Performance Based Logistics and the Army Industrial Enterprise

Research Study

In today’s world, businesses manage vast, global flows of goods and products through advanced logistics systems that guarantee rapid, on-time and error-free delivery to customers worldwide. Continuous improvement in logistics processes has become a key competitive factor. Companies such as Wal-Mart, UPS, Maersk, Rolls Royce and Caterpillar are synonymous with logistics leadership.

The Department of Defense (DoD) also must manage massive flows of goods and services and the military industrial base that supports these needs. Over the course of the past decade, DoD has borrowed heavily from these commercial best practices to transform the way it supplies and maintains weapons systems and other support for the modern warfighter. Performance Based Logistics (PBL) has been a centerpiece of this transformation. As in the commercial world, the purpose of PBL at DoD is to purchase a delivered capability, like the number of air hours a plane will fly, rather than an investment in stockpiles of parts and materials, such as cowlings and rivets. Essentially, PBL shifts responsibility for outcomes and results to the support provider while creating incentives to achieve best value performance. The government is buying the capability, not stockpiles of parts and resources; it no longer defines the process by which the results are achieved and now provides the performance specifications not the design specifications. In other words, DoD pays for results and the warfighter is the direct beneficiary.

Though still in its early stages, PBL is proving to be as valuable to the military as it has to the commercial world. In the current Iraqi conflict, for instance, the Army Stryker has achieved a 97 percent operational availability through a PBL agreement and public-private partnership between General Dynamics and Anniston Army Depot. Honeywell and Caterpillar have reduced the wait time for the Marine Corps/Navy Auxiliary Power Units from 35 to 6 days. The PBL between Corpus Christi Army Depot and General Electric has resulted in an 80 percent reduction in overhaul times for the T700 engines throughout the AH-64 Apache and H-60 helicopter fleets. And Rolls Royce has responded to PBL by pioneering the concept of “power by the hour,” a guarantee of on-wing performance for its aircraft engines.

In short, PBLs offer a promising, proven opportunity in logistics transformation, which will become increasingly critical to DoD in face of reduced sustainment budgets. But, to realize greater benefit, the Office of the Secretary of Defense and the armed services will need to move aggressively to remove implementation challenges and to streamline the PBL process. The sorts of issues that must be addressed include standardizing definitions and implementation protocols (some of which is already underway in the Army); expanding education and training; creating job performance incentives to adopt PBL as the primary acquisition and procurement strategy; removing structural barriers to PBL within and between services; and exploring legislative and regulatory changes that will facilitate wider PBL use. The Army and the other services also need to work closely with contractors to clarify roles and responsibilities within Performance Based Logistics contracts.

The initial draft of this report was written by Ms. Carrie Hunter. Members of the Logistics Working Group had an opportunity to review and modify the final report.

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