Fleet Readiness Center FRC Transformation A Systems Approach

1. Fleet Readiness Center (FRC) Transformation A Systems Approach 15 September 2005 SOLE Brief Don Fathke & Bob Buckley

2. 2 Overview Background Vision What are FRCs? Key Enablers Cost Removal Implement BRAC FRC Recommendations as Approved FRC Locations FRC Transformation Draft Enterprise FRC Implementation Organization Enterprise FRC (eFRC) Responsibilities Summary Acronyms

3. 3 Background Preserve control of Naval Aviation Maintenance within the Navy FRC concept incorporated into DOD BRAC recommendations 13 May 2005 Implement BRAC Recommendations Define the FRC CONOPs Design the FRC construct to enable the NAE to save $1.8B over the FYDP Original vision: Integrated I2D repair system

4. 4 Vision Shift Maintenance Concept Three Types moves to Two On Flight Line � Off Flight Line Support Commercial Integration Remove Organizational White Space Optimize Value Stream Reduce Total System Cycle Time Accelerate our Advantages The FRC represents a transformation in the way we intend to maintain RFT by taking advantage of our foundation in business process improvements and the alignment Flags within the NAE. A key element will be a shift in our traditional THREE levels of maintenance to TWO. Today we have the organizational level � done at the squadrons: This is aircraft servicing, and removing and replacing components. At the AIMDs we perform Intermediate Level Maintenance which involves removing and replacing circuit cards and other component subassemblies. At the depots, complete overhauls and rebuilding of components occurs often combined with engineering analysis with the design of repair procedures customized for that particular failure or condition. We currently organize our maintenance activities by the level of maintenance they predominantly execute. This leads to the natural optimization of that organization instead of the optimization of the particular repair and repair process. The FRC concept will organize activities so that we optimize the repair process, not the level of maintenance. This will enable us to move items ONCE�BCM�s from one FRC to another will be essentially eliminated. Concentrating component repair expertise in fewer places will also allow us to ensure components maintain their originally designed TOW which many times degrades through less than optimum repairs. We plan to look at the entire value chain from component failure on the flight line to final repair and remove the organizational white space � which will reduce total system cycle time which enables fewer components in the repair cycle which reduces the total cost of ownership. Naval Aviation is uniquely poised to move forward with this concept. The penetration of NAVRIIP and AIRSpeed have set the foundation within the leadership to understand and implement this complex change. The NAE has created the environment where we can optimize organizations outside of traditional stovepipes. This will not be successful without close coordination between CNAF, NAVAIR, OPNAV, NAVICP and the NAE provides the framework for us to work together and move forward. The FRC represents a transformation in the way we intend to maintain RFT by taking advantage of our foundation in business process improvements and the alignment Flags within the NAE. A key element will be a shift in our traditional THREE levels of maintenance to TWO. Today we have the organizational level � done at the squadrons: This is aircraft servicing, and removing and replacing components. At the AIMDs we perform Intermediate Level Maintenance which involves removing and replacing circuit cards and other component subassemblies. At the depots, complete overhauls and rebuilding of components occurs often combined with engineering analysis with the design of repair procedures customized for that particular failure or condition. We currently organize our maintenance activities by the level of maintenance they predominantly execute. This leads to the natural optimization of that organization instead of the optimization of the particular repair and repair process. The FRC concept will organize activities so that we optimize the repair process, not the level of maintenance. This will enable us to move items ONCE�BCM�s from one FRC to another will be essentially eliminated. Concentrating component repair expertise in fewer places will also allow us to ensure components maintain their originally designed TOW which many times degrades through less than optimum repairs. We plan to look at the entire value chain from component failure on the flight line to final repair and remove the organizational white space � which will reduce total system cycle time which enables fewer components in the repair cycle which reduces the total cost of ownership. Naval Aviation is uniquely poised to move forward with this concept. The penetration of NAVRIIP and AIRSpeed have set the foundation within the leadership to understand and implement this complex change. The NAE has created the environment where we can optimize organizations outside of traditional stovepipes. This will not be successful without close coordination between CNAF, NAVAIR, OPNAV, NAVICP and the NAE provides the framework for us to work together and move forward.

5. 5 What are FRC�s? NAE Fleet Readiness Centers Integrated Repair, Engineering and Fleet Training Centers Centers of Excellence Integrated with Fleet/Tech authority and each other Commodores maintain leadership role What they are not Depots swallowing IMAs or vice versa Fleet Readiness Centers will be new commands. They are not simply and expansion of the existing NADEPS. Nor are they merely the introduction of depot artisans to the existing AIMDs/MALS. We will be inventing a new process for these previously distinct maintenance levels to interact and interface in a new and fundamental way. Fleet Training will not be the classroom training that is done by CNATT, but the Over the Shoulder OJT that will allow our sailors to learn from the experienced journeyman artisans. This will help improve our components TOW and minimize well intentioned but often misguided repairs. FRCs will enable an interaction and interoperability that will allow us to optimize our maintenance capability horizontally as well as vertically. We have learned from NAVRIIP that the Commodores leadership role component repair is crucial and this will be maintained. Our deployable units, Carriers and MALS, will remain deployable, but we expect them to gain advantages from an better interface with the FRCs Fleet Readiness Centers will be new commands. They are not simply and expansion of the existing NADEPS. Nor are they merely the introduction of depot artisans to the existing AIMDs/MALS. We will be inventing a new process for these previously distinct maintenance levels to interact and interface in a new and fundamental way. Fleet Training will not be the classroom training that is done by CNATT, but the Over the Shoulder OJT that will allow our sailors to learn from the experienced journeyman artisans. This will help improve our components TOW and minimize well intentioned but often misguided repairs. FRCs will enable an interaction and interoperability that will allow us to optimize our maintenance capability horizontally as well as vertically. We have learned from NAVRIIP that the Commodores leadership role component repair is crucial and this will be maintained. Our deployable units, Carriers and MALS, will remain deployable, but we expect them to gain advantages from an better interface with the FRCs

6. 6 Key Enablers Global Reach of Premium Transportation Enables Fewer Repair Sites Greater efficiency and reliability Move stuff �ONCE� Refine Financial Model Shift Point of Sale AIRSpeed Culture Here are some of the key enablers that will help FRCs succeed in maintaining readiness while reducing cost. One of the most important is to leverage on the commercial sectors ability to move material quickly, without damage, and near perfect accountability. Our current web of transportation providers requires a complex process to track and coordinate the various providers. We will be able to eliminate much of this, while reducing total cycle time, with improved accountability, by contracting for a single provider to be responsible for packing, handling and transportation � and accountability. This is the NMCI concept for moving stuff around the enterprise. I would not immediately discount extending this to the last mile problem as well. We have seen success with commercial shippers into the war zone in Iraq. A more robust and seamless transportation system enables us to move stuff ONCE � creating opportunities for centers of excellence. No one really cares WHERE something is repaired, as long as you get in back when you expect, and getting it there isn�t a hassle. Properly executed, squadrons will still see supply vans pick up and deliver parts, and whether they are repaired across the street or across the country doesn�t matter � as long as it works. A robust transportation is a key enabler to make this happen. We have made great strides in creating the culture of cost consciousness in our squadrons � and the AIRSpeed culture is a key enabler to our success, but one of the weakness in program is that the consumers of resources, the squadrons, do not see their actual costs. Since costs are charged back to the squadron when the item is BCMed, those items that are BCMed infrequently, often at a high price � act as a reverse lottery for the squadrons. Some squadrons see their repairs as essentially free, while others may have to account for a $100,000 engine repair. Moving the point of sale, the place where the system assigns a charge, to the when the squadron orders the part, will align the financial accountability to the consumer of the resource. Here are some of the key enablers that will help FRCs succeed in maintaining readiness while reducing cost. One of the most important is to leverage on the commercial sectors ability to move material quickly, without damage, and near perfect accountability. Our current web of transportation providers requires a complex process to track and coordinate the various providers. We will be able to eliminate much of this, while reducing total cycle time, with improved accountability, by contracting for a single provider to be responsible for packing, handling and transportation � and accountability. This is the NMCI concept for moving stuff around the enterprise. I would not immediately discount extending this to the last mile problem as well. We have seen success with commercial shippers into the war zone in Iraq. A more robust and seamless transportation system enables us to move stuff ONCE � creating opportunities for centers of excellence. No one really cares WHERE something is repaired, as long as you get in back when you expect, and getting it there isn�t a hassle. Properly executed, squadrons will still see supply vans pick up and deliver parts, and whether they are repaired across the street or across the country doesn�t matter � as long as it works. A robust transportation is a key enabler to make this happen. We have made great strides in creating the culture of cost consciousness in our squadrons � and the AIRSpeed culture is a key enabler to our success, but one of the weakness in program is that the consumers of resources, the squadrons, do not see their actual costs. Since costs are charged back to the squadron when the item is BCMed, those items that are BCMed infrequently, often at a high price � act as a reverse lottery for the squadrons. Some squadrons see their repairs as essentially free, while others may have to account for a $100,000 engine repair. Moving the point of sale, the place where the system assigns a charge, to the when the squadron orders the part, will align the financial accountability to the consumer of the resource.

7. 7 Cost Removal Reduce Work Content Eliminate Task Duplication Eliminate Duplicate/Repeated Troubleshooting Material Requirements Improve Reliability Centers of Excellence Improve Feedback Loop Less WIP & IW/AWM in the system As we know, cost is only reduced if we eliminate work content. This allows us to correctly size our workforce through attrition and reduce material usage. Moving the repair by itself will have some benefits in reducing cycle time, but the major benefit we expect will be the elimination of duplicate and repeated troubleshooting and misguided, but well intentioned repairs. For example, Hornet horizontal stabilizers have very tight tolerances regarding their weight and balance. Only a limited amount of repair material can be added to the stabilizer over the life of the component to maintain weight and balance restrictions. A quick but inefficient repair at the I level may return the STAB to service, but may have wiped the possibility of any future repairs causing us to scrap a very expensive component. This is some of the reason for increased cost during Hornet Depot events when these stabs are removed and inspected. While quality maintenance can never improve the inherent reliability of a component, less than optimum maintenance can certainly reduce this reliability. We expect that these interdicted repairs, and all repairs in general, will recover some of their inherent reliability through creating centers of excellence. This will result in fewer failures with the associated reduction in work. Vertical integration will improve the feedback loop between all levels of maintenance. We have all experienced how aboard ship, the AIMD can occasionally assist in O level troubleshooting by taking advantage of their inherent good communications. This reduces work content by reducing box swapping and eliminating the times when an expensive part acts as 25 cent fuse. By changing our process, we expect to improve this communication across the system to and achieve similar benefits. Finally as we reduce total cycle time we will reduce the amount of stuff we need in the system and this will spin off one time savings in many places. Fewer components require less APN-5 for modifications, less storage and transportation cost, less support equipment and so forth. Much of this type of savings will require real reductions in the systems overhead. If we maintain the same size support structure for fewer components, then we will only spread the same costs over a smaller base and not achieve our potential. As we know, cost is only reduced if we eliminate work content. This allows us to correctly size our workforce through attrition and reduce material usage. Moving the repair by itself will have some benefits in reducing cycle time, but the major benefit we expect will be the elimination of duplicate and repeated troubleshooting and misguided, but well intentioned repairs. For example, Hornet horizontal stabilizers have very tight tolerances regarding their weight and balance. Only a limited amount of repair material can be added to the stabilizer over the life of the component to maintain weight and balance restrictions. A quick but inefficient repair at the I level may return the STAB to service, but may have wiped the possibility of any future repairs causing us to scrap a very expensive component. This is some of the reason for increased cost during Hornet Depot events when these stabs are removed and inspected. While quality maintenance can never improve the inherent reliability of a component, less than optimum maintenance can certainly reduce this reliability. We expect that these interdicted repairs, and all repairs in general, will recover some of their inherent reliability through creating centers of excellence. This will result in fewer failures with the associated reduction in work. Vertical integration will improve the feedback loop between all levels of maintenance. We have all experienced how aboard ship, the AIMD can occasionally assist in O level troubleshooting by taking advantage of their inherent good communications. This reduces work content by reducing box swapping and eliminating the times when an expensive part acts as 25 cent fuse. By changing our process, we expect to improve this communication across the system to and achieve similar benefits. Finally as we reduce total cycle time we will reduce the amount of stuff we need in the system and this will spin off one time savings in many places. Fewer components require less APN-5 for modifications, less storage and transportation cost, less support equipment and so forth. Much of this type of savings will require real reductions in the systems overhead. If we maintain the same size support structure for fewer components, then we will only spread the same costs over a smaller base and not achieve our potential.

8. 8 Implement BRAC FRC Recommendations as Approved Stand up FRCs with geographic regional alignment of authority and responsibility Savings primarily focused on component workload savings I2D integration / AIRSpeed New Supply initiatives Initial spares SHORCAL reductions Transportation initiatives Rely on IRCA savings ($1.4B)

9. 9 This chart shows the geographical alignment of the FRCs. As you can see, there are 6 major FRCs with a number of FRC sites. The FRC sites will be affiliated with the larger FRCs but the exact relationship is something that will be evaluated as we move forward. This alignment represents the proposed alignment based on the approved FRC scenario submitted to the BRAC commission and is subject to change. Particularly if there are any changes in the fenceline closures. Brunswick for example. While geographical alignment will always be important, we expect to also organize the FRCs by TMS along a product line focus, as shown on the next slide. This chart shows the geographical alignment of the FRCs. As you can see, there are 6 major FRCs with a number of FRC sites. The FRC sites will be affiliated with the larger FRCs but the exact relationship is something that will be evaluated as we move forward. This alignment represents the proposed alignment based on the approved FRC scenario submitted to the BRAC commission and is subject to change. Particularly if there are any changes in the fenceline closures. Brunswick for example. While geographical alignment will always be important, we expect to also organize the FRCs by TMS along a product line focus, as shown on the next slide.

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11. 11 FRC Transformation Fleet Readiness Centers BRAC Commission voted FRC Scenario �up� on 24 August 2005 BRAC Commission recommendations submitted to President 8 Sept 05 Establishes 6 FRCs Establishes significantly aggressive �Cost-Wise-Readiness� requirements $$ ? People ? New Commands Not D-levels eating I-levels Not I-levels eating D-levels Can Not achieve efficiencies if we do not really do �transformations� Need to �lead turn� all facets of transformation or we�ll get behind power curve (example: people reduction numbers) Must synch up current initiatives with �to be� state Reasons for implementation - becomes law 1 January 2006 Implication - radically changes the future Maintenance & Supply Chain Management (M&SCM) business model If there isn�t clarity of lines of authority/responsibilities now-we�ll have a mess in the future with FRC�s.If there isn�t clarity of lines of authority/responsibilities now-we�ll have a mess in the future with FRC�s.

12. 12 Draft Enterprise FRC Implementation Organization

13. 13 Enterprise FRC (eFRC) Responsibilities Establish the policies under which the FRCs will operate Common business practices and rules Common financial systems Common IT systems Ensure all FRCs operate with same interpretation of policy Provide all services that are best provided by a central source Ensure that the RFT aircraft buffers can meet the FRP and IDRC requirements Ensure that the Repairables/Consumables Buffers can meet the FRP and IDRC requirements Ensure that the logistic support plan developed by the PMA considers: Capabilities and capacities of the FRC Impact on the FRC Total Delivered Cost

14. 14 Summary Potential to re-engineer the Maintenance & Supply solution for the NAE Align Efforts and Authority Transform and move to a new business model based on DoD commercial best business practices Requires Integrated and Interrelated Approach

15. 15 Acronyms FRC � Fleet Readiness Centers FRP � Fleet Response Plan IDRC � Inter-Deployment Readiness Cycle SCM � Supply Chain Management IRCA � Integrated Readiness Capability Assessment WIP � Work in Process IW/AWM � In Work/Awaiting Maintenance

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