I. Program Overview. Organization Name/Program Name: Program Leader Name/ Position/Contact information , Phone

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1 I. Program Overview Organization Name/Program Name: Program Leader Name/ Position/Contact information , Phone Program Category Program Background: What is this program all about? (No more than one page). Describe: The overarching need for this program History of the program The product that is created by this program Scope of work original & updated Expected deliverables Current status of the program Honeywell Defense & Space Auxiliary Power Unit (APU) Performance Based Logistics (PBL) Program Tricia Unger Customer Business Manager PBL Programs Honeywell Defense & Space Tel: (480) /Mobile: (480) Sub-System Sustainment Significant availability and reliability concerns for the P-3 Auxiliary Power Unit (APU) drove the Navy to look for a new support strategy more than 10 years ago. The traditional transactional support model was not providing the results required to ensure Warfighter support and availability of this strategic platform. In the late 1990s, the Navy Depot was experiencing an increasing backlog of APUs in need of repair, with 123 APUs on back order and availability estimated at only 65 percent. Customer waittime was up to 35 days and the Depot on-time delivery rating was about 20 percent. Moreover, the costs for maintenance and support of APUs had been increasing steadily for several years. 1 At the same time, Honeywell was at the forefront of implementing innovative commercial logistics sustainment programs, including the all-inclusive fixed cost per flight hour Maintenance Service Agreement (MSA) programs for Commercial Aviation Customers. Taking a page from our commercial successes, Honeywell and the US Navy collaborated to establish the Navy s first outcome-based program, Navy Total Logistics Support (TLS). This groundbreaking sustainment program was initially contracted for a ten-year period in July of As a result of our collective performance and dedication in support of the Warfighter, the USN exercised the original contract option as well as awarded two bridge contracts. On August 24 th, 2012, Honeywell was awarded a new five-year, firm-fixed price, FAR Part 12 contract valued just over $180 million. The new contract, known as the APU PBL (Performance-Based Logistics), incorporates the best of the original Navy TLS Program and is designed to address the Navy s current affordability and system availability goals. 1 Reference March 2008 Case Study: The Application of Performance- Based Logistics and Public-Private Partnering to Improve Readiness in 1

2 I. VALUE CREATION = 20 POINTS Value: What is the value, competitive positioning, advantage, and return created by this program to your: Customers National interests, war fighter Company Strength, bottom line, and shareholders Scientific/technical value (particularly for R&D programs) Excellence and Uniqueness: What makes this program unique? Why should this program be awarded the Program Excellence Award? Naval Aviation (NAVAIR s) APU TLS Program CaseStudy.pdf Under this PBL program, Honeywell provides the USN fleet, Department of Homeland Security, USMC and Royal Australian Air Force Customer s sustainment of critical C-2, P-3 and F-18 aviation platform assets on a firm-fixed price basis while leveraging existing U.S. Government Depot infrastructure and resources. Using a Direct Sale Partnership (DSP) arrangement, this program satisfies U.S.C. Title 10 Statutes, including Core capability requirements and the 50/50 Depot Workload Limitation. As the USN is interested to ensure maximum organic repair capability and workload for the Fleet Readiness Centers (FRC), Honeywell is obtaining direct labor for depot maintenance and test from the FRCs with the objective of continuously increasing their workloads. The expectation is by increasing the FRCs fixed-cost utilization they will experience rate reduction across all workloads to the benefit of all of their programs. While this partnership has enabled and sustained parts availability to the Warfighter at or above program goals over the past 14 years, the team continues to pursue continuous improvement and opportunities for sharing of best practices. Today, Honeywell and two FRCs are collaborating on projects to reduce depot repair turnaround times (TAT). Under this project, repair TAT, repair cost (material and labor), production schedule adherence and technical issues are reviewed monthly. Whenever there is a significant repair TAT increase, a deep-dive analysis is performed. Unique to this program, Honeywell and the FRCs engage in a high level of transparency regarding respective depot shop performance, including Contractor R&O performance. This has resulted in a healthy competitive environment where the Customer and Warfighter benefit from continuous improvement in sustainment at a reduced cost. From Honeywell s perspective, this long-term, fixed-price all-inclusive PBL program is optimal. With the assurance of a multi-year PBL provider role, Honeywell is incentivized to identify and implement process and product improvements to the maximum extent possible within the period of performance. As the improvements are incorporated and cost reduction realized, additional margin is realized and added to our bottom line. III. ORGANIZATIONAL PROCESSES/BEST PRACTICES: (HOW DO YOU DO THINGS) = 30 POINTS Strategic: Opportunity Management - Describe how your program For more than 30 years, Honeywell has provided maintenance service type programs to Commercial 2

3 has identified its operational and business opportunity, and manages this opportunity throughout the program s life cycle. Strategic: Strategic Supply Chain Integration and Cost Effectiveness Management: - Describe how your program is integrating its supply chain to assure visibility and adapting long-term cost effectiveness up and down the supply chain. Strategic: Operational Integration and Systems Engineering Describe the challenges faced by your program in terms of integrating the system into its operational environment and its impact on systems engineering planning and management. Customers, which provide superior support levels at a predictable and competitive price. As described by the Defense Acquisition University, on the DOD 2010 Efficiency Initiative, Better Buying Power, the USG had a very similar need. Providing a predictable and affordable outcome for the Government, while maintaining profitability, was contingent on the contract framework agreed to when the program was first awarded in The FAR Part 12, long term, fixed-price contract construct of the current increment ensures Honeywell will continue to strategically identify and implement process changes that reduce cost, increase asset availability and utilization, and reduce the spare parts inventory while creating lasting improvements in depot processes and workforce capability. Partnering with the Depot is by far the most critical success factor for supply chain integration on a PBL program. Working together to ascertain best practices and implement standard work between the Depot and our Honeywell R&O Facilities significantly improves the consistency of product delivered and drastically reduces waste in the process. Having trusted, on-site, materials management and engineering support allows Honeywell to manage a single supply chain, facilitates the incorporation of LEAN methods and maximizes velocity through the repair processes with minimal overhead and bureaucracy. Establishing integrated asset visibility, logistics and materials management was a critical success factor in the transition to a PBL program. Now fully functional, the process and systems provide for transparency in performance and enable maximum utilization of common Honeywell materials management IT infrastructure. Increasing product availability and reliability under a FAR Part 12, firm-fixed price contract, awarded at a price to the Government which is break-even or better than traditional sustainment program cost requires Contractor commercial investment in engineering efforts that drive reliability improvements and value chain optimization that compels productivity in depot repair processes. Honeywell is not able to demonstrate success without strategically partnering with NAVAIR Engineering and the Depot teams to garner earnest cooperation relative to initiatives which ultimately resulted in extended time on-wing or in reductions of depot maintenance manhours. The extent to which the Government is willing to partner directly correlates to the magnitude of realized program benefits. For example, the elapsed time for the approval of an Engineering Change Proposal (ECP), process improvement at the Depot, or changes in maintenance concepts, contributes to time lag associated with implementation and cost-savings to be realized within the 3

4 Operational: Planning, Monitoring, and Controlling - Describe your planning and resource allocation processes. How do you monitor and review your program s progress and make corrections to keep the program on track? How have you worked with your customer to assure Quality and communication without creating non-value reviews and audits that do not fit your program effort? Operational: Supply Chain and Logistics Management -- What processes, tools and relationship-building methods have you used to develop, refine and improve supply chain and stakeholder integration? Please indicate also methods used to analyze/fact-find regarding supplier proposals. This is one of the most imperative needs of our industry please provide specific details and data that assisted you in gauging the effectiveness. period of performance. The establishment of mutual rules of engagement for the efficient and timely processing of requests is important. A robust Program Management Operating System (PMOS) between the NAVSUP WSS Procurement Officer, the Weapon System Item Manager, NAVAIR, Honeywell and, in turn, the performing Depot has been employed on this program. Everyone is clear on performance requirements, required actions to maximize that performance and ultimately achieve required results. Following is the established PMOS for the APU PBL: Daily Production Meeting Monthly Program Performance Reviews Quarterly Program Management Review (Internal) Semi-annual Customer Program Management Review Under this Direct Sale Partnership (DSP) agreement, the performing Government Depots serve as a supplier to Honeywell and are the largest single contributor to supplier cost on the APU PBL Program. This is a unique supplier arrangement in that, by law, the Depot is required to operate on a revenue neutral basis. As such depot labor is paid in-advance of work performed, based on a pre-agreed quarterly production schedule, per current depot labor rates and the Depot s current labor standard per repair. Reconciliation of labor hours paid versus hours expended is performed upon completion of the agreed schedule and may result in either incremental payment or credit to the Depot. An effective planning, monitoring and reconciliation process is critical to enable this process and ensure costs incurred are at or below original funding. A number of processes have been deployed to ensure cost fidelity and management including: Repair Scoping Assessment of the opportunity for and value in performing a limited repair versus a complete overhaul on a component. Evaluation of part usage in repair of components i.e. repair of item for use versus replacement of item with a new part On-Site Engineering support at Depot to drive Continuous improvement of repaired/overhaul asset First Pass Yield Real-time Root Cause Corrective Action Productivity improvements through use of commercial best practices The Monthly Program Performance Reviews (described previously) are imperative to monitoring performance and ensuring accountability to both the established production plan and the associated costs. The transparency generated 4

5 Operational: System Integration, Testing & Reviews - Describe the activities and processes used to succeed in your system integration, and testing. How did you conduct system design and technical reviews? What innovations in processes or tools were used to further evolve this capability? Operational: Risk / Opportunity Management Describe the processes used to identify both risks and opportunity and to assure potential for both is addressed effectively Please indicate any forward-leaning processes to support. by these reviews affords the Depot insight to their performance compared with their commercial equivalent, the Honeywell Repair Facility, creating healthy competition and a drive to excel. Starting with a vetted requirements stream, derived from historical fleet usage and adjusted for forecasted changes in the operating environment, Honeywell coordinates with the performing Depot to establish a mutually-agreed to production schedule. This critical integration step allows Honeywell to make workload allocation adjustments between the Government Depot and the Contractor R&O Facility, if required, to accommodate capacity adjustments and / or emerging requirements, ensuring continuous support to the Warfighter. Once workload allocation is determined, repair orders for each location are loaded into the Honeywell ERP System, enabling accurate accounting of work in process as well as material allocation, new and used, to each. Our ERPenabled system allows the operations program manager to perform analytics comparing one repair location to the other to examine, for example, piece part consumption variation. In addition to repair order integration, Honeywell recently began to leverage our statistical demand planning tool to aggregate requirements across Customers for all components under the APU PBL Program. This action provides for a much more robust planning process, dampens variably in lumpy demand and continues to drive part availability without requiring safety stock at multiple stock points in the value chain. When entering into this pay-for-performance type program it was imperative for the USG and Honeywell to ensure program assumptions were clear and baseline data was accurate. Defined and mutually-agreed to performance definitions and metrics across platforms, with a consistent reconciliation process, reduced ambiguity and facilitated accurate risk assessments. In Honeywell s experience, the biggest risk inherent in the APU PBL Program is demand in excess of original plan as this can result in inadequate asset availability to support fleet requirements. Demand data was foundational to projected cost of the program and the basis for the firm fixed price negotiated in the contract. Significant increases in demand may not only impact short-term product availability but also dictate employment of various remedies which impact program cost and therefore the program s profitability. To mitigate risk associated with excess demand due to normal variation like mission composition, operating conditions and deployment schedules, Honeywell maintains a sufficient Ready-For-Issue (RFI) stock 5

6 Team Leadership: Team Culture and Motivation Describe how you created your team spirit and culture, and accomplished entire team integration and individual team member motivation. Given the economic environment and changes in the global marketplace, how did you assure your team changed swiftly and with agility? position which is tracked and reported as part of the monthly PMOS. Dramatic demand fluctuations driven by special cause variation, like planned increases in forward stocking levels, are closely coordinated with the Customer Item Manager and PCO and typically time-phased in. In addition to leveraging safety stock, our vigilance on Government and Honeywell repair turnaround times, along with an integrated materials management process, allows for a very nimble supply chain that reacts quickly to change, mitigating this product availability risk. One significant measure of success for the APU PBL Program is the increase in Mean Flight Hour Between Depot Demand (MFHBDD). Investments in reliability and process improvements yield improvements in MFHBDD, resulting in longer time-on-wing and therefore less demand. This in turn results in less cost and improved profitability - the quintessential Win-Win-Win. Opportunity and growth for the APU PBL Program is only achievable through demonstrated success. The program has been expanded from the original APU work scope to include the F-18 E-G APU, F-18 A-D Main Fuel Controls and P-3 Engine Driven Compressors (EDC). There has also been significant pull from the Depots and NAVAIR to establish Public Private Partnerships for other Honeywell products current repaired solely at various Depots as well as to assist the Services in the stand-up of new core capabilities; a true testament to the value delivered by the APU PBL Program. Integrated program plans have been established to make currently identified expansion projects a reality with additional opportunities in the pipeline. Identification of growth opportunities and performance on initiatives is a key discussion topic in our PMOS. The Mantra of Honeywell s APU PBL Customer Core Team (CCT) is A dedicated team of ten, driven to a performance of Blue (superior performance for our Customers). Getting to Blue means that we drive to metrics, both contractual and self-imposed, that exceed the expectations of our Customers. The team is simply not satisfied to meet our obligations but rather we all drive hard to exceed them. Functional participants include the Business Leader, and leads from Operations, Finance, Materials Management, Contracts, Customer Support and Engineering. Every member embraces the expectation that their function is accountable for the health and growth of the APU PBL Program. Each team member reports out on progress of improvement projects for their functional area of responsibility. The cross-functional participation and regular cadence provides for creativity, agility and speed in problem resolution. Inherent in the Quarterly Program Management Reviews 6

7 Team Leadership: Lessons Learned and Knowledge Management Describe how you collect lessons learned and best practices, and how they are shared with your team and company to improve performance. Also how are you capturing expertise and knowledge to assure availability over the life of the program? Team Leadership: Leadership Development How do you develop team s skills and build future leaders Best (& Next) Practices: Identify your program s specific Best Practices that you believe are unique, and could be shared with others and become industry s Next Practices. (QPMR) outlined in our PMOS is the sharing of lessons learned across all of our PBL and Partnership programs. In a peer review format, we discuss performance to our internal and external scorecards and plans for improvement. Tracking of lessons learned through the established PMOS is not only prudent to improve current program performance, but has become a resource for other business teams responding to new DOD PBL / Partnership opportunities. Honeywell has a dedicated Technical Sales Manager (TSM) responsible for PBL and Partnerships who continually captures lessons learned and best practices. To ensure incorporation of best practices, this TSM is a core team member for all existing and new PBL or Partnership opportunities. The PBL TSM also delivers scheduled knowledge sharing sessions open to all interested Honeywell associates. The APU PBL Program is structured such that there are two Operations Managers responsible for the execution piece of the contract, one for FRC East (the larger scope and complexity) and the other for FRC Southeast. The strategy is to start new Operations Mangers in the smaller of the two roles and promote from within as the need is presented. Additionally, we collaborate with the functional leaders to identify and mentor high potential team members and give strong encouragement and consideration to these individuals in our succession planning. Special project assignment and formal training opportunities are provided to ensure continual growth and development of our leadership pool talent. From Honeywell s perspective, the extent to which a PBL program will result in a Win-Win-Win (for the Warfighter, Government and Contractor) is contingent on applying lessons learned through all phases of the program, from project initiation through implementation and the management of continuous process improvement and effective monitoring of established metrics. Attributes that make this program unique and successful include: Collaboration at initiation - ensuring goal alignment and therefore maximizing the program benefits. Co-development of the elements of the program to ensure a clear understanding of the baseline program assumptions and deliverables. A contract framework that supports Government objectives and incentivizes the Contractor to invest in process and product improvements to meet contract requirements while providing an opportunity for reducing program costs and increasing profitability. True partnership with the performing Depots, enabled by a consistent and robust Program Management Operating System that drives 7

8 IV. transparency and trust between all stakeholders. ADAPTING TO COMPLEXITY: (HOW DO YOU DEAL WITH YOUR PROGRAM S UNIQUE COMPLEXITIES) = 20 POINTS Identify the Program s Market Uncertainty level How new is your product to your market and users, based on the definitions below. Then describe how you deal and address this specific uncertainty: - Derivative - Platform - New to the Market - New to the World Identify the Program s Technological Uncertainty using the definitions below. Then describe how you deal and address this uncertainty: - Low-tech: - Medium Technology: - High-Technology: - Super High- Technology: Identify the level of your System Complexity using the definitions below. Then explain how you are dealing with this level of complexity: - A Sub-system Identify the Pace and Urgency of your team s effort using the definitions below. Then describe how you deal with the program s pace requirements: - Regular timing Fast/Competitive - Time Critical - Blitz The primary driver of market uncertainty for this program is variation associated with fleet flying hours and operating conditions, which translates to variation in demand. Per analysis completed by Honeywell Reliability Engineering, there is a high degree of correlation between flying hours and demands, resulting in a dynamic, but accurate, predictor of market requirements. The five-year program demand profiles were established utilizing adjusted flight hour forecast, which includes normal variation like mission composition, operating conditions and deployment schedules. Honeywell manages the demand uncertainly by keeping a sufficient RFI stock position. Large fluctuations in demand are reviewed with the specific NAVSUP WSS Item Manager for special cause, like incremental forward stocking requirements, which are managed through specific contract terms. With the exception of the F-18 E-G model aircraft, the platforms and products supported under the APU PBL Program are in the sustainment phase of their life cycle, and therefore medium technology. As required by the contract, Honeywell is responsible for ensuring both availability and reliability of the product. This includes identification of product enhancements / modifications and management of obsolescence issues. All product and process improvements are discussed in a monthly stakeholder Technical Issues Review with required concurrence from the Customer s responsible technical expert. The product supported under the APU PBL Program would be considered assemblies as it pertains to shipping end items to satisfy individual requisitions. The reality is that per the contract, Honeywell provides multiple products per platform and all the components are required to maximize the individual Weapon Systems operational availability. As described in more detail in the metrics response below, Supply Response Time (SRT, the time allotted to get mission critical hardware anywhere in the world), is core to the success of the APU PBL Program, making it a time critical program. For the vast majority of the items, there are sufficient pipeline assets to ensure adequate RFI hardware. For the one product for which there is insufficient retrograde, the Operations Program Manger has instilled an all hands on deck culture and established processes that consistently results in a turnaround time (TAT) that is less than 50% of similar products. 8

9 Other Complexities & Uncertainties - Describe other complexities and unknown factors faced by this program and how you addressed them. Other complexities associated with the program include working with NAVAIR on recommended or imposed engineering changes. Any incremental requirement, not contained in the original scope of the contract, is managed in the same collaborative manner as one recommended by Honeywell. The issues are reviewed during the stakeholder technical review meetings, a clear understanding on the implications to current process is documented and ultimately an incorporation plan is established and executed. V. METRICS (HOW DO YOU MEASURE PROGRAM S PERFORMANCE) = 30 POINTS (Note: We are not looking for $ results, but the relative percentage achieved. In particular indicate what specific metrics and data you are using that drive the program beyond standard measures of schedule, budget, and performance, and which have contributed to your program s focus and its success.) Customer - How do you measure the impact of your program on your customer and your customer s satisfaction? Include a description of your metrics, as well as numerical evidence. Performance - How do you measure your program s performance in traditional terms such as schedule, budget, requirements, and business results? Preparing the Future - The Navy Customer has cited this program as providing not only improved support for the Warfighter but also millions of dollars in cost savings and cost avoidance annually. There are two key performance metrics on this program, Supply Response Time (SRT) and a reliability metric measured by Mean Flight Hour Between Depot Demand (MFHBDD) for each major component on the program. 1. SRT is the time from receipt of requisitions by the Contractor through receipt of item at CONUS or OCONUS point of embarkation. Our performance on SRT is consistently greater than the required 90%; now 98%. 2. MFHBDD is the average number of flight hours between depot demands and varies for each product/platform. To date we have achieved or exceeded the metric on each. Our program performance is measured by: Schedule adherence: Tracking of actual Depot and Contractor repairs compared to previously agreed-to production schedules. Budget adherence: (1) Tracking of actual depot labor hours expended versus forecast/pre-payment, (2) Comparison of labor hour actuals per repair versus repair standards and, (3) Tracking of material spend compared to average material content per repair. Additionally, the overall program Estimate At Completion (EAC) is under continuous review and comparison to the original program revenue and margin assumptions. With program requirements and cost developed per the various fleets flight hour forecast, there is often some variation in actual requirements. This often results in over or under consumption of assets and revision to the program EAC which is managed via a living financial model and risk management plan. Overall program performance is reviewed jointly at the PMRs and internally at the QBRs. The Navy PBL program has been recognized as a benchmark 9

10 How do you measure and assess the long-term contribution of your program to the corporation/organization? Team - How do you measure and assess the impact of your program on your team development and employee satisfaction? Unique Metrics - Describe any unique metrics you are using to measure your program s progress and how do you focus it for outstanding success. PBL program within DOD and as such Honeywell has been asked to collaborate with the Services in development of a Next-Gen PBL Program. This program, Enterprise PBL or E-PBL, is a groundbreaking initiative Honeywell is currently working with DLA and the Services. Using Honeywell s prior commercial and military PBL experience, we are developing a single, standard PBL program encompassing our products across 17 major platforms owned by the four Service s and FMS Customers for significant sustainment cost-savings. The development of this opportunity, coupled with the Navy PBL Program revenues, directly contribute to the health of our overall business portfolio. We collaborate with the functional leaders to identify and mentor high potential team members and give strong encouragement and consideration to these individuals in our succession planning. Special project assignment and formal training opportunities are provided to ensure continual growth and development of our leadership pool talent. In terms of program staffing, we have high employee satisfaction as exhibited by their loyalty to the program. The team members who have departed the program were seeking an opportunity to leverage their program experience and/or selected for a promotion. We have deployed an internal one-page scorecard for tracking our program performance. The scorecard examines critical program attributes (contractual and non-contractual) which in our team s view should be met or exceeded to ensure program success. The attributes are evaluated per a discrete scoring system (unique to each attribute). Performance is also trended and projected to ensure attributes below target are addressed early via improvement / recovery plans. The scorecard provides for a concise, comprehensive quick look at the overall health of our program and is reviewed monthly in our CCT meeting and with our Executive Leadership at the QBR. 10