Interviews KEC 25 years
INTERVIEW KEC 25 YEARS – Arjen Vos
Scope: Interview with KEC clients and partners about projects of the past. Looking back on the project and forward; description of the project, uniqueness, results, innovative character, what did we learn, are the results and lessons learned still relevant.
Interviewee Arjen Vos; Vice President and General Manager Terma Europe, former General Manager DutchAero Services.
Project: Performance Based Logistics for MRO of military asset.
Topic: Performance Based Contracts
Background: In 2009/2010 KEC managed a project performed by DutchAero Services and its consortium partners for developing a blueprint for a Dutch capability at Woensdrecht for performing ‘performance based’ maintenance for the future generation military aircraft engines (incl. F-35). The project resulted in the publication: “Managing Maintenance Repair & Overhaul – Growing towards successful PBL Contracting. A supplier’s handbook to mature into performance-based logistics contracts for maintaining military assets”.
Introduction: Arjen is currently Vice President and General Manager at Terma Europe and previously General Manager of DutchAero Services working on the Public Private Partnership (PPP) between DutchAero and the Royal Netherlands Air Force.
In 2009 a project was started regarding the development of a blueprint for a Dutch capability at Woensdrecht for performing ‘performance based’ maintenance for the future generation military aircraft engines (incl. F-35).
The driver for this project was the requirement to build a PPP in order to develop sustainable MRO capabilities and business and qualify for the F-35 engine MRO. Simultaneously there was a need to develop knowledge in the area of Performance Based Logistics (PBL) in cooperation with the Royal Netherlands Air Force that already took some steps towards that direction.
In 2009, Arjen already had experience with this type of contracting because of the commercial Fokker contracts he managed in the past. A core team was set up with Arjen, Kurt Koevoets (PBL specialist of TNO, currently PwC) and Paul van Kempen (KEC) as project manager and the project was performed with support of Netherlands Aerospace Center NLR, Royal Netherlands Airforce and Dutch Gas Turbine Association.
The project resulted in the earlier mentioned publication that contains a checklist supporting suppliers that want to mature into performance based logistics contracts for maintaining military assets.
“This checklist helped us a lot to develop in several areas, from technology up till organizational issues, and be prepared for future PBL business. At the same time the publication supported the business development side, since it demonstrated to large OEMs that The Netherlands was taking PBL seriously and had thoroughly worked out a roadmap in order to become an excellent partner for them in a PBL setting. Still today, the publication is appreciated at international level, both from a contents point of view as commercially.“
KEC managed a project on the development of a supplier’s handbook to mature into performance based logistics contracts for maintaining military assets. The handbook is available on https://www.worldclassmaintenance.com/publicaties/boeken/growing-towards-pbl-contracting/.
KEC implemented the model described in the handbook for various industries and public organizations like the Ministry of Infrastructure and Water Management.
The model shows that at a certain stage in the performance based contracting roadmap, the development on the customer and supplier side should be closely aligned.
Furthermore the model shows that growing towards full PBL should be done step by step, supported by clearly defined projects. Reaching this goal requires organisational development on various technical and non-technical aspects, that shall be alligned between supplier and customer, based on a win-win business case.
On adoption of the PPPxPBL concept “Today the PBL concept is applied more then before, but still not at full scale. This is often complicated by a limited fleet size and nature of the products involved that have many different configurations. As an example, many F-16 operators fly with similar systems configurations, however exchange of serial numbers (components) is not allowed. This is still the idea for the F-35; with the exchange of a component for MRO purposes, also the ownership may change from one air force to the other and operators will pay the OEM for availability per flying hour. Question is if and how this will be passed on towards suppliers. For now, F-35 suppliers are delivering in the traditional way. The overall F-35 PBL system/concept is still to be demonstrated and meanwhile The Netherlands remains a knowledgeable partner.
The Netherlands is still optimizing the PPP concept responding to military engines MRO requirements and there are opportunities to learn from commercial endeavors.
Though the PPPxPBL concept (PBL approach within a PPP setting) is scarcely applied in The Netherlands, the concept is fully embraced and successfully deployed in countries like the US, UK and D. As an example BAe is successfully running a F-35 MRO programme on behalf of the Royal Air Force in the UK. The PPPxPBL concept was more or less successfully implemented top-down and on other programmes like Eurofighter the UK Air Force truly achieves better performance at lower costs through the implementation of the PPPxPBL concept.
The core of this concept consists of the business model and value that is created within the supply chain. The Air Force wants many flying hours at lowest possible costs and charged for availability. This provides an incentive for BAe to invest in efficiency and availability, since BAe is rewarded in case of improvements in this area. To make this PPPxPBL concept successful, as a minimum the partnership between asset owner/operator and supplier should be based on trust and transparency. One should be transparent on costs and the useage of the military platform for example. On the other side the Air Force is quite unpredictable as a user/operator because of the various missions it has to fulfill and transparency in that area is not evident.”
Successful implementation of the PBL concept may result in lower turnover for the supplier, but US studies show a higher profitability on PBL contracts. “It is true that PBL contracts, when implemented and performed correctly are cheaper for asset owners, but more profitable for suppliers. Typically the concept results in more available flying hours and as a result Air Forces are flying more and compensating for the initial lowering of the turnover.
Typically for governmental programmes, the profitability of contracts is limited and regulated. If brilliant ideas of suppliers result in much lower costs and therefore higher profit, the price typically has to be lowered. Also, for governmental bodies it is typically difficult to increase budgets, which is needed in case of better performance in a PBL setting. Within the frame of the F-18 program in Canada this is tackled by implementing bonuses in terms of contract extension rather than extra payments.”
Recommendations “An important lesson learned is to allocate risks within a PPPxPBL setting there where costs are lowest, or to whom that can bear the risk. If some risks are borne by a company, these risks will be ‘priced’, resulting in higher operating costs. On the other hand, governmental bodies may have more problems with liability issues, whilst companies are used to have a more venturous approach towards these issues. When done correctly, bottom line this approach results in the lowest possible costs for sustainment. As an example, obsolescence risks can best be taken by the government (otherwise priced by companies with large risk margins).”
“A proper PPPxPBL setting requires a partnership and therefore a long term contract, e.g. 10 years (note that the F-35 will probably have contract cycles of 3 years).
Openness and transparency in a PPPxPBL setting are crucial. Having a broad customer base for a certain system helps to reduce cost, by distributing certain risks over multiple customers. In case of one customer (e.g. Lockheed for the F-35 programme), all risks shall be transparently allocated to that customer.
The implementation of the PPPxPBL concept requires long and detailed discussions with the customer. There are many details affecting the performance, i.e. in the area of usage, specific missions, delivery and retour delivery, etc.”
Central procurement ISS/MSD July 2000, the Russian Zvezda module of Space Station was launched, with various on-board computers carrying so-called Mass Storage Devices (MSD), which provide the necessary data storage capacity. This equipment was developed in the Netherlands by an industrial team including Thales and NLR. KEC was responsible for the project and quality management, during development, production and qualification.
In 1999, the MSD team received an award from ESA for “valuable European contribution to Space Station”.
At the beginning of 2008, the European module Colombus was also linked to space station. This lab is also equipped with several MSDs based on COTS (Commercial-Off-The-Shelf) Winchester Disk Drives.
Within the frame of de Columbus programme ESA together with all participating companies organised central procurement of EEE-parts. In this way large batches could be procured and obsolescence risks reduced and, in line with Arjen’s recommendations, allocated to whom can bear this risk at lowest costs.
