H-60 Tip-To-Tail Performance Based Logistics Program Case Study, DTD October 2012

According to the executive summary, “this case study examines the Tip-to-Tail program, explains how it works, why it has worked well, and what best practices it uses that could be of use for other Department of Defense product support programs.  The Tip-to-Tail is a performance-based logistics (PBL) program between the U.S. Navy and the Maritime Helicopter Support Company, a joint venture between Lockheed Martin and Sikorsky Aircraft. The Tip-to-Tail program, estimated to cost $1.4B between 2010 and 2015, supports and sustains about 1,200 helicopter parts used by the Navy’s H-60 helicopter fleet. The central function of the T2T is fulfilling requisitions for covered parts. To do this, it manages sustainment information and the supply chain. The T2T uses a fixed-price plus incentive fee contract. The fixed-price is per flight hour of the helicopters, not per part. The incentive fee is based on delivering requisitions on time. This fixed-price per flight hour structure creates the incentive for the support provider (for the T2T it is the Maritime Helicopter Support Company, or MHSCo) to lower its costs through improving the effectiveness of the support system, and lowering demand for parts. The two key measures of PBL success are improved performance and lower ownership costs. The T2T succeeded on both measures. It lowered ownership costs and continuously achieved a superior supply response time compared to the Navy’s pre-PBL operations. Four lessons learned about the T2T are highlighted below and represent some, but not all, of the best practices in use by the T2T. These can serve as examples of ‘what to do’ for other PBL programs.  1) PBLs work. The T2T is a ‘PBL’ that actually is a PBL. PBL is a demonstrably superior product support strategy. If a PBL program is set up correctly--that is if it is set up to actually be a PBL--with all the requisite traits of a PBL, it tends to work. This has been proven through many reviews and studies of PBL effectiveness. This point seems obvious, but it is important to emphasize because not all product support programs that were intended to be PBLs have all the characteristics of a PBL; and these partial PBL programs are not as successful. The T2T is evidence that a PBL, when designed properly, works as expected by improving performance and lowering cost.  2) Communication is essential. The T2T has many stakeholders who have a vote in how well or how poorly the program operates. The success of the T2T is due, in part, to the strong communications across the stakeholders. When communications were not working well, MHSCo creatively improved them; which is a lesson in creative problem solving.  3) Partnership with the government is essential. In a long-term contract, where neither party has a reasonable alternative, the outcomes of the contract for both parties depend more on their cooperation than on the underlying economics. Ensuring that both parties get a satisfactory outcome over the long term, even if this additional action has a cost in the short term, is the essence of cooperation. MHSCo has worked hard to establish and maintain a partnership with the government, and it has paid off; as demonstrated during its lengthy negotiation for the follow-on T2T contract.  4) Align incentives through the contract structure. The right program structure will align the incentives of the customer (the government) and the support provider; and can lead to a win-win scenario. Using fixed-price per flight hour, plus incentive fee on requisition responsiveness, is a contract structure that aligns the incentives of both the Navy and MHSCo. In the T2T, they both seek improved performance and lower cost.” This research was conducted by The University of Maryland Center for Public Policy and Private Enterprise, and was sponsored by the Lockheed-Martin Corporation. The University of Maryland Center for Public Policy and Private Enterprise “provides the strategic linkage between the public and private sector to develop and improve solutions to increasingly complex problems associated with the delivery of public services—a responsibility increasingly shared by both sectors. Operating at the nexus of public and private interests, the Center researches, develops, and promotes best practices;  develops policy recommendations; and strives to influence (through its research) senior decision-makers toward improved government and industry results.” This report is posted on this U.S. government website as a public service and does not constitute or imply endorsement of the report or its recommendations by the U.S. Government, the Department of Defense or the Defense Acquisition University.