Performance Based Logistics

The Department of Defense (DoD) has been procured items in the past, is in the process of procuring items and will continue to procure items as they continue to do business. In regards to procurement, the government's interests have been protected by legislation passed during the Civil War and strict legal rules for government contracting procedures have been in place since World War I (Huston, 2004, pg. 317). As far back as World War II procurement productivity was achieved by establishing a working relationship between the public and private sector. Industry's ability to make a swift conversion to a wartime basis and expansion of both government and private facilities helped facilitate procurement success (Huston, 2004, pg. 489). Today the government's interest are still protected by legislation as well as the Department of Defense's (DoD) own policies. The DoD is currently reinforcing its Performance Based Logistics (PBL) approach to contracting.
Performance Based Logistics can be linked to the principle of Civilian Responsibility (Huston, 2004, pg. 655). This is the idea that the needs of the civilian economy and the military's need to rely on the private sector for military goods requires coordination with the private sector. This dependence on the civilian economy requires the military to develop programs that would be supported by the civilian economy. The contractor, a civilian, has control over the production of the ability to procure needed items. The procurement of needed requirements cannot rest solely on civilians, there has to be a balance between the civilian side and the military side. The civilian economy relies on its responsibility to meet the needs of military procurement to better the overall economy.

Performance Based Logistics has been around for some time yet the Department of Defense (DoD) is just now beginning to ensure personnel are properly trained on PBL in order to ensure that PBL is utilized to the maximum extent possible (Sprenger, 2013). The need for the DoD to focus on PBL is not new, in 2004 the Government Accountability Office (GAO) recommended that the Pentagon do a better job with PBL (2004). Several DoD policies outline how PBL is to be integrated into the current acquisition process. The Interim DoDI 5000.02 states that product support integrators and product support providers may be organic, commercial, or a combination. In other words products are integrated and supported by the government, the private sector or a combination of both. The Interim DoDI also states that it is the program manager's responsibility to employ effective Performance-Based Logistics planning, development, implementation, and management in developing a system's product support arrangements. Performance-Based Logistics (also known as performance-based life-cycle product support) ties objective metrics delivered logistical system performance to incentives that will motivate the support provider (USD AT&L, 2013, pg.110).
As cited by Geary, Koster, Randall & Haynie, Performance Based Logistics (PBL) is the Department of Defense's (DoD) strategy to improve weapon system readiness by obtaining life cycle product support of weapons systems, subsystems, and components as an integrated package based on output measures, such as material availability, materiel reliability, and reduced ownership costs (2010, pg. 457). The L in PBL can be thorough mix of the government resources and those industry resources needed (Trovata, 2004, pg. 22). The DoD wants to utilize PBL to efficiently meet the warfighters needs by reducing costs from conception to disposal. This is done by creating a balance between the public and private sectors roles in the lifecycle of the product.
There has been a long history of concern as to the relationship between the public and private sector. The balance between public and private control of the economy was identified as a concern by the War Production Board, during WWII, and they saw each increment of Army of authority over war procurement as an attempt to take over the national economy (Huston, 2004, pg. 459). It takes cooperation and contributions from both the private and public sector in order to achieve effective product support. The government has always been responsible for product support delivered to the warfighter (Geary et al, 2010, pg. 452). In these days of budget uncertainty, mainly reductions in funds, best value use of government owned resources in important. The government must protect the taxpayer's resources through inventory control, distribution and maintenance depots yet they are unable to provide all of the DoD's product support work (Geary et al, 2010, pg. 454). The best way for the DoD to achieve this is to join forces with the private sector, otherwise known as the commercial sector, in a balance that creates the best value from each side. The contractor's objective is to secure profit for the business as a responsibility to their shareholders whereas the government has the objective of maintenance of force readiness in support of the national military strategy and the security of the nation (Trovato, 2004, pg. 23).
With PBL industry provides the best practices for planning the analysis process, conducting the analysis, and documenting the results. These industry standards are based on solid academic foundations in engineering and mathematics. Standards need to be set so that each side understands what is expected and these standards need to be fully embrace by industry and the DoD. Starting early in the design phase and working a design that improves reliability and maintainability reduces support and operations costs in the future. This also reduces personnel training costs. The final solution set must be fully supported by both industry and government performance standards (Trovato, 2004, pg. 22-23).
Recently there has been a great debate surrounding the effectiveness of Performance Based Logistics (PBL). A growing consensus that PBL works if you do it correctly has led to application of the theory. Theory provides the power to explain, predict and improve the future. Performance Based Logistics is a business and economic theory that is fairly precise in making statistical predictions. Many studies have been conducted and provide evidence that PBL can control cost and improve performance. The success of PBL depends on many different variables and how they interact together (Randall, 2013, pg. 328).
There have been initiatives within the DoD have been introduced in order to reduce costs. One of these initiatives is that of Frank Kendall. Kendall's Better Buying Power 2.0 Initiative encourages an emphasis on PBL (Sprenger, 2013). The DoD has adopted this initiative identifying it as the USD (AT&L) Better Buying Power (BBP) 2.0 Implementing Directive in April 2013. The Performance Based Logistics Comprehensive Guidance in the form of a memo, was issued in accordance with this initiative. According to the memo, the guidance is provided to assist the Services in adopting and expanding Performance Based Logistics (PBL) for all weapon system programs and expands on BBP 2.0 guidance to assist the Services with increasing effective use of PBL (DAU). This written memo and guidance shapes the way the DoD does procurement business.
Many organizations other than the DoD are using PBL, over 35 countries use PBL for roads and highways and the State of Illinois has been recognized for its performance based approach to child welfare services. If developed properly performance based contracts can help lay the basis for long term sustainment and efficiency. Research has shown that PBL manufactures internal competition, eliminates waste, improves quality, aligns incentives, leverages long term contracts to spur investment, and optimizes management of assets that are difficult to predict. Performance Based Logistics creates an optimal outcome when dealing with uncertainty and differing constraints. Research sponsored by the Naval Postgraduate School acquisition research program found that PBL establishes a metric based governance structure where suppliers make more profit when they invest in logistics processes that reduce total cost of ownership (Randall, 2013, pg.329-331) . Controlling costs of procurement actions was a big problem as far back as WWI and PBL is the DoD's new way to address out of control procurement costs (Huston, 2004, pg. 319).
Randall summarizes PBL in that the theory behind PBL is that profit and not competition provides the means for a business to learn. He goes on to say that research shows that effective PBL strategies show that monopoly is not the same as opportunism and align profit based incentives. PBL treats repair and redesign similar to make or buy and the make or buy decision determines the most efficient way of procuring the product, either by making or buying. When a supplier has a new process that reduces the cost of redesign of a part he PBL manager will shift from repair to redesign. The length of the contract, or period of performance, in PBL directly impacts the repair redesign efficiency of the program. When DoD leaders that understand the theory on how to employ PBL chose to utilize the theory increase the affordability of nation security. The DoD can continue to spend money on spares, repairs, and overhaul or it can create partnerships that leverage new materials, processes and technologies, supplier investment in order to improve affordability, success stories support this option (Randall, 2013, pg. 332-344).
The U.S. Army AMCOM in Huntsville Alabama has been recognized for its PBL with the receipt of several PBL awards between 2005-2009 (Geary et al, 2010, pg. 457). The reason for this success is that they operated in an environment that fostered PBL through a change in culture. Successful PBL managers see cost control and performance improvement through proactive PBL strategies. By aligning cross-functional and cross-organizational processes, of multiple firms, customers and bill payers AMCOM managers were able to achieve consistent and measurable success (Geary et al, 2010, pg. 458)
A case study of AMCOM in Huntsville identified eight critical PBL success factors. As citied by Geary, Koster, Randall, & Haynie, these eight success factors are cooperative interdependence, transformational leadership, team climate for innovation, team innovation, team learning, team performance, change appropriateness and means efficacy climate (2010, pg. 459-460). These eight factors need to present in the government sector and overflow into the private sector. All parties on both sides need to understand the motivators and interests of all other parties, it is truly a team process. Aside from these eight 'cultural' factors another case study cited by Geary et al identified that the following elements are necessary for PBL success; long term committed relationships, shared partnership vision and objectives with the right metrics and incentives, full coordination with all stakeholders and clearly documented objectives (2010, pg. 462).
There is no theory that does not have barriers or converse actions to the positive effects. In regards to PBL a con would be that if the environment and management culture does not support PBL it will most likely not be successful. In order for PBL to be successful strong and usually long term relationships have to be in place between the public and private sector. Under PBL specific and restrictive statements of work are replaced by commercial standards and industry identified best practices. Smaller business are faced with the challenge of identifying their own standard rather than being told what their standard is (Trovato, 2004, pg. 21).
The lack of multiyear funding and contracts for continued involvement in support activities can be a barrier to achieving the right mix of services from all parties necessary to implement PBL objectives (Trovato, 2004, pg. 22). Multiyear PBLs, although a lack there of, create internal competition, using profit as a source of learning, where profits lead to learning that increases affordability (Randall, 2013, pg. 332). A 50/50 workload split between industry and government is required by PBL and sometimes this can be a challenge due to a workload balance. Yet another possible challenge in the use of PBL can be that for commercial-of-the-shelf (COTS) products. Most Original Equipment Manufacturers (OEMS) do not have a plan in place to address repairs as they usually take care of them themselves (Trovato, 2004, pg. 23). This can cause a logistical problem in how the DoD will accomplish the repair. Will they have to do it themselves, pay for the OEM to come to them or send their product away.
The old philosophy where the private sector builds the product and moves it on to the user with no support is gone. The future of logistics is an overall approach to the support the system from beginning to end. With PBL the cost savings must extend from start to finish of the program. Performance Based Logistics may not be appropriate for all situations but should be considered before other alternate methods. Proper sustainment planning is necessary as PBL cannot overcome poor sustainment planning or the lack of adequate training. Performance Based Logistical also does not release the program manager of responsibility for lifecycle management system. Positives outcomes of PBL are a dramatic improvement in performance, lower operating costs across total lifecycle (Kobren, 2009, pg. 265-266).

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