Dissertation proposal of strategic management tool...

Master of Science in Asset Management Control

Valparaiso, November 30th, 2012

Dissertation

“A proposal of strategic management tool to control the in-service

support processes of second-hand capital assets of Navies”

Student: Rodrigo Vallejo C

Supervisor: Michel Kuijer, Msc.

2

Outline

1. Problem definition

2. Literature review

3. The model

4. Validation

5. Conclusions / Recommendations

3


Life cycle of an asset according to Blanchard, 2004


All asset life cycle carried out in the same country

5

Second-hand Capital Assets situation


1

Part of asset life cycle carried out in different countries

6

Exporter Importer Asset Asset designation

Yea

r o

f

ord

er

N°

deli

ve

red

Ye

ars

of

deli

ve

rie

s

M U

S $

Comments

Belgium Bulgaria Frigate Type-Е71 «Wanderlaar» 2005 1 2005 30,6 Ex-armed forces; military assistance

Belgium Bulgaria Frigate Type-Е71 «Wanderlaar» 2008 1 2008 79 Ex-armed forces

Chile Ecuador Frigate Leander Class 2008 2 2008 20 Ex-armed forces

Denmark Estonia MCM ship Lindormen 2005 1 2006 Ex-armed forces

Germany United Arab

Emirates MCM ship Type-332 2006 2 2006 30 Ex-armed forces

Italy Peru Frigate Lupo-ITS 2004 2 2005 30 Ex-armed forces modernized before

delivery

Italy Peru Frigate Lupo-ITS 2005 2 2006 30 Ex-armed forces; modernized before

delivery

Italy Serbia Corvette Minerva 2007 2 2007 10 Ex-armed forces

Netherlands Greece Frigate Kortenaer 2002 1 2003 55 Ex-armed forces

Netherlands Greece Frigate Kortenaer 2003 1 2006 35 Ex-armed forces

Netherlands Latvia MCM ship Alkmaar 2005 2

3

2007

2008 71 Ex-armed forces

Netherlands Portugal Frigate M-Class 2006 1

1

2009

2010 306 Ex-armed forces

Netherlands Chile Frigate M-Class / L-Class 2004 2 + 2 2005 380 Ex-armed forces

Transfer of Second-Hand Major Surface Ships between 2003 and 2010

(Source: www.arms-tass.su/data/Files/File/144.pdf)


66 capital assets transferred in 8 years

PFG BAQUEDANO

PFG ZENTENO

PFG LYNCH

PFG CONDELL

DLH BLANCO ENCALADA

DLH COCHRANE

DLG LATORRE

DLH PRAT

FF WILLIAMS

FF COCHRANE

FF CONDELL

FF LYNCH

FF BLANCO ENCALADA

FF RIVEROS

FFG LATORRE

FFG PRAT

“L”

“22”

“23”

“M”

2003 – 2007:

Replacement of the CN fleet in 5 years


2

Chilean Navy situation: Second-hand frigate’s life cycle

Case study: M Class Frigate


Frigate Chilean Name Hand Over date Pennant

Number Ex- Dutch Name

M 1 FF 14 “Blanco” 16-Dec-2005 F 832 HNLMS “Abraham van der Hulst”

M 2 FF 15 “Riveros” 18-Apr-2007 F 830 HNLMS “Tjerk Hiddes”

Case study

CN situation: Second-hand frigate’s life cycle (Source: AMC master course).


2008 - 2012

3

10

Frigates were included

into normal rules and

logistic guidelines to

manage their logistic

support i.a.w. C.N. culture

and customs.

(ineffective) Managing

installations, not

assets

4


11

Current Situation:

The CN needs to capitalize the AMC body of knowledge towards the management

and control the in-service support processes of the M-Class Frigates.


5

????

12

a) CN takes profit of AMC master course.

b) CN develops a scientific approach to manage the in-service support

processes → cost-effectiveness.

Why this study is relevant for the CN logistic organization?


13

Main research question

¿“How to translate the strategy into concrete actions

to manage and control the in-service processes

of CN second-hand Capital Assets in a cost effective way?


CN organization?

14 Current C.N. General Organization chart

¿How about CN (logistic) organization?


15

Nº ORGANIZATION

NAME ACRONYM RESPONSIBILITY

FOCUS ON

ASSETS?

1 GENERAL LOGISTICS

DIRECTORATE DIRECSERV

General management of material and logistic

services.

Head of all other technical / logistical directorates.

No

2 ASMAR SHIPYARD ASMAR Repairs careening and construction of naval ships. No

3 NAVAL SYSTEMS ENG.

DIRECTORATE DIRISNAV

Design authority and logistics management of

weapons and platform Installations. Yes

4 TELECOMM. & IT

DIRECTORATE DIRECTELINF

Design authority and management of telecomm.

installations and information technology No

5 SUPPLY DIRECTORATE DIRECABAS Procurement and supply support activities. No

6 PROGRAMS, R & D

DIRECTORATE DIPRIDA Management of Projects, R & D. No

7 UNITS REFITTING

DIRECTORATE DRUARM

Preventive maintenance level 3. Repair and overhaul

process of Capital Assets in ASMAR shipyard. No

8 INFORMATION AND MAINT.

MNGMNT SERVICE SERVIMADA

Definition and control of preventive maintenance level

1 and 2. Delivery of logistics Information. No

9 NAVAL MISSIONS CHILIARCO

CHILONDON Procurement of spare parts in U.K. and U.S.A. No

10 REAL ESTATE SERVICE SERVICONS Design authority of civil infrastructure, management

of real estate of the CN. No

Details of responsibilities of current C.N. Logistic Organization

¿How about CN (logistic) organization?


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16


17

Towards the problem statement

1.- Findings from other Defense Organizations.

2.- Strategic Management Systems

3.- Strategy Maps (SM) / Balanced Scorecard (BSC).

4.- Planning & Control.

5.- Continuous improvement.

6.- Logistics Support Products

7.- Life Cycle Management (LCM) teams

Towards the hypothesis validation.

8.- Feasibility, Acceptability, Suitability (F.A.S.) analysis.

9.- Cost - benefit (C.B.) analysis.


Focusing the literature review

18

Country Organization Team name Reference

HOLLAND RNLN Life Cycle Management teams Stavenuiter, 2002

U.K. ROYAL NAVY Integrated Project Teams UK MoD , “Implementation of Int. Project Teams”, 2002.

U.S.A. US NAVY Team ships / NAVSEA 21 http://www.navsea.navy.mil/teamships/default.aspx


2.1.- Findings from study of foreign defense organizations

Organization Reference

U.S. Marine Corps / Air Ground Combat Center USMC / Air Ground Combat Center, St. Plan 2007 – 2015.

U.S. Army Laura M. Downing and Lauren Keller Johnson.

U.S. Army Medical Command http://www.army.mil/media/56383/

U.S. Defense Medical Logistics. http://dml.fhpr.osd.mil/home.aspx

Canadian Department of National Defense Gillis, L.G.: 2004

U.K. Ministry of Defense. Kaplan, R.S. and Norton, D.P. “Strategy Maps”, 2004

U.K. Royal Navy: CNS (Chief of Naval Staff ), FOSF (Flag

Officer Surface Flotilla), 2SL (Second Sea Lord)

• CNS (Chief of Naval Support)

Woodley, 2006

• Chilean Navy Navy Staff Internal Regulation

* Regarding LCM Teams

* Regarding SM / BSC

19

Method to improve the organization management in the long term through a tool

capable to have a “steering instrument”

helping managers to lead

• people

• process &

• technology

from the current situation → desired situation.

2.2.- (Strategic) Management System


20 Strategy Map of Canadian Department of National Defense. (Source: Gillis, 2004)


2.3.- Strategy Map / B.S.C. (1)

21

Mission before objectives, objectives before measures


BSC has 4 perspectives which have to be “balanced”

2.3.- Strategy Map / B.S.C. (2)

22

2.4.- Planning & Control


23

2.5.- (Planning & Control) + PDCA


The Deming Cycle (continuous improvement) is also known as PDCA Cycle.

P

D

C

A

24

The LSA products (Source: AMC course, Module 8: Logistic Support Analysis modified by

the author)


2.6.- Logistic Support Products

25

LCM Team representatives (RNLN), Source: Stavenuiter, 2002

2.7.- Life Cycle Management Team


validation

26

Evaluation of the hypothesis (Source: Leonhard, 1993)


2.8.- Hypothesis evaluation 1: F.A.S. Analysis

27

4.- Validation

2.8.- Hypothesis evaluation 1: F.A.S. Analysis

28


2.8.- Hypothesis evaluation 2: cost – benefit analysis

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29

3.- The model

3.- The model

How the proposed model was performed

3.1.- Proposed organizational changes

3.2.- S.M. / B.S.C. + P.D.C.A.

3.3.- (S.M. / B.S.C. + P.D.C.A.) LCM team

31

Nº ORGANIZATION

NAME ACRONYM RESPONSIBILITY

FOCUS

ON

ASSETS

?

1 GENERAL LOGISTICS

DIRECTORATE DIRECSERV

General management of material and logistic services.

Head of all other technical / logistical directorates. Yes

2 ASMAR SHIPYARD ASMAR Repairs careening and construction of naval ships. Yes

3

NAVAL SYSTEMS ENG.

DIRECTORATE +

TELECOMM. & IT

DIRECTORATE

DIRISNAV –

DIRECTELINF

Design authority and logistics management of all

weapons and platform Installations including IT’s. Yes

4 SUPPLY DIRECTORATE

+ NAVAL MISSIONS

DIRECABAS -

CHILIARCO

CHILONDON

Procurement and supply support activities.

Buying of spare parts in U.K. and U.S.A.

Yes

5 PROGRAMS, R & D

DIRECTORATE DIPRIDA Management of Projects, R & D. Yes

6

UNITS REFITTING

DIRECTORATE + INFORMATION AND

MAINT. MNGMNT

SERVICE

DRUARM -

ERVIMADA

Preventive maintenance level 3. Repair and overhaul

process of Capital Assets in ASMAR shipyard.

Definition and control of preventive maintenance level 1

and 2. Delivery of logistics Information.

Yes

7 REAL ESTATE SERVICE SERVICONS Design authority of civil infrastructure, management of

real estate of the CN. Yes

Details of responsibilities of proposed C.N. Logistic Organization

3.- The model

3.1. – CN proposed organizational change. CN Logistic Organization.

32

Proposed Organization of the CN Logistics Organization

3.- The model

3.1. – Proposed organizational change: CN logistic organization

33

3.1. - Organizational change: no changes on DIRISNAV organization.

an asset-oriented organization

3.- The model

34

3.- The model

3.1. – Proposed organizational change. Asset-oriented CN logistic organization

35

3.- The model

DIRISNAV + DIRECTELINF

The only one Directorate responsible of 100

% of installations on board).

Organized in a matrix way.

Its mission: Design Authority of Platform and

Combat Systems Installations + communic..

ASMAR

Shipyard in charge of Depot level

Maintenance.

Main Contractor for level 3

maintenance tasks.

COMOPER

Direct military command of the Frigates.

3.1. - Organizational change. M-Frigate LCM Team proposal

S.M.

PERSPECTIVESTRATEGIC

OBJECTIVES

MEASURES

(Progress towards the objectives)TARGETS INITIATIVES

Institutional

(Customers)

(ENDS)

Improve M-Class

Frigates effectiveness

Current availability, reliability and

capability indicators compared with

expected.

Target Date: Before Dec 2016.

Select the AMC methodology

(AMICO tool) to calculate A, R & C,

of M frigates during a year basis.


Organize a set of progress meetings to

assure the fulfillment of the methodology to

calculate system effectiveness.

Reduce M-Class

Frigates overall costs

Current operation and support cost of

the frigates compared with expected.


Define a methodology to allocate

and calculate operation and support

costs of the M-Class frigates.

Target Date: Before end of 2016.


verify the fulfillment of the methodology to

calculate life cycle costs.

Application based on SALINO data.

Internal

(WAYS)

Improve SALINO data

quality

Audits: amount of errors discovered

versus total amount of registers.

Error: Difference compared with

standard

Decrease data errors in 5% yearly

and communicate the results on the

web portal.

To perform audits of data quality according

to ISO 8000 standard, 2009.

Improve of LSA

products in quantity

and quality

Degree of completion of the LSA

products comparing with the baseline

(purchased LSA products in Holland

along with the frigates)

10% of improvements of LSA

products every year up to reach the

baseline

Show results on asset web portal, ir order

for all stakeholders having the same

information.

Improve pending

facilities in ASMAR

Amount of facilities implemented versus

planned

All facilities implemented before end

of 2016Show results on asset web portal

Finance and

efficiency

(MEANS)

Reduce Operations

costs of M-Class

frigates.

To establish a set of measurements to

know the actual operations cost.

On 01 Dec 2013, the accounting

method has to be agreed upon.

Formulate an exploitation plan to know and

agree the “degree of activity” (realistic

objective) of the M-Class Frigate.

Reduce Maintenance

costs of M-Class

Frigates

To set a set of measurements to know

the actual maintenance (corrective +

preventive) cost.



Formulate a maintenance operations

strategy (in-house capability, outsourcing,

condition based monitoring, RCM, etc).

Innovation,

learning &

growth

(MEANS)

Improve M-Class

Frigates web portal

training

Number of qualified LCM people on web

portals regarding the total amount of

people of LCM team.

All LCM members trained and

skilled before the end of 2014.

Define a “SALINO Training Plan” dedicated

to reach the specified target.

Improve knowledge of

AMC approach

Number of qualified LCM team people

regarding the total amount of people of

LCM team.



To implement the Action Plan :“Asset

Management Control Initiative for the C.N.”

36

3.- The model

3.2.- Strategy Map (Cause-and- effect relationship)

BSC

37

PERSPECTIVE (STRATEGIC)

OBJECTIVES

MEASURES

(Progress towards the objectives) TARGETS INITIATIVES

Institutional

(Customers)

(ENDS)

Improve M-Class

Frigates effectiveness

Current availability, reliability and

capability indicators compared with

expected.


Select the AMC methodology

(AMICO tool) to calculate A, R & C,

of M frigates during a year basis.



assure the fulfillment of the methodology to

calculate system effectiveness.

Reduce M-Class

Frigates overall costs

Current operation and support cost of

the frigates compared with expected.


Define a methodology to allocate

and calculate operation and support

costs of the M-Class frigates.

Target Date: Before end of 2016.


verify the fulfillment of the methodology to

calculate life cycle costs.

Application based on SALINO data.

Internal

(WAYS)

Improve SALINO data

quality

Audits: amount of errors discovered

versus total amount of registers.

Error: Difference compared with

standards

Decrease data errors in 5% yearly

and communicate the results on the

web portal.

To perform audits of data quality according

to ISO 8000 standard, 2009.

Improve of LSA

products in quantity

and quality

Degree of completion of the LSA

products comparing with the baseline

(purchased LSA products in Holland

along with the frigates)

10% of improvements of LSA

products every year up to reach the

baseline

Show results on asset web portal, ir order

for all stakeholders having the same

information.

Improve pending

facilities in ASMAR

Amount of facilities implemented versus

planned

All facilities implemented before end

of 2016 Show results on asset web portal

Finance and

efficiency

(MEANS)

Reduce Operations

costs of M-Class

frigates.

To establish a set of measurements to

know the actual operations cost.



Formulate an exploitation plan to know and

agree the “degree of activity” (realistic

objective) of the M-Class Frigate.

Reduce Maintenance

costs of M-Class

Frigates

To set a set of measurements to know

the actual maintenance (corrective +

preventive) cost.



Formulate a maintenance operations

strategy (in-house capability, outsourcing,

condition based monitoring, RCM, etc).

Innovation,

learning &

growth

(MEANS)

Improve M-Class

Frigates web portal

training

Number of qualified LCM people on web

portals regarding the total amount of

people of LCM team.



Define a “SALINO Training Plan” dedicated

to reach the specified target.

Improve knowledge of

AMC approach

Number of qualified LCM team people

regarding the total amount of people of

LCM team.



To implement the Action Plan :“Asset

Management Control Initiative for the C.N.”

3.- The model

3.2.- M-Frigates LCM Team Balanced Scorecard

BSC for the CN’s M-Class Frigates LCM Team

38

BSC and PDCA for continuous improvement (Krivokapic, 2007).

3.- The model

3.3.- S.M. / B.S.C. + P.D.C.A.

39

BSC and PDCA for continuous improvement (Krivokapic, 2007).

3.- The model

Continuous

improvement!!

3.3.- S.M. / B.S.C. + P.D.C.A.

40

3.- The model

3.3. – LCM Team aspects

Continuous

improvement

41 - 0 -

3.- The model

3.3. – LCM Team aspects

Continuous improvement

Continuous

improvement



42 - 0 -

3.- The model

43

4.- Validation

44

4.- Validation

Strategy is at risk when “means”, “ends”, and / or “ways” are not in balance!!

45

An. Compare To Description Result

Fea

sib

ilit

y

Means

(Resources,

people).

Ways

(Planning

guidance).

Resources involved in the hypothesis seems insufficient

to support the planned ways.

The main part of resources is already invested, because

the AMC course is already paid.

The CN LCM team implementation needs 20 technicians

(part time) to be set in place.

Hypothesis is feasible

depending on the

contribution of 20 AMC

officers and technicians

(part time) to set in place the

CN LCM team.

Ac

ce

pta

bilit

y

Ends

(Objectives)

Means

(Resources,

people).

The “end” or “objective” is improving the cost –

effectiveness of the M-Frigates, reducing the overall

costs. Another “end” is reducing the costs of spare parts.

Means (people) are not sufficient because officers MSc in

AMC should be used as a basis for change. (DGSA

Regulation “Modernization of CN Logistics”.

20 technicians to perform the LCM Team should be

assured.

Hypothesis is Acceptable

depending on the

contribution of 20 AMC

officers and technicians

(part time) to set in place the

CN LCM team.

Su

ita

bil

ity

Ways

(Planning

guidance).

Ends

(Objectives)

The objective involve all the CN organization.

What is missing is a holistic planning guidance for that.

So far, the hypothesis is

unsuitable because today

the planning guidance does

not exist, so are not

sufficient to produce the

desired ends.

4.- Validation – FAS analysis

46

4.1. – BENEFITS of (SM / BSC + PDCA)LCM team

1 Capitalization of AMC approach in an objective and

measurable project.

2 Having a tool of comparison of effectiveness v/s costs of

Capital Assets.

3 Having a tool to communicate the strategy (BSC)

4 Having a tool to compare effectiveness among two or more

assets.

5 Having a rationale tool to apply a continuous improvement

methodology

6 Having a tool for continuous improvement development.

7 Saving of 20% of costs in spare parts are attainable

[Stavenuiter. 2008]

4.2. – COSTS (SM / BSC + PDCA)LCM team

1 Implement LCM Team inside the organization

2 To develop a web Asset portal to communicate

results.

3 To allocate people in a LCM Team (part time)

to perform a CN M-Class Frigates LCM Team

4.- Validation – Cost / Benefit Analysis

4.1. - Benefits

Benefits Nº 1 to 6: not measurable in pecuniary terms.

Benefit Nº 7: Saving of 20% of costs in spare parts. 20 % x 4 M€ is 800.000 € / year.

4.2.- Costs

Costs Nº 1 and 2 are not measurable in pecuniary terms.

Cost Nº 3: Salary of each technician (average) plus other enterprise costs = € 1.800 / month.

assumed 50 % partially dedicated to AMC LCM team = € 900 / month = € 10.800 / year.

For 20 technicians: € 10.800 x 20 = € 216.000 / year.

4.3. - Conclusion: Benefits > Costs in about 584.000 € / year


- 0 -

4.1. - Benefits



4.2.- Costs


Cost Nº 3: Salary of each person (average) plus other enterprise costs = € 1.800 / month.


For 20 persons: € 10.800 x 20 = € 216.000 / year.



- 0 -

4.1. - Benefits



4.2.- Costs


Cost Nº 3: Salary of each technician (average) plus other enterprise costs = € 1.800 / month.


For 20 technicians: € 10.800 x 20 = € 216.000 / year.


- 0 -


50

5.- Conclusions / Recommendations

The BSC complemented with PDCA methodology is a suitable model to be in

control of in-service support of second-hand capital assets depending on

planning. Acceptable and feasible depending on people.

B.S.C. / PDCA for M-class frigate LCM team are not a panacea, but it gives the

CN the proper direction to conduct the in-service support management of the

frigates.

The SM / BSC proposed by this study have been done in order to be applied by

some small part of the CN Logistic Organization: the LCM team. Nevertheless,

more realistic will be focusing on the entire organization.

5.1. - Main Conclusions


5.2. - General recommendations

The C.N. logistic organizations seems quite complex, even for the daily life. It is

advisable to have a look on it trying to concentrate functions and responsibilities

for having a simpler and lighter organization.

A more asset-oriented organization will create possibilities to be more cost

effective (i.e. more performance with less costs).


5.3. - Recommendations for future research

Implementing a M-Frigate LCM team is related with “people”, “process”, and

“technology”. In this research more or less “process” aspects is covered.

Nevertheless, deeper analysis should be done on “people” and “technology”.

Without good data quality any S.M.S. could be effective. Some improvements

could be done on this subject, along with Web Portals, as a complement of the

communication of the strategy to manage capital assets.

A field survey performed inside the CN organization could be done to do the

research more solid with that feed back. Two ways are visualized. To interview

only “logistic experts” on the top, or many technicians on the bottom.

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Thanks for your attention!!

AKNOWLEDGEMENTS

AND

QUESTIONS

Dissertation proposal of strategic management tool...

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