The private sector has a number of techniques, called best practices, which they routinely employ to reduce costs and boost performance. A number of these have to do with supply chain management. One of the key reasons that the globalized economy works and companies such as Walmart makes a profit while providing tens of millions of Americans with inexpensive products is because of modern supply chain management techniques. Among the commonly applied measures for reducing supply chain costs are inventory forecasting and management, end-to-end visibility and control of the supply chain, purchasing in economical quantities and control over the pace of product change.
Many of these same techniques could be applied to the defense sector. The Department of Defense (DoD) spends nearly $200 billion a year on logistics and sustainment which is the provision of goods and services to forces at home and abroad. Based on the experience of the private sector and on those cases where commercial best practices have been applied to management of the supply chain for defense goods, it could be possible to save up to 10 percent or around $20 billion a year.
One example of potential savings through good supply chain management is the ongoing sustainment of the F-22 Raptor. The last of the F-22s is expected to role off the assembly line in May. Sustaining the Raptor is a particularly problematic challenge because of the small size of the fleet and its relatively wide geographic dispersal. Up till now, Lockheed Martin has been acting as both the producer and sustainer of the F-22 fleet. It has successfully managed a subcontractor and vendor base that is relatively narrow in places and much of it highly specialized.
The Air Force typically proposes a multiple-year contract with each year after the first requiring a separate “go/no-go” decision. While this allows the service a certain flexibility, it does not permit the use of commercial best practices that save money. In addition, each renewal of the contract requires both the government and the company to spend scarce resources that could be better applied to other problems.
Lockheed Martin recently put forward a proposal to the U.S. Air Force to provide long-term sustainment for the F-22 Raptor fleet. The idea would be for the Air Force to agree on a multiyear sustainment contract. Such an arrangement would provide predictability for the contractor team, thereby allowing it to manage its workforce in the most cost-efficient manner, to order long-lead items in economical quantities, to coordinate the relationship between the private sector and the Air Logistics Center that will perform depot maintenance on the F-22 and to plan and insert new technologies to further lower sustainment costs. Lockheed Martin believes it could save up to 10 percent of the value of a contract written the old fashioned way.
In the second decade of the 21st Century, with defense spending declining but demands on the military increasing, it makes no sense for the Air Force to approach F-22 sustainment based on practices of the last century. With proper contracting safeguards, the Lockheed Martin proposed multiyear sustainment contract sounds like a win-win proposition.
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