FINLEY_Aerospace and Defense PBL Bench Marking Results for AIA PSC 2005 (3)

8/8/2019 FINLEY_Aerospace and Defense PBL Bench Marking Results for AIA PSC 2005 (3)

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ManagementConsultants

www.prtm.com

Leading thinking for lasting results

Aerospace and Defense IndustryBenchmarking Survey Results

2005 AIA Product Support Conference

November 9 th , 2005

For further information, contact:

Mike Finley, Director Ned Glattly, PrincipalTony Gonalves, Manager

PRTM1000 Thomas Jefferson St., NWSuite 600Washington, DC 20002

Tel: (202) 625-7200Fax: (202) 625-7256

[email protected] [email protected]@prtm.com
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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2 ManagementConsultants

Copyright 2005 PRTM

Findings and insights on performance-based logistics inthe A&D industry

Why benchmark

How A&D industry supply chains are performing

Findings on the state of PBLs

What it means to be Performance-Based


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Seminal study of A&D industry PBLs and their associatedsupply chains

OSD and AIA sponsored

Goals of the studyDevelop a measure of PBL progress thus far

Understand which PBL practices lead to superior supply chainperformance and which do not

Develop recommendations and a path forward to improve future PBLs

Provide readouts to participants with their individual results

Over-arching Goal

Validate case for moving overall industrial base up the PBL maturity scaleGovernment win: better weapons system performanceIndustry win: shareholder value


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A&D PBL supply chain benchmarking provides insight intoPBL value

PBLs align the supply chain building blocksOrganizations

Practices

Information

Alignment and process maturity lead to logistics performance

Maturity and performance leads to uplift

Greater profits for industry and revenue from expanded service offeringsBetter performance and lower costs for government


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The study is based on the DoD standard maturity model

ContractScope

WeaponsSystem

sScope

Component

PlatformPerformance Outcome

Stage 1 Stage 2 Stage 3 Stage 4

Delivery Speed

Operational Availability

Material Availability

Mission Assurance

MissionPerformance

WeaponSystem

PerformanceLogistics

Performance

DistributionPerformance


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Benchmarks allow improvement in practices leading toperformance improvement

Interpretation of performance drivers and practices

Understanding of current practices and their impact on key metricsDevelopment of hypothesis for potential improvement areas

Understanding of performance gaps and path to close

Supply Chain Performance Versus Comparison Population

Key Perspectives

Metrics

0% - 20%

Major Opportunity

20% - 40%

Disadvantage

40% - 60%

Median

60% - 80%

Advantage

80% - 100%

Best-in-Class

Your Org.

On-Time Delivery to Request %68.8% 88.2% 87.1%

On-Time Delivery to Commit %74.7% 95.0% 94.2%

Order Fulfillment Lead Time11.0 6.4 8

Customer-facing Metrics:

Upside Production Flexibility42.0 10.8 10

Total Supply-Chain Management Cost9.0% 3.8% 1.2%

Cash-to-Cash Cycle Time93.6 42.7 15.4

Internal-facingMetrics:

Inventory Days of Supply 74.9 37.7 9.4

Net Asset Turns2.0 10.8 5.5

**There are between 25 30 organizations meeting the current criteria**This report uses the following Categories:

Industry: Electronic Equipment = XYZ Co.

Supply Chain Performance Versus Comparison Population

Key Perspectives

Metrics

0% - 20%

Major Opportunity

20% - 40%

Disadvantage

40% - 60%

Median

60% - 80%

Advantage

80% - 100%

Best-in-Class

Your Org.

On-Time Delivery to Request %68.8% 88.2% 87.1%

On-Time Delivery to Commit %74.7% 95.0% 94.2%

Order Fulfillment Lead Time11.0 6.4 8

Customer-facing Metrics:

Upside Production Flexibility42.0 10.8 10

Total Supply-Chain Management Cost9.0% 3.8% 1.2%

Cash-to-Cash Cycle Time93.6 42.7 15.4

Internal-facingMetrics:

Inventory Days of Supply74.9 37.7 9.4

Net Asset Turns2.0 10.8 5.5

**There are between 25 30 organizations meeting the current criteria**This report uses the following Categories:

Industry: Electronic Equipment = XYZ Co.

Quantitative Performance Scorecard

DOMINANT PRACTICESSupply Chain & IT Practices Assessment

Stage 1:Functional Focus

Stage 2: InternalIntegration

Stage 3: Cross-Enterprise

CollaborationStage 4: eClass

Functionality

P LA N S trategy

Demand Planning

Supply Planning

Demand/Supply Balancing & Decision-making

S O UR CE S t ra t eg y

Commodity & Process Management

Supplier Development / Management

Organization & Infrastructure

M A K E M a nu fa c tu r in g S t ra t eg y

Production Scheduling

Material Issue, Movement and Tracking

Manufacturing Process Control

D E LI VE R E n a bl e

Order Entry & Scheduling

Warehousing, Transportation and DeliveryInvoicing and Cash Collection

OVERALL Supply Chain Strategy

Supply Chain Performance Management

Supply Chain Processes

Supply Chain Organization

= Be st in Cla ss = Me dian = XYZ Co.

Sample Data for Illustrative Purposes Only

DOMINANT PRACTICESSupply Chain & IT Practices Assessment

Stage 1:Functional Focus

Stage 2: InternalIntegration

Stage 3: Cross-Enterprise

CollaborationStage 4: eClass

Functionality

PLA N S trategy

Demand Planning

Supply Planning

Demand/Supply Balancing & Decision-making

S O UR CE S t ra t eg y

Commodity & Process Management

Supplier Development / Management

Organization & Infrastructure

M A K E M a nu fa c tu r in g S t ra t eg y

Production Scheduling

Material Issue, Movement and Tracking

Manufacturing Process Control

D E LI VE R E n ab l e

Order Entry & Scheduling

Warehousing, Transportation and Delivery

Invoicing and Cash Collection

OVERALL Supply Chain Strategy

Supply Chain Performance Management

Supply Chain Processes

Supply Chain Organization

= Be st in Cla ss = Me dia n = XYZ Co.

Sample Data for Illustrative Purposes Only

Qualitative Practice and IT Assessment

Notional examples for illustrative purposes only

Practice Maturity Enables Performance Improvement

Notional Data

Notional Data


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Discrete supplychain processesand data flowswe ll

documented andunderstood

Resourcesmanaged atdepartmentlevel andperformancemeasured atfunctional level

Stage 2:

InternalIntegrati

onStage 1:Functional Focus

Company-wideprocess anddata modelcontinuouslymeasured atthe company,process, anddiagnosticlevels

Resourcesmanaged atboth functionaland cross-functionallevels

Strategicpartnersthroughout theglobal supplychaincollaborate to:

Identify jointbusinessobjectivesand actionplans

Enforcecommonprocessesand datasharing

Define,monitor,and react to

erformance

IT andeBusinesssolutionsenable acollaborativesupply chainstrategy that:

Alignsparticipatingcompaniesbusinessobjectivesandassociated

processes Results in

real-timeplanning,decision-making, andexecution of supply chainresponses tocustomer

Stage 3:ExternalIntegrati

on

Stage 4:Cross-

EnterpriseCollaboratio

n

Understanding stage of maturity helps move toward world-class performance levels

Early Stage Mature


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Results in brief

PBL Supply Chains vs. traditional aerospaceand industrial (A&I) supply chains

Have lower costs as a percent of revenue

Exhibit more mature practices

Are challenged by customer speed requirements

Cost performance and practice maturity arehighly correlated

Opportunities for improvement abound

Sharing general results

Survey sponsorsreceive more specificfeedback

Individual participantsanonymous due to non-disclosure agreements

Detailed individualfeedback to participants

Survey responses indicate that A&D PBL supply chainsare demonstrating superior performance in most areas


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Survey participants describe significantly more maturepractices than similar A&I supply chains

1.5

2

2.5

3

3.5

4

P r a c

t i c e

M a t u r i

t y S c o r e

( 1 - 4

)

S t r a t e g y

D e m a

n d P l a n n

i n g

S u p p

l y P l a n

n i n g

/ S u p p

l y B a l a

n c i n g

E n a b l e

n t r y &

S c h e

d u l i n g

S . C . P

r o c e s s

e s

T r a n s

. & D e l i v e

r y

S . C .

O r g .

Current Practices and IT Assessment

Survey Participants A&I Supply ChainsPBLs haverelatively moremature planningprocesses andSupply Chainorganizations

Order managementis the only areawhere PBLs trailthe rest of industry

4 = Collaborative3 = External Integration2 = Internal Integration1 = Functional Focus


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1.5

2

2.5

3

3.5

4

P r a c

t i c e

M a

t u r i

t y S c o r e

( 1 - 4

)

S t r a t e

g y

D e m a

n d P l a n n

i n g

S u p p

l y P l a n

n i n g

/ S u p p

l y B a l a

n c i n g

E n a b l e

n t r y &

S c h e

d u l i n g

S . C . P

r o c e s s

e s

T r a n s

. & D e l i v e

Emerging Practices and IT Assessmen

Survey Participants A&I Supply Chains

Survey participants are targeting more mature practices thansimilar A&I supply chains

PBLs are satisfiedwith order andsupply chainprocesses and do notplan to growth inthese areas

PBLs want to createvery maturedistributioncapabilities andSupply Chainorganizations

4 = Collaborative3 = External Integration2 = Internal Integration1 = Functional Focus


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PBLs out-perform A&I supply chains on cost,but encounter high customer expectations

0%10%20%30%40%50%60%70%80%90%

100%

On TimeDelivery to

Request

On TimeDelivery to

Commit

Survey ParticipantsA&I Supply Chains

0%

10%20%30%

40%

50%60%

70%80%

Supply-Chain

Mgmt Costas % of

Revenue

COGS as %

of Revenue

Survey ParticipantsA&I Supply Chains

Note: Other A&D Supply Chain assessments from PRTM historical benchmarking database

Speed Gap Cost AdvantageHigh customer expectations


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More mature practices have 42% lower supply managementcosts

Supply ChainManagement Costas a % of Revenue

Top Performing Supply Chains

Most Mature Practices

Practice Maturity

Top PerformersAll Others

InternalIntegration

ExternalIntegration

+

86%Overla

p


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Participants see Government as less keen on more maturePBLs

4%8% 10%

19%15%

32%27%

23%

43%

0%

10%

20%

30%

40%

50%

Desired PBL Contract Type Mix(as viewed by participants)

Industry Government

Participants were asked to describe both their & the governments ideal mix of PBL contracts


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Participants view Government acceptance as the primarybarrier to accelerating use and maturity of PBLs

When asked to rank the top 6 barriers to accelerating use of PBLS

(1 = most important; 6 = least important)

71% Ranked education of Government employees as number 1 or 2

57% Ranked multi-year funding as priority 1 or 2

0% Ranked education of industry employees as number 1 or 2

100% of participants said industry is more willingthan Government to use Mission Assurance PBLs !


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The study confirms known PBL challenges

Observed Examples

Payment and incentives are not well alignedto outcomesLots of metrics, often not tied to payment

PBL with 5 different performancemetrics, but only one used asbasis of payment

Government owns, but industry managesinventory

No incentive to right size inventory


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PBL contract revenue

2% 0%

40%

29%

6%

24%

52%47%

0% 0%0%

10%

20%

30%

40%

50%

60%

No Stage Stage 1 Stage 2 Stage 3 Stage 4

Revenue Classified by PBL Contract TypeNumber of Contracts by PBL Type

PBLs accounted for ~35% of the participants total revenue

Relative AnnualValue per PBL by

Type

S t a g

e 1

S t a g

e 2

S t a g

e 3


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Maturity classification vs. payment

Evaluation of PBL MaturityBased on Payment Basis

0%18%

29%

53%

0%10%20%30%40%50%60%70%80%90%

100%

S t a g e 1

S t a g e 2

S t a g e 3

S t a g e 4

PBL Maturity Based on ReportedContract Type

47%

24%

29%

0%

0%

10%20%30%40%50%60%70%80%90%

100%

S t a g e 1

S t a g e 2

S t a g e 3

S t a g e 4More than 50% of PBLs saw themselves as more mature by one

stage than what the payment basis would suggest


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The case for inventory ownership

PBL Inventor Ownership

>90


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Average PBL life is only five years, even with options

Survey Respondent PBLBase Contract Length

(in years)

0% 20% 40% 60%

0

1

2-3

4-5

Survey Respondent PBLOption Length

(in years)

0% 20% 40% 60%

0

1

2-3

4-5 AverageBase

~3.2 years

AverageOption

~1.9 years

Short option periods discourage continuous improvement


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Contract lengths are often too short to create an incentive for industry to invest to create greater value

C o s

t

Traditional vs. Performance-Based Contract

Providers profitsare higher (Areabetween the linesis bigger with PBL)

Total Cost for the Governmentis lower

Investmentto improvereliability

TermTraditional Govt Cost PBL Govt Cost

PBL Industry CostTraditional Industry CostIndustry Profit

Average PBLBase Period

Term- 3 yrs

I n v e s t m e n t

R e c o v e r y P e r i o d

Time creates incentives to invest to reduce costs

Obsolescence mayoffset some costimprovementsanticipated at renewal


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More value available

Government is missing the opportunity to unlock more valuein terms of weapons system performance and life cycle costs

53%

18%

0%

10%

20%

30%40%

50%

60%

% Reported as Stage 3% Reported with Inventory, Configuration, & Repair

Only a third of the reportedstage 3 PBLs were

responsible for the major value-chain activity drivers of

operational availability


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S h i i d li i h h f


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Synchronizing and aligning the tenets to the performanceobjective desired creates value for industry and the warfighter

The PBL MaturityFramework provides a wayto break down a PBL into

its critical parts andA-B: Alignment valuecreation

A-C: Scope value creation

A-D: Scope & alignmentvalue creation

Alignment

Performance Objective

Delivery Speed

Operational Availability

Material Availability

Mission Assurance

Stage 1 Stage 2 Stage 3 Stage 4

SharedSharedValue CreationValue Creation




PerformancePerformance

IncentivesIncentives

PerformaPerformancence

IncentiveIncentivess

PerformancePerformanceIncentivesIncentives

PerformancePerformanceIncentivesIncentives PerformancePerformance

PeriodPeriodPerformancePerformancePeriodPeriodPerformancePerformance

PeriodPeriodPerformaPerformancence

PeriodPeriod

Payment BasisPayment BasisPayment BasisPayment Basis

Payment BasisPayment BasisPayment BasisPayment Basis

Value-ChainValue-ChainOwnershipOwnership

Value-ChainValue-ChainOwnershipOwnership

Value-ChainValue-Chain

OwnershipOwnership

Value-ChainValue-Chain

OwnershipOwnershipValue Scope

V al u

e C r e

a t i on

A C

D

B

Changing the objective creates more potential value, greater value is not automatic

B th g t d i d t h g t t iti t


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Both government and industry have great opportunities toimprove future performance-based relationships

Govt IndustryAlignment

Train contracts personnel on PBL concepts and metrics All payments must be tied to desired performance metricLeadership must continue to push for more mature PBLs Stage 1s should be challenged

Inventory

Use working groups to create collaborative inventory models Longer partnershipsCreate incentives for continuous performance and costimprovements in base and option periodsPrice option year risk when longer periods are needed to

recoup investmentsValue-ChainTransfer authority & responsibility industry must control allthe necessary levers to maximize value and performance

FINLEY_Aerospace and Defense PBL Bench Marking Results for AIA PSC 2005 (3)

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