In this final installment of a quick look inside supply chain cost cutting opportunities within the US Department of Defense (DoD), we feature the commentary of Bill Angeloni, former CEO of Exostar, an A&D marketplace that serves as a supply chain shared service for many of the largest global defense contractors. After I pointed Bill in the direction of the article to get his feedback and ideas, he told me that he agreed with most of the conclusions. Indeed, DoD has been contracting with private sector companies to provide more and more of the maintenance, but over shorter-term contracts. Bill went on to say "many of these contracts don't have a lot of incentives for contractors to drive down costs, so oftentimes they are overlooked in place of ensuring that operational metrics are being met, which are obviously important, but forgo the ability to drive down cost."
In addition, he notes "The deferred maintenance problem has been a known quantity for years. We were talking about this in 2005 already, and virtually nothing has changed. Given the combination of increased operating tempo (optempo) for a sustained period (I don't think we've seen this since WWII), and the decrease in modernization spending, it's put huge amounts of equipment into needing increasing maintenance...duct tape and baling wire only work so long!"
What's the solution? Or at least an approach worth taking? Bill proffers that he's "always thought DoD could be a little more creative. Defense contractors want sustained operations so they can better plan and optimize the many elements they require to run their business. A three-year contract with a couple option years does not really give them much incentive. Why not contract with them to take cost out AND measure operational objectives? If they hit the numbers, their contract is automatically extended for another year or two; and that's done evergreen. It may artificially prop up the first year cost of the contract, but not if the defense acquisition guys are on top of it."
Taking a service-level driven and supplier performance management approach to defense contracting would mirror many of the best practices we've seen in the BPO and outsourcing market. And it would not come a moment too soon.
Spend Matters would like to thank Raj Sharma and Bill Angeloni for sharing their views on the topic..