Competing mission requirements between airwings, means aircraft availability must be secured by providing aircraft fleet with efficient component support.
Availability services in general & aircraft component support in particular, have been examined under such topics as split up demand, cost structure of availability services & benefits of spare part cache pooling implementation.
We reviewed major selection of past attempts at global spares pooling in order to gain insights and lessons that might be applicable to future aircraft programmes. Initially, the focus was on programmes with spares pooling involving fighter/attack aircraft.
Because there were so few examples of pooling for fighter/attack aircraft and so little information available on the ones that exist, we expanded our search to include other types of military aircraft.
Here we examine Cost/benefits of spares pooling mainly in the context of programme barriers for mission success. This report identifies three major mechanisms for cost savings from spares pooling:
First, consider scenario when there is an expensive part that rarely fails. With a number of units each possessing a relatively small fleet of aircraft, without pooling, each unit must retain some high-cost parts, no matter how small the fleet. With pooling, smaller number of these parts would need to be stocked because they could be shared among all units due to high reliability of the part.
Second, reduced variability from pooling particularly favours smaller air units because larger pool reduces relative lead time variability in relation to total demand.
Third, offsetting demand refers to each partner needing a specific part at different times, leading to some but not complete overlap of demand for the same part. This permits a pool to stock a smaller total number of parts than would be the case if all units stocked separately just for themselves.
However, this report suggests spares pooling also poses some risks. Different quantitative, economic, operational, and other methods were used to arrive at the conclusion business rules proposed for spares pooling initiatives in future variants posed three main risks for DoD:
First, prioritising the allocation of scarce pooled resources and ensuring security of supply
Second, distinguishing between technology innovative leaders/followers while maintaining configuration control and maximum standardisation
Third, identify "Free Riders" on the programme and address violations decisively
One of most important factors in airwing operation is availability of aircraft for scheduled missions, i.e. technical dispatch reliability. Dispatch reliability is kept at adequate levels by upgrade/repair functions.
Success is achieved by replacing failed units, i.e. aircraft components, quickly with functional units & repairing the failed units afterwards. Technique allows aircraft to continue operation immediately without waiting for repair work to be completed.
Demand for aircraft component availability services is usually split up. Airwings operate with disparate fleets from many installation hubs. DoD has strong interests in keeping spare units required by supporting fleets as close as possible.
In contrast, availability services stand to benefit from demand consolidation since demand is caused by random component failures. DoD cost pressures require efficiency improvements in availability services & must be performed without compromising dispatch reliability.
Airwing fleet structure has big impact on costs & demand split up of component availability services. Models can measure uniformity of airwing fleets & potential for achieving scale economies.
Considering one installation providing spare components for its operations in-house, the scale of its fleet determines cost levels of availability service. When several airwings operate in same region, scale of total fleet determines potential for achieving economies by cooperative arrangements between installations.
Models show deficits in commonality of fleets along increased fleet scale have been steadily increasing. Decreasing commonality causes extensive complexity in DoD processes, but increasing scale allows new levels of efficiency to be achieved.
Predominant availability service costs include ownership cost of spare units, originating directly from valuation/depreciation principles applied. Challenges in valuation of repairing components is that, unlike other capacity assets & disposable spare parts, components keep changing between capacity function & spare part function.
Components require different valuation/ depreciation rules: 1) Revenue generating function as common capacity assets 2) preservation of mission requirement function as spare components & 3) Situations when changing from one function to the other.
Availability models provide simple & feasible pooling arrangement with increased return of availability service costs if installation participants are willing to endure some delivery delays from a remote pool stock.
Installation pool participants experience higher service levels with lower cost but must wait for spare units longer compared to airwings providing its spare components in-house. Cost savings achieved by entire pool is determined by total fleet scale of cooperation implementation.
Pooling benefits under optimal conditions are generally higher when more demand for one component type is served by one pool. Conflicting interests between participating installations have the potential to result in less efficient pooling arrangements.
Primary causes of conflict involve issue of allocating availability service costs between pool participants, frequently complicated by split up spare component demand.
Deeper dives examining route creation implementing pooling are required to measure potential of each option to capture pooling benefits in availability service of airwing components against much variation in external conditions.
Our review of attempts to implement comprehensive spares pooling initiatives and programmes reveals results of efforts have been modest at best.
Most initiatives have stalled. The largest spares pooling efforts resulted in major challenges, including spares shortages and poor readiness rates, which ultimately led to the restructuring and renegotiation of the entire programme.
Some cases of spares pooling initiatives are generally considered to have achieved success. Successes are characterised by instances where remote installations do not have major design stakes in aircraft build events and fleets are relatively small.
So it is possible to maintain common configurations by requiring all installations to participate in upgrades and modifications since support cost/benefits far outweigh the extra cost of modifying aircraft to meet standard configuration.
While several attempts at asset-pooling programmes have been made, spares pooling programmes with larger installation scopes are rare and difficult to implement, especially for fighters and other combat aircraft. We were unable to identify any major successful historical fighter/attack aircraft programmes from recent decades that led to formal global spares pooling.
Most past historical attempts have been challenged by factors related to security of supply ie, demand prioritisation, configuration control and encouraging innovation leaders instead of followers, and also promoting advantages to innovation leaders, fleet build job site concerns, as well as other issues.
In order to achieve success, future spares pooling programmes must carefully review all critical issues and create strategies to mitigate risk. In summary, our assessment of historical cases of spares pooling with wide global scope resulted in the following high-level findings:
1. Negotiation of multi-partner spares pooling programmes for common major weapon systems has been attempted many times but have proven difficult to implement
2. Barriers include security of supply, prioritisation of scarce assets, configuration control and identification of innovators
3. Major challenges include conflicting, tech/economic interests & objectives
4. Most successful spares pooling programmes had single dominant partner to establish resource allocation priorities & control configuration
5. Successful programmes made major efforts to ensure transparency for all partners based on contribution & requirements
6. Specific policy measures for success include establishing special priorities for dominant partner to include control of all spares required for location-specific aircraft
7. Critical keys to success of configuration control & promotion of innovation include assumption of nonrecurring upgrade costs
8. Contract incentives to meet performance metrics/priorities require splitting out separate metrics for smaller fleets for priority service
9. Some factors cited for programme success may only work well when dominant fleet is principle customer
10. Some scenarios may not hold equally well for future programmes, particularly for aircraft subtype variants where dominance is not clear-cut.
DoD functions as web of contractual relationships, for example provision of Spare Parts to sidelined aircraft. Each relationship—the acquisition of an input, Job Site work order assignment to product support agent, the exchange of a product or service between supplier and customer—is a transaction. Understanding the basic characteristics of a transaction is the key to answering the “make-or-buy” decision.
As DoD comes under increasing pressure to cut expenses and improve their return on assets, the dilemma of whether to keep key functions in-house or outsource them has taken center stage. What does this mean for Site Visit Executive? Reviews of business units must be designed that thoroughly evaluate the costs, benefits, risks, and rewards of outsourcing and the implications of keeping the activity in-house.
Strategies leading to mission success include strategic importance to DoD of the product or service that is being considered for outsourcing, as well as the process, technologies, or skills required to make the product or deliver the service. These factors must be considered in the context of current competitive conditions and also in anticipation of how conditions might change in the future.
Here we examine factors involved in Make-Or-Buy decisions-- transaction costs e.g. search & information costs; bargaining, decision & contracting costs; and monitoring & enforcement costs.
Transaction costs typically faced by DoD dealing with outside suppliers include costs associated with: source selection; periodic competition & renegotiation; contract administration; and measure/monitor performance.
Close examination of Make-Or-Buy decision making process leads to two important policy recommendations. First, one size does not fit all. To declare a victor in DoD competitions with suppliers, different decision rules must be applied to different classes of transactions. Second, if outsourcing is favoured, contract type must be chosen chosen based on understanding of key characteristics defining the different classes of transactions.
Site Visit Executive must be proficient in supplier oversight to generate the highest possible level of quality and mission success rates and determine the right questions to ask to make these determinations. Among them: If DoD capabilities are below benchmarks, can they be improved to reach maximum performance and efficiency, and would the benefits of those capabilities surpass the benefits that we would obtain from outsourcing?
If so, Site Visit Executive must determine what resources are required, and how long it would take to reach noticeably improved performance? Are technology innovation and alignment necessary for DoD to have a competitive edge? Do field level units expect a high level of service and response?
Make-Or-Buy decision emphasis is placed on four key characteristics of transactions: 1) complexity, 2) uncertainty, 3) frequency, and 4) asset specificity. In cases where construction transaction is easy to define and measure—i.e. there is little complexity, and only a few minor changes are expected—i.e. there is little uncertainty, fixed type contracts tend to dominate.
In reality, the tradeoff as it applies to out-sourcing might be stated as follows. On the one hand, efforts to suppress contract opportunities are limited by the costs of writing and enforcing contractual agreements, and rise with the complexity, uncertainty, and asset specificity associated with the transaction. This works against out-sourcing.
On the other hand, while integration within DoD mitigates such problems, internal contract agent issues arise that sacrifice the high-powered incentives of the market and consequently requires greater monitoring and administrative costs. This works in favor of out-sourcing.
If, after these questions are answered, outsourcing is chosen, Site Visit Executive can work with field-level unit to find the right partner. Pivotal indicators such as business strategies, engineering capabilities, design & innovation skills, labour costs/skills, ability to scale, and capacity utilisation, of the potential partner must be assessed. In addition, the risks in outsourcing must be accurately gauged, whether they relate to the supply line or to proprietary technology and intellectual property
Of course, outsourcing is worth considering under certain conditions. If a product or function has essentially become a commodity or is derived from factors other than unique or differentiating capabilities, and the possibility of moving operatons to another party does not give rise to significant risk to DoD strategy, outsourcing could be the perfect solution.
Moreover, when outsourcing is called for, Site Visit Executive can use knowledge of the supply base to compare potential outsourcers’ technologies, product innovation and ability to work in partnership. And Site Visit Executive can evaluate whether DoD has the skills and resources needed to keep track of outsourced business so continuous quality and cost improvements over the life of the contract are realised. Without that, the outsourcing arrangement will probably deliver disappointing results.
Risks include lower quality, reliability, and predictability of outsourced solutions as compared with in-house product services, as well as risks inherent in the process of identifying and selecting the right supplier and structuring a workable ongoing relationship.
Site Visit Executive has multiple roles to play in mitigating risk. DoD must be encouraged to view the supply line or service providers as partners that deliver an entire product or execute an entire function. Site Visit Executive must oversee risk assessment during a make-or-buy evaluation with much more diligence than would be necessary in traditional sourcing, and must also supervise the writing of the contract so that it protects DoD from contractor deficiencies.
When there are multiple suppliers, a single failure in supply line links is not necessarily disastrous. And when suppliers are making components rather than finished products, Job Site errors will likely be caught during assembly and not be passed on to the DoD directly.
But because outsourcing introduces such a wide array of new risks, Site Visit Executive must be aware of any potential pitfalls with suppliers, and evaluate outsourcing partners on the basis of their importance to bottom line of DoD. Failure of service could be devastating in an outsourced critical operation, such as part component design/deploy, whereas a glitch in a training programme might be less of a problem.
Ideally, contracts can be written that specify measures of performance, conflict resolution procedures, and conditions under which the contract can be modified, as well as provisions for sharing gains from transaction-specific investments.
Fixed type contracts are usually prescribed in later stages of product life phase when complexity and uncertainty have been resolved, and performance work statement is well defined-- resulting in relatively low risks to DoD. Note that while these prescribed contracts focus on the characteristics of complexity and uncertainty, usually overlooked are the vital roles of frequency and asset specificity—two key components to consider.
But the more complex the transaction—the more difficult/costly it is to define and measure performance, and the more uncertain changes in the contract will be required, result will be more tension between DoD and suppliers.
Crucial to the mitigation of risk is the supplier selection process. It must be based on a clear understanding of the supplier’s strategy, operations, and cost structure. Choosing the lowest bid is not sufficient. Only a supplier that has a compatible business strategy and will maintain an advantaged cost position over time can offer competitive prices in the long term.
In addition, when outsourcing partners are not chosen properly, DoD usually attempts to protect itself from failures or delays by duplicating in-house some of the effort that was originally contracted out. This results in multiple costs for the same project, potential expenses that are often not considered when the outsourcing deal is made.
Outsourcing a broken process — for instance, spare parts component dispatch call center that is not equipped with the right answers to the most prevalent questions — will end up costing much more than it would if the function were fixed before being handed off to an outside provider. The contractor will likely charge a significant amount to repair the process, and as an outside operation it will probably not know enough about DoD requirements to repair it properly.
Considering all this, relying on a one-time quote to gauge the competitiveness of an external supplier is generally not sufficient. Site Visit Executive can save DoD from this mistake by factoring into the outsourcing equation the economic effects of relative Job Site labour productivity, equipment and staff utilisation, functional processes, capacity for process and product innovation, and relative purchasing power.
Expectations must be clearly articulated so DoD can avoid surprises with potential to compromise missions once the supplier feels the business is locked in or becomes complacent in assuming its current performance will be sufficient in the future. It is vital to provide up front the appropriate specifications and current and future deadlines, to the extent that they are known. Any misunderstanding about the scope of the outsourcing program will surely be costly and damaging to DoD.
Once the outsourcing decision has been made and suppliers have been selected, it is essential to agree up front on balanced factors to include productivity improvement, cost reduction expectations, and the required degree of responsiveness to design, service, or delivery changes.
As demonstrated by the variety of factors and risks that need to be taken into account by DoD in its dealings with product support providers, the decision of in-house versus outsource should not be made without careful consideration. Site Visit Executive attention is essential to making sure that review of options is initiated and conducted diligently and objectively.
The weight of decision making process will put some strain on DoD, and new capabilities will be required. But by viewing the process as a logical extension of the procurement role, both Site Visit Executive and the purchasing department will be able to handle the new responsibilities with a high level of skill.
We based our structured interviews with DoD and contractors demonstrate working experience with Make-Or-Buy procurement applications for weapons system programmes on an extensive questionnaire. The overarching themes investigated by the questionnaire are summarised here:
1. Is there evidence using application has shortened procurement process and produced efficiencies in DoD interactions with contractors?
2. Is there evidence cost of major DoD weapon systems or items have been reduced through advances in procurement applications?
3. Is there evidence DoD use of application increased contractor incentives to focus on cost reduction during design phase?
4. Is there evidence DoD procurement workload has been reduced through the use of application?
5. Is there evidence that additional competitors at prime, subcontractor, or supplier levels interacted with DoD as direct result of application?
6. Can contractor participation in DoD contests facilitated by application be linked to lower prices paid and/or better products acquired?
7. Are there specific examples of innovative tech incorporation to improve product capabilities for DoD because of application?
8. How are cost/benefits to DoD operations estimated and application processes evaluated?
9. Is there evidence procurement application has reduced contractor overhead rates or charges to DoD?
10. What are lessons learned by DoD for future applications driving advances in procurement process for weapons systems?
Sustainment Metrics measure degree of system product support in terms of design characteristics created for reliable and maintained equipment and efficacy of disparate elements of product support. Site Visit Executive must provide for inclusion of spare parts, tools, and training required to operate/maintain weapons systems.
Structured metrics assessments ensure systems are designed to achieve mission success and product support elements are identified and available to field-level units. Here we detail prediction/allocation model to assess responsibility for effective operational tasks addressing contributions of quality system design and Logistics Footprint to total cost/benefit of equipment use over sustainment phases.
The Logistics Footprint of weapons systems consists of field-level unit levels & materiel required in theater of operations. The ability of military forces to deploy in meeting multiple crises or move quickly from one area to another is determined in large measure by the amount of logistics assets required to support that force. Improvements in sustainability planning reduces size of Logistics Footprint is related to effective determining number of required spares, maintenance specialists, support equipment & force size available to successfully accomplish missions.
Sustainment task space bounds values of reliability and time phase to achieve best possible cost/benefit ratio solution. Balancing techniques are conducted throughout weapons systems service life to ensure optimised solution. While early phase considerations may exhibit higher R&D and acquisition costs due to costs incurred in implementing mission availability programmes, reductions in O&S costs due to improved performance and decreased sustainment requirements far outweighs implementation costs.
“Design the Support” processes are based on output support process design as described previously—i.e., levels of spares, common & unique tools, test equipment & training Site Visit Executive must procure and specify. For example, support equipment recommendations are generated to specify measurement requirements and determine if existing equipment can be used or whether new equipment must be designed and procured. Properly tailored product support packages, based on technical requirements of system design, will yield most affordable and operationally ready capability.
When dealing with requirements for available equipment, product support tasks must be included as some level of repair simulation accuracy to achieve mission-capable state. Site Visit Executive has designed logistics support strategies closely related to simulated variables at play to ensure accurate levels of equipment are tasked to meet field-level unit mission targets. Directives take form of spare parts provision, maintainer training & identification of required product support enablers.
For any system, estimates detailing future cost/benefit of labour intensive sustainment processes are subject to varied degrees of uncertainty. Uncertainties are due not only to deficits in cost/benefit estimates, but also due to uncertainties in programme definition or system technical performance. Although these uncertainties cannot be eliminated, they must be addressed in Site Visit Executive task orders. For each major concern, it is useful to quantify degree of uncertainty and consequent effect on cost/benefit estimate accuracy.
Typically, for major weapons systems many types of programme concerns or risk areas and associated cost/benefit drivers have been identified by Site Visit Executive. For example, sensitivity assessments must examine how maintenance labour varies with different assumptions about how reliable system value determinations are made or how spare part consumption is dependent on pace of field-level missions. In designing smart sensitivity determination techniques, cost/benefit driver values are not changed by arbitrary plus/minus percentages, but instead by catagorisation of underlying uncertainties.
From both cost/benefit and logistics perspective, level of repair action is most important business case decision made by Site Visit Executive. Detailed performance metrics provided by field-level users, as well as mission requirement factors and fiscal criteria allocate execution of repair actions throughout all levels of maintenance. Sustainment metrics estimates are provided for use in critical decision processes to make assist in finalise dispatcher quality assurance samples as well as initiate future Job Site planning activities.
Here we define several mandatory sustainment requirements in Site Visit Executive Job Description to ensure effective product support principles are addressed and accomplished across equipment life phase for all newly created and fielded systems. These requirements include 1) Performance Parameters 2) Availability and 3) Reliability.
Sustainment is key component of weapons system performance. Including product support planning “upfront” enables acquisition and requirements directorates to provide equipment with optimal availability and reliability to the warfighter at value. Value of Sustainment Performance Parameters is derived from mission requirements of weapon systems, assumptions for operational use, and planned logistics support to sustain it.
Complete system must be created to provide warfighting capability, sustainment objectives must be established and performance of the entire system measured against well-designed metrics. We have provided illustrative examples of tracking actual reliable/maintain metrics compared to baseline specifications.
Performance Tracking techniques can be used to update estimates of cost/benefits elements such as maintenance manpower. An example of aircraft reliable performance track is measured as timed equipment repair event simulations. Specification definition requires conversion of operational reliable/available equipment parameters to equivalent contract outcome measurement.
Product Support programmes have two baseline values for reliability included as part of contract specifications. The first reliability value is the minimum requirement must be met, while second value is desired goal at higher, but not too ambitious value than requirement. It is assumed performance-based incentives are in play for product support provider to surpass the minimum requirement.
Reliability growth metrics associated with specification values assume reliability is improved over time due to design changes correcting deficiencies discovered in test and evaluation, or due to improvements in spare parts quality as build process matures.
Performance tracking displays actual test metrics for same points in time as programme baseline goals and requirements. In some examples, early reliability is deficient relative to baseline, but over time product support provider demonstrates ablity to address problems, reaching reliability value at maturity that significantly surpasses specification projections.
As preliminary test/evaluation results are collected and assessed, it is possible to update current estimates for system maintenance reliability. In some cases, test/evaluation results come close to matching advances associated with current programme estimates or specifications, and current estimates can be validated. In other cases, test/evaluation results may not match advances so current estimates must be revised.
Validated or revised information can be used to update fiscal O&S budget estimates for elements sensitive to reliability and maintenance parameters—typically, field-level mission levels utilising consumable materiel such as spare parts.
As an example, maintenance manpower for units or squadrons tasked with critical missions can be determined as a function of aircraft reliability by use of repair simulation models estimated at subsystem levels promoted by Site Visit Executive charged with execution of the following Tasks:
1. Assumes Responsible efforts for drafting sustainment requirements & rationale articulated in Reliable/Available Reports
2. Details Operational Mode Mission Summary Profile/Success Definition & Scoring Criteria
3. Leads combat system creation teams in providing expert engineering & product support assessments
4. Implements weapons systems support design demonstrate through event-driven component, subsystem & system-level testing
5. Ensures creation of Sustainment Concept Element provisioning, training, equipment, etc.
6. Establishes Product Support Integrate/Provide estimation of Field Level Use metrics
7. Provides input into statement of requirements characterised in measurable & testable terms
8. Confirms sufficient test assets & event schedule to allow for reliable/available evaluation
9. Measures system reliability & demonstrate support concepts assess validity/clarity of assumptions
10. Verifies Test/Evaluate programme results include sufficient time for retest of potential corrective actions
DoD faces major challenges in establishing smart coherent logistics support strategy for its weapon systems. While Performance-Based Logistics has been promoted as a preferred implementation strategy, real questions remain unanswered about objectives and how important factors are measured. Close examination of logistics support and emphasis on an increased role for suppliers in logistics also raise major issues related to the assumption of risk. DoD must have accurate information and smart internal processes in place to avoid risk associate with simplistic decisions resulting in critical systems being left unsupported.
Here we present workable framework and propositions related to the impact of risk and measurement on performance-based logistics. None of the propositions are fully stated/supported—all recommendations are not complete solutions and require further investigation. Some of the propositions must be investigated in the field or supported by assessment models. Detailing utilisation of metrics for Performance-Based Logistics.
Activities such as heavy maintenance at Job Sites, or tracking of spare parts stock involve operational risk. In these circumstances, risk is also in a form that is easier to measure than in other operations . Assuming failure of any of the components cause the weapon system to become non-mission capable, the failure rate of the overall weapon system can then be obtained using the distributions of the time to failure of all of the components.
Now consider the problem faced by Site Visit Executive has decided that best Performance-Based Logistics strategy involves outsourcing only component with the highest failure rate. To properly value the impact of, for example, a proposed incentive to improve the reliability of component Site Visit Executive would need not only distribution factor information about the time to fail of all the other components, but also a working model covering entire weapon system in mission requirements.
After all, the final value of an improvement in reliability of a component --to readiness – of course there are other benefits in terms of reduced cost of spares over service life, and improved agility through reduced logistics footprint, increasing likelihood of mission success in the deployed weapon system. The sort of integrated simulation model needed to properly assess the impact of improved component reliability requires considerable resources also time consuming to build. Even so, models should be necessary conditions of outsourcing at the component level.
Performance-Based Logistics strategies involving less than comprehensive logistical support of a weapon system , e.g., for a component must have integrated weapons system models in support of their business case. Measurement issues exist across Performance-Based Logistics spectrum, presenting different Types of challenges at either end.
Ultimately, there are at least two core measurement issues that should be referred to when deciding on an appropriate level of support within the Performance-Based Logistics spectrum. The first is the valuation of outcome-related performance, and the second is valuation of operational and fiscal risk. Measurement-related differences between DoD and suppliers exist not only in the incentives and objectives of each, but also in the process capabilities that are important in developing logistics tactics to meet those objectives.
In translating the high-level objectives and incentives of the organisation into concrete metrics, suppliers again have an advantage. The process capabilities suppliers are investing in to provide logistic services are relatively easy to relate to profitability. The services to be outsourced, however, are more difficult to measure, and more difficult to relate to high-level DoD objectives.
For example, in reviewing essential dimensions to be considered in logistics performance assessments are that suppliers utilise matrix in which three core logistics functions exist: 1) Transit, 2) Job Site Stocks, 3) Order Processing measured along three dimensions to include 1) Time, Fiscal Expenditure, 2) Labour, 3) Job Site Infrastructure.
Contrast those dimensions with three overarching goals of Performance-Based Logistics: 1) Supply Line compression, 2) Elimination of non-value added steps, 3) Improve weapons system readiness.
Factors we have presented appear to have little in common. But all of the supply sector factors can be translated into dollars, and can be understood as the essential dimensions that must be efficiently and effectively executed to facilitate logistics support of the all supplier objectives.
The DoD factors, on the other hand, do not all translate so readily into dollars, and fall into three categories or dimensions that demonstrate how logistics support is intended to improve warfighting capability: 1) Improved Readiness-- facilitated directly by focus on readiness, and indirectly by focus on reliability, 2) Increased agility by reducing logistical footprint & eliminating non-value added steps, 3) Reducing cost by freeing up capital for other DoD priorities.
These measures highlight significant differences in how logistics is viewed. The concept of readiness shows up as ‘equipment’ to suppliers, who view the maintenance and functioning of their operating capital primarily as a business question – when will it become so expensive to maintain that replacement is required.
Since many DoD weapon systems are in later phases of service life and very expensive/difficult to re-capitalise, required action is often driven by outdated technology or budget constraints so readiness becomes much more central issue. Improvements in readiness, of course, improve warfighting capability; but marginal improvements are quite difficult to value in dollar terms.
Suppliers, on the other hand, view improvements in readiness in terms of maintenance and reliability. For example, proposed engineering changes to improve reliability will be weighed, not against a constrained budget available for such improvements, but against the increased profit obtainable from reduced maintenance down time, etc.
The ‘agility’concept is increasingly important to suppliers, usually involving for example, the flexibility to quickly change build volumes or quickly changing technology. It shows up in the list above as ‘time’, because changing build volumes, models, or technology often involves expensive process down time.
DoD operations on the other hand are mobile, and mobility directly impacts mission effectiveness. Agility is not a newly discovered competitive dimension for DoD – it has always been an operational necessity. Once again, however, the operational effectiveness derived from a marginal improvement in logistics agility is very difficult to translate into dollars.
These differences in organisational objectives and the consequent logistics objectives are manifest in differences in process. Classification and review of supplier logistics process metrics is evident in three categories: 1) Utilisation, 2) Effectiveness 3) Return on Labour.
Utilisation measures simply address the question of how much of a resource is used, compared to what has been made available. While these Types of measures may be useful in assessing the efficiency of a narrow segment of a process e.g., space utilisation useful in assessing the efficiency of Job Site, they do not contribute to accurately define role of logistics in meeting organisational objectives, since they do not measure outputs at all. It might be claimed that they measure inefficiency, but even this is not true – all they measure is activity, not whether that activity is directed toward some valued outcome.
Effectiveness measures raise difficult but essential questions, since measures are only as good as norms established for outputs-- useful for historical comparison of a single process, but value in comparing across processes or in guiding resource allocation decisions is quite limited, because the norms established are not necessarily comparable across processes.
Measures to include Return on Labour incorporate both outputs and inputs. For suppliers, assessing the contribution of an activity to its objectives is a matter of relating those inputs/outputs to business success. Even while not simple to execute e.g., single factor Return on Labour measures do not capture an accurate fiscal picture, real-world examples can be measured or translated to dollars e.g., dollars paid for orders processed, or delivery made.
Site Visit Executive must fully consider field level mission satisfaction metrics. The importance of the ‘Troop View’ is related to balanced scorecards impacting mission success. Satisfaction of Field-level Troops is an important predictor of future success, as Unhappy Units are unlikely to return in future. It is also a way to gauge quality of service delivery, which is difficult to measure through direct observation of the process.
Beyond simple utilisation measures, supplier logistics performance measures can be characterised in terms of business interests impact. Compare supplier logistics measures to what might be proposed as a mission execution ratio for weapons systems logistics:
For example, if 10 aircraft are deployed in a squadron in a given month, and nine of them are fully mission capable for the whole month while the 10th is down for maintenance the whole month, that squadron would report an availability of 90%. At first glance, this looks like a utilisation measure, not a productivity measure – but availability is often used as a surrogate for readiness in the military context, which is typically given as a primary outcome objective of military logistics.
While costs incurred for making weapon systems fully mission capable can be estimated, benefits is far more difficult to assess in dollar terms. Another problem is that availability is only a surrogate for readiness because it is a ‘single factor’ measure. Availability measures are usually not refined enough for many resource allocation decisions made by DoD administrators.
So distinction is made between a mission capable system --able to perform some missions-- and a fully mission capable system—able to perform any mission reasonably expected of the platform. And Readiness itself, is just a surrogate for the organisational objectives of DoD i.e., “Ready for What?
Note that if availability were really the objective, it could be maximised by parking equipment, because then it would almost never break. Hence, logistics performance of weapon systems is more difficult to measure than supplier logistics-- at least in terms of productivity—and probably more attenuated from DoD objectives than are supplier logistics measurement systems.
How do measurement issues we have presented inform Site Visit Executive decision to bring forward a weapon system or component as a candidate for Performance-Based Logistics? Considering only outsourced Performance-Based Logistics solutions, we must consider economic logic behind outsourcing, even while full consideration may cause some of underlying justification for outsourcing to disappear.
So putting in place smart techniques for assessments of performance-based contracts is major objective of Site Visit Executive must include steps aimed review of field-level factors . For comprehensive weapon system logistical support, or for components unique to weapons systems, ready markets for maintenance do not always exist, or many other logistical support functions. In those cases, implementation of outsourced Performance-Based Logistics solutions will require more effort to define and examine appropriate metrics, and negotiate good deals.
In summary, measurement issues are important to relationship between suppliers and DoD. From the point of view of measurement, the best Performance-Based Logistics candidates are those with external markets for services, and clear outcomes that can easily be related to mission objectives. When markets are not available, or when components or logistical elements are so deeply embedded in a weapon system that support services are difficult to tie to warfighting outcomes, better tools and guidance are needed to support valuation decisions and contract negotiations.
1. How many systems, subsystems, or components under consideration are in system e.g., engines inducted per year?
2. What will it cost to field new infrastructure or modify current infrastructure? How much does the system cost specifically the replacement cost of the system or subsystem?
3. Is number of potential product support providers sufficient to serve as a competitive market, can you internal competitive pressure in a limited or sole-source situation?
4. Have part demand and/or labour hour requirements achieved level of predictability post-fielding that support consistency in market of potential product support providers?
5. Are there common subsystems or components among platforms so negotiate leverage to offer suppliers opportunity to benefit from scale economies?
6. Are there opportunities to lower sustainment cost to achieve required operational performance?
7. Is system availability or derivative requirement for subsystem/component consistently below or projected to be below required threshold?
8. How are systems, subsystems, or components in question being supported today?
9. Is there sufficient operational life remaining in product to warrant changes to support solution and be attractive to supplier bottom line?
10. Are there any planned upgrades, service life extension programmes, or overhauls in the works?