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New approaches to Performance Based Logistics – keeping military assets primed and ready

ifsSupport in the defence industry is changing, transforming from solely engineering and manufacturing oriented, to focusing on platform and asset availability. Suppliers are now typically judged on product availability and performance over lifecycles that might last up to 50 years. Kevin Deal, vice president of aerospace & defense, IFS North America, explains how Performance Based Logistics is becoming a necessity in order to minimise operating costs and optimise asset availability.

As military equipment becomes more complex and budgets become more scrutinized, defence organisations are looking at ways to not only improve asset availability, but reduce operating costs. The US and UK, as mature arms markets, have already realised the benefits of one such solution – Performance Based Logistics (PBL). So much so, that it is now a mandated consideration for major new procurement projects and becoming a serious consideration for maturing defence industries in the BRICS (Brazil, Russia, India, China, South Africa) and Asia-Pac.

 

PBL – Climbing the transformational staircase

System and subsystem PBL strategies are already in use in commercial aviation, often referred to as ‘power-by-the-hour’. In the defence market, you can trace one of the first implementations of PBL back to the late 1990s to improve system readiness of the F-117 for the US Air Force.

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

The question for defence organisations has always been how much do you outsource – how far up the transformational staircase do you climb – and when?

The answer is that each outsourced PBL project should be capable of being tailored to its program or situation, and 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.

No PBL is an island

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

As with the military, organisations in commercial aerospace and automotive industries are striving to improve quality in certain critical operations while reducing costs. In order to square this circle, many industrial manufacturing companies across these sectors have turned to offer integrated maintenance, repair and overhaul (MRO).

However, contracting out support still leaves the military holding the operational risk. The ‘burning platform’ driving the military towards 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 warfighter, and their miltary commanders, clearly need confidence in support provision before they 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 – from the multi-tier suppliers to the end user – 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 mind-set can lead to big cost and, more importantly, big risk.

The challenges for defence organisations

As with the military, organisations in commercial aerospace and automotive industries are striving to improve quality in certain critical operations while reducing costs. In order to square this circle, many industrial manufacturing companies across these sectors have turned to offer integrated maintenance, repair and overhaul (MRO).

But the provision of integrated support packages poses a significant challenge for suppliers of air, land, and naval equipment who are increasingly operating under PBL contracts, including complex MRO support. Not only is the ever-growing complexity of equipment inflating the cost of maintenance, operations and support, but the intensity and variability of tasking for these shrinking fleets is increasing. In the air environment within defence, 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.

Realising the benefits

PBL has achieved some notable success as a tool for sustaining defence operational capability at reasonable cost. Recent studies have shown that performance based arrangements are a strong tool for incentivising productivity and innovation in both industry and government. The ‘Proof Point’ study concluded that 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 and 20%.

Agile and adaptable ERP needed

Developing successful support transformation is not about taking one step on the transformational staircase and waiting for it to transport you onwards and upwards. A revised approach is needed for each evolutionary step as new systems, processes and arrangements are put in place to meet emerging organisational responsibilities and challenges. The underlying ERP solution needs to be agile and adaptable to manage varied and changing circumstances. Very few PBL contracts are alike, in fact almost all contracts have local process variation. The key is to opt for an ERP solution which can be customised for individual requirements.

IFS and PBL – Setting the benchmark for the US Navy

General Electric’s F414 engine has powered the US F-18s for many years. Now, the F414 Enhanced Engine is delivering expanded capabilities for the next generation of combat needs with up to 18% 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 the US Navy PBL personnel. The project took a significant step up the transformational staircase compared to previous GE support packages, and was described as ‘setting the benchmark’ for performance-based engine support.

The Secretary of Defense PBL award for the program recognises government and A&D industry teams that have demonstrated outstanding achievements while providing exceptional capability through PBL agreements. The F414 uses IFS A&D industry solutions for PBL in supporting more than 1,200 engines in the Navy inventory. It has delivered over £75 million in direct savings to the Navy Fleet Flying Hour Program and provided availability levels of over 95%, as well as driving substantial infrastructure cost avoidances. This is in part because of the modular, flexible ‘wall of capability’ that IFS solutions bring to the party. It enables process, responsibility and structural change to be accomplished without having to re-engineer the whole enterprise.

The lifeblood of transformation

The key to enabling this improvement process has been the adoption by the defence industry of ERP software that is able to ‘grow-as-they-go’ in an incremental process. As with GE, much of the defence industry’s support transformation tends to start with manufacturing capability. The support partner then adds the support/MRO/fleet management/asset maintenance functionality as a particular defence organisation travels ‘up the staircase.’

Despite being a significant challenge for defence support providers, support transformation has provided a necessary new revenue stream as new-build projects – once the core output of defence industry – become a once-in-a-generation event. However, since 80% of the through-life cost of military assets lie in the support rather than manufacturing phases, this will go a long way towards developing and maintaining healthy defence and industry partnerships in the future.

‘Transformation’ is the new ‘stability’, and proven, agile, adaptable software support is the lifeblood of this new environment. Should you be thinking about how such systems can enable and enhance your journey up the transformational staircase?

 

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