Reduction of Total Ownership Costs : Progress of Pilot Programs - R-TOC - Lessons Learned-Best Practices

Program Manager, Jan, 2002 by Spiros G. Dr. Pallas, Michael J. Novak

The Under Secretary of Defense for Acquisition, Technology and Logistics (USD[AT&L]) established the Reduction of Total Ownership Costs (R-TOC) initiative in 1999. This effort grew out of concern for the rising costs of maintaining existing equipment that resulted in the depletion of DoD's equipment modernization accounts. (Our article, "Reduction of Total Ownership Costs [R-TOC]: Recent History and Future Prospects," which appeared in the November-December 2000 issue of Program Manager Magazine, more fully describes these early R-TOC efforts.)

USD(AT&L) Endorses Continuation of RTOC

Since the inception of R-TOC, the administration has changed, bringing with it a change in DoD's senior leadership. However, if anything, the case for pursuing R-TOC has become more compelling. Secretary of Defense Donald Rumsfeld, testifying on July 16, 2001, before the House Appropriations Committee on the DoD budget, stated, "The U.S. Armed Services have been under-funded over a sustained period of years." He went on to say, "... the shortfalls are considerably worse than I had previously imagined."

As part of the effort to remedy this shortfall, USD(AT&L) Edward C. "Pete" Aldridge Jr. has endorsed continuation of the R-TOC initiative, and has established R-TOC savings achieved by the Pilot Programs as one of the AT&L metrics.

Pilot Program Activities

The USD(AT&L) instructed the Pilot Programs to focus their R-TOC plans based on three large potential savings areas:

* Reduced demand from weapon systems via reliability and maintainability improvements.

* Reduced supply chain response times, leading to reduced spares, system support footprint, and depot needs.

* Competitive sourcing of product support, leading to streamlining and overhead reduction.

Army

Figure 1 briefly summarizes some of the initiatives/practices/techniques that the Army Pilot programs are using. As an example of the detail that is available, the Heavy Expanded Mobility Tactical Truck (HEMTT) has three initiatives.

INITIATIVE ONE

Initiative One has two primary goals: insertion of new technologies to improve vehicle performance, and reduction of Operations and Support (O&S) costs through replacement of high failure rate items.

INITIATIVE Two

Initiative Two, a partnership with the Defense Logistics Agency (DLA) and the prime contractor, has resulted in significant cost reductions as 90 percent of the contracted items went under Direct Vendor Delivery (DVD), with a reduced cost recovery rate. The savings for the user are realized at the battalion level. HEMTT DVD coverage is continuing to rise throughout DLA.

INITIATIVE THREE

Initiative Three, Interactive Electronic Technical Manuals (IETMs), are on contract to provide improved maintenance capability.

Navy

Figure 2 lists some of the initiatives, practices, and techniques the Navy Pilot Programs are using to reach their R-TOC goals.

One of the Navy Pilots, the Multi-Mission Helicopter (H-60 series) program, includes three major stand-alone programs: H60B/F/H, MH-60R, and MH-60S. The H-60 R-TOC Pilot Program has used an "umbrella" strategy to meld these three individual programs into one R-TOC plan. The H-60 approach to R-TOC consists of four pillars:

One: Implement the Navy Helicopter Master Plan, which will significantly impact the entire Navy helicopter fleet.

Two: Improve products' Reliability/Maintainability/Safety via specific product initiatives.

Three: Improve response time by a combination of near-term initiatives (e.g., DVD contracts, Reliability Centered Maintenance, Integrated Maintenance Concept) and a long-term, competitively awarded, performance-based logistics effort.

Four: Improve acquisition system efficiency by pursuit of acquisition and logistics excellence initiatives.

Air Force

Many of the Air Force R-TOC Pilot Programs (Figure 3) are using incentives to improve contractor performance. Pilot programs such as the F-117, Joint Surveillance Target Attack Radar System (JSTARS), C-17, and others are providing long-term contracting periods if the contractor performs well. This provides the contractor the opportunity and incentive to make (often substantial) investments in improvements to processes and repair and replacement parts. Moreover, O&S costs are reduced and reliability is improved with associated improvements in readiness.

The C-17 program is committed to reducing total ownership costs through a number of initiatives, including multiyear procurement, flexible sustainment, and "Must Cost" programs. The Must Cost program, of particular interest here, is a collection of contractor-funded cost-reduction initiatives. The program is seeing an approximate 2.5 return on investment for the Must Cost initiatives.

Cost Savings

The 1999 Defense Planning Guidance stated that all acquisition programs were to establish a goal of reducing fiscal 2005 O&S costs by 20 percent, while main- taming or improving readiness. Early on, it was recognized that some of the programs would have difficulty meeting this goal. The developmental Pilot Programs focus on Life Cycle Costs (LCC), and the cost data reported reflected this fact.