar
AWG-9 F-14 Radar
APG-73 F-18 Radar
H-53 Xmission
ASN-92 INS (Common)
APU
AAR-50 F-18 Infrared
APG-71 F-14 Radar
F-18 MLG
Cost Index = DCI
F-18 Arresting Gear
Cost
APS-120 E-2 Radar
Median = 0.79
AWG-9 Ctrls and Displays
EA-6B Longitudinal
Pitch Ctrl Surface
E-2 Signal Processor
Low
Performance Index = RI + SI
Good
Performance
Poor

11. Acquisition Process Integrated Process Team
Work with all stakeholders early in the PBL formulation process to ensure that Core issues are being addressed:
Is the system Core?
Is there Navy/DoD core logistics capability?
What is depot impact?
What is Core strategy?
Address Core compliance strategy in the J&A
Obtain buy-in from ASN (RD&A) on strategy to address Core statute compliance early in PBL development process
Initiate Congressional Notification as early as possible

12. Business Case Analysis
Material Costs
Procure Repair
Proposal
Material: Procure Repair
Inventory Control
Management OH
Warehousing
PHS&T
Asset Visibility
Engineering
Other
Other Costs
Inventory Control
Management OH
Warehousing
PHS&T
Asset Visibility
Engineering
Other
Business
Case
Analysis
PBL Proposal Should Target
Performance Improvements
and Not Cost More Than
Tradition Support

13. Statutory Requirements The 50/50 Rule
10USC § 2466
Not more than 50 percent of the funds made available in a
fiscal year to a military department or a Defense Agency
for depot-level maintenance and repair workload may be
used to contract for the performance by non-Federal
Government personnel of such workload for the military
department or the Defense Agency. Any such funds that
are not used for such a contract shall be used for the
performance of depot-level maintenance and repair
workload by employees of the Department of Defense
Applied at the Service (DON) level

14. Statutory Requirements CLC Rule
10USC § 2464
Core Logistics Capabilities shall include those capabilities that are
necessary to maintain and repair the weapon systems and other
military equipment (including mission-essential weapon systems or
material not later than four years after achieving initial operational
capability, but excluding systems and equipment under special
access programs, nuclear aircraft carriers, and commercial items)
that are identified by the Secretary, in consultation with the
Chairman of the Joint Chiefs of Staff, as necessary to enable the
armed forces to fulfill the strategic and contingency plans prepared
by the Chairman of the Joint Chiefs of Staff.
If system is Core, DoD must have Core logistics capability

15. Statutory Requirements Congressional Notification
Notification must address:
1. The competitive procedures used to award the contract
2. The cost/benefit analysis demonstrating savings
3. Conformance with 10 USC 2466 (50/50 rule)
4. Conformance with 10 USC 2464 (CLC requirement)

16. Awarded PBLs The Wave Of The Future Obligations $M
NAVICP is a significantly different and smaller organization than it was only seven years ago. Public works, base support, human resources and key IT support functions have been regionalized or consolidated.
Nbrs are on-board, EOY
FY02 is YTD … started at now 3005
The Wave Of The Future

17. Awarded PBLs Aviation Successes Aircraft Tires
F-14 Night Target System
E-2 Mission Computer
$266M obs over 15 years
23 types...17 platforms
Inv mgmt / warehousing transportation
Guaranteed availability 95% in 2 days CONUS / 4 days OCONUS
First performance review… filled over 8000 reqn… % availability!
$48.8M savings over 15 years
$66M obs over 8 years
Inv mgmt/warehousing
Obsolescence mgmt
Contractor manages wholesale (forward- positioned) ship stock
Guaranteed availability 90% in 5 days…ipg1s in 2 days
$33M savings over 8 yrs
$16M obs over 5 years
Contractor will manage piece part inventory
Guaranteed availability 2 days
reliability guarantee of 10,000 hours MTBF (15 year warranty, 5 years priced, 2 other 5 year periods are options
loaner spares clause if reliability is not met
$14M savings over 15 years

18. Awarded PBLs AEGIS Spy 1 Radar ARC-210 Radio 50 Person Life Raft
$6.6M Obs over 5 years
COTS replacement for MILSPEC item
Vendor owned inventory
Commercial technology
Replacement for MK 6 25-Person Life Raft (2:1)
Over 50% cost avoidance for CV/CVNs
$35.9M Obs Over 5 Years
Inv Mgmt/warehousing
Config/Obsolescence Mgmt...MTBF Guarantees… Growth Incentivized
Guaranteed Availability 85%/90% with Incentives… 2 Days Pri Days Pri 4-15
$5.4M Savings over 5 years
4-year base contract w/ one 4-year option; $33.5M for 4-year base
1600 line items; Transitioned from a Mini Stock Point to Full PBL; minimum fill rate of 87% …
Contractor Responsibilities: material requirements determination, requisition support, CONUS transportation and tracking, Class II ECP authority

19. On-Line Shipping & Inv Mgmt
Awarded PBLs
Auxiliary Power Unit
Title 10
Compliant
Supports C-2, F/A-18, S-3 and P-3.
Public / Private Partnership
Honeywell... Program Management
NADEP Cherry Point... Sub-contractor performing touch labor
10-Yr Performance Based, Firm Fixed Price (5 year base & 5 one-year options)
25% - 45% Reliability Improvement
Delivery Guarantees... 2 Days (IPG 1)
Obsolescence Management
Surge Capability...120% of Annual FH’s
Product Support Engineering
This is an example of the first partnership PBL awarded. In this type of PBL arrangement, the Navy places the contract with the commercial vendor, in this case Honeywell, who then subcontracts with the NADEP-in this case, Cherry Point – to do the actual repair work. This partnership PBL was four years in the making and supports APUs on four different platforms –C-2, F/A-18, S-3 and P-3. Features are 10 year performance based with delivery guarantees of 2 days for issue Priority Group One requisitions.
Partnering is smart for a number of reasons: It satisfies Title 10 USC Core requirements, it is an effective use of depot expertise, it allows the depot to focus on touch labor (the contractor supplies piece parts), it encourages sharing of best business practices, and reduces repair turnaround times.
Plus:
On-Line Shipping & Inv Mgmt

20. Awarded PBLs F/A-18 E/F FIRST
F/A-18E/F Integrated Readiness Support Teaming (FIRST) concept, an alternative support strategy emphasizing Government/Industry partnerships, risk management and shared accountability.
Awarded May 01
Features:
Guaranteed response time
Teaming arrangement with three NADEPs
Reliability improvements-targeted at 10%
Streamlined configuration control and obsolescence mgmt
Industry support for E/F peculiar WRAs, lower assemblies and piece- parts
Reduced cycle time
Reduced cost of ownership
Integrated funding streams

21. PBLs on the Horizon F404 7R Components PBL Features
116 NIINs ... –400 / -402 series
Availability / reliability incentives
20% surge requirement
5 year base
Pre-Solicitation Conference /Competitive RFP Issued
Two approved sources
Orenda declined
J&A modified / sent to ASN
Next Steps
Finalize BCA
Complete PWS
Alpha contracting ... Dec '02 Award
Next step ...
Consumables for
I-level / whole
engine repair

22. PBLs on the Horizon H-60 PBL Evolution
Avionics Dynamic Components Tip-to-Tail
- Lockheed Martin Sikorsky MHSCo
- 42 Avionics major dynamic total
components components components
- Awarded May 02 - Est. award Oct Est. award Dec 02
- $5M contract - $150M contract $1.3B contract
- Guaranteed - Guaranteed Guaranteed
response time response time response time
- Obsolescence - Obsolescence Obsolescence
Management Management Management
- $456K in savings - Firm-fixed price per Firm-fixed price per
flying hour flying hour
- Guaranteed reliability
improvements
Here are two interesting initiatives that the Aviation folks are currently working on:
The Avionics PBL (with LM) and the Dynamic Component PBL (with Sikorsky) are intended to be sequential “stepping stones” to the behemoth H-60 “Tip to Tail” initiative PBL. The Avionics PBL supports 42 avionic components commercially since BRAC closure of NADEP Pensacola. No actual organic capability exists. These systems are SH-60B peculiar and will be obsolete with advent of MH-60R, therefore there are no plans to fund establishment of depot capability. This PBL is being held up due to the depot core issue, which is near resolution. We expect that congressional notification should be released shortly with the award coming one month after release of the congressional notification. The Dynamic Component PBL is a sole source contract to Sikorsky for repair and management of fourteen major H-60 dynamic components. It is a fixed price per flying hour with incentives and anticipate award in April 02. The Tip to Tail PBL is for support of approximately 1331 Navy managed H-60 unique components by Maritime Helicopter Support Company (MHSCo) - a joint venture formed between Lockheed Martin and Sikorsky. MHSCo will enter into partnering arrangements with Navy and Army depots. Contract will be awarded in phases over a twelve-month period. Award estimated Dec 02. The F404 Time on Wing (TOW) PBL is viewed as a comprehensive, full service Time on Wing PBL that encompasses O-I-D level repair & supply chain management as optimum solution. The program goal is for single line of accounting and Time on Wing guarantees. As first phase to Time on Wing, NAVICP has broken out the 7R cog components. This initiative will provide immediate component availability boost to I level and is viewed as necessary first step to TOW.

23. Lessons Learned PBL process is time and labor intensive
Work within Govt funding structure and BCA framework
Rqmt is enhanced performance at less cost
Teams must work at taking advantage of supply chain consolidation
Initiatives underway to review BCA process… Day with Industry planned
Can work… APU and Tire PBLs good case studies
Challenge of aging and inherently unreliable systems
Inserting technology upgrades… big cost issue
Combining efforts with LECP program may provide opportunities
Bring all corporate resources to the table
Idea sharing across business areas
Large private investment may be needed to make efforts work

24. Take-Aways
NAVICP is teaming with Systems Commands and fleet customers to develop innovative support alternatives.
NAVICP is making significant investments of NWCF and personnel to accomplish this goal.
PBLs… Procuring the performance end state, not the how to