Performance-Based Logistics (PBL): Innovating the Supply Chain for Current and Future Defense Department Programs Bill

1. Performance-Based Logistics (PBL): Innovating the Supply Chain for Current and Future Defense Department Programs Bill Johnston & Atif Mirza

2. Why are we here? The importance of Defining Success: the Evolving Landscape of PBL • Performance-based logistics (PBL) is the Department of Defense’s preferred product support strategy to deliver improved weapons systems readiness at the same or lower total cost (DODD 5000.1, Paragraph E1.17, The Defense Acquisition System, May 12, 2003) • Goal: Weapons Systems should be designed, maintained and modified to continuously reduce the demand for logistics • DoD Definition: PBL is the purchase of support as an integrated, affordable performance package designed to optimize system readiness and meet performance goals for weapons systems through long-term support arrangements with clear lines of authority and responsibility (Defense Acquisition Guidebook (Section 5.3)) • Customer Vision - • Industry Vision - Availability and Affordability Integrated activities and reasonable profit PERFORMANCE OUTCOMES (NOT Acquisition of Individual Parts and Services)

3. Agenda • Welcome and introduction of PBL • How are we defining success? • Baseline definition of PBL • Key messages • PBL overview & State of PBL • Status of agencies in PBL adoption and application • Status of contracting community • What is your business model? • An integrated approach • Transitioning the contract • Rewarding the right program behaviors • Supply chain management is the foundation of the PBL contract • Innovating the supply chain • Summary

4. Performance-Based Logistics Contractor Paid for Usage Welcome and introduction of PBL Baseline definition of Performance-Based Logistics (PBL) Traditional Logistics Process Contractor Paid for Breakage Aircraft Flies Contractor Paid to Support XX Flight Hours Aircraft Breaks Aircraft Aircraft Aircraft Flies Maintainer Identifies Fault & Replaces Failed Part Airplane notifies maintenance a part will fail in XX hours Maintainer decides when to replace part Failed Part Sent for Repair Maintainer replaces part Part Repaired & Returned to Supply Failed part sent for repair Contractor repairs part with goal of reducing repair frequency and repair cost. Improved part is returned to supply Contractor Paid For Repair

5. Welcome and introduction of PBL Models for various levels of sustainment • Assuring aircraft mission capability, engineering services and system reliability Mission Capable Aircraft Synchronization (Level 4) Industry • Assuring subsystem availability, parts availability and engineering services Subsystem Availability Collaboration (Level 3) Integration (Level 2) RiskFocus • Engineering services and meeting parts availability Fill rates Award/ Incentive Fees Engineering (Level 1) • Engineering services in modifications and sell parts Lead time availability of parts % complete of software upgrades Engineering changes rate Govt. Increasing Industrial Performance

6. Welcome and introduction of PBL What the levels mean - Sustainment metrics • At Level 1, where the Performance Objective is Delivery Speed, inventory levels are high to achieve an acceptable Logistics Response Time (LRT). • At Level 2, where the Performance Objective is Availability, reliability improvements (Value Engineering) and the development of repair capabilities allow for reduced inventory levels and the achievement of acceptable Material Availability metrics. • At Level 3, where the Performance Objective is Operational Availability, investment is made in Configuration Management and Maintenance capabilities as Life Cycle Support responsibilities transfer to the PBL provider. • At Level 4, where the Performance Objective is Mission Reliability, the focus changes from weapon system support to investments that allow for successful mission outcomes.

7. Welcome and introduction of PBL Key Messages - PBL incentivizes the right things PBL pay for PERFORMANCE, not transactional good (parts) and services (repairs) • Readiness • Reliability • Accountability • Improved Systems • Win-Win Relationships • Optimizes for the Warfighter Minimizing repairs and spares increases profit for the support provider There is a SINGLE focal point responsible for integrating all sources of support to provide performance outcomes Same or lower cost DoD gets guaranteed results at a fixed price; the Support Provider gets the authority and flexibility to maximize their profit; partnering PBL is vertical (weapon system) oriented, versus horizontal (commodity) oriented HOW DO WE DEFINE SUCCESS? • Accountability – Product Support Integrator (PSI), Product Support Provider (PSP), Original Equipment Manufacturer (OEM), Suppliers • Balancing flexibility, sustainment, and affordability • Ensuring performance objectives are met • Structuring the right business deal that meets the customers needs and allows financial success KEY MESSAGES

8. Agenda • Welcome and introduction of PBL • How we are defining success? • Baseline definition of PBL • Key messages • PBL overview & State of PBL • Status of agencies in PBL adoption and application • Status of contracting community • What is your business model? • An integrated approach • Transitioning the contract • Rewarding the right program behaviors • Supply chain management is the foundation of the PBL contract • Innovating the supply chain • Summary

9. PBL Overview & State of PBL Status of agencies in their adoption and application of PBL Recent History of PBL Agencies need to find a way to reduce cost and increase performance BRAC decisions consolidations of depots Office of Secretary of Defense drives for Performance Based Logistics • Hon Jack Bell (DUSD L&MR) Delivered the Defense Department’s Keynote Address on “Maintaining Warfighter Readiness” at the Annual DoD Maintenance Symposium – October 28, 2008 • Air Force… mandates that Business Case Analyses (BCA’s) be developed for all PBL contracts (Instruction 65-509) – Sept 19, 2008 • Specific guidance on PBL BCA requirements found in AFI 63-107 on Integrated Product Support Planning and Assessment • AFI 63-107 spans the entire public and private spectrum on sustainment, from Depot Maintenance Management to Contractor Support for systems and equipment • Acquisition, Technology and Logistics (ATL) PBL Guidance Document on “Implementing a Life Cycle Management Framework” Memorandum for Secretaries of the Military Services – July 2008 PBL institutionalized as the ‘preferred strategy for weapon system sustainment’

10. Congressional Requirement 2001, 2006 Quadrennial Defense Review DoD policy Requires PBL, no going back, no status quo Aggressive PBL implementation for weapons systems platforms starting in fiscal year 2006 Military Services & Defense Agencies (DLA) Wide range of application (learning curve) Major Weapon Systems Sustainment of fielded systems Differences in Weapon Systems (and employment of them) “One Size Does NOT Fit all” PBL Overview & State of PBL Status of agencies in their adoption and application of PBL

11. PBL Overview & State of PBL Status of agencies in their adoption and application of PBL “PBL is the Department’s near-term strategy to increase weapon system readiness through integrated logistics chains and public/ private partnerships”January 23, 2004 Memo from Acting USD, AT&L Michael Wynne “Certain PBL arrangements such as short-term contracts, unstable requirements and funding, DOD ownership of inventory and the lack of cost metrics and effective incentives… could limit the ability of contractors to reduce support costs”December 19, 2008 GAO Report to Subcommittee on Readiness, Committee on Armed Services DoD Still Mandating its Program Managers to Implement Performance Based Logistics…despite recent criticism

12. PBL Overview & State of PBL Status of agencies in their adoption and application of PBLMajor contractors obtaining PBL sustainment contracts • Lockheed Martin • F-117 Nighthawk • Joint Strike Fighter • C-130J Super Hercules • F-22 Raptor • Boeing • F/A-18E/F • F414 Government industry Logistics Support (GILS) • F/A-18 Integrated Readiness Support Teaming (FIRST) • C-17 Globemaster III Flexible Sustainment • Northrop Grumman • Joint STARS Total System Support Responsibility (TSSR) • B-2 Total System Support Partnership (TSSP) • BAE Systems • Typhoon Support Contracts

13. PBL Overview & State of PBL Status of agencies in their adoption and application of PBL • Navy experience • 25% of business now on PBL (NAVICP) • Essentially all to OEM of equipment • Public-private partnerships (PPPs) required with existing organic depot • FFP supply contracts (similar to DLA) • Joint Strike Fighter – Leading the way for PBL future • Air Force experience • PBL concepts driven into new systems • PPPs required • Cost type contracts in beginning • Embracing concepts, but slow to execute • Long-term contracts • Award fee/ award terms/ incentive contracts • Single systems integrator • F-22, C-17 • Army experience • Commodity driven • Low price, competition • Embracing PBL

14. PBL Overview & State of PBL Status of agencies in their adoption and application of PBLConcerns in recent months • New Congress • Greater emphasis on transparency and insights into contractors • Congressional oversight • TINA • Option Contracts • Funding Constraints • Deputy Administrator (Lesley Field), Office of Federal Procurement Policy • Greater use of competition • Limited sole source • Firm fixed price • Appropriate outsourcing • GAO questions PBL effectiveness on reducing support costs – December 2008 Defense Logistics Report to Congress Flexibility of PBL concepts in light of changing environment

15. PBL Overview & State of PBL Status of Contracting CommunityWhat is the PBL expectation? From the government’s/ Prime contractors perspective: • Near-term • Increased readiness/ sustainment capability • Significantly reduced implementation cost • Lower support cost • Over Life Cycle • Continuous improvement in sustainment performance to warfighter • Continuous improvement in affordability • Reduced requirements for government investment

16. PBL Overview & State of PBL Status of Contracting CommunityWhat is different in PBL? • Contractors make X% return with old, low risk sustainment approach • PBL approach to sustainment transfers support risk to contractor • Performance requirements/ guarantees • Long term affordability improvements • Front end investment to reduce support costs • Increased risk = Increased return • Contract provisions to eliminate unnecessary risk • Long term contracts • FAR / CAS Accounting • Metrics • Contract Terms

17. PBL Overview & State of PBL Status of Contracting CommunityWhat are the issues and concerns? Priorities • Performance Objectives • Responsibilities • Term of Contract • Flexibility (range of support) • DMS/ Obsolescence • Continuous Modernization/ Improvement • Incentives/ Penalties • Cost reduction; Cost stability • Contractor Investments • Title 10 Compliance • Technical Data • Accountability • Metrics • Minimum number of CLINs (5-10) • Caps on liabilities • Risk mitigation • Long-term (5 years +) Multi-year • Incentives • Return on Net Assets (RONA) • Clarity and Flexibility • Priced Based Contracting • Investments with Returns • Depot maintenance for Repairs • Technical Data Important Company Assets

18. Agenda • Welcome and introduction of PBL • How we are defining success? • Baseline definition of PBL • Key messages • PBL overview & State of PBL • Status of agencies in PBL adoption and application • Status of contracting community • What is your business model? • An integrated approach • Transitioning the contract • Rewarding the right program behaviors • Supply chain management is the foundation of the PBL contract • Innovating the supply chain • Summary

19. What is your business model? An integrated approachThe PBL Business Principles • Increase performance of Warfighter and Improved Aircraft Availability • Reduction in life-cycle costs and affordability • Ensuring organic capability • Increase operational tempo capability • Stability in financials, workforce and supplier base Sustainment objectives

20. What is your business model? An integrated approachThe PBL Business Principles – PBL Elements Shared Risks & Rewards between Customer & Contractor • High level measurements (PBL metrics) reflecting system performance • Reduction of life-cycle costs and affordability • Clear line of authority/ responsibility (Product Support Integrator) • Commitment to organic depot workload • Title 10 50/50 Core Workload • Accountability of deport performance agreements • Public-Private Partnerships (PPP) • Operational tempo capability and levels of performance • Theater of operations • Duration of conflict • Commercialization of function • Long-term relationship • Commercial like pricing/ contract • Minimal oversight • Usage based principles • Technical data

21. What is your business model? An integrated approachThe PBL Business Principles – Proposed PBL Business Approach

22. What is your business model? An integrated approachTerms & Conditions • Contract type • FFP commodity level, if all factors are defined • Cost Plus when all factors are not known or proven • Award term contract • Multi-year/ award term/ requirements contracting • Competition • At the component level • Purchasing power from volume discounts • Sole Source – Long-term Contracting, OEM, Tech Data • Contract Length • 5-25 years • Pricing Structure • Menu of services price table • Cost per unit – (Flying hour) • Options • Firm pricing • Price improvement curve • Rolling pricing

23. What is your business model? An integrated approachTerms & Conditions (continued) • Pricing Structure • Menu of services price table • Cost per unit – (Flying hour) • Options • Firm pricing • Price improvement curve • Rolling pricing • Incentive Structure • Award fee – Objective, subjective, not subject to disputes, base fee, fee percentage • Incentive fee • Award term • CLIN Structure • Most in a single CLIN • Flexibility??

24. What is your business model? An integrated approachTerms & Conditions – Critical Items • Recovery of Depot Advanced Payments • Cash Neutral Payments • Payment Provisions • Flight per hour • Milestone • Performance Based • Define Roles ( Product Support Integrator & related support) • Clearly Defined Statement of Work • Incentive Provisions • Default/ Remedies • Off Ramps • Depot Partnering – incorporate in Contract • Funding Exclusions (Title 10, Propulsion) • Program Interdependencies • Investment Recovery • Accounting Issues • Subcontract terms and conditions – proper flow downs including depots Success is having a clear understandable contract

25. What is your business model? An integrated approachEnsuring organic capability • Depots could be Product Support Integrators • Prime Contractors are Product Support Integrators • Workload versus Direct Sales Agreements • Title 10 – Payment Liability/ Compliance • Core 10 U.S.C. 2464 • 50/50 10 U.S.C. 2466 • Services account differently • Effort to be performed by Depot • Investments • Rates are not firm Depots have record of outstanding performance and low costs Success is in Partnering

26. What is your business model? An integrated approachIncentives Goal: To incentivize contractor to improve products and processes • Increase sales • Long-term customer base • Increase profitability • Market leader • The right thing to do WHY? • Long-term Contract – (10 + years) • Performance (Award term, award fee (objective), incentives (in increased performance and reliability) • Fixed Price • Less Oversight • Use of Commercial Like Pricing, TINA tailored or wavered, FAR Part 12, Commercial Accounting (GAAP), Price Based Contracting HOW? Success is incentivizing the contractor to make investments to have less breakage, increased performance which reduces overall costs

27. Agenda • Welcome and introduction of PBL • How we are defining success? • Baseline definition of PBL • Key messages • PBL overview & State of PBL • Status of agencies in PBL adoption and application • Status of contracting community • What is your business model? • An integrated approach • Transitioning the contract • Rewarding the right program behaviors • Supply chain management is the foundation of the PBL contract • Innovating the supply chain • Summary

28. What is your business model? Transitioning the contractInhibitors and tools to address • Policy, Regulatory, and/ or Statutory Changes • Long-term Contract • Multi-year Contract w/ Contract Extension • Product Support Integrator (PSI) • Competition in Contracting Act: CICA (sole source contracts) • Commercial like pricing • FAR Part 12 • TINA • FAR-Based Accounting • Technical Data • Alternative approaches (TO/DO, Award Term, CLIN Pricing) • US Depot Partnering CONTRACT TRANSITION ISSUES

29. What is your business model? Transitioning the contractInhibitors and tools to address • Business Case Analysis (plus Validation and Updates) • Business and Information Systems • Reliability of Contractor Cost Data • Verification of Performance • Contract Management • Multiple LRIPs • Multiple Line Items • Overlapping Years • Price Improvement Curve (PIC) • Provisions for Operational Tempo CONTRACT TRANSITION ISSUES (continued)

30. What is your business model? Transitioning the contractInhibitors and tools to address • Contract Type – Cost Reimbursable to Fixed Price • Fee Structure • Funding • Payment (biweekly/ interim) • U.S. Depot Partnering • Over and Above Items • Government Requirements – GFP/ GFE • Deployment of Aircraft and Personnel Overseas • Import/ Export/ Tax Duties CONTRACT TERMS AND CONDITIONS Address issues today

31. Agenda • Welcome and introduction of PBL • How we are defining success? • Baseline definition of PBL • Key messages • PBL overview & State of PBL • Status of agencies in PBL adoption and application • Status of contracting community • What is your business model? • An integrated approach • Transitioning the contract • Rewarding the right program behaviors • Supply chain management is the foundation of the PBL contract • Innovating the supply chain • Summary

32. Rewarding the Right Program Behaviors Supply chain management is the foundation of PBL Two guys in a bicycle shop could do it • The first federal aircraft acquisition contract • Date: 1909 • Supplier: The Wright Brothers • Target Price: $25,000 • Target Speed: 40 MPH • Incentive Contract Structure: • $2,500 for every MPH over target • ($2,500) for every MPH under target • Minimum acceptance requirement of $36 MPH • A Win/ Win result • Delivered performance at 42 MPH • Incentive pay-out of $5,000

33. Rewarding the Right Program Behaviors Supply chain management is the foundation of PBL Supply chain is a bit more complex today • Government is customer, partner and competitor • DoD depots must provide touch labor • Defense Logistics Agency is preferred source • There is a broader dynamic in the buyer-seller relationship • All the armed services have Performance-Based Logistics programs at some level • Prime A&D contractors have received PBL awards since the Defense Dept. started their annual recognition event • The export controls environment is more challenging • Marked increase in license applications and caseloads across the State and Commerce Depts. • As portions of US aerospace production goes offshore, companies will be motivated to work around the constraints of the licensing process • Technical Assistance Agreements (TAAs) are adding to the ‘systemic stress’ in the export regulatory system Source: Center for Strategic and International Studies, Defense-Industrial Initiatives Group paper (2008)

34. Rewarding the Right Program Behaviors Supply chain management is the foundation of PBL The need for innovation has never been greater • Supply chain is a major priority for the US Government • DoD spent approx. $178 billion on its supply chain in FY07 (including $84B on maintenance) • The nature of acquisition is changing (fewer programs on the horizon, more resets) • Renewed geo-political alliances will require different structures for defense cooperation… and this may drive a new wave of supplier consolidation US Army Reset Costs (FY04 to FY13) 6% 23% 10% 62% Source: DoD Maintenance Fact book and Estimates from Army data, GAO-08-669T (2008)

35. Rewarding the Right Program Behaviors Supply chain management is the foundation of PBL Deployment is still a work in progress, increasing focus on higher impact programs PBL Strategy - Evolution … to Outcomes Platform Level (major weapons and System-of- Systems) Mission success Availability Life cycle cost mgt. Govt.- industry teaming Subsystem Level (minor weapons, major subs) Component Level Systems eng. approach Footprint reduction Obsolescence mgt. Reliability, maintainability and supportability F-22 Raptor (Lockheed, Boeing, Pratt & Whitney / USAF) Improved Target Acquisition System (Raytheon / Army) T700 Aircraft Engine (GE / Navy) Note: OSD Award Winners for PBL Excellence (various years)

36. SHIFT Rewarding the Right Program Behaviors Supply chain management is the foundation of PBL Debate now focuses around delivery • Traditional Contracting (Cost Of Input Measures) • Focus • Parts • Inventory • Maintenance • Risk Drivers • Cost to produce/deliver • Operational failure • Key Success Factors • Manufacturing learning curve • Low cost design • Operations excellence Shift in risk and reward model • PBL Contracting (Cost Of Output Measures) • Focus • System availability • System performance • User satisfaction • Risk Drivers • Alignment with performance requirements • Performance optimization delivery • Key Success Factors • Supply chain alignment • Supplier incentives • Modeling and predictive accuracy

37. Multi-System Platforms Systems Subsystems Repairables Consumables Services Rewarding the Right Program Behaviors Supply chain management is the foundation of PBL End Game – Optimizing the entire value chain to the point of application • Today, emphasis is mainly on repairables, but major programs are moving the concepts upstream into System Architecture & Design • Value potential and risk increases for both the buyer and supplier as this moves forward System Development and Support Lifecycle – PBL Progressions System Development / Demonstration Concept Development Technology Development Production & Deployment Operations & Support

38. Rewarding the Right Program Behaviors Supply chain management is the foundation of PBL Winning in the changing PBL environment • Not just a contracting issue – PBL is one of fifteen lifecycle sustainment enablers for materiel readiness • Requires an enterprise view of acquisition, technology and logistics Condition-based maintenance Continuous process improvement Corrosion prevention Data management Depot maintenance plan Diminishing mfg sources Integrated supply chain mgt Item unique identification Long-term agreements Performance-based logistics Predictive modeling Radio frequency identification Technical data Title 10 requirements Training Product Management Product Support Integrator (PSI) All Integrated by real-time asset visibility and communication (Technology) Engineering & Development Supply Chain & Operations

39. Rewarding the Right Program Behaviors Supply chain management is the foundation of PBLInvestment horizons enable ROI Contractual Investment Window “Illustrative” Only 1 Year 3 Year 5 Year 10 Year

40. Rewarding the Right Program Behaviors Supply chain management is the foundation of PBLProduct support integrator • Rigorous configurations management of definition and interplay of system requirements, support baseline and product support strategy • Integrate capabilities horizontally and flexibly • Leverage long term agreements • Maximize value of stable cash flow • Creative problem solving • Eliminate non-value added administrative processes • Identify and leverage the best of the best capabilities • Recognition of gaps between performance requirements and control requirements Customer Product Support Integrator Common Items Major Subcontractors SCM Sub/ Vendor OEM Depot Partnerships DLA SCM Balance Integrator Accountability, Authority & Risk

41. Rewarding the Right Program Behaviors Supply chain management is the foundation of PBL Cross-functional agenda • Dynamic relationships and agreements up and down the supply chain • Long term agreements enable appropriate investments and risk horizons • Integrated teams across customer, internal organization, contractors & government • Team connected throughout lifecycle of program from competition to sustainment Program Management • Integrated product teams • Design for Supportability: the support system as an integrated technical requirement • Failure mode analysis • Predictive maintenance inputs: using sensors, diagnostic software and system • performance models Engineering Development • Anticipating requirements: condition-based and reliability-centered maintenance • Design for PBL: collaboration tools, standardization, network modeling • Business process focus: PBL alignment, data availability, continuous improvement • Optimization tools: system dynamics, life cycle cost analysis, data mining Supply chain & operations • Collaborative planning and forecasting tools • System-wide logistics portal • Unique item identification and performance data capture • Knowledge sharing and warehousing IT & governance

42. SI-1 Subsys Int-1 Subsys Int-2 Subsys Int-3 SI-2 Subsys Int-1 Subsys Int-2 Subsys Int-3 Rewarding the Right Program Behaviors Supply chain management is the foundation of PBL Contracting – establishes the core SCM relationships and enables the cascading of requirements Prime DoD

43. Agenda • Welcome and introduction of PBL • How we are defining success? • Baseline definition of PBL • Key messages • PBL overview & State of PBL • Status of agencies in PBL adoption and application • Status of contracting community • What is your business model? • An integrated approach • Transitioning the contract • Rewarding the right program behaviors • Supply chain management is the foundation of the PBL contract • Innovating the supply chain • Summary

44. Conceptual Design System Design Support System Design Logistics Repair Information Visibility Modeling & Option Analysis Platform System Subsystem Repairable Consumable Service Rewarding the Right Program Behaviors Innovating the supply chain Ensuring enterprise capability • Develop a portfolio approach to determining what drives PBL desired outcomes • Optimize by leveraging external relationships and defining what is core in your business Make/ Buy/ Develop

45. Rewarding the Right Program Behaviors Innovating the supply chainAlign and deploy PBL supply chain relationships • Supplier Collaboration Model: • Alignment with PBL • Tailored relationship categories • New operational ground-rules • New contractual framework • New collaboration & communication “connectivity” • PBL Success Factors: • Dynamic Planning & Scheduling • JIT Deliveries • Product reliability improvements • Asset rationalization • Information transparency Mission Critical Description Align and Deploy PBL Supply Chain Relationships Step 2 Step 1 Step 3 Step 4 Re-Evaluate Supplier Against PBL Requirements Deploy Business Agreements Contract Compliance Reviews Integrate Into PBL Strategy Implementation Strategy • Involve in full program life-cycle from capture through phase-out • Define role in each stage • Establish as part of PSI team • New communication and collaboration links • New JIT rules • New payment triggers • Conduct compliance audits • Update agreements as program lifecycles and risk profiles change • Align new value model with PBL requirements • Cascade contractual approach • Focus on PBL capability set

46. Rewarding the Right Program Behaviors Innovating the supply chain Contracting incentives and flowdown • Flow down strategy is dictated by the nature of the supply relationship Performance Focused Cascade Full PBL High Risk Low Risk Price Focus Cost Sharing Transactional Performance Criteria Critical

47. Rewarding the Right Program Behaviors Innovating the supply chain Applying the right business model is critical • Lose/ Lose • Input based organization deployment • Unit costs driven down • Inventory deployed to cover contingencies • Vertically integrated to ensure control • Results • Total system costs rise • Buyer realizes lower performance • Contractor realizes lower profit • Win/ Win • Output based organization deployment • Sustainment costs driven down • Logistics optimized around predictive and signaled requirements • Leveraging of portfolio capabilities to optimize deliverables • Results • Total system costs reduce • Buyer realizes higher performance • Contractor realizes higher profit

48. Agenda • Welcome and introduction of PBL • How we are defining success? • Baseline definition of PBL • Key messages • PBL overview & State of PBL • Status of agencies in PBL adoption and application • Status of contracting community • What is your business model? • An integrated approach • Transitioning the contract • Rewarding the right program behaviors • Supply chain management is the foundation of the PBL contract • Innovating the supply chain • Summary

49. Summary Transitioning the contractBuying the right predetermined package • New Programs • Use “walk before your run”, techniques, transition slowly, proving metrics and costs as you go. • Legacy Programs • Industry only uses PBL on older systems when costs and criteria are well known Determine your PBL Offering Adjust for changes, levels of performance, funds Ensure proper metrics and performance Structure contract, bound risks in terms and conditions, price Perform, monitor, deliver

50. Summary Transitioning the contractBalancing Risk & Reward • What is your program’s sustainment strategy? • How is the sustainment strategy being accomplished? • What are the short and long-term milestones? • Explain the business and contractual provisions to accomplish sustainment strategy? • What are the incentives? • What are the metrics? • What are the funding provisions? • What is the supplier, vendor and subcontract strategy? In balancing risk and reward ask (and answer), the following: Success is understanding your business model in light of government, customer pressures, and define accordingly your contractual and financial obligations