New thinking on performance-based logistics.

• Author: Deal, Kevin
• Position: Industry Perspective

As military equipment becomes more complex and budgets become more scrutinized, defense organizations are looking at ways to not only improve asset availability but reduce operating costs.

Performance-based logistics, or PBL, is now a mandated consideration for major new procurement projects and becoming a serious consideration for maturing defense industries in the BRICS--Brazil, Russia, India, China, South Africa--and Asia-Pacific.

PBL strategies are already in use in commercial aviation, often referred to as "power-by-the-hour." In the defense market, one of the first implementations of PBL dates back to the late 1990s, when the Air Force sought to improve the readiness of the F-117 fighter.

Fast forward to now with the implementation of PBL for the military, where active management of the sustainment process--forecasting demand, maintaining inventory and scheduling repairs--has become the responsibility of the support provider.

This changes the incentives for the supplier. The supplier, with a properly structured PBL program, is encouraged to improve the reliability of systems and reduce inventories of spare parts to meet a guaranteed level of performance.

The question for defense organizations has always been how much do you outsource?

The answer is that each outsourced PBL project should strive to be a "win-win" for both the customer and supplier. This can only happen with personal and institutional confidence between provider and client, and this depends on good management and decision support information.

Intuitively, the military may not want to outsource support capability, but realistically they recognize the benefits of industry involvement.

Contracting out support still leaves the military holding the operational risk. The "burning platform" driving the military toward PBL is largely budgetary. The warfighters are then effectively dependent for their lives on the success of a commercial arrangement some way down the support chain to provide their tools. Without doubt if it goes wrong, their degree of pain is much higher than for one of the industrial partners.

The military clearly needs confidence in the support before it can reasonably be expected to willingly go into harm's way underpinned by a PBL strategy. The key confidence builder is the visibility of information to all in the support chain, so that it is indisputable that all parties in the enterprise are getting what they need from the arrangement. PBLs only have...