Public Sector

Sustainment and supply base analysis for major U.S. aircraft program

A DoD agency was negotiating a two-year aircraft performance-based logistics sustainment contract. The scope included most aspects of the aircraft supply chain and product support.

The proposal submitted by the prime contractor was significantly over the targeted budget, with an expected performance metric (aircraft availability) below the program’s existing performance level. The project’s program office and the prime product support integrator had been through several negotiation rounds but were unable to successfully close the cost and performance gap.

Challenge
A.T. Kearney was engaged to help with three challenges related to the aircraft program:

Facilitate the negotiation process to close a gap that was perceived to be unbridgeable
Develop a cost improvement program and a business case analysis of several undefined product support integrator (PSI) performance based logistics sustainment alternatives
Identify significant cost savings and improve supplier relationship management, specifically in the titanium value chain, which was experiencing skyrocketing prices

Approach
A.T. Kearney was engaged late in the negotiation process between the project’s program office and the prime product support integrator. We bridged the gap and completed the negotiations on an aggressive timeline to support the desired contract signing date.

Following this negotiation effort, A.T. Kearney worked with the client to develop a cost improvement program and a business case analysis of several undefined product support integrator (PSI) performance based logistics sustainment alternatives. The team conducted an objective analysis with unprecedented evaluative rigor. The considered PSI alternatives contribute to a long-term, end-to-end weapon system sustainment approach, from 2012 to 2033. All alternatives are executable and span the spectrum of maximum organic support to 100 percent contractor logistics support.

In a parallel effort, the team conducted a supply base and titanium value chain assessment that revealed significant opportunity for savings. The radar team and landing gear team worked with their respective primes and sub-tier suppliers and manufacturers to identify cost reduction opportunities in system design, manufacturing processes, and contracting approaches. The teams conducted extensive analysis of the two supply chains and performed should-cost modeling, using advanced regression analysis.

Results
Although A.T. Kearney was engaged late in the negotiation process, we completed contract negotiations on an aggressive timeline. The success of these negotiations depended on our ability to drive change and facilitate win-win relationships between suppliers and customers, wielding diametrically opposed supply and demand power.

The cost improvement assessment identified reductions in sustainment costs: 5% for 2008 and 12% for 2009. The team was able to identify and implement cost savings others had missed because of A.T. Kearney’s expertise developed through extensive work across the Department of Defense coupled with world class commercial analysis and negotiating experience.

The teams negotiated improvements in performance targets of 8-23% through 2009, (depending on performance metric) when compared to current performance, and dramatically increased targets from the original contractor proposal. For titanium parts, potential savings are up to 30%, through material conservation, scrap value recovery, and improved parts contracting approaches.

Additionally, the deep-dive into the titanium value chain extended into the aircraft program and a cost reduction effort across all suppliers for both programs in two air vehicle major subsystems, including the landing gear and radar subsystems.