Performance-based logistics can be a complicated and expensive business. The logistics industry is in the midst of a major transformation. Traditionally, the logistics industry has been focused on cost and efficiency, not performance. Companies are looking for new ways to reduce their carbon footprint, improve customer satisfaction and increase productivity.
What Is Performance-Based Logistics?
Performance-based logistics is an innovative performance-based contract that was created in 1992 to improve the performance of military equipment by shifting away from the traditional “fix-it” approach.
It describes itself as a performance-based acquisition strategy that reduces costs, provides performance-based logistics services, and enhances performance across the weapon systems life cycle.
Performance-based logistics has four main components to include performance requirements, performance measures, performance data, and performance reports.
Performance requirements are the performance standards that support the performance-based logistics strategy. Performance measures are created based on performance requirements to aid in making decisions for trade-offs between performance, logistics performance, and cost.
Performance data is the performance measures in measurable form for analysis. Performance reports are generated based on performance data to provide performance measurement information throughout the weapon system life cycle.
How Performance-Based Logistics Works
Contractors work with the military to define performance requirements that address reliability, maintainability, availability, reproducibility, performance in degraded conditions, performance variability, and performance at the system level.
Performance measures are created based on performance requirements that can be used to analyze results. Performance data is performance measures in measurable form for analysis. Outcomes of performance reports are used to determine necessary changes in performance requirements or performance measures.
What Does Performance-Based Logistics Provide?
The performance-based contract is a performance-based doctrine for managing performance throughout the life of equipment, through performance-based logistics services.
This includes support equipment and systems which require continuous availability under all circumstances. These included facilities, training, total asset visibility programs, Test, Measurement and Diagnostic Equipment (TMDE) and defined metrics for measuring program performance.
Performance-based logistics has helped to define performance standards and reduce costs in the long run, but its performance can hampered by a lack of service performance information or performance standard in key mission areas such as corrosion prevention and mitigation.
Why Does It Matter To Supply Chain Management?
A performance-based logistics contract can help lower supply chain inefficiencies and improve performance. The performance standards provide a level of performance that needs to be met at all times, reducing the amount of variation from performance measures.
In the public sector, performance-based logistics contracts aim to create a process for technology transition from military services to commercial companies.
Performance-based logistics is important for supply chain managers because it enables them to operate with performance contracts, instead of purchase contracts.
Purchase contracts are when the supplier provides materials at a scheduled time and location.
Performance contracts are when performance thresholds exist both within the supplier and customer, leading to performance-based performance. Successful performance results in payment incentives or penalties for either party, which is not the case with a purchase contract.
Why Do Performance-Based Logistics Matter?
Military equipment requires a performance-based system of support due to the performance requirements of the performance standards.
Performance standards define performance requirements that performance-based logistics will help optimize. Optimum performance standards vary from platform to platform, but performance-based logistics can be applied to any performance standard. To maximize the performance and availability of the equipment, a performance-based system is needed.
MIL-STD-1399 is one of many performance standards used by performance-based logistics. MIL-STD-1399 outlines performance requirements for performance-based logistics to ensure it is used appropriately, including the following:
- Provisions must be made to protect materials having performance-degrading properties (e.g., certain plastics, rubber items susceptible to ultraviolet light, magnesium alloys susceptible to corrosion).
- A performance-degrading effect on system performance shall not be introduced into the logistics support process.
- The performance degradation associated with the repair or replacement of performance-degrading components must be considered when planning maintenance actions.
Although performance standards are many, performance-based logistics applies to any performance standard.
How Can You Implement A PBL Strategy In Your Company?
PBL is an approach in which the performance of the logistics chain (and its pieces) is based on defined performance goals. The performance goals are agreed to between performance partners (e.g., military, lead service, supplier) and are based on how performance will be measured.
This approach differs from traditional logistics where performance is judged by inspecting products at the time of receipt or through random sampling of the inventory. PBL requires performance agreements made before performance events involving performance partners that are responsible for performance.
PBL performance measures are typically associated with performance metrics that quantify performance goals; performance metrics can be used to monitor performance or compare performance against pre-agreed targets.
Common performance metrics associated with performance goals include delivery on time, the number of service events, the number of corrective/preventive actions, inventory accuracy, and availability, and performance-based performance metrics such as fill rates, uptime, and operating performance.
PBL provides incentives for performance partners to meet performance goals by giving performance partners the flexibility to work together in fulfilling performance obligations. There is no incentive for poor performance because it is penalized through reduced financial rewards or penalty payments.
Challenges And Benefits Of Implementing A PBL Strategy
There are both challenges and benefits for performance partners implementing performance-based logistics.
The first challenge is that performance agreements must be set up and performance metrics defined. If performance agreements and performance metrics have not been previously established, they should be identified to ensure performance goals can be met.
Another challenge with performance-based logistics is that the logistics performance information systems may not be able to maintain performance data for performance metrics. This might be due to performance metric calculation methods, performance data collection processes, or performance data analysis methods.
Benefits of performance-based logistics include improved customer satisfaction and reduced total life-cycle costs (TLC).
Customer satisfaction is increased because the service levels are improved as performance goals are met. TLC is reduced because performance partners collaborate on performance measures that reduce total system performance degradation through improved logistics processes and performance initiatives.
What Are The Best Practices For Implementing A PBL Strategy?
Performance partners need to be performance-oriented and recognize the value of performance. Performance-oriented performance partners will seek performance goals that can be measured, understand performance metrics, maintain performance data, and use performance information systems.
There are several best practices for performance-based logistics:
- Perform a PBL readiness assessment—identify factors such as performance requirements, performance agreements, performance metrics, performance data collection processes, performance information systems, performance results reporting mechanisms, etc.
- Perform a PBL gap analysis/identify gaps (i.e., weaknesses or opportunities for improvement) between performance goals and performance agreements
- Develop a Stage-Gate process to implement performance initiatives—include the following: performance plan, performance measurement and performance reporting, performance feedback mechanisms, performance improvement initiatives.
- Develop performance work instructions—document process, roles, and responsibilities.
Performance management is the foundation of performance-based logistics. Performance management includes establishing performance agreements that identify what is to be done (performance goals) by whom (performance partners), when it will be done (performance schedule), how it will be measured (performance metrics), and performance feedback (performance reporting).
The Future Of Performance-Based Logistics
Performance-based logistics is the future of performance management. Government performance initiatives are driven by performance goals, performance metrics, performance data collection processes, performance information systems, and performance results reporting mechanisms. The goal is to always improve system availability while minimizing cost and logistics footprint.
We believe that performance-based logistics can help companies achieve all these goals at once by providing exceptional service through an innovative approach to supply chain management. The only way to win in this competitive market is to be the most efficient logistics provider your customers have ever seen.
We combine technology, data science, and operational expertise to deliver real-time visibility across your entire network while optimizing every element of your supply chain from order fulfillment down to last-mile delivery.
By leveraging our end-to-end platform you will be able to optimize resource utilization, minimize cost per unit shipped, and reduce transportation emissions with minimal disruption or change in processes for customers or carriers alike.
Performance-based logistics support from CSMI gives you the tools you need to deliver outstanding customer service, with real-time visibility into the performance of your technical operations and assets in near real time.
Contact CSMI today if you need help with your performance based logistics, we’d be honored to partner with you!