PBL and Alternatives“Performance Based Logistics is a strategy for system support. Instead of goods and services a supplier is paid for a guaranteed level of performance and system capability. The supplier often has to guaranty the performance at lesser costs but has more control over all logistics elements. The performance is declared in Performance Based Agreements.”- Wikipedia

Performance Based Logistics can be in the commercial area of A&D or in the government/military. A quote from the 2006 Quadrennial Defense Review Report indicates the orientation of the Department of Defense regarding PBL.

“There is a growing and deep concern in the Department of Defense’s senior leadership and in the Congress about the acquisition processes. This lack of confidence results from an inability to determine accurately the true state of major acquisition programs when measured by cost, schedule and performance. The unpredictable nature of Defense programs can be traced to instabilities in the broader acquisition system. Fundamentally reshaping that system should
make the state of the Department’s major acquisition programs more predictable and result in better stewardship of the U.S. tax dollar. ”

PBL has become a strong trend among the management class of companies in the A&D environment. This paper discusses PBL and makes some educated guesses as to where PBL might be in 5 years from now.

Basis for PBL

PBL is introduced as a way to improve service levels and increase the responsibilities of supplier service parts management and in some cases service part service operations. In this way it may be viewed as a form of outsourcing where the part planning and management is moved from the client to the suppliers. In cases where the military is the customer, it can be seen as a light form of military privatization.

Supporting Case Studies

The outstanding case study for PBL in the A&D environment is Rolls Royce. While not called “PBL,” Rolls’ TotalCare engine service program is in fact a long term service contract where Rolls controls the engine service parts inventory and in a way goes beyond PBL by offering direct guidance and instruction when certain parts are due for maintenance. Rolls actively monitors over 3000 engines aggregating a strong level of service intelligence about engine maintenance. Rolls has by most accounts leveraged this capability to grow its market share, take business from larger competitors and reinforce the premium reputation of its industry leading engines.

Service Parts Planning and Project Costing

Developing a PBL contract requires more than the capability to run an advanced service parts planning system. It also requires a way to cost the PBL contract. This is so the firm can determine the profitability of each contract and can use this information to adjust future contracts. SAP Project Systems is an excellent way to cost the transactions associated with a contract. The difficulty comes in tying the specific transaction to the specific contract in question. Generally the SAP system must aggregate Stock Transport Orders, Service Orders and Purchase Orders to specific contracts and there are hierarchies to setup on the PS side in order to report properly on the contract.
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