1999 Speeches

James C. Restelli

President, Military Aerospace Support

The Boeing Company

"Hard Realities: Transforming Defense Logistics"

DoD Maintenance Symposium

St. Louis, Mo.

November 16, 1999

Thank you, and good morning ladies and gentlemen. Welcome to St. Louis!

On behalf of those of us from The Boeing Company in St. Louis, we are delighted you're here in our city. I hope you'll take advantage of some of the tours of our Boeing operations we have available for you tomorrow.

Bob [Mason] and Roger [Kallock], welcome to St. Louis as well. We've shared the podium numerous times over the past year or two, and I'm glad we have the chance to do it again here in St. Louis. I'm sure we will once again find we share similar views with regard to what we in industry and government need to focus on to support the defense needs of this country.

It's an honor for all of us in St. Louis to host an important gathering like this DoD Maintenance Symposium. The agenda is full of opportunities for information exchange in support of the symposium's theme: "Transforming Maintenance with Technology." Effective development and timely application of the technological improvements that are so rapidly becoming available is clearly essential to providing faster, better, cheaper support of our warfighters.

This morning I want to offer my views on a number of overarching hard realities with which we are all dealing to support and sustain the defense products of this country.

In turn, I have a number of "imperatives for change" that I suggest we need to understand and embrace to drive the current environment to more efficient and effective levels of performance.

The hard reality for all of us in government and industry is that there are fewer budget dollars for sustainment and modernization of our military defense products, notwithstanding ever-increasing demands.

This is a time for creativity and initiative... Perhaps we can learn from a story I recently heard about the creativity and initiative of a matronly lady in New York.

The story has it an elderly woman walked into one of the major banks in New York City and sought out one of the bank's senior loan officers. She told him she was leaving for Europe on vacation later that day and needed to borrow $5,000.

Surprised, the loan officer told the lady her request was highly unusual, and that the bank certainly would need collateral to make the loan that quickly. She replied that was not a problem in that she had her Rolls-Royce double-parked outside the bank and the bank could keep it until she returned and repaid the loan. The loan officer walked to the door, and sure enough, there was a magnificent Rolls-Royce parked outside.

Recognizing the value of the collateral she offered, the banker filled out the loan papers, cut the woman a check for $5,000 and immediately cashed it. She took the cash, gave him the keys and left in a taxi for the airport, after which he immediately had one of his staff put the Rolls in the bank's parking garage.

A week later, the woman returned to the bank, sought out the same senior loan officer and provided him with her check for the $5,000 principal and $15 in interest.

The banker thanked the lady for her business and said, "Your request for a $5,000 loan was so unusual that, quite frankly, I did a little checking up on you while you were away. I found out that you are one of the wealthiest women in New York City. Why on earth would you need to borrow $5,000 for just one week?"

"It's quite simple, young man," the woman answered. "Where else can you park for a week in New York City for only $15?"

Clearly she was creative and dealt with the realities of living and parking in New York City!

The hard realities I want to discuss today, however, are more serious. They involve financial and process challenges to operational readiness, ever-increasing costs of ownership and, in my opinion, a continuing "state of denial" that radical change is required.

The military logistics system has more than a $185 billion annual price tag -- more than double the total military budgets of European countries.

The infrastructure of our logistics system in many cases maintains the operating processes and related technologies of the Cold-War era. We are eager to talk about the need for change and streamlining our logistics system, but tentative in the actions we are willing to take to make change a reality.

Let's talk about some facts.

First, according to a report published by the Business Executives for National Security organization, the Department of Defense estimates it will have to add between $4 billion and $5 billion to the operations and support budget over the next five years in order to fund the ever-increasing costs of ownership necessary to maintain current readiness levels. In a fixed top budget line context, that roughly equates to the loss of an entire wing of modern fighter aircraft.

Second, with the 30 percent reduction in DoD budget authority that has occurred over the last 10 years, sustainment of older military aircraft is planned well into the next century.

The KC-135 is expected to remain in service with the Air Force beyond the year 2030, more than 75 years since that model-type made its first flight.

The T-38 Talon, which first flew in 1959, is expected to continue to train Air Force pilots until the year 2040, thanks in part to a Boeing avionics upgrade program.

And as recent trade and service publications have reported, the venerable B-52 is expected to outlast both of its successors --the B-1 and B-2 - in terms of maintaining a minimum operational fleet size.

The required upgrade, maintenance and modification of fielded systems to allow them to perform effectively and reliably over these extended service lives are not insignificant investments. Thus, there is a mandate for faster, better, cheaper solutions to our logistics sustainment needs.

Another fact: Over the past 10 years, the budget for procurement of new systems has decreased by 50 percent, while operation and maintenance funds have decreased by a relatively minor 13 percent. Clearly, this represents a shift in emphasis.

Accepting these realities - -dramatically lower defense budget levels, a shift from products to services, and the mandate to sustain existing systems over long periods of time - -generates the $64,000 question:

How do we respond to the need for revolutionary changes to our respective government and industry roles to become complementary to each other in responding to the required changes?

In fact, Dr. Gansler stated it perfectly in one of his speeches.

He said, and I quote: "The DoD logistics system must be dramatically transformed. It costs far too much, takes far too many people, and doesn't provide the desired performance -- in terms of readiness, responsiveness or sustainment. World-class companies have demonstrated that similar tasks can be done at significantly lower costs, with significantly fewer people, and with dramatically better performance."

Ladies and gentlemen, let me suggest to you that we collectively must become world-class.

Let me outline a few of what I believe are "imperatives for change" that must be addressed if we are to achieve the logistics transformation that Dr. Gansler and others advocate.

First, in my opinion, we must re-engineer our logistics sustainment template for the weapon system platforms we have in service. I believe this starts by defining what I characterize as the essential "mission retention" competencies that must be retained within the military infrastructure for security reasons or operational effectiveness.

We need to deal with the issue of "core" and define the essential mission competencies, whether they are in logistics systems, depot maintenance, or operational support areas.

Clearly there are areas where the military services need dedicated people, facilities, processes and tools focused on critical defense mission needs. The support and staffing of our nation's strategic systems is an obvious example. However, I maintain that repair of landing gear and composite structures is not inherently a competency that the services need to maintain, and invest in, to achieve their missions.

Some tough questions need to be asked, and some tough decisions made.

A visionary road map must be structured of the support infrastructure of the future so we can collaborate on where we in industry appropriately play a complementary role in supporting the government and the warfighter.

This will enable the collective energies, competencies and resources of industry and the Department of Defense to be focused and complementary, rather than duplicative and, in many cases, competitive.

Industry should not be competing with government. We in industry want to invest our resources and our critical personnel skills in those areas in which we can be preeminent, and partner with our government colleagues to assure that the warfighter is provided with what is required, when it is required.

This leads to my second imperative. We must optimize public/private partnerships and focus our respective competencies on collaborating to meet mission sustainment requirements and eliminating costly redundancies.

Here's another reality to think about: There are more than 3 million people in our country's active duty and reserve armed forces, and in civilian DoD jobs. The DoD estimates there are twice as many people in uniform involved in logistics as there are warfighters in command or combat roles.

Further, there are about 100 separate DoD operating facilities focused on supporting the warfighter and defense systems.

Now, add the more than 2 million employees working in the defense-related industry deployed throughout some 100 operating facilities.

I don't think it takes a leap of faith to believe that among 5 million government and industry people and some 200 operating sites, there are bound to be redundancies, and in turn opportunities for synergy.

We have a choice to make: We can continue to operate as we are and ignore current levels of total ownership costs, or we can collaborate to define and implement ways to capture efficiencies and reduce total ownership costs.

We should apply a simple criterion: Required competencies should reside with the government or industry provider who is committed to preeminence in that competency ... committed to investing in the critical skills in personnel, including training, and providing the requisite financial resources necessary to be preeminent. Second best isn't good enough!

Public/private partnerships are powerful tools, but implementing them requires from all of us in the public and private sectors a willingness to shift paradigms.

As an example, the Air Force estimates taxpayers will save about $650 million as a result of industry's partnership with the Ogden Air Logistics Center for the workload transferred from McClellan Air Force Base in Sacramento, California. That public/private partnership brought complementary interests of both parties together, resulting in a 30 percent reduction in the customer cost of ownership.

Now let's turn to my third "imperative for change":

Once we are clear on the role industry can play, I believe we must transition to innovative performance-based contracting. We must transition to contracting for the " what ," not the " how ." In return, industry must provide weapon-system performance guarantees and tie financial rewards to performance.

When performance-based contracting is coupled with the flexibility provided by seamless funding - which allows, for example, the trading of repair and spares costs against engineering changes that produce long-term reliability and cost benefits, the end result is improved readiness with significant cost-of-ownership reductions.

What I've said up to this point is:

If we can successfully work through that process, then I believe we can drive reduced total ownership costs by taking another step, by implementing innovative, integrated life-cycle customer support, or LCCS, solutions to both fielded systems as well as those coming in the future.

We in the aerospace defense industry need to be offering support solutions that move up the value chain, much like what is available in the commercial aircraft sector.

Our traditional ways of providing defense support have been largely dysfunctional through separate and non-integrated requirements and acquisition silos.

As we move through the value-chain progression, which begins with traditional, stand-alone products and services, the benefit in customer value increases, recognizing the increase in customer investments. Moving to life-cycle customer support solutions must be founded on trust between government and industry and a collaborative partnering of interests in support of the warfighter's needs.

What is the true benefit of life-cycle customer support? One word: Accountability. Total life-cycle customer support puts singular accountability on one organization for system sustainment. One entity has the accountability and responsibility to get the warfighter what is needed, when it is needed.

That contrasts with the traditional, silo-based approach to support we just discussed, which is largely transaction-based with multiple points of accountability.

Let me draw an analogy between moving to life-cycle customer support solutions and the way design, development and production of new aircraft has transitioned. Until fairly recently, the aerospace industry generally began the aircraft development process with engineers producing a design optimized for system performance.

Again, working in silos, production operations became involved after the designers had done their work. Their challenge was to figure out how to build what the designer had come up with.

And generally further down the development phase, the logisticians had to develop the means to maintain and support whatever came out of the design.

Today there are some very high-performing systems out there that were very hard to build and are difficult to maintain.

It is a very different world now. We transitioned to Integrated Product Development because we realized the process was not integrated, thus cycle time, cost and even quality were jeopardized. In the new designs, such as the Joint Strike Fighter, integrated product teams address producibility, maintainability and supportability from the very earliest stages of development.

Philosophically, I believe this transition to an integrated process is what we need to do in supporting all products -- both existing and new. As an aspect of Integrated Product Development, we need Integrated Product Supportability, and I would suggest that is what life-cycle customer support truly is - an integrated process with singular accountability.

Let me speak a little more in depth about life-cycle customer support.

I would suggest to you that there are eight overarching enablers to effective, innovative total life-cycle customer support solutions. Embedded in them are key elements of logistics modernization as well as fundamental acquisition reform.

First, performance-based contracting, as I previously mentioned, allows providers to look for cost of ownership reductions by not being burdened by prescriptive "how-to" requirements, but instead being incentivized by performance-based business structures.

Secondly, supply chain and materiel management processes offer increased materiel availability, thus improving readiness, while driving down cost of ownership by precluding obsolete inventories and reducing the logistics footprint.

Thirdly, maintenance and repair services provide comprehensive full-life support of a platform, focused on world-class, cycle-time improvements based on linkages with supply systems and ready-access of required assets.

Fourth, data and integrated data management integrates single-database information in innovative, electronic, interactive media format providing usable information instantly to the maintainer, where and when needed.

Fifth, training, training systems and support equipment deploy technology, enabling affordable and effective learning to guarantee "ready-to-fight" students, in devices always concurrent with the actual weapons systems.

Sixth, reliability-based analysis and in-service engineering provides "closed-loop" accountability for supportability improvements driven by enhanced trend analyses, and total access to design and manufacturing data bases and resources.

Seventh, modification and maintenance overhaul focuses on fast cycle-time, affordable cost and preeminent quality by using specialized facilities founded on public/private partnerships.

And finally, configuration management transitions design authority and focuses on the "what," thus providing the agility to introduce technological improvements that greatly enhance system performance and reduce cost.

In sum these enablers result in an overarching, integrated LCCS approach that offers program manager visibility and focused accountability for the total ownership costs associated with a weapon system. The content of each and the degree to which each is implemented must be tailored to each product-specific opportunity.

The Air Force Flexible Sustainment program for support of the C-17 airlifter is a great example of this. While Flex Sustainment does not at the moment deploy all of the eight enablers I just spoke of, it does include an integrated package of support elements, including program management, sustaining logistics, spares management, sustaining engineering, and aircraft modification responsibility.

The contract structure implements streamlined processes to reduce cost and cycle time, as well as enabling innovative technology insertion, all in a balanced incentive structure that rewards based on performance. To date, C-17 readiness exceeds every Air Force expectation and metric, and the reduction in program cost has earned exceptional incentive rewards.

Another interesting example is the Total System Performance Responsibility program for the F-117 stealth aircraft. This contract is structured, similar to C-17 Flexible Sustainment, with performance incentives that reward the contractor to meet or exceed readiness objectives while reducing costs, ultimately lowering total cost of ownership.

The contractor in this case acts as an "extended System Program Office," in partnership with the Air Force Program Office staff that is 10 percent of the staffing level prior to the program implementation. The Air Force projects the F-117 program will save 8 to 10 percent per year versus the previous program funding plan.

Another great LCCS example is contractor logistics support of the Navy's T-45 Training Systems at Kingsville, Texas, and Meridian, Mississippi.

Under this contract, the industry provides full support of these training assets, essentially requiring the Navy to provide the instructor pilot and student to fulfill its mission. The contractor -- Boeing, in this case -- ensures that aircraft are ready, training devices and courseware materials are current and available, and spare parts are available where they are needed.

Through this integrated LCCS approach, the cost per flight hour for the Navy's T-45 fleet will be reduced by almost 40 percent, a significant cost of ownership reduction.

I'm sure you will agree paradigms are changing. The process of collaborating, partnering and moving more innovatively to total program support solutions has started.

At the end of the day, success will only be measured as we streamline the process of providing system readiness by capturing the lower costs of ownership resulting from these supportability innovations.

The objective of LCCS is simple: Reduced total ownership cost on any given weapon system.

Lastly in my list of "imperatives for change" is this:

We must obtain governmental support and flexibility. Saying it more directly, Congress needs to realize lower defense budgets and ever-increasing needs will demand reductions in government and industry infrastructures. Political interests must be balanced with military and business realities.

I contend that in almost every case, jobs are jobs, whether with industry or in government service. Either source of jobs is beneficial to the affected communities of congressional interest.

There are those who would assert that growth in jobs is potentially greater through private industry due to greater sources of commercial opportunities than are currently available under government rules and regulations.

In closing, I believe dealing with these five imperatives for change that I have identified can have a significant impact on bringing forth real logistics transformation. It will be an arduous task, as many of the key champions, like Dr. Gansler and you, Roger, know from your efforts to date.

It is essential that we continue to bring passion to the need for change. We must deal with the constraints to change, both real and perceived, if we are to judiciously "shepherd" the limited budget dollars available to assure our warfighters have what they need, when they need it.

We must remember that all of us in this room are part of a larger process, a continuum that is focused on the success of the end user, the warfighter. We are not an end unto ourselves!

I urge all of you to take home to your respective organizations the benefits of this symposium, passionately apply your energies, think innovatively and push for change. This is a great forum for access to technology and innovation.

The challenge for all of us in government and industry and, in turn, our opportunity, is to collaborate, partner, then undertake the actions which will deliver needed, modernized systems and support services to our warfighters ... faster, better, cheaper.

Thank you.