Dr. E. David Spong
President, Military Aerospace Support
The Boeing Company
"Military Privatization: Opportunities for the Future"
Aviation Week & Space Technology Maintenance, Repair and Overhaul Conference
April 10, 2002
It's a pleasure to be here this morning. I appreciate this opportunity to discuss military privatization because it is a timely and important topic. As our world has changed in the past year, so have our collective views of privatization. How do we privatize? Why do we privatize?
The major reason for privatization is to get the same result for less. In the mid-80s and early 90s, industry was busy defining their core skills and outsourcing those things that were not core.
A good example of this was the outsourcing of dining room and food services. In our industry, we were paying aerospace-type wages and benefits to obtain food services, when the food-service industry offered them at a much reduced cost!
Today, it is difficult to find an aerospace company operating an in-house dining room, yet the food service is at least as good, or better, than when we did it ourselves. And I can attest to that fact!
In essence, industry outsourcing is nothing more than allowing the market to determine the value of a product or service.
On the government side, the United States Air Force experienced depot maintenance privatization in the mid- to late-1990s, during the closure of the Sacramento and San Antonio Air Logistics Centers.
Through a long process with many course changes and "lessons learned," today we are part of both of those privatization efforts. We are a major tenant at the former Kelly Air Force Base, which is the home to our Boeing Aerospace Support Center. We stood up this operation in 1998 as our center for large military aircraft maintenance and modification. Today it employs 2,300 people and has serviced and delivered almost 550 aircraft.
One of the three programs currently at the center came from the privatization efforts of the Sacramento Air Logistics Center. Our KC-135 Programmed Depot Maintenance work was brought to San Antonio through a public/private partnership with the Ogden Air Logistics Center, where we competed as a team for the workload at McClellan.
While those examples both have been successful in their own right, they both were driven by the same initiative: BRAC. You can argue this is a much different dynamic than industry outsourcing because it was imposed on the ALCs, rather than solely getting "more for less."
I believe we are going to see a significant expansion in the types of military privatization opportunities, for reasons more varied than infrastructure reduction. Supply-chain privatization is one example. Senior Government officials are asking themselves the following questions:
- What would it take to upgrade all the information systems related to supply-chain management within DoD?
- Why do our supply-chain processes result in less than desired readiness rates?
- How are other industries, which are dependent on moving large numbers of parts worldwide, being successful?
- Is our commodity approach to supplying our weapon systems the best approach?
- Why are we in the business of configuration control for every part?
- Can't we obtain parts as a service?
Taking a hard look at DoD Supply Chain Management makes sense on a few levels.
- First, it makes sense to our warfighters. While our pilots and maintenance people can handle many challenges and work in harsh conditions, there are many times when you just can't work around not having a part available. Not only is lack of a part a serious issue, but lack of information about when you will get that part is just as serious. No information means you do your maintenance planning in a vacuum. Any improvement in providing required parts to the place of need will benefit the war fighter.
- Next, it makes sense to everyone in DoD who works on components of weapon systems. From flight-line backshops to Government depots, sub-assemblies and individual parts drive the repair process. Many depot shops actually stop the repair cycle time clock when they do not have a required part. They want to be judged on the part of the process they control, and they do not control the availability of many of the parts they need for repair!
- Third, it makes sense for the agencies that budget for parts
. Today, there is little confidence in the supply-chain management planning process. Parts budgets are submitted up the line and are almost routinely cut. The cuts are then distributed in a uniform manner for the various agencies to deal with as they see fit.
There is constant negotiation about the budget for weapon system parts. Some of this is due to various "bills," which must be paid somewhere. Some of it is due to a lack of confidence that the parts budget submitted actually represent the "no-kidding" requirement to maintain weapon systems at the desired levels.
- Review of the Supply Chain management process also makes sense from an asset ownership or inventory point of view. What can be done to get the thousands of carcasses repaired and out into the system? How much inventory is really needed? How much of it is there because the supply chain management process is antiquated?
In reviewing the supply-chain management process and looking at the opportunities for privatization, the same principles exist that exist in the aircraft maintenance business:
- There is no more money! What ever the privatization solution that will emerge must deliver the same or better support for less money.
- In addition to budget benefits, there must be benefits to the people who fight with our weapon systems.
In some ways, privatizing supply chain management will prove to be more challenging than privatizing maintenance.
You can send off an aircraft to a contractor's hangar and get it back without too many internal government process changes. In fact, performance standards and contract management agencies enforce government standards and processes on the contractor. I believe that privatizing supply-chain management will require more challenging internal government process changes, for these reasons:
- The impacts to the working capital fund processes are not trivial.
- The entire process of gathering, storing and updating parts data must be revisited.
- The parts requirements process must be overhauled to the point that those who must provide budget have faith in this process.
- DoD metrics about parts, the repair process and the output of such contracts must become standardized.
Industry has a clear mandate to play a significant role in the formation of supply-chain management privatization.
- We must be able to demonstrate that supply chain processes that work well in industry will work will in the military environment
- We must be able to accept risk. This is not only corporate risk, but personal risk for those who will be accountable.
- We have to invest in our supply chain management processes, information systems and skills.
A lot of emphasis is given today to "Performance Based Logistics," or PBL. The concept is to migrate from transaction-based contracting to receiving a service from industry. Various DoD agencies are busy making plans to migrate to PBL, or have already done so to some extent.
If we asked this audience: "What does PBL mean to you?," we would probably get more than one answer. To me, it is the beginning of a fundamental change in the way our Department of Defense will procure and support its weapons systems. Supply-chain management is key to that shift.
I offer the following thoughts regarding how we in government and industry collectively drive that fundamental change:
- We desperately need to insert accountability into supply-chain management for weapon systems. Managing thousands of commodities through dozens of agencies will not deliver to the warfighter what is needed
- Transaction-type contracts require a lot more resources to manage than contracts that require output and measure it.
- As we are finding in the aircraft maintenance business, the government and industry must partner to find the best value solution.
- And finally, privatizing supply-chain management without appropriate changes in government processes will be an exercise in frustration for all.
I believe that the United States of America stands to benefit a great deal from privatizing supply-chain management with contracts based on weapon system performance. This is the next great step in readiness enhancement. I look forward to working with you to provide our war fighters with the best value solution.
Thanks for listening.