Original Date: 03/06/2006
Revision Date: / /
Best Practice : Phalanx Performance-Based Logistics Program
Raytheon-Louisville, through innovative partnering with the customer, the Naval Inventory Control Point, United Parcel Service-Supply Chain Solutions, and long-term suppliers, has successfully supported the Phalanx users and their needs. The Phalanx Performance-Based Logistics Support contract has reduced stock back orders and requisition processing and shipping times to minimize weapon system downtimes and reduce supply chain costs.
The Raytheon-Louisville Phalanx program has established a Performance-Based Logistics (PBL) contract with the Naval Supply System (NAVSUP) Naval Inventory Control Point-Mechanicsburg (NAVICP-M). NAVSUP, through acquisition reform, has pursued PBL contracts with weapon system original equipment manufacturers (OEMs) to enhance requisition response time and warfighter (customer) satisfaction while decreasing supply chain costs, logistic footprint, and weapon downtime waiting for replacement parts.
Traditional supply support for Naval weapon systems through the NAVSUP involves NAVICP managing repair parts and the Defense Logistic Agency (DLA) managing non-repairable (consumable) parts, while the Federal Inventory Supply Centers (FISCs) and DLA store issues and receives all of these parts. The infrastructure behind traditional supply support was costly while the time to repair, procure, and ship parts to the warfighter was too long, resulting in increased downtime of weapon systems and increased logistic footprints in the battlefield.
Supply Support PBLs shift traditional tasks of inventory management, warehousing, procurement, and repair decisions to the PBL contractor or PBL integrator while NAVICP’s role is reduced to managing and funding the PBL contract using Navy working-capital-fund dollars. The PBL process is invisible to the Fleet as traditional means of requisitioning and receiving parts are still the same, but lead-times are greatly reduced under the performance-based contracts. The Phalanx program had 850 back orders at the time of transition from traditional support to PBL in 2000. Nearing the end of its first 5-year contract, the Phalanx program now has an average of two back orders.
PBL contracts base incentive or penalty fees on performance, which is measured in terms of metrics that are of importance to NAVICP, such as operational availability (Ao). Ao measures system availability as the supply support contribution to improved Ao by reducing the mean logistics delay time (MLDT).
Raytheon-Louisville has concentrated on reducing the MLDT on the Phalanx program by using collaborative long- term partnerships with suppliers and a third-party logistics provider. The Louisville facility also serves as a repair depot for 70% of the parts under the PBL contract, builds 60% of all Phalanx spare parts, and is colocated with the In-Service Engineering Agent (ISEA) at the Louisville plant. The third-party logistics provider, United Parcel Service-Supply Chain Solutions (UPS-SCS), is also located in close proximity to the Louisville plant and warehouse and receives and ships all of the parts under the PBL contract. UPS-SCS uses the transportation portion of the company to transport all parts coming and going under the PBL contract to fill requisitions or transport parts to and from repair facilities, decreasing costs and transportation times.
This unique innovative partnership with the UPS Logistics Group allows Raytheon to concentrate on core functions with their knowledge of the Phalanx system and program concerns to effectively manage inventory and make repair and procurement decisions. Raytheon-Louisville outsources the warehousing, requisition processing, receiving, and shipping to UPS-SCS using 24/7 service to effectively realize cost savings, which in turn enables Raytheon to concentrate on what they do best. Outsourcing this process also minimizes risks by selecting a company that is not union-based, eliminating the potential for strikes and offering Raytheon 50 other transportation solutions if UPS transportation should go on strike.
To interface with the Naval Supply Chain and receive and relay requisition-processing information, UPS-SCS has outsourced the data interchange to a company called Sterling Value-Added Network (VAN), a company with hardware that interfaces with the Defense Automated Addressing System (DAAS). DAAS carries supply requisitions from the warfighter via NAVICP to Sterling’s mailbox for UPS-SCS to pick up into its inventory Starbright inventory system to retrieve the requisitions and feed information electronically back to the supply system on inventory visibility. Raytheon has access to Starbright’s real-time inventory system to determine which parts to hold, to repair, or to procure, reducing potential back order situations. Starbright also tracks parts that are out for repair and interfaces with UPS transportation to track shipments.
The PBL contract further allows Raytheon to use the Smart Transportation System (STS), a Naval supply-based transportation system. STS ships parts through the military transportation systems to overseas points without experiencing the customs delays imposed on commercial transportation carriers. Requisitions going to overseas locations are tracked under the PBL metric with a start time of when the requisition is received in Starbright to when the part is picked up on the UPS loading dock by the STS carrier – not when the part is delivered to its destination as all other requisition shipments.
Through lessons learned and continuous improvements, Raytheon-Louisville has also developed Phalanx PBL Automated Requisition Tracking System (PARTS), a PBL requisition visibility website. This system provides Web- based, real-time visibility for requisition shipping status that has reduced labor hours from 4 to 3 labor years at the Louisville facility. The Web-based visibility not previously supported by traditional support or other PBL contracts has also increased customer and warfighter satisfaction.
PBL contracts measure performance using a set of metrics that are important to the customer and the warfighter. In the supply system the biggest performance measurement is Average Days Delay (ADD) – the time from receipt of the requisition to delivery at destination. Raytheon internally meets quarterly to review metrics and to ensure any failure to meet a metric is reviewed and eliminated if possible. Current ADD performance requirements on the Phalanx PBL are separated into one of three groups: Priority Items, Critical Items, and Non-Critical Items. The current performance requirements for these three groups are 5 days or less, 8 days or less, and 14 days or less, respectively. Raytheon-Louisville’s Phalanx PBL has maintained an order responsiveness to well above the contract requirement of 85% and has completed 63 consecutive months of exceeding all contractual metrics (Figure 2-8).
Follow-on contract performance requirements have been reduced by NAVICP to 2.8 days or less, 3.5 days or less, and 4.0 days or less respectively. Metric management in the follow-on contract will require real-time monitoring of ADD metrics by UPS-SCS for optimal transportation solution determination. Raytheon plans to subscribe to Sterling VAN as well to have oversight of when requisitions are received from DAAS as a lesson learned and as a process-improvement initiative to manage an even tighter metric in the follow-on contract of ADD.
Through the use of collaborative partnerships and outsourcing, Raytheon-Louisville has been able to focus on core competencies and use internal programmatic and engineering knowledge to support the Phalanx users. The first Phalanx Supply PBL contract has exceeded the required performance metrics, supporting the warfighter to a level exceeding the level required. In the interim, the Louisville facility has exceeded its internal goals, increasing profit margins by improving processes, reducing risks, securing contract incentives, and avoiding penalties.
Figure 2-8. Backorder Status
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