Performance Based Logistics : A Global Trend
Performance Based Logistics is a long-term arrangement to optimise the readiness and performance objectives of weapon systems. From a MoD perspective, it is a mechanism to manage and sustain military assets – from individual parts to entire weapon systems – by giving full visibility of the availability and necessary logistic processes for each element of the asset in question. The core objective is to increase performance and the availability of military capability for the Armed Forces. PBL is, therefore, a sustainment strategy that supports warfightersQ most fundamental need: readiness.In order to deliver the high availability rates made necessary by reducing fleet numbers – whether it be aircraft, naval vessels or armoured vehicles – Performance Based Logistics provide a strategy for the sustainment and management of the entire supply chain, maintenance processes, and therefore the sustainability and support of a weapon system. The following synthesises how PBL is implemented:
1) Having understood the need for improved cost performance and availability, procurement bodies decide to implement a PBL strategy to manage some parts or an entire weapon system, either
from their current inventory or as part of a new acquisition. A Business Case Analysis (BCA) is conducted to define performance expectations and results as well as the key actors;
2) A Performance Based Agreement or PBA is put in place by the MoD and the product manager - here called Product System Integrator, or PSI – establishes the objectives and direction of the
project. The PSI is the entity which will manage the PBL project and can be either public (a MoD depot) or private sector (contractor). The PSI will have clear lines and accountability of all the
results and is expected to follow the “performance expectations” agreed in the PBA;
3) The PSI, with the support of a PBL IT solution (software), will deliver the results to the military, which will finally deploy the weapon system in its operational capacity. Benefits
The basic value of PBL is the creation of industry dynamics which incentivise the private sector to find ways to reduce costs and increase systems availability. At the same time, it delivers better performance of military equipment and, therefore, a significant increase in capability supporting the forces in the front line. Reduced costs also enable MoDs to re-invest savings into defence acquisition projects.
As a long-term sustainment strategy, PBL optimises the entire supply chain and shifts from the traditional “pay-per-part” to paying for agreed-upon level of performance in reliability and availability. Also, it
shortens the logistics and repair cycle. These factors combine to allow the PSI to reduce logistics and maintenance costs in the long-term. To implement PBL, it is essential for PSIs to utilise a PBL IT solution to become an intelligent customer in managing the supply chain and attain full transparency and visibility across distinctly complex interactions and support operations. Ultimately, PBL aligns incentives between customers and suppliers, a result which is by many not understood. It creates motivational-and-penalty instruments in order to assure that target results are
achieved. This can be a ‘win-winQ scenario as contractors can achieve higher profits whilst by sharing the risks of negative performance and MoDs are able to focus on core tasks whilst increasing military capability through product modernisation.
Our analysis shows that the concept of PBL is often misunderstood outside of leading implementers, and therefore demands certain clarifications in order to put this trend into perspective. Having understood the concept of PBL, Frost & Sullivan will describe the main characteristics and trends in key geographical arenas and later present its management solutions in order to encourage both the public and private sector to implement PBL in their respective approaches to maintenance and support.
THE CONCEPT OF PERFORMANCE BASED LOGISTICS
Frost & Sullivan 4 PBL in the Defence Background
In order to achieve a comprehensive understanding of PBL role and impact in defence, it is useful to identify military concepts and doctrine shaping future approaches to conflict, its impact on procurement and on the defence industry.
The Revolution in Military Affairs (RMA), once started in the United Sates and now seen all over the world, has re-modelled the understanding of weapons technology and organisational structures of Armed Forces. Almost all other nations are following the US approach and implementing changes as diverse as the professionalisation of personnel, the acquisition of advanced C4ISR technologies and joint, cross-service processes. Alongside this shift, military organisations have increasingly been coping with unconventional threats, including insurgency, peacekeeping and relief operations. Meanwhile, the defence industry has mastered new technologies, has improved the efficiency and life-cycle of its products, has idealised new applications and has created services to better suit the warfighterQs needs. However, with increasingly complex use of advanced technology, equipment has become more expensive to acquire and to maintain,subsequently demanding more interactive and complex acquisition processes. In its very basis, this also meant a closer relationship between technology developers and end-users. The following chart illustrates the sectors with the highest total growth potential in the next five years, according to Frost & SullivanQs analysis. Unmanned Systems, Force Protection and Military Airlift constitute the top three growth sectors. In parallel, Frost & Sullivan also notes that Performance Based Logistics represents a very attractive sustainment strategy to support the top six sectors. Combining these ideas and concepts can help us understand the level of transformation that both MoD and Industry are currently undergoing. It became vital for Governments to redefine their military doctrines, decide which acquisitions to make, how to organise themselves and, more importantly, how to respond to unpredictable events and challenges. Considering obstacles in defence budgets offering lower spending power (against units / platforms, rather than capability), MoDs now had to focus on a rather new approach: availability. It is important to remember that increasing Military capability is being measured against a smaller number of platforms (be they ships, aircraft, troops or vehicles). Therefore, reduced availability of enabling platforms has an increased effect on military capability of a particular nation.
PBL IN THE DEFENCE
Frost & Sullivan 5 ‘Military capability is being measured against a smaller number of platforms (be they ships, aircraft, troops or vehicles). Therefore, reduced availability of enabling platforms has an
increased effect on military capability of a particular nation.’Meanwhile, Industry needed to redefine its centre of attention too: new technologies, new applications,interoperable solutions, new platforms and approaches. In this universe, where budget restraints, technology limitations, Industry goals and Military requirements are planets surrounding a sun called “readiness” the idea of Performance Based Logistics was created to synchronise the orbit of all its elements and allow them to better position themselves in the entire spectrum. To better understand the PBL dynamics in the Aerospace & Defence domain it is important to consider. the characteristics & trends driving the implementation of PBL. It is therefore relevant to discuss the transforming role of key players – MoDQs and private sector – to finally draw some considerations on how each individual should approach Performance Based Logistics.
Defence & PBL: Characteristics & Trends
In the past 5 years, the use of PBL has had a strong impact on weapon systems logistics process, particularly in terms of their readiness status. This is very visible in its projects supporting large military platforms, such as fighter jets, transport aircraft, helicopters and naval vessels. Its application is also highly effective to increase performance and readiness of complex integration programmes (e.g. Soldier Modernisation). Frost & Sullivan expects the use of PBL to be gradually implemented in major defence programmes across the globe, particularly in the regions with Armed Forces actively engaged in conflicts. Current experiences in Afghanistan and Iraq are helping the dissemination of PBL benefits as it is showing its practical efficiency and value. The CH-47 Chinook helicopter, heavily used by US troops in Afghanistan, has demonstrated how important performance based solutions are in maintaining operational capability; a high-reliability and availability rate has been achieved on the battlefield and cost reduction has satisfied policy-makers, especially when Urgent Operational Requirements are placing stress on public spending. As unmanned systems, particularly Unmanned Aerial Vehicles (UAV), become a high priority for militaries across the world, support services such as PBL will strengthen their value propositions for MoDs. UAVs require a high level of training, maintenance and general support, which stresses the need for support services. Operations in Afghanistan and Iraq have shown the cost-effectiveness and mission readiness capability of such military asset. The Military Airlift capability is another area worth mentioning. It is now part of the grand-strategy of major Armed Forces across the globe to have a rapid-reaction force: a specialised group to be deployed in any geographic location in the world, for any type of mission, in very short-notice. This has been embedded within the concept of Soldier Modernisation, which has turned into long-term programmes in North America, Europe, South America and Asia. Moreover, the benefits and effectiveness of Airlift platforms have been crucial in the past 5 years to support troops on the ground and facilitate logistics on the battlefield. This increasing operational value of Airlift platforms, such as the CH 47 Chinook helicopter, has emphasised the importance of PBL. The future of combat aircraft procurement provides an interesting example as to the future implementation of Performance Based Logistics, set to be an extremely important factor in the in-service support of future Combat Aircraft programmes, such as the Multi-billion dollar programmes for the Joint Strike Fighter (F-35) and the Eurofighter. These programmes rely on global supply chains, have an unprecedented level of complexity and are likely to be procured in limited numbers due to initial and through-life costs across 30+ years. This trend is visible across most defence forces across any type of platform: military capability is concentrated in smaller number of platforms as platforms are not replaced on a 1:1 basis. The reducing number of aircraft in-service together with higher-tempo operations shows
that PBL is an imperative solution to sustain and enhance military systems through-life.
Frost & Sullivan 6 PBL IN THE DEFENCE
‘UAVs require a high level of training, maintenance and general support, which stresses the need for support services. Operations in Afghanistan and Iraq have shown the costeffectiveness
and mission readiness capability of such military asset.’ ‘The reducing number of aircraft in-service together with higher-tempo operations shows that PBL is an imperative solution to sustain
and enhance military systems through-life.’ Added to this, adoption of Network Centric Warfare (NCW), a concept of operations built on the enabling power of information technology (IT) systems and processes has exposed defence customers to new challenges, effectively in how to keep up to date with rapid technology cycles of the commercial sector. Whilst this concept is no longer seen as a panacea to the successful prosecution of war, its widespread adoption has encouraged increased reliance on outsourced service delivery to industry. This factor ensures that industry is increasingly being given responsibility to implement incremental electronics upgrades of military systems over a long period on behalf of the customer, driving value and revenue generation to the after-market. Again, this ensures that new business and operational models are needed to maximise efficiency and effectiveness of military assets. The uptake and response to these ongoing trends and defence transformation varies considerably from country to country and region to region. This is mainly understood by the interactions between several factors such as threat perception, regional security challenges, global economic recession. Some are more congruent than others depending on the region. It is in this context that Frost & Sullivan identifies PBL as an affordable, combined effort to increase availability, minimise costs and optimise systemsQ availability and readiness; all in line with such diverse interaction of determinants.
PBL & North America
Led by the United States Department of Defense, the concept of Performance Based Logistics is now the preferred method of weapon systems sustainment. The DoD institutionalised the use of PBL,
acknowledging its benefits in delivering both cost savings for the public and efficiency savings for the warfighter. Over 100 PBL contracts have been awarded in the United States and many other are
being incorporated into upcoming defence programmes. PBL has had a highly positive impact in many weapon systems including the F-22 Raptor, F-16, CH-47 Chinook helicopter, amongst many others. Unlike other parts of the world, PBL in the US is driven by the public sector. The significant impact of dealing with the demands from two wars, in terms of delivering urgent requirements and sustaining military equipment which is often being over-used has stressed the importance of such solutions for the military in delivering military capability. In fact, the circumstances of the US has been assessed by European nations and other Armed Forces currently undergoing large defence acquisition and, at the same time, engaged in a conflict zone. Canada is in the process of addressing poor availability and readiness of much of its legacy systems; only 45% of the CP-140Qs maritime patrol aircraft can be called on duties at any given time; only 38% CH-124 Sea KingQs helicopter and 50% of its CH-149 Cormorant SAR helicopters are considered available. This alarming situation together with the increasing military contribution in international operations have generated a higher interest for optimised readiness and weapon systemQs availability. Moving forward, CanadaQs joint service approach is expected to be a strong driver for the implementation of PBL in the management of legacy and new systems.
Frost & Sullivan 7 PBL IN THE DEFENCE
‘Unlike other parts of the world, PBL in the US is driven by the public sector. The significant impact of dealing with the demands from two wars, in terms of delivering urgent requirements and
sustaining military equipment which is often being over-used has stressed the importance of such solutions forthe military in delivering military capability.’
PBL & Europe
The UK has successfully implemented PBL solutions in several weapon systems and sub-systems known as Contracting for Availability (CfA). Most remarkably, the introduction of the concept to manage the entire Royal Air Force Tornado aircraft (ATTAC programme) has already shown considerable performance improvement, cost savings and enhanced sustainability management.
In advanced European Armed Forces the conceptualisation of Performance Based contracts is being associated with the Public Private Partnership (PPP) trend (in the US PPP already given as an integral part of PBL). On the European continent, GermanyQs BWB and FranceQs DGA are leading this movement, and policies are being put in place to institutionalise its use. In parallel, European prime contractors have taken their value proposition to another level and introduced new concepts of services support and customer assistance, including PBL. Frost & SullivanQs assessment of the European defence market shows that higher performance, non-fixed prices, no contract-additional costs and long-term commitment to the reliability of military assets are the main drivers for the success of PBL in the region. Meanwhile, in most European countries vast, ongoing upgrade of legacy systems combined with the acquisition of new weapon systems have been shaping the prospects of PBL differently. A gradual and holistic introduction of Through-Life Capability Management (TLCM) will drive the interest in performance based solutions. Frost & Sullivan expects the NATO members to experience a quicker implementation of asset management based on performance.
PBL & South America
With budget constraints being the strongest factor in procurement planning across the region, Governments in South America are required to evaluate in depth the value-proposition of asset
management, TLCM and performance based strategies. The main reason for this attention is that the majority of the parts and maintenance work will take place in the manufacturers home countries – mostly in the United States and Europe. Countries like Brazil, Argentina and Chile do maintain their own limited repair facilities and inventory stockpiles. This is when PBL becomes highly beneficial.
Frost & Sullivan 8 PBL IN THE DEFENCE
Major Characteristics & Trends for the use of Performance-based Logistics in Key Geographical Regions ‘In advanced European Armed Forces the conceptualisation of Performance Based contracts is
being associated with the Public Private Partnership (PPP) trend.’ ‘A gradual and holistic introduction of Through-Life Capability Management (TLCM) will drive the interest in performance based solutions. Frost & Sullivan expects the NATO members to experience a quicker implementation of asset management based on performance.’Frost & Sullivan expects the concept of PBL to be driven by the private sector in line with the various defence programmes currently taking place or planned. The F-X2 Combat Aircraft programme in Brazil, due to be awarded in September 2009, is a great example: a sustainment programme based on PBL has been identified as part of the three finalistsQ offering packages (SAAB, Boeing, Dassault). The need for better performance and availability has now become clear in the region and, therefore, is likely to be reactive to PBL solutions. According to Frost & SullivanQs analysis, the concept of PPP is yet immature but not viewed negatively within MoDs in South America. PBL & Asia Pacific (APAC) As a very complex defence market, MoDs in the region are undergoing significant structural and doctrinal transformation. With an established regional defence industry, MoDs have supported their local companies with mandatory offsetting to supply spare parts and facilitate the logistic process. However, a step beyond looking into higher efficiency and availability is expected to gradually be incremented by APAC Armed Forces. As legacy and new systems are provided by several different industry complexes – United States,Europe, Russia and China – the process of upgrade, maintenance and sustainability becomes highly multifaceted. Countries such as Australia and Japan have already considered the idea of PBL and its value-proposition.
For example, the Australian MoD has already announced that some elements of the JSF programme will be sustained by PBL contracts. In Japan, naval platforms are key assets and their readiness is crucial for the Japanese Defence Forces, which has already demanded the MoD to implement performance based contracts to keep availability at its higher possible rate. In fact, according to JapanQs latest military strategy, the will to integrate its defence systems is requiring a better understanding of how maintenance and sustainability should be implemented. In a readiness-focus context, Performance Based Logistics is expected to play an important role in supporting the Japanese MoD. Frost & Sullivan expects that the increasing importance of PPP across North America and Europe will help the diffusion of this concept within APAC countries. The implementation of PBL is yet to be strategically assessed; even though some countries have already seen results and started adopting this tool as desired asset sustainability management.
