Today's supply chain … buying performance not parts

Navy Supply Corps Newsletter, May-June, 2004 by Frank Sarra, Larry Garvey

Where We Were

In the July/August 2001 edition of the Navy Supply Corps Newsletter, the Naval Inventory Control Point (NAVICP) made the bold announcement they were getting out of the parts business. Yes, you heard it right! The INVENTORY Control Point said they were moving away from buying INVENTORY and stocking warehouses to fill customer demands.

In lieu of lots of parts, NAVICP said they were going to buy performance and manage supplier relationships. NAVICP embraced Performance Based Logistics (PBL) and off they went to capitalize on strategic supplier partnerships and commercial best practices (see Figure 1).

[FIGURE 1 OMITTED]

If you're somewhat reluctant to change, this radical departure from tradition may seem a bit risky. After all, while you can see and touch material stocked on the shelves, it's a whole lot harder to get your arms around performance, not to mention supplier relationships.

Where We Are

Now here it is, nearly three years later. Was NAVICP right or wrong? Did they lean too far forward and jeopardize supply support? Or, were they at the leading edge with an innovative solution to meet today's tough readiness issues?

It turns out NAVICP could not have been more right in stepping "out of the box" to question the status quo. With the average age of the Naval inventory of aircraft, ships and submarines growing, reduced availability, increased obsolescence, a shrinking and volatile vendor base, and rising costs of operations are all too often the norm. The PBL approach is the exact acquisition tool to effectively surmount these hurdles and ensure tomorrow's force is ready to guarantee our national security.

Somewhere in the Arabian Gulf today, F/A-18E/F Super Hornets equipped with cutting edge weapons and avionics systems roar off the flight deck of a USS Nimitz Class carrier. Nearby, a DDG 51 Arleigh Burke Class destroyer scans the skies with its state-of-the-art AEGIS radar system and relays critical information to the battle group commander. A Los Angeles Class submarine quietly patrols the ocean depths awaiting direction to launch its arsenal of smart weapons. Innovative NAVICP PBL contracts help to ensure full operational availability of each of these front-line weapons systems.

PBL support guarantees technicians and maintainers aboard these platforms access to the logistics elements, components and parts required to maintain the highest levels of readiness. NAVICP performance-based arrangements, fully integrated with the supply system, provide a seamless response to readiness and maintenance requirements. Sailors obtain guaranteed support through PBL ... they get what they need, when they need it, every time they need it.

Looking at the Details

So, what is this thing called PBL and why has it emerged as the solution of choice? The term PBL refers to an alternative logistics support arrangement in which the supplier is assigned traditional inventory management responsibilities to facilitate attainment of stipulated performance objectives (see Figure 2).

In essence, under PBL, the Navy is buying a performance "end-state" and not the "how to." In lieu of individual parts or supplies, the Navy is buying a comprehensive, performance-based support package with guaranteed availability, improved reliability, and obsolescence management. The Navy specifies the outcome and industry figures out the best way to deliver it.

The long-term nature of PBL contracts promotes and facilitates supplier material management, encourages technology infusion, and enables other return on investment decisions not possible with traditional support vehicles. Under PBL, the customer can expect material availability to increase and response time to decrease.

Concerning the push toward PBL, momentum is driven by the Chief of Naval Operations' "Seapower 21" strategy and its Sea Enterprise element. The guidance challenges us to maintain current readiness, while achieving the cost savings to recapitalize our Naval arsenal to keep our future forces mission ready (see Figure 3).

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NAVICP's response to Sea Enterprise has been formalized as part of the Naval Supply Systems Command enterprisewide Transformation initiative. The goal of Transformation is to harvest savings to support reconstitution of our aging ships and aircraft. A key element of the NAVICP plan to ensure CNO savings targets are met is to dramatically expand the use of PBLs to cover both more systems and additional integrated logistics support elements. With an aggressive approach to PBLs, it is possible to meet customer expectations and reduce total ownership costs over a weapon system's life cycle.

Show Me the Money

Okay, so enough of the guidance and definitions; do PBLs really work?

The answer to that question is a resounding YES! By allowing industry to assume the role of a single integrator fully in control of its supply chain, coupled with commercial best practices, acquisition reform, and depot partnerships, the stage for success is set and the results have been truly extraordinary.