New Approaches Emerge for Performance-Based Logistics

By Kevin Deal

Photo: Boeing

As military equipment becomes more complex and budgets become more scrutinized, defense organizations are looking at ways to not only improve asset availability but reduce operating costs. 
Performance-based logistics, or PBL, is now a mandated consideration for major new procurement projects and becoming a serious consideration for maturing defense industries in the BRICS — Brazil, Russia, India, China, South Africa — and Asia-Pacific.

PBL strategies are already in use in commercial aviation, often referred to as “power-by-the-hour.” In the defense market, one of the first implementations of PBL dates back to the late 1990s, when the Air Force sought to improve the readiness of the F-117 fighter.

Fast forward to now with the implementation of PBL for the military, where active management of the sustainment process — forecasting demand, maintaining inventory and scheduling repairs — has become the responsibility of the support provider.

This changes the incentives for the supplier. The supplier, with a properly structured PBL program, is encouraged to improve the reliability of systems and reduce inventories of spare parts to meet a guaranteed level of performance.

The question for defense organizations has always been how much do you outsource?

The answer is that each outsourced PBL project should strive to be a “win-win” for both the customer and supplier. This can only happen with personal and institutional confidence between provider and client, and this depends on good management and decision support information.

Intuitively, the military may not want to outsource support capability, but realistically they recognize the benefits of industry involvement.

Contracting out support still leaves the military holding the operational risk. The “burning platform” driving the military toward PBL is largely budgetary. The warfighters are then effectively dependent for their lives on the success of a commercial arrangement some way down the support chain to provide their tools. Without doubt if it goes wrong, their degree of pain is much higher than for one of the industrial partners.

The military clearly needs confidence in the support before it can reasonably be expected to willingly go into harm’s way underpinned by a PBL strategy. The key confidence builder is the visibility of information to all in the support chain, so that it is indisputable that all parties in the enterprise are getting what they need from the arrangement. PBLs only have problems when they are built on islands of information. These can then become islands of distrust, and then islands of ineffectiveness. This insular mindset can lead to big cost and, more importantly, big risk.

The ever-growing complexity of equipment is inflating the cost of maintenance, operations and support. And the demand for these shrinking fleets is increasing. In the air environment within defense, there is the added challenge of needing to conform to tight regulation. This means more training, quality assurance requirements and legislative risk for shrinking teams of military maintainers and operators to manage.

The move towards PBL solutions is therefore an inevitable necessity.

PBL has achieved some notable success as a tool for sustaining defense operational capability at a reasonable cost. Recent studies have shown that performance-based arrangements are a strong tool for incentivizing productivity and innovation in both industry and government.

When properly structured and executed, PBL arrangements reduce the services cost per unit-of-performance while simultaneously driving up system, subsystem or component readiness — with an average annual cost saving or avoidance of between 5 percent and 20 percent, according to recent studies.

General Electric’s F414 engine has powered the U.S. Navy’s F-18s for many years. Now, the F414 enhanced engine is supporting the next generation of combat needs with up to 18 percent more thrust and twice the horsepower of its predecessor. The PBL project for the new enhanced engine, which won the prestigious Secretary of Defense PBL award in 2013, is a collaborative effort between GE Aviation, IFS North America, Sogeti USA and Navy PBL personnel.

The PBL supports more than 1,200 engines in the Navy inventory. It has delivered over $110 million in direct savings to the Navy fleet flying hour program and provided availability levels of over 95 percent, as well as infrastructure cost avoidances. ND

Kevin Deal is vice president of aerospace and defense at IFS North America.

Topics: Defense Contracting, Logistics

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