Analyzing Sustainment and Maintenance Alternatives. Moderator Ms. Lisha Adams Deputy Assistant Secretary of Defense for Material Readiness

Analyzing Sustainment and Maintenance Alternatives Moderator Ms. Lisha Adams Deputy Assistant Secretary of Defense for Material Readiness

Mr. Christopher Lowman Director for Maintenance Policy, Programs and Processes for US Army, Office of the Deputy of Staff, G-4 Mr. Jeff Sorenson Vice President and Partner, AT Kearny Colonel Christopher Coombs Chief, KC-46 Division, Air Force Life Cycle Management Center Mr. Heath Patrick Vice President, Defense Aftermarket Americas, Honeywell Mr. Dennis West Deputy Commander for Fleet Readiness Centers, Naval Air Systems Command

The Environment and What We Know Supporting the Warfighter remains the Department s top priority Fact: Defense spending declines after every major conflict Discretionary spending (the budget trade space we operate within to support the warfighter) has decreased over time National Security Strategy resource challenge: ensuring readiness for tomorrow. Active Duty Military PB15 BCA Capped Budget data: http://www.whitehouse.gov/omb/budget/historicals, table 8.7 Let our advance worrying become advance thinking and planning. Winston Churchill

Balancing Act Resources National Security Our Ends superior support to the Warfighter Our Means fiscal, materiel, and personnel Our Ways? Without failure; we must now apply resources in a most efficient manner

*excerpt from 10 USC Sec. 2337 Life-cycle management and product support Why We Need to Analyze Alternatives? 10 USC 2337 To Comply with Law DoDI 5000.02 PSM Guidebook DoDI 4151.21 DAG To Make the Best Possible Use of Limited Funds To Identify the Optimum Solution for Achieving a Stated Goal or Objective To Reflect an Enterprise Perspective To Make an Informed Decision To Consider 2 nd and 3 rd Order Effects PBL Guidebook PPP Guidebook Product Support Manager Responsibilities*: Use appropriate predictive analysis and reduce operation and sustainment costs conduct appropriate cost analyses to validate the product support strategy prior to each change in the product support strategy or every five years, whichever occurs first, revalidate any business-case analysis

DoD Maintenance Symposium Analyzing Sustainment and Maintenance Alternatives Nov 17, 2014 Jeff Sorenson, President and Partner A.T. Kearney Public Sector and Defense Services, LLC

Benchmarking and Alternative Assessments Why benchmark? Develops quantifiable metrics for analyses Helps determine best in class performance Identifies areas for continuous improvement Illustrates competitive edge Applications of benchmarking to derive alternative assessments Determine should cost of product Provides corresponding substitute for actual data that is not available Identifies process performance gaps for evaluation Contributes to better understanding of outside industry sector best practices 8

Benchmarking in DoD can be difficult across programs and or primes due to differences in metric/process definitions Comparable Benchmarks Benchmarking rates should be done with caution as disclosure statements vary from company to company and organic comparable rates are difficult to collect 9

Base Level Support Supply Inventory Control Point Engineering R&M Benchmarking can be used to evaluate different sustainment business models at the major activity level based on the proposed scope of execution Baseline Program Program #2 Program #3 Alternative As-Is Alternative 1 Alternative 2 Alternative 3 Alternative 4 Supply in Alternative 1 does not change, so the baseline program is the best proxy for supply performance in this alternative R&M does change in Alternative #1 to a processes similar to the process used in Program #3, so R&M performance is best approximated by Program #3 10

In the absence of desired of required data, priorities can be with different proxies or benchmarks A.T. Kearney BCA Evaluation Models Data Priority Financial Analysis 11) Operating Costs 12) One Time Costs 13) Net Present Value 14) Sensitivity/Tipping Point Is Program Data Available? Y 1 Program Actual 15) Worst Case Scenarios Financial Evaluation of Alternatives N N Y 2 Existing Historical Data Benefits Analysis 16) W/S Performance 17) Knowledge Analysis N Y 3 Program Estimated Data 18) Capability Analysis 4 19) Effectiveness Analysis 20) Tools and Proc. Analysis Y New Proxy Data Collection 21) Government I&O 22) Enterprise Fit Completed Benefit Analysis N 5 Simulation Modeling Approach 11

This can be presented to program management to assure alignment early in a project Module D Financial Analysis E Benefits Analysis Analysis Program Actual Program Estimated New Proxy Data Collection o Simulation Existing Historical u Supply Chain Sustaining Eng. Fleet Mgmt Field Support 11) Operating Costs 12) One-Time Costs 13) Net Present Value 14) Sensitivity / Tipping Point 15) Worst Case Scenarios 16) Weapon System Performance o o o o 17) Knowledge u u u u 18) Capability u u u u 19) Effectiveness u u u u 20) Tools & Procedures 21) Government I&O u u u u 22) Enterprise Sustainment Fit 12

2014 DoD Maintenance Symposium Analyzing Sustainment and Maintenance Alternatives Panel Mr. Heath Patrick Vice President, Defense Aftermarket Americas

Overview Industry supports Competition however it is critical to ensure that analysis of alternatives (AoA) consider total cost of ownership to gain best value sustainment: Status Quo Comparability Best Value is critical Risk is the forgotten element Government probability More than one customer Industry wants the DoD to adopt optimal sustainment solutions that are both affordable and executable we need to work together on these challenges as we move forward 15

Status Quo Only Cost Comparability The DoD AoA more times than not is an exercise of determining the current status quo cost The DoD seems to only look at the bottom line price when constructing AoA industry doesn t see many instances when value or cost avoidance is factored into the analysis Simply comparing proposal price PBL or another sustainment contract vehicle limits the DoD s ability to secure best value for warfighter requirements 16

Best Value is Critical to Sustainment Value brought to the AoA through engineering support is rarely captured in considering alternatives We are called back in to help the new source or the DoD when a problem arises Contractors (OEM s) use Field Service Engineers, Repair Engineers and Design Engineers to solve the problem quickly and efficiently and engineering value is often not included in the AOA 17

Risk is the Forgotten Element Risk is commonly misunderstood or overlooked In most sustainment proposals, we are asked to provide lower costs and improve performance The amount of risk to achieve better performance always drives cost to the USG - - Performance: Product Improvements Best Comm Practices - Quality: Refined work scope & experienced Artisans (Avionics) - Availability: RBOM piece part planning proficiency (Mechanical) - Cost: Awarding to Suppliers that sub contract the R&O or buy parts from the OEM why? 18 Switching cost risk should be the biggest area of concern for DoD

Government Probability The DoD AoA should develop a true alternative add more people, purchase additional equipment, implement different maintenance practices or fund reliability improvements and calculate the probability of achieving those metrics The DoD AoA does not calculate probability of government achieving the required performance metrics 19

More Than One Customer Multiple customers - the warfighter, PM, functional support teams (contracting, lawyers, policy experts) and when using a public-private partnership, depot leaders It is common that each customer has their own unique requirements (availability, reliability, Source of Repair, 50-50, CORE, and Better Buying Power) that often times conflict with lower price Example - when directed to transition work into the depot, the government s AoA s won t account for those costs or the functional experts remove that from the sustainment request for proposal 20

Challenges with Analysis of Alternatives Status Quo Comparability using only one alternative that calculus today s cost limits best value Best Value is critical - engineering value is often not included Risk is the forgotten element - always drives price often after the contract is in place Government probability AoA should calculate ability to achieve stated performance metrics More than one customer creates competing requirements that creates inefficiencies and drives cost Industry wants the DoD to adopt optimal sustainment solutions that are both affordable and executable we need to work together on these challenges as we move forward 21

COMFRC Commander, Fleet Readiness Centers Cost Comparability November 2014 Presented By: Mr. Dennis West

Mission/Deliverables Mission: Develop a common framework and methodology for the determination of costs and savings associated with consolidation of like and similar organic depot maintenance workloads Deliverables: Final recommendation on the analysis outcome for the APU workload Cost Comparability Manual with context on when and how to use Existing workloads with multiple sources of repair at organic depots New workload where competition between organic sites is warranted Future efficiencies FOR OFFICIAL USE ONLY 24

Cost Comparability Working Group Service Team Members (with the Service vote) Army Navy Air Force Marine Corps *Heather Knox/ Danita Daniels *Debbie Vergos (Team Lead) *Gene Pierce/ Gary Willey *John Reed/ Sheron Mathis Financial Representatives OSD *John Stankowski (Team Co- Lead) Navy Navy FRCE Air Force Air Force OO- ALC * Service Voting Member Mark Wagner Kemmy Morgan Christie Thompson Doyle Dittmore FOR OFFICIAL USE ONLY 25

Process Overview Phase 0 Phase I Phase II Phase III Phase IV Standardized Cost Data Collection/ Data Call/ Internal Review Comparative Analysis Recurring Cost Analysis Non- Recurring Cost Analysis Report Results and Make Recommendation s Cost Comparability tool establishes a common framework and language for decision-making FOR OFFICIAL USE ONLY 26

Methodology Maintenance strategy and business rules are defined upfront Looks at total cost over three years Direct Labor Hours (DLHs) are the denominator, not units At the end of the process, a cost per hour is generated that can be compared to the billing/sales rate. This is the check and balance to ensure all costs are captured Cost Comparability is not a stand alone analysis process; it is intended to be used with other analytical processes and tools FOR OFFICIAL USE ONLY 27

Takeaways Cost comparability model has been developed and tested/tweaked Cost Comparability Handbook has been written and is in review Handbook is going through the required coordination before being signed and published All future efficiency studies will use this methodology for comparing recurring costs across organic sites for like/similar work FOR OFFICIAL USE ONLY 28