Achieving logistics excellence through performance-based logistics

Logistics Spectrum, Jul-Sep 2001 by Kratz, Lou

The emerging new national defense strategy defines future logistics requirements to enable raid deployment, enhanced mobility and assured sustainment. To meet these requirements, the Deputy Under Secretary of Defense (Acquisition, Technology and Logistics) committed DoD to achieving logistics excellence. The DoD's drive to logistics excellence is focused on end-to-end optimization of logistics delivery processes, infusion of greater accountability within the process, and the ability to clearly link inputs, outputs and performance.

Sustainment of weapon and combat support systems consumes 80 percent of the $82 billion the Department of Defense spends annually on logistics. Clearly, to achieve excellence in logistics, the DoD must address the processes and practices used to support existing and future weapon systems. Consistent with the Future Logistics Environment described in the previous article, DoD is attacking weapon system sustainment through an appropriate migration to Performance-Based Logistics (PBL). This article summarizes DoD's migration to PBL, including reengineering Product Support, recent acquisition guidance, PBL implementation on new programs and upcoming actions. This migration is the most dramatic transformation of DoD logistics since World War II.

Product Support for the

21st Century

The genesis of DoD's migration to PBL is the seminal work conducted by a DoD-wide team on product support, chartered in response to Section 912c of the 1998 Defense Authorization Act. That team, composed of over 60 representatives from the Office of the Secretary of Defense (OSD), the Services, Joint Staff and DLA, assessed best practices, baselined current DoD processes and developed a migration strategy to implement appropriate best practices. The results of their work were documented in "Product Support for the 21St Century". That report described an integrated product support environment, focused on customer-driven outcomes. Key elements of DoD's performance-based environment include:

Program managers (PM) are responsible for life-cycle management. Program managers establish customer relationships based on performance outputs (such as flying hours or the mission availability of equipment).

Program managers manage integrated logistics chains across government and industry that focus on system readiness and customer service. Best-value providers are selected from government, industry or government/industry partnerships.

Service providers are managed according to performance-based agreements.

A support environment that maintains long-term competitive pressures. Program managers guide continuous improvement of weapon system supportability and reduction in operating costs by dedicated investments. The DoD's roadmap to a performance-based logistics environment included migration over a 5-year period as shown in Figure 1.

In FY 2000, DoD established 30 pilot programs to assess innovative approaches to performance-based logistics. The programs ranged across all major weapon system groups and different phases of the life cycle. The programs implemented alternative strategies for PBL, including Total System Performance Responsibility contracts, subsystem modernization, flexible sustainment and innovative performance agreements. Current status of the pilot programs is summarized in Figure 2.

As shown in Figure 2, the pilot programs are demonstrating diverse results. This diversity is related to system maturity, degree to which sustainment is embedded in existing processes, system upgrade cycles and current weapon system reliability/maintainability. The pilot programs clearly demonstrate the complexity of backfitting PBL strategies on existing systems and provide several lessons learned, including:

Sustainment transformation must be accompanied by financial transformation to enable effective input/output management.

Legacy system migration to PBL is best accomplished during upgrades, modification and re-capitalization cycles.

Warfighter customers welcome performance-based commitments but are concerned over potential loss of flexibility to respond to contingency operations.

Integrated sustainment chains are best structured through industry/government partnerships rather than head-to-head competition.

Sustainment chain integration can be effectively provided by original equipment manufacturers; however, the DoD must take appropriate actions to enable and foster longterm competitive alternatives.

These lessons learned and preliminary results were incorporated into recent DoD acquisition policy.

Recent Acquisition Guidance

To fully realize the benefits of acquisition and logistics integration, DoD is implementing PBL as the preferred approach for product support.

Accountability and responsibility for the integration of support elements are linked to the specific Warfighter performance requirements for weapon system readiness and operational capability. The new DoD systems acquisition process, as defined in the DoD 5000-series acquisition regulations,' sets specific direction for product support. A key policy of DoD Directive 5000.1 entails integrated and effective operational support, which is based upon a total systems approach and logistics transformation.