Enhancing Performance-Based Logistics for Military Support Contracts

1. The Department of the Navy 2004 Logistics Conference Performance Based Logistics Panel 20 May 2004 Joe Grosson Corp. Director of Logistics

2. Deliverable How Designed TOC Incen-tive Sustain-ability; inventory ownership DMS, Obsolescence, Tech Refresh Technology Investment Drivers Build to Mil Spec ~DOD Support DOD Design No DOD DOD DOD • Design • Initial Acq Cost Provide the Product ~ DOD Support Industry Design No DOD DOD DOD/ Industry • Design • Initial Acq Cost Provide Capability ~Industry Sustains Best Integrated Solution Yes Industry Industry Industry & Commercial Leveraging • Performance; Process • SCM Speed • Vendor Management • High Reliability Evolving towards Capability Based Contracting Optimal Capability at the Least Total Outlay

3. Military Organic Support Military Depots Intermediate Maintenance Activities Inventory Control Points In-Service Engineering Activities Military Maintenance Training High Levels of Ready Inventory Disparate and Expensive CM Military Maintainers At Sea and Ashore Support By Other Than the Original OEM Or Original Design Agent Commercial Network Centric Logistics C3I Virtual Depots & 3PLs OEM Does Repair/Return Autonomic Supply Chain Management Just In Time Supply Support Web Enabled Distance Support, Training and Total Asset Visibility Tech Refresh: Avoid DMS and Increase Availability and Throughput Potential Maintenance Free Operation Design Motivated By Performance-By-the-Hour Fixed Price Contracting Contractor Support Deployed In the Theater of Operations Sustainment Shift to Industry Providing DOD the Wherewithal to Recapitalize No Incentive to Reduce TOC Heavy Incentive to Reduce TOC

4. PBL ~ What we are doing today: • Primarily Performance Based Logistics Contracts to support LM Weapon Systems and Platforms; and also includes commercial • Engaged in Command and Control Systems for logistics processes • Moving towards total support of systems that comprise both LM and other OEM components, involving automated supply chain management and concepts such as maintenance free operating period design, distance support and total asset visibility Corporate Wide: About 5,000 lifetime support engineers and logisticians Business Base exceeding $3B

5. Total System Support ResponsibilityFrom Systems to “Systems of Systems” Total System Support Responsibility Ultimate Goal: Maintenance Free Operating Design & Autonomous Support • Base of In-Place System Level Lifetime Support & Performance Based Logistics Contracts • ------------------------------------------------ • Surface Combat System Related • AEGIS Lifetime Support ~ MS2 Moorestown • MK-41 VLS ~ MS2 Baltimore • MK-92 FCS ~ LMSTS Huntsville/Moorestown • USQ-70 ~ MS2-Eagan • ------------------------------------------------- • Naval Aviation Related • S-3 PVS ~ Aero Marietta • CASS ~ LMSTS Orlando • LANTIRN PBL ~ M&FC, Orlando • Navy Aircraft Tires ~ MS2 Moorestown • H-60 ~ LMSI / Sikorsky JV • -------------------------------------------------- • Submarine Related • BSY2 POSS ~ MS2 Syracuse • ARCI PBL ~ MS2 Manassas • -------------------------------------------------- • Army • JAVELIN ~ M&FC • HIMARS ~ M&FC System of Systems Total Platform Support • F-117 TSPR ~ Aero • F-35 TSPIR ~ JSF • Deepwater ~ MS2 • THAAD ~ Space D2D/ALIS for Autonomic Logistics • New Major System • Program Pursuits • Navy PBL Omnibus • Littoral Command Ship • ~ MS2 • MMA ~ Aero • MUOS ~ Space

6. Total systems support from design to disposal (D2D) • Holistic systems engineering lifetime support process • Systems Design • Systems Engineering • Systems Integration • Software Development • Production • Enterprise Resource Planning • Installation & Maintenance • Remote Condition Monitoring • Work order generation • Fault response monitoring • Installed base maintenance (RCM, CBM) • Documentation Updates • System Grooming • Distance Support to Field • Operators & Maintainers • Asset data collection • Data base maintenance • Supply Support • Depot Management • Requisition Processing • Supply Chain Management • Transportation & Distribution • Stock Point Functions • Modeling and Forecasting • Repair & Return Single Point Accountability • Supportability Engineering • Technology Refresh & Insertion • Configuration Management • Baseline Mgmt. - Functional, Physical • Design for Supportability • Safety Engineering. • Test Planning • Test, Validation & Verification of Technology Refresh/Insertion • Software Maintenance • Hardware Maintenance • Commonality Analysis • Program Management • Strategic planning • System Upgrade & Major Maintenance Schedules • Cost Baselines • Ownership Cost Reduction • Contracting Services for: • Maintenance • Support services • Upgrades • Major System Overhaul • Schedule Baselines • Technology Insertion Development Schedules • Subsystem Upgrade • Schedules • Training • New Operators & Maintainers • Workforce • Management • Technical • Operational • Compliance • Refresher and Update training • Curriculum Updates End State: Integration of Systems Engineering & Supportability For all our products throughout their life

7. Enablers • Effective Public-Private Partnerships • Performance-By-the-Hour™ Contracts ~ The Incentive for Industry to Reduce TOC, Which In Turn Results In: • MFOP ~ Maintenance Free Operating Period Design • Employing Use of PHM: Prognostics and Health Management • Web-Enabled Distance Support (e.g., NavalSupport.com) and Distance Training • Autonomic Supply Chain Management and JIT Support • Logistics Command and Control for Sense and Respond An Integrated Solution Set for Full Service Support

8. The Operative Enabler, the Accountable & Incentivized Business Deal • AWARD TERM CONTRACT – PROVIDES DoD “OFF RAMP” • “PERFORMANCE BY THE HOUR” CONCEPT • INCLUSIVE SUPPORT – LOGISTICS NOT LAWYERS, USEAGE NOT BREAKAGE • CONTINUOUS COST REDUCTIONS ONLY METHOD TO ACHIEVE COMMERCIAL PROFITABILITY… NO REVENUE SOLUTIONS • INCENTIVES/PENALTIES FLOWED TO ALL TEAMMATES – INCLUDING DoD DEPOTS AND ICPs . . . TRUE COMMERCIAL CONTRATORS  • COMPREHENSIVE SUPPORT PER OPERATIONAL HOUR; COST PERIODICALLY REDUCED BASED ON LEARNING CURVE AND ACTUALS  • IMPROVED COMPONENT RELIABILITY AND DEPOT TURN-AROUND TIMES PERPETUALLY INCENTIVIZED – ONLY MEANS TO ENHANCE PROFIT IS THROUGH COST REDUCTIONS TSPIR Contract LCC

9. Questions?

10. Back-Up Slides

11. How Does Total Systems Support Responsibility Reduce Costs? By coalescing all TSSR responsibilities under a single, long term contract, with single point accountability and clear performance metrics, we can then: • Consolidate lifetime support functions across companies that support the Combat System, improving productivity, efficiency and reducing administrative overhead. Reallocate some of these savings to focus on direct war fighter support • Consolidate the architectural design capabilities across Companies to truly optimize the open architecture and COTs management • Because of contract incentive structure, Institute the trade-space paradigm that focuses on achieving continuous TOC reductions coupled with increases in operational effectiveness, readiness and sustainability • Use a standard architecture for total sustainment management & standardized processes thus eliminating duplicate investment and maintenance costs • Standardize on automated Supply Chain Management to lean-out all supply chain and total asset visibility processes and materially reduce inventory while improving supportability

12. How Does Total Systems Support Responsibility Reduce Costs? • Reduce redundant infrastructure (with its attendant hardware and software maintenance costs) through consolidation including depots, stock points, and test environments • Have a single collaborative design, development, configuration management and testing environment that truly provides the capability for virtual development, test and management. • Coalesce the technology refresh/insertion strategies within one organization to optimize planning, testing, and sparing philosophies; import the Submarine approach for maintenance free operating period design in order to reduce inventory, maintenance, training and documentation; while increasing operational effectiveness through continuous processing power growth and Ao improvements • Continue the implementation of Public-Private partnerships in a common fashion across the customer community to rationalize and optimize workload assignments that reduce redundancy in work performance and infrastructure • Implement one standard distance support system thereby streamlining the maintenance, diagnostics and parts ordering process; this in-turn, reduces inventory levels, simplifies training and significantly reduces maintenance documentation

13. How Does Total Systems Support Responsibility Reduce Costs for DoD? Coalescing all TSSR responsibilities under a single, long term contract, with single point accountability and clear performance metrics, enables the following: • The need for third party reviewers and non-value add activities can be eliminated at significant savings • The roles of Warfare Centers, Depots and ISEAs can be redefined to engagement with technical authority and approval matters with an attendant decrease in funding requirements as contract performance is the responsibility of the prime contractor • Focusing on employment of CITE activities, public-private partnerships will be optimized to reduce all areas of unnecessary functions and hardware/software infrastructure • Instituting one standard supply support arrangement will substantially decrease government administrative costs and thus lower the Fleet Surcharge • Use of prime contractor training facilities will reduce cost of redundant infrastructure and instructors; real time incorporation of configuration changes into training curriculum and IETMs will improve operator/maintainer efficiencies