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2 Click Performance to edit Master Based title Logistics style Contracting: Achieving Affordable Readiness Click to edit Master text styles Breakout Third Session level F05 Knob Moses, Contracts Specialist Leader, Deloitte Consulting LLP Date: Tuesday, July 28, 2015 Time: 4:00pm 5:15pm 1

3 Click Agenda to edit Master title style Introduction Click to edit Master text styles Performance Based Logistics Breakout Activity Types Third of PBL level Examples of PBL Common Benefits & Challenges of PBL Other Considerations Conclusion 2

4 PBL Click Breakout to edit Master Activity title style Click Affordable Readiness to edit Master text styles Please take 5-10 minutes to read Performance Based Logistics for Achieving Break out into 3 groups Each group will discuss and answer one of the questions below 1 What is PBL, and what are some key attributes? Activity Instructions 2 What are some hurdles to PBL adoption? 3 What resources are available to help implement PBLs? Select one representative from your breakout group to brief the larger audience on your group s findings Ask questions and generate dialogue! Action Items 3

5 Click Types to of edit PBL Master Arrangements title style PBL arrangements are highly flexible and can address a multitude of issues in many ways. PBL Arrangements can target a variety of System Levels Click to edit Master text styles System Level Sub-System Level Component Level PBL Arrangements can address a variety of IPS Elements 1 Product Support Management 4 Supply Support 7 Technical Data 10 Manpower & Personnel 2 Design Interface 5 Maintenance Planning & Management 8 Support Equipment 11 Facilities & Infrastructure 3 Sustaining Engineering 6 P, H, S & T 9 Training & Training Support 12 Computer & Resources 4

6 Click Examples to edit of Master PBL Arrangements title style Several examples of PBLs demonstrate how arrangements can be structured to best meet stakeholder needs. Example Click to edit Master Description text styles PBL Mini Stock Point A Contractor/Organic activity provides the storage and requisition processing of DoD-owned material. The DoD requires full inventory accountability and retains requirements determination and execution The Contractor receives requisitions, stores and issues material, also can repair the material. These are normally FFP or FPIF contracts. PBL Mini Stock Point Plus This is the same as above, plus giving the Contractor or Organic facility authority to execute procurement/repairs within a ceiling. The requirements determination is negotiated, usually with a minimum and maximum amount. 5

7 Click Examples to edit of Master PBL Arrangements title style Several examples of PBLs demonstrate how arrangements can be structured to effectively meet stakeholder needs. Example Description Click to edit Master text styles PBL Commercial Support Provider PBL An arrangement in which the Contractor supplies commercial items directly to the end users. Customer requisitions are automatically routed through DoD s procurement system directly to the Contractor as a delivery order. The Contractor owns the inventory, determines inventory levels, has configuration control of the items, and must meet performance requirements. DoD pays the Contractor for performance (usually monthly). Reliability improvements, technology insertion, and reduced obsolescence are incentivized either through fixed-priced contracts or through performance fee. A contractual arrangement where the Contractor manages the inventory and determines inventory levels typically repairs F condition assets, and is required to meet specific performance metrics. Reliability improvements, technology insertion, and obsolescence management may be some of the inherent benefits of a full PBL. The Contractor is usually given Class II Engineering Change Proposal (ECP) authority and configuration management responsibility. 6

8 PBL Click Advantages to edit Master & Challenges title style PBL arrangements provide a wide range of common benefits and challenges to both the industry and the government. Click to Advantages edit Master text styles Government Industry Sustainment costs may be reduced System reliability may be improved System readiness may be improved Access to and sharing of innovative commercial Fourth technologies level and practices can enhance government capabilities and processes Funding streams are secured over a long period of time Internal inventory processes can be optimized and leaned out Industry may be able to take a larger role in demand forecasting, enabling increased inventory efficiency Industry may be able to understand the needs of the end user more accurately and tailor products and services accordingly Challenges Longer term contracts imply that funds are tied for 5 years The management of a PBL may require a different skillset: managing a contractor instead of parts PBLs have a protracted implementation cycle, involving organizational commitment over a longer period of time PBLs are inherently risky if not structured properly due to a number of "unknowns" PBLs often require an investment in process improvement, which may involve significant cultural changes Subcontract management can be challenging when utilizing a new type of contracting 7

9 Click Key Considerations to edit Master title style Several points should be considered in understanding how to implement a PBL to enable it s success. Click Type to of edit Master text styles Contract Length Third of level Contract Supply versus Services PBLs typically use Firm Fixed Price arrangements. Firm Fixed Price- Incentive is possible, but FFP is the most common simple is best! PBLs should include contracts with a longer base versus options, to give industry enough time to recover the benefits of their investments and demonstrates commitments. The Services are in disagreement about whether PBL contracts are classified as Supply versus Service, implying differences in contractual language. Types of Funding Each Service uses different funding streams to service a PBL; working capital funds are among the most common. Cultural Change PBLs are different way of doing business, requiring a true change in mindset and culture to enable success. 8

10 Click Conclusion to edit Master title style PBL is a strategy and a toolkit; it may not be applicable for all systems or programs Click to edit Master text styles PBL is in demand: DoD leadership has recently renewed their Second emphasis level on PBL arrangements due to its cost savings potential of 5 20%* PBL arrangements are complex and require a collaborative» team Fifth effort, level but resources and support are readily available *Source: Banghart, Allan, and John Boyce. "Performance Based Logistics and Project Proof Point: A Study of PBL Effectiveness." Defense AT&L (2012) 9

11 Click Contact to edit Information Master title style Knob Moses: Click to edit Master text styles 10