Defining and implementing Performance-Based Logistics in government

Defense AR Journal, Dec, 2004 by David Berkowitz, Jatinder N.D. Gupta, James T. Simpson, Joan B. McWilliams

GUIDELINES FOR IMPLEMENTING PERFORMANCE-BASED LOGISTICS

Based on our research and the incorporation of the findings from RAND and the Aberdeen Group (Camm, Drezner, Lachman, & Resetar, 2001; Leahy, 2003), we propose the following six guidelines to successfully implement PBL:

1. Assign responsibilities clearly throughout the firm--Blanket statements about policy changes that imply that PBL is everyone's responsibility are typically ineffective. Experience suggests that anything that is everyone's responsibility is no one's responsibility. To varying degrees, the Navy, Air Force, and DLA all address this issue. Each of these organizations requires that responsibility for the success of any PBL program be assigned to a specific unit.

2. Design metrics to motivate the right behavior--The cliche successful firms manage what can be measured can be overstated. Nevertheless, RAND found that proactive finns do rely on metrics as the foundation for managing improvement (Camm, Drezner, Lachman, & Resetar, 2001). Accordingly, metrics designed to motivate the right behavior must be carefully crafted and applicable across the entire organization. Effective metrics must induce the decision maker to pursue [organizational] goals, be compatible with the constraints that the decision maker faces in each setting, be easy to collect and verify, and be mutually understood and accepted by the decision maker and oversight authority (Hellriegel et al., 1986). For instance, Naval Inventory Control Point (NAVICP) is responsible for the Navy PBL program and NAVICP Operations Research (OR) Group is focused on developing appropriate performance metrics for logistical operations.

Defining the fight PBL metrics is difficult for both government and contractors. NAVICP is using its OR group to answer these questions. Initially, it may be easy for contractors to exceed expectations and improve performance. After the initial changes take place, it becomes increasingly difficult to continue to gain higher levels of performance. Contractors and government employees predicted future difficulties in this area. For instance, one Navy contractor indicated that he is currently engaged in negotiations for more difficult metrics while his firm's current performance is within acceptable performance expectations. At the same time, NAVICP is attempting to quantify their requirements. For example, NAVICP might purchase a three-day delivery when a ten-day delivery would be acceptable. Finally, metrics and incentives should be designed simultaneously to ensure that performance is measured correctly and rewarded appropriately.

3. Manage failures to limit disincentives for risk-taking--Failure is part of the learning process. The term failing forward, describes the process of "creating forward momentum with the learning derived from failures" (Leonard-Barton, 1995). While most commercial firms understand failing forward, we found little insight into how to implement the concept in DoD. The PBL requires interdisciplinary organizations and teams, consisting of professionals with advanced interpersonal, analytic, and computer skills, and requires knowledge of contracting, logistics, funds management, metrics, and organizational effectiveness and efficiency. It also requires building relationships with contractors and operating from a holistic view of the organization.