Performance Based Logistics (PBL) Metrics – Techniques & Tools for Optimizing Operating & Support (O&S) Cost & System Readiness
DAU GLOSSARY DEFINITION
Properly structured, properly implemented, and properly managed PBL Product Support Arrangements (PSA) can help to optimize O&S costs and system readiness. Optimization and readiness can be improved via the attributes of the PSAs themselves, as well as tools, techniques and best business practices tied to the arrangement’s PBL metrics.
Like all sustainment metrics, PBL Metrics start with Warfighter requirements set by the operational commands or Service requirements offices through the Joint Capabilities Integration Development System (JCIDS) process. The Joint Requirements Oversight Council (JROC) requires a Sustainment Key Performance Parameter (KPP) for all Acquisition Category (ACAT) I and select ACAT II programs. The Sustainment KPP consists of two elements: Materiel Availability (Am) and Operational Availability (Ao). JROC also requires three sustainment Key System Attributes or Additional Performance Attributes: Maintainability (M), Reliability (R), and O&S Costs.
It is no coincidence that the three KSAs/APAs are mandatory. Achieving M, R, and Ao/Am goals have a cost, and the establishment of O&S cost as a mandatory KSA/APA for ACAT I programs was intended to focus attention on O&S costs in making materiel readiness decisions. These Sustainment metrics taken together bound the trade space for "designing in" supportability and planning affordable life-cycle product support.
PBL Metrics – Optimizing O&S Costs and System Readiness in Action
The government Program Manager (PM)/Product Support Manager (PSM) needs to coordinate with Warfighter representatives to ensure product support requirements are identified/documented and cost and readiness values are established, tracked and refined appropriate to each program’s product support strategy. For example, many PBL arrangements are executed at the subsystem or component level, so the system-level cost and readiness KPPs and KSAs should be decomposed to lower-level metrics appropriate for the level of responsibility and risk assigned to the Product Support Integrator (PSI) and Product Support Provider (PSP). These are the metrics that will be included in the PBL PSAs and the outcomes of these arrangements must be linked to the overall system-level requirements.
Properly structured, properly implemented, and properly managed PBL arrangements can help to optimize O&S costs. According to the “PBL Guidebook: A Guide to Developing Performance-Based Arrangements”, successful PBL PSAs have the following attributes:
- Objective, measurable work description that achieves a product support outcome
- Appropriate contract length, terms, and funding strategies that encourage delivery of the required outcome (longer term, fixed price-type vehicles are generally preferred) manageable number of metrics linked to desired Warfighter outcomes and cost reduction goals (usually three to five)
- Incentives to achieve required outcomes and cost reduction initiatives
- Risks and rewards shared between Government and commercial product support integrators and providers
- Active management by the PSM with frequent, transparent interaction between the PSM, PSI, and PSP
To illustrate, criteria for award of a PBL at the Naval Supply Systems Command (NAVSUP) Weapons Systems Support (WSS) includes an analysis that documents a proposed PBL arrangement is “break-even” or better in comparison to the cost of traditional support. Aggregate analyses since fiscal year 2000 document a total 4 percent savings associated with the NAVSUP WSS PBL program.
Applying these basic attributes is the first and foremost technique for optimizing O&S costs and readiness within a PBL arrangement. In terms of PBL metrics, note that the focus is on a manageable number, and that they are clearly linked to outcomes and cost reduction goals.
Techniques and Tools
In addition to the attributes cited above, there are other tools and techniques tied to PBL metrics that help optimize O&S costs and readiness. Included below are some of these best business practices.
Before establishing a PBL effort as part of the overall product support strategy, due diligence is required to determine the viability of the proposed approach. The technique used for making this determination is a BCA. In accordance with the PBL Guidebook, the term BCA is not intended to mandate a specific methodology or level of analysis. Any analysis should be tailored to the needs of the program and the nature of specific product support decisions, and the PM/PSM should execute the appropriate analytical methodology for their program, including a methodology an assessment of cost, benefits, risk, including sensitivity to changes in the available support alternatives.
The potential for a given PBL arrangement and its metric focus on reducing O&S costs and increasing readiness is captured in a sound BCA. If, however, the BCA demonstrates that the desired cost goals cannot be achieved via a PBL strategy, then the PBL approach either needs to be modified or scrapped before commencing down a flawed path.
Given today's Contested Logistics Environment and the need to be responsive to changing operational conditions to meet Combatant Commander needs to flex (quantity, type, and location) and surge (accelerate or increase) support where needed, PSBCAs should factor in, where appropriate, costs to deliver support in a manner capable of meeting these requirements.
Obtaining cost data has not historically been required on fixed-price type of contract vehicles, but in our austere budget environment, there is increased pressure to do so in order to receive better value for the taxpayer and warfighter. It is important to recognize this challenge when PBL fixed price contracts are initially established, and to factor in cost reporting requirements with contract renegotiation in mind. NAVSUP WSS, the contract manager for the H-60 Tip to Tail (T2T) and many other successful PBL contracts, now regularly includes a cost reporting requirement in year four of their five-year PBL contracts. This provides adequate insight for renegotiation purposes and allows them to continually ‘sharpen the saw’ on O&S and availability goals.
In addition, DoD has recently extended the requirement for Cost and Software Data Reporting (CSDR) for major sustainment contracts and subcontracts (such as Contractor Logistics Support (CLS), Interim Contractor Support (ICS), PBL, or other similar arrangements) valued at more than $50 million that are associated with pre-Major Defense Acquisition Program (MDAP) or MDAP subsequent to Milestone A approval. The intent is to capture cost data on contractual efforts for cost estimating purposes, regardless of contract type. (See the Office of the Director, Cost Assessment and Program Evaluation's (CAPE) Cost, and Software Data Reporting (CSDR) planning process described in DoDM 5000.04.)
Another technique for optimizing O&S costs is tied to a continuous improvement focus. Support providers need to understand their performance so they can proactively manage performance to make cost/profit tradeoffs; while the government needs to understand the program's performance to determine if they are fulfilling their mission requirements, and to gain insight into potential performance improvement and cost reduction areas.
In a PBL arrangement, the PSI/PSP analyzes where and how to invest in better processes that lead to improved efficiency and lower demand. When analysis indicates that an upfront investment will save money over time, there is sufficient return on investment (ROI) for that investment. These investments can be substantial.
Management Information System (MIS)
A fully automated MIS helps promote drill down functionality and root cause analysis. While root cause analysis can be done without an automated metrics reporting tool or dashboard, more and more support providers invest in automated solutions to help them collect, manage and report on metrics, and to make product and process improvements that result in either O&S cost reductions, performances improvements or both.
A solid MIS can help improve information flow, which can provide supply chain transparency and enable more informed decision-making. Web-based, real-time status on requisitions can replace time-consuming, ad-hoc mixes of e-mails, spreadsheets, phone calls, etc. The same MIS system can creates a more efficient flow of information across the Services' and DLA logistics networks and allow more proactive management, improved supply chain performance and lower costs.
The Bottom Line
The bottom line is that PBL metrics are not a panacea; but they do provide an opportunity to leverage powerful O&S cost and performance optimization techniques. Techniques start with properly structured PBL arrangements, and are supported by practices such as sound BCAs, cost reporting, a focus on improvement, and leveraging of automation and tracking tools.