INTO the21st Century

INTO the21st Century

A Strategy for AffordabilityA Strategy for Affordability

acquisition organization, whether it be a program officeacquiring a new system or a logistics organizationsupporting a fielded system.

To be successful, several changes are needed in DoD’smanagement, business, and technical practices. Manychanges are underway; others are just starting. We askyou, the reader, to focus on our challenge. Think aboutthe efficiencies and improvements the commercialsector is making and ask “How can we apply them?”We all must rededicate ourselves to more aggressivechange. We will make mistakes along the way. And wemay be criticized for these mistakes, but dramatic effectscan only come when we take and manage risks and beginto act more as the competitive, commercial sector does.

Our workforce is the principal source of the innovationto achieve our goals. Thus, we must provide ourworkforce with continuous education and training tomeet the challenges of the new business paradigms. Theold way of detailed government engineering andextensive technical oversight must be replaced by strong,technical management and better use of incentives.

We have already begun to achieve significant results inimproving products and lowering their cost. Thisstrategy seeks to reaffirm a close partnership across theDepartment to accelerate the process. We are activelysoliciting your help and ideas on changes needed at alllevels. (E-mail us at feedback@acq.osd.mil) We havean open door for your ideas and will support you. Allof us need to bring about a revolution in the way wedo business.

We are facing an unprecedented challenge tomodernize our forces in a world that demands

more efficient as well as more effective acquisition. Tomeet that challenge, we are engaged in the Revolutionin Business Affairs. As articulated in the DefenseReform Initiative, the key elements of the Revolutionin Business Affairs will help deliver needed, modernsystems and support services to our warfighters —better, faster, and cheaper. The goal is to provide theresources and processes for effective warfightingcapability in the next decade.

For this next phase of acquisition reform, we mustfurther adapt the best world class business and technicalpractices to our needs, rationalize our infrastructure,restructure our support systems, and reduce cycle timesand ownership costs while simultaneously improvingreadiness. The Defense Systems Affordability Council(DSAC) is our forum for setting and monitoring toplevel goals, objectives, and metrics for these areas —metrics which must be mirrored in each and every DoD

Dr. Jacques S. GanslerUnder Secretary of Defense (Acquisition &

Technology)January 20, 1999

The Deputy Secretary of Defense chartered theDefense Systems Affordability Council (DSAC)

to develop and guide the implementation of anintegrated DoD strategy for better, faster, cheapermodernization. In this leadership role, the DSAC hasenumerated three top level goals for the Department:

• Field high-quality defense products quickly; supportthem responsively.

• Lower the total ownership cost of defense products.

• Reduce the overhead cost of the acquisition andlogistics infrastructure.

The DSAC is organized to achieve these goals. It is ledby the Defense Acquisition Executive, and makesdecisions based on a consensus of its members—theService Acquisition Executives and other senior policymakers from the acquisition, logistics, comptroller,programming, and requirements communities.

These three goals interrelate in a strategic way. Theyseek to remove the barriers to change and improve theDepartment’s ability to be innovative in order toimprove readiness and accelerate modernization.

Goal 1 will reduce the cycle time of DoD processes foracquisition (including development) and support.Success will act as a catalyst for reducing costs acrossthe board while improving readiness and responsivenessto changing situations. Goal 2 will reduce the totalownership costs of systems. By reducing the investmentcost for new systems, the purchasing power ofmodernization funding will increase. By reducing theoperating and support costs for fielded systems, moreresources can be made available for modernization andreadiness. Goal 3 will reduce the overhead costs ofsystems providing acquisition and support. Efficienciesachieved can be reallocated for modernization oressential support.

Process change is needed to achieve the objectives foreach of these goals. Metrics and incentives are neededto drive change. Implementing change and measuringresults are the combined responsibility of the Office ofthe Secretary of Defense, the Services, the Joint Staff,the Defense Agencies, and industry. We have alreadybegun to achieve significant results in improving theproducts and lowering their cost. This document seeksto communicate these goals to accelerate the process.

Introduction

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The United States commercial sector hasdemonstrated an ability to develop, produce, and

service low cost, quality products in significantly lesstime than it did 10 years ago. The defense sector hasnot kept pace. Budget reductions and programinstability are often cited as the reasons, but thatexplanation avoids the fact that the defense industryneeds to make the same productivity gains achieved bythe private, commercial sector. The ability of the UnitedStates to preserve its technological advantage is at riskbecause our modernization, modification, and logisticssupport cycles are so long. Because much of thistechnology is available commercially, potentialadversaries may field it first. When DoD fields a newweapon system today, many embedded subsystems areobsolete. We cannot continue to have 10-year weaponacquisition cycles when the underlying technologybecomes obsolete in two to five years or less. Similarly,we can not afford logistic support cycles many timeslonger than the commercial counterparts. Top-levelDSAC objectives are shown below.

(1) The average systems acquisition cycle time (mea-sured from program start to initial operatingcapability) for all program starts in FY 1999 andbeyond will be 50% shorter than historicalaverages.

(2) Reduce logistics response time from an average of36 days (in FY 1997) to under 18 days by FY 2000,with a stretch target of five days by FY 2005.

(3) Reduce the repair cycle times for end items andreparable parts by 10% by FY 2000 and by 25%by FY 2001 compared to FY 1997 baselines.

Although many initiatives affect cycle time, thefollowing two initiatives will be major contributors toachieving these objectives:

• Establishing Accelerated Cycle Time Processesas the Norm: Improving the acquisition process tomake better use of evolutionary defense acquisition,integrated product and process development, modelingand simulation, and other information system

Goal #1: Field High Quality Defense ProductsQuickly; Support Them Responsively

capabilities is not sufficient. Better partnershipsinvolving users; the programming, budgeting andrequirements communities; the basic and appliedtechnology base developers; and test and evaluationcommunities are also vital. These partnerships arecrucial, not only in changing cultures, but also forproviding program stability that is essential in meetingthese objectives. When funding changes occur, it isincumbent upon the program manager, in concert withthe warfighter, to develop restructured program planswith an emphasis on maintaining schedule. Cycle timemust be “actively managed.” It must become a planningconstraint defined early in a program and enforced atall levels throughout all interacting organizations.

• Re-engineering the Logistics System: We have alogistics system that costs too much and takes too long.Advanced information systems and rapid transportationare keys to lowering cost while improving readiness andperformance. We also need to reform our inventorymanagement systems and practices (to focus onsuppliers, not supplies) and adapt commercialdistribution systems to satisfy material requirements.Commercial products today are delivered worldwidein a few days.

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Total ownership cost of a weapon systemencompasses development, production,

operations, support, and disposal. The DSAC believescosts in all ownership cost categories are too high andcan be reduced substantially if we better emulate thebest practices of the public and private sectors. Ourinitial approach is to set and achieve total ownershipcost reduction targets in a series of pilot programs.Targets will be extended to all programs and becomeincreasingly more aggressive as lessons learned areapplied across all systems. DSAC top-level objectivesare shown below:

(1) For systems in acquisition, surpass or achieve ag-gressive “Cost as an Independent Variable” unitcost and total ownership cost targets (that are 20-50% below historical norms) for at least 50% ofprograms by FY 2000.

(2) For fielded systems, reduce the logistics support costper weapon system per year compared to FY 1997baselines as follows: 7% by FY 2000; 10% by FY 2001;and a stretch target of 20% by FY 2005. The FY1997 baseline total is $82.5 billion.

In addition to the cycle time reduction activities, thefollowing important activities will contribute to achievethese objectives:

• Integrating the Civil and Military IndustrialBases: The commercial sector is using processes thathave improved product quality and customeracceptance while maintaining or lowering costs. Tocontrol its rising costs, DoD and the defense industrymust adopt the best practices of both the private andpublic sectors. We will promote the best practices fromboth the commercial and defense industries and fromthe Government (e.g., prime vendor, competitivelysourced product support, integrated supply chains,Lean Aerospace Initiative best practices and the NavyBest Manufacturing Practices). We will move from acost-based purchasing system to one based on price.We will make it more attractive for commercialcompanies to compete for DoD business, removingbarriers that discourage their participation. Acquisition

Reform initiatives, such as the elimination of militaryspecifications and use of commercial practices,processes, and items, are steps in this direction. Givingtotal systems performance responsibility to industry hasalready led to improved performance at lower cost.Giving responsibility for processes to industry throughsuch initiatives as Performance Based BusinessEnvironment, Single Process Initiative, and OpenSystems has also reduced costs further. As use of theseinitiatives is expanded, the additional competition willlead to increased performance and readiness coupledwith declining costs.

• Giving New Authorities to Program Managersof Both New and Fielded Systems: Program managers’accountability for life cycle issues can be improved byincreasing visibility into related processes, giving themeither direct control or, as a minimum, a stronginfluence over tradeoffs among research anddevelopment, acquisition, operating, and support costs.They must be held directly accountable for resourcesthey directly control. Where operational or economicconsiderations dictate sharing of resources, individualProgram Managers must be held accountable for clearand timely articulation of actions to reduce life cyclecosts of their systems. Continuing partnershipsinvolving the users, developers, and the supportestablishment will produce the best value for theavailable resources. Reducing the cost of fielded systems,while improving readiness, is an especially difficult butvery important challenge. Improving reliability andmaintainability through continuous technologyrefreshment will make major headway on reducingdemand for support. Reducing demand, however, isnot enough: we must also reduce the cost of deliveringsupport—which means smart and aggressive supportprocess re-engineering. The key to this re-engineeringis being able to optimize across functional stovepipesrather than sub-optimize within them. The programmanagers for fielded systems, using their newauthorities, are in the best position to work withfunctional managers and operating commands tocapitalize on the re-engineering opportunity.

Goal #2: Lower the Total Ownership Cost ofDefense Products

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Since the DoD budget is likely to remain essentiallyconstant for the foreseeable future, additional funds

to meet critical modernization needs cannot beanticipated. Therefore, consistent with the Department’sNational Performance Review commitments, theDSAC’s goal is to increase the funds available formodernization by almost 50 percent from recent lows($40 billion). This increase will be achieved by reducingthe requirements for logistics and other infrastructurefunds—while simultaneously maintaining capabilityand increasing readiness levels. To measure our progressin achieving this goal, the DSAC has established thefollowing objectives:

(1) Reduce the funding required by logistics (seeGoal 2, Objective 2) and other infrastructure from64% of Total Obligation Authority (in FY 1997)to the following: 62% by FY 2000; 60% by FY2001; and a stretch target of 53% by FY 2005.

(2) Achieve annual defense procurements of at least$54 billion by FY 2000 and $60 billion by FY2001.

Beyond the ownership cost initiatives articulated underGoal 2, we intend to achieve these objectives principallythrough the following activities:

• Using People and Resources Efficiently: More ofthe weapon system development, production, andsupport functions will be “competitively sourced.” TheDoD has a minimum set of functions only it canperform. Those functions—combat, policyformulation, management of resources, and oversight—must be retained. All other functions should beperformed organically only if DoD is more efficientand effective than the private sector. The United Statesprivate, commercial sector has proven itself to be verycompetitive in the world today. If we take advantage ofthese efficiencies, private and government costs can bereduced and funds can be shifted to modernization.There is no bias towards privatization. We want to usethose resources that are most efficient and effective. Asa key step in determining this, DoD will aggressively

Goal #3: Reduce the Overhead Cost of the Acquisitionand Logistics Infrastructure

pursue advanced cost management techniques used inthe commercial sector such as Activity Based Costing(ABC) and Activity Based Management (ABM).

• Reducing DoD Infrastructure: The Secretary ofDefense intends to continue to reduce the DoDinfrastructure by restructuring facilities. Retainingexcess capacity wastes resources that can be directed tomodernization. As weapon systems development,production, and support are competed, some currentcapacity will become excess.

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Meeting the DSAC top-level goals depends on thecooperation, support, and leadership of the Service

Acquisition Executives (SAEs), Deputy Chiefs of Stafffor Logistics (DCSLogs), Program Executive Officers(PEOs) and program managers (PMs), the supportingSystem and Materiel Command (SYSCOM)Commanders, the Defense Agency heads (DAHs), andevery individual in our workforce. However, theacquisition and logistics workforce cannot be successfulalone—the Joint Staff (JS) and Service requirements,programming, and budgeting communities mustcontribute. The DSAC will provide the top-levelleadership; however, it is up to every involved individualto manage and direct all of his or her activities towardthese common goals and objectives. The followingprincipal responsibilities and implementation stepsare critical.

Communicate the Strategy: The DSAC willcommunicate this strategy to the entire acquisition andlogistics workforce. The Under Secretary of Defense forAcquisition and Technology USD(A&T), SAEs,DCSLogs, DAHs, PEOs, SYSCOM Commanders, andPMs will incorporate the ideas laid out in this strategy inevery appropriate public forum they address. Testimonyand interactions with the Congress will include the DSACstrategy and the implementation results.

Industry will be incentivized to become a partner in thestrategy and will be asked to endorse the message to itsworkers. A thorough understanding and acceptance ofthe related metrics by industry is a key to the successof implementation.

Organize Effectively: The USD(A&T) will ensure thatenterprise-level goals, objectives, and metrics areestablished, measured, and become acquisition policy.The SAEs, DCSLogs, and DAHs will establish andmonitor complementary goals, objectives, metrics, andnecessary incentives that apply to all programs supervisedby PEOs as well as Service and Agency level processes.The metrics developed in the Lean Aerospace Initiative’sLean Enterprise Model, already used by a large segmentof the defense industry, may be useful for measuringprogress.

The SAEs and Overarching Integrated Product Teams(OIPTs) will ensure that enterprise goals and objectivesare reflected in the plans for all programs requiringDefense Acquisition Board (DAB) oversight. OIPTspreparing for sessions of DABs will ensure that the strategyis a part the acquisition plans, goals, metrics, andincentives for all programs they assist and review. TheSAEs and Designated Acquisition Commanders will alsoinclude the goals, objectives, metrics, and incentives inall programs that do not require DAB review.

The USD(A&T) will work with the Joint RequirementsOversight Council, Commanders-in-Chiefs, operational

Implementation

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commands, and Defense Agencies to routinelyincorporate cost performance tradeoffs in theirrequirements documents. Targets for unit production andoperations and support costs must become the norm.Both will work to improve implementation of “Cost asan Independent Variable (CAIV)” processes for makingcost performance tradeoffs.

The USD(A&T), the SAEs, the DCSLogs, and DAHswill interface with the programming and budgetingcommunities to ensure a viable process is established toresource, implement, and evaluate progress on the goalsand objectives.

The DSAC Associated Groups will ensure their prioritiesinclude focusing their attention on the critical process-related initiatives that have the greatest potential impacton the enterprise-level goals. The DSAC AssociatedGroups will also establish time-phased goals, objectives,and metrics for these initiatives. The DSAC AssociatedGroups will also support both the establishment ofincentives and the removal of the disincentives forachieving the goals.

The SAEs will designate pilot programs as agents ofchange. These pilot programs, along with the CAIVFlagship programs, will demonstrate how initiativescontribute to the goals, objectives, and metrics.

Continuously Educate and Train the AcquisitionWorkforce: The Office of the Secretary of Defense willsupport the education and training of our workforce toensure that these goals and objectives are achieved. TheDefense Acquisition University will incorporate therationale for the strategy, goals, and metrics into allacquisition courses and report progress to the DSAC. TheSAEs will require SYSCOM Commanders to incorporatethe rationale for the strategy, goals, and metrics into allcourses under their direction. The SYSCOMCommanders will report progress to their SAEs. A unified(Services and Defense Acquisition University) report oneducation and training will be provided to the DSACevery 6 months. Industry will be encouraged to includethe strategy and goals in training it provides its workers.

Monitor Progress and Update: Progress reports will beprovided at DSAC meetings. The SAEs and DCSLogswill report how well performance measurements relateto target objectives. The PMs for pilot programs willreport progress at least once a year to the DSAC andforums such as the PEO/SYSCOM Commanders’Conference. The following topics will be reported as aminimum: 1) progress in achieving goals and objectives,2) metrics and incentives, 3) lessons learned, and 4) bestpractices. The PMs of the pilot programs will transfertheir knowledge and experiences to other DoD programs.The DSAC will be responsible for reporting or modifyingtop level goals, objectives, and metrics. The DSAC willprovide periodic reports to all members of our workforce.