Product Support Financial Value Drivers. 6/10 – Volatility of Product Technology

Nov 04
2012

This post is the sixth of ten entries that will discuss product support financial value drivers for solutions supplied by a commercial or military focused capital good Product Support Enterprise [PSE]. The 10 topics that will be discussed are the following:

  1. # of products employed by end-users
  2. End-user product utilization rate
  3. Product failure
  4. Environment in which end users engage the product
  5. Preventive maintenance processes employed
  6. Volatility of product technology
  7. Regulatory requirements
  8. Chronological age of the product installed base
  9. Life cycle stage of the product
  10. Manufacturer’s warranty coverage

Product Support Financial Value Drivers

The current business model for OEMs is to seek a problem being encountered by an organization and to configure a hardware/software solution that affordably and effectively addresses a resolution to the problem. For example, a warfighter requires, within a 6-month period, a communication system that can access satellite transmissions on-the-move for a period of 20 years. The OEM awarded the contract chooses to employ a suite of bleeding-edge Commercial Off The Shelf [COTS] items and integrates all the pieces into a Design-To-Order solution. Great; the warfighter gets their solution quickly and the OEM can “call it a day.” But now comes the fun part. The Product Support Strategy [PSS] for this COTS-based solution must employ a process that modifies the configuration of the solution based upon future Diminishing Manufacturing Sources Material Shortages [DMSMS] challenges; what is currently bleeding-edge, will most probably have a cold commercial supply chain within 3-4 years.

Understanding how the source-of-design impacts Total Ownership Cost [TOC] is often not fully understood. An OEM’s employment of COTS items enables access to a hot supply chain in which development costs have been amortized by the manufacturer; item acquisition costs can often be 30-50% less than that of a developmental item with the same capabilities. Also note that the reliability of a COTS item can be 3-4 fold higher than that of a developmental item. All-in-all the production costs of a COTS-centric solution is financially attractive, but Product Support life cycle costs can be significant enough to offset the production savings.

For example, if a COTS item is to be modified, due to DMSMS issues every 4 years and there is a planned 20 year product life, that indicates that 4 to 5 modifications will have be performed during the period that the solution is in inventory. Note that upon the insertion of these modifications, capabilities enhancements may occur, but that is strictly a by-product of the activity.

From personal financial analytics experience working on many systems, I have in almost all situations observed that DMSMS-driven modification costs can constitute the number one or two ranked Product Support cost driver. Remember that Product Support constitutes a plurality of TOC, thus modifications to COTS-centric solutions are often within the top ten cost drivers of TOC.

Product Support Financial Value Drivers

Other issues to be considered that will impact financial performance due to technology volatility, is how the modification process will be performed. There are several alternatives (this is not an all inclusive listing), each with their own cost drivers:

  • Block-mod in which all end-items are inducted into the modification process at a depot within a short period of time
  • Block-mod in which all end-items are inducted into the modification process in the field via an exchange program, within a short period of time
  • Modify-as-failed in which reparable items, when inducted in a repair process, will also be modified
  • Modify-bundled-with-other in which an end-item when inducted into a process such as reset, overhaul or other end-item process, the modification will be employed when the end-item has been disassembled; logic is that as long as the end-item is apart, there is no additional labor required for installing the modification.

Each of the above impacts technician labor costs to remove and replace, transportation costs, facility costs, indirect personnel costs and many other costs. Also note that each alternative will impact Materiel Availability [Am].

Any financial analytics of the Product Support life cycle must include a rigorous review of modification expenditures regardless of the “color of money.” Technology volatility provides many challenges, but with insightful life cycle planning unfavorable performance risks can be mitigated.

Hypatia©, a Giuntini & Company financial software tool, provides a highly automated means of calculating the above and other product support financial value drivers, as well as an effortless way of being able to change any utilization assumption and immediately understand its impact upon total ownership costs. Hypatia is also a proven, trusted and highly effective tool for assisting in the development of product support business case analysis.

Product Support Financial Value Drivers. 4/10 – Operating Environment in Which End-Users Engage the End-Item

Oct 19
2012

This post is the fourth of ten entries that will discuss product support financial value drivers for solutions supplied by a commercial or military focused capital good Product Support Enterprise [PSE]. The 10 topics that will be discussed are the following:

  1. # of products employed by end-users
  2. End-user product utilization rate
  3. Product failure
  4. Environment in which end users engage the product
  5. Preventive maintenance processes employed
  6. Volatility of product technology
  7. Regulatory requirements
  8. Chronological age of the product installed base
  9. Life cycle stage of the product
  10. Manufacturer’s warranty coverage

Product Support Financial Value Drivers

There are many attributes of an operating environment that can have an impact upon Product Support financial drivers and performance. For some end-items, the impact is quite material, and for others not as much. OEMs, when designing their products, are quite aware of the operating environment of their end-items, and in turn adapt their design to minimize the operating environment’s impact Total Ownership Cost [TOC]. The OEM still will acknowledge that there will be financial implications, that can be material, especially if the instructions in their maintenance manuals are not followed.

There are 6 factors impacting Product Support financial driver performance:

1. Temperature
The majority of products are designed to meet their performance attributes within a range of temperatures. For example, aircraft, during the certification process, are tested in extreme cold temperatures, as well as in extreme hot temperatures. This assures end-users that all subsystems can function within a wide range of operating environments.

Where Product Support financials are impacted is when the end-user employs the end-item outside the temperature design range for any extended period of time. One example is a Class 8 truck designed for the North American market is exported to sub-Sahara Africa where temperatures can exceed that of the design threshold. Reliability issues can surface quickly resulting in much downtime.

Another example is an electronic device requiring cool external temperatures in order to offset the high temperatures generated by the device. Without the proper conditioning of air, reliability can materially decline.

2. Humidity
This is a major product support financial driver for the Product Support processes engaged in the repair of structural items. Again OEMs design attributes that attempt to minimize the impact of humidity. For example, Boeing in their new 787, reduced the impact of humidity on the corrosion of aluminum, by replacing large sections of the aluminum airframe with non-corroding fiber composites. Vehicle OEMs have dramatically reduced the impact of humidity through higher tech paints and their application.

The employment of preventive measures to assure that humidity does not corrode an end-item is the preferred solution for this area.

3. Particles
Sand, dust, dirt and other particles can cause the employment of multiple Product Support processes; from reliability issues related to mechanical parts becoming impeded, to cosmetic issues of a “dirty” end-item, and to items wear and tear being accelerated as a result of grinding caused by sand. Again OEMs are quite aware of these issues and indicate courses of action in their maintenance manuals, but it doesn’t preclude the end-user from being financially impacted by the presence of these particles due to the preventive maintenance activities that are performed on a periodic basis.

4. Fluids
The effective management of the impact of salt water, chemicals, oils and other fluids can improve Product Support financial performance. For example end-items employed in the transportation field, trucks, aircraft, ships and trains all have extensive Product Support programs to minimize the financial impact of salt water; from fresh water washing to periodic disassembly/clean/reassembly. Manufacturing equipment is often subjected to chemical and oil exposure requiring the employment of preventive Product Support processes.

5. Hours of Operation
For certain end-users they can only operate their end-items during specific times of the day; could be safety related, pollution related or noise related. For example trucks cannot idle in an urban area after 2200, or aircraft cannot depart after 2100, or building construction activities cannot occur during the week-end. Whatever the situation, a Product Support Enterprise must deliver solutions that adapt to these constraints. Often Product Support processes will be performed during the hours that the end-user cannot employ its end-items; for labor this can result in higher costs related to shift differentials, or requiring more Product Support parts safety stock, due to parts suppliers not being available to delivery items during off-hours.

6. End-Item Operator
Challenges in adopting to a new technology, loss of experience due to high operator turnover, employee malfeasants (i.e. union “thuggery”) and other elements related to an end-item operator’s unfavorable impact Product Support financial performance is a continuing occurrence to be dealt with in developing solutions for a Product Support Enterprise. Improved operator training programs, user-friendly operator manuals, electronic monitors identifying end-user abuse and other resources can be employed to mitigate the additional financial impact of these challenges.

Product support financial value drivers

Understanding how an end-item is operated in developing a scenario-based Product Support life cycle financial plan or product support business case analysis is just one more element to consider. My recommendation is to have an “operating environment” weight in your Cost Estimating Relationship [CER] input; you might not know exactly how changing operating environments may impact you, but you can take a guess and once real data sets can be captured, you will have a place holder to make those changes.

Hypatia©, a Giuntini & Company financial software tool, provides a highly automated means of calculating the above and other product support financial value drivers, as well as an effortless way of being able to change any utilization assumption and immediately understand its impact upon total ownership costs. Hypatia is also a proven, trusted and highly effective tool for assisting in the development of product support business case analysis.

Product Support Financial Value Drivers. 3/10 – Product Failure

Oct 11
2012

This post is the third of ten entries that will discuss product support financial value drivers for solutions supplied by a commercial or military focused capital good Product Support Enterprise [PSE]. The 10 topics that will be discussed are the following:

  1. # of products employed by end-users
  2. End-user product utilization rate
  3. Product failure
  4. Environment in which end users engage the product
  5. Preventive maintenance processes employed
  6. Volatility of product technology
  7. Regulatory requirements
  8. Chronological age of the product installed base
  9. Life cycle stage of the product
  10. Manufacturer’s warranty coverage

Product Support Value Drivers – Product Failure Physics Envy

This area is one of the most “abused” areas in Product Support life cycle financial planning. Operation Research [OR] analysts, design engineers and logistics professionals have what is affectionately called “physics envy” when it comes to estimating the product failure rates of end-items and their components. The elite group of professionals in the business of predicting product failures tend to have a universally low success rate…

The marketplace has defined the acceptable average level of unplanned failures for a capital good/end-item at about once every 5-7 years. This product failure rate is applicable primarily for Commercial Off The Shelf [COTS] items, with Developmental/Design-To-Order items incurring product failure rates anywhere from 50-100% higher than that of COTS items.

The source of the aforementioned failure data is the Security Exchange Commission [SEC] mandatory filings by OEMs detailing their actual expenses incurred to support their warranty programs. There is over 10 years of reliability/failure rate data sets. Note that product failure rates have dropped by almost 50% over this 10+ year period. Why the “failure analysis” community does not employ this treasure trove of data in all their cost calculations is always amazing to me.

Product Support Value Drivers – Product Failure

Recently Giuntini & Co. developed a scenario-based Product Support life cycle financial plan that included the target cost for the correct-failure process throughout the twenty life of a product. We employed a series of SEC filing data sets and estimated $10 million per year in costs associated with the correct-failure process for an installed base of $200 million end-items. We also employed another method to calculate the cost and it still resulted in approximately the same number.

Product Support Value Drivers – Product Failure

While we had been calculating the correct-failure process costs, a team of OR brains were also calculating the same cost; we were both aware that we were working to the same goal. We both agreed to compare our estimated costs and there was a 4-fold difference in our costs; the OR guys were the higher number. After I examined their methodology, which was quite eloquent, I must say (disclosure; I once was an OR geek myself), I found their results to be totally bogus.

If the higher product failure rates were to have occurred, the product would never have been acquired by any end-user. Our common client accepted the Giuntini & Co. cost estimate as the one to be included in his Total Ownership Cost [TOC] calculation. To this day the OR brains have remained convinced that their methodology was the right way to go, even after being proven decidedly inaccurate.

Lesson learned – be extremely careful of ”physics envy” professionals providing you with product failure rate estimates. There is a high probably that they are materially off from the real world and if you accept their costs without an alternative opinion, you have only yourself to blame when an estimated TOC is way, way off.

Hypatia©, a Giuntini & Company financial software tool, provides a highly automated means of calculating the above and other product support financial value drivers, as well as an effortless way of being able to change any utilization assumption and immediately understand its impact upon total ownership costs.

Product Support Business Case Analysis [BCA]: Fast, Accurate, Proven Results Employing The Hypatia© Scenario-Based Product Support Life Cycle Financial Planning Software Tool

Oct 01
2012

Product Support Business Case Analysis for MRAP

A Product Support Business Case Analysis [BCA] study is employed by the Program Manager [PM] Office of a Program Executive Office [PEO] of a Life Cycle Management Command [LCMC] in their Milestone Weapon System Acquisition review. The Product Support BCA study applies a disciplined methodology for recommending the best solutions for efficiently and effectively managing the processes employed by a Product Support Enterprise [PSE] during the in-service life and End-Of-Life [EOL] of a weapon system. The Product Support BCA output is a major input to the Life Cycle Sustainment Plan [LCSP] that is delivered by the Product Support Manager/Integrated Logistics Support Manager of the Program Office. Giuntini & Company, Inc. [GCI] has successfully performed five Product Support BCAs for the CECOM LCMC and the TACOM LCMC.

As a result of the experience above, GCI has developed a listing below of the varied elements required as inputs to the BCA.

Item #

BCA elements

1

# of end-items to be fielded

2

# of end-users

3

Deployability status of end-users

4

Global location of end-users

5

Product Support processes employed during life cycle

6

Product Support process frequency

7

Product Support process duration

8

Business model of each Product Support solution delivered by the PSE

9

Volatility of product technology/DMSMS issues

10

Regulatory requirements

11

Aging of the fielded end-items

12

Life of the product in DoD inventory

13

Manufacturer’s warranty coverage

14

Item design source/IP ownership/TDP

15

Materiel Availability [Am] requirements of end-user

16

“Jointness” of solution with multiple end-users

17

Business model elements for each Product Support solution

18

BOM levels employed

19

BOM variations

20

BOM level capabilities

21

End-item on-site maintenance strategy

22

End-item off-site maintenance strategy

23

BOM item costs

24

LRU renewal cost

25

Current/constant $$

26

Continuous Process Improvement [CPI] initiatives

27

Level of BOM in which Government owns IP

28

Employment of PSM/PSI PSE construct

29

Employment of ARFORGEN reset/reconstitute Product Support process

30

Funding sources included in analysis

31

Reparable parts Beyond Economic Repair [BER]/washout rate

32

Others

Product Support Business Case Analysis using Hypatia Tool

With over 35 years of data collection and development, GCI has created a software tool that encompasses all the above elements to create the outputs of a BCA study; it is called “Hypatia: A Scenario-Based, Product Support Life Cycle Financial Planning Software Tool.” Hypatia has enabled GCI to reduce the time to complete a Product Support BCA by 30%, and in turn has been able to reduce the cost of the study by the same amount. Another benefit of Hypatia has been its ability to deliver target life cycle Product Support costs that have been considered reasonably accurate by the recipients of the study. Traditional Product Support cost estimating tools such as COMPASS  are often inadequate to be employed in a BCA.

If you are interested in discussing how our proven Hypatia tool can be employed in your Product Support BCA study initiative, both for new programs and legacy programs, call a Giuntini & Co. SME at 570-713-4795 or visit us at www.giuntinicompany.com.

DoD Has No Idea How Much It Has Invested In Product Support Parts

Sep 09
2012

The DoD’s auditor has reported material financial management weaknesses in the following areas:  Financial Management Systems, for Inventory, Equipment, Government-Furnished parts and Contractor-Acquired parts. In other words, the DoD doesn’t really know what and how much it has in its possession.

In 2005, the DoD issued its Financial Improvement and Audit Readiness (FIAR) Plan  to define the Department’s strategy and methodology for improving financial management operations and controls, and reporting its progress to Congress…and Congress still awaits auditors to sign-off that the DoD is currently compliant.

Not the most effective strategy, eh?

A few years back we performed an extensive analysis of the inventory investment for an ACAT I Army weapon system that had been continually fielded over a 15 year period. We were told repeatedly by Army leadership that Class IX parts were balanced with demand…were they ever wrong!! Upon the conclusion of our study, 90% of the parts supply was classified as obsolete or excess…and I can tell you this poor Supply Chain Management of Product Support parts is common across all Services today. DoD has an estimated $90B of Class IX parts in inventory and my guess is that 30% is obsolete or excess…

Fake COTS Products

Aug 16
2010

An area that has experienced greater scrutiny since the advent of global terrorism has been the infiltration of fake and stolen COTS products into the supply chain. This initiative by terrorists has had three primary drivers:

  1. An “easy” way to generate large profits from an illicit enterprise in order to fund terrorist activities against US Warfighters and others
  2. The deployment of sub-quality products into the supply plain in order to cause business disruptions and economic harm to US firms
  3. The erosion of the value of brands and in turn the value of Intellectual Property (IP) rights; this can undermine the foundation of Western capitalism…but that is for another blog

The Organization for Economic Cooperation and Development estimates that 5-10% of world trade employs fake or stolen products. This is a serious problem that provides almost a limitless source of funds to terrorists, besides that of illegal drugs.

The Government and/or its contractors pay the following price for the need to secure the COTS product supply chain:

  • Higher insurance costs to mitigate the risks of “being stuck” with fake products or experience the thief of their product
  • Higher costs for the security of goods while in storage
  • Liabilities for branded products that fail and cause harm
  • Higher warranty expenditures for fakes
  • Overhead costs for providing surveillance of employee: espionage, bribery and theft
  • Authentication efforts to be able to validate the source of goods
  • Legal expenses to pursue wrongdoers

As COTS products continue to increase their presence in weapon systems, the above issues will have to be addressed by the Government and its contractors.

Changes Are A Comin’ to DoD Contractor Product Support

Aug 10
2010

The U.S. Department of Defense is the biggest purchaser of Product Support expenditures in the world; it annually buys an estimated $50 billion dollars worth of such goods and services.

The last ten years has proven to be an especially favorable period for military contractors; overall DoD spending has increased from $300 billion per year to $700 billion, or 130%, and America now employs nearly half of all global military resources.  It is estimated that Contractor Product Support expenditures rose at a 150% to 200% rate during the ten year period.

As a result of the large build-up in DoD expenditures, the US currently generates 50% of the global military expenditures, but the US economy only generates 25% of the global economic output…this imbalance will most likely be realigned back to a historical ratio of 1:1 between the US economic output and defense spending.  

When many contractors have only one customer that matters financially, options are limited as to generating additional sources of revenues to compensate for lost Product Support revenues.

Even the biggest military contractors claim less than five percent of the Pentagon’s budget, so a contractor’s fortunes is influenced more by how defense dollars are spent than by the size of the budget. For example, contractor revenues can decrease, even when military spending remains high, if money migrates out of weapon system acquisition and into uniformed and civilian manpower.

Below are some of the primary trends driving down Contractor Product Support expenditures:

  1. Reduction in overall weapon system OPTEMPO due to the scaling back the size of the US military deployment in SW Asia. With an estimated 25% of all weapon systems in theatre and their OPTEMPO an estimated 100% higher than those systems not in theatre, it is estimated that overall Product Support expenditures will decrease by 15%-20%, with contractors experiencing an estimated 20%-30% drop in Product Support revenues
  2. The current fiscal challenges of the Federal Government to finance all their budgeted programs will most likely result in the military being a “victim” of fiscal austerity. It is quite feasible that 15-20% of DoD weapon system inventories will be stored long-term in order to reduce Product Support expenditures. Given the US Congress and the power of the depot-lobby, many of the systems stored will be those currently primarily supported by contractors
  3. The emphasis that Secretary Gates has put on “rebalancing” the defense strategy. Rebalancing means putting less emphasis on conventional, industrial-age warfare, and more emphasis on non-traditional skills like counter-insurgency warfare; this strategy will reduce complex weapon systems that require a complex Product Support Enterprise. There will be more an emphasis upon COTS items being integrated into a solution for the warfighter. COTS Product Support expenditures are often materially less than that of Developmental Items, thus resulting in overall lower Product Support expenditures
  4. The move to “in-source” Product Support management jobs previously contracted out to industry by the Program Offices and Life Cycle Management Commands. The Government is actively recruiting “seasoned” professional from contractors; either the professionals join the Government or they lose their job.

Each of the major weapon system contractors will be encountering different Product Support issues:

  • Northrop Grumman (NG) has decided to remain primarily focused upon new weapon system deliveries. It recently sold its services unit, TASC, due to conflicts between its OEM business and its Product Support business. This was a major policy change for NG
  • General Dynamics (GD) has generated material Product Support revenues from Interim Contractor Support (ICS) programs for the communication communities, especially for weapon systems in theatre; a GD Contractor Field Service Representative (CFSR) in theatre generates almost $500,000 per year of revenue. Supplemental funds have been an engine of growth for GD Product Support programs; this will be going away sooner, rather than later
  • Raytheon is less exposed than other primary OEMs due to the nature of their products being electronics; Product Support expenditures, at least at the organizational maintenance level, is much smaller than that of weapon systems that have more mechanical parts
  • Lockheed Martin (LM) will encounter many challenges in the Product Support area. The company needs to generate $130 million in new sales every day just to stay where it is, and that won’t be easy in a down market for Product Support.

There will be many challenges in the area of DoD Product Support over the next few years. Adding value to DoD, rather than filling positions to perform routine Product Support tasks, will differentiate winners from losers. And let us not forget that Outcome Based Product Support programs will be the rule rather than the exception for all future Product Support contractor offerings; that will be the only way that DoD will be able to manage Product Support processes more effectively for less costs.

For a more detailed discussion on the above topic, review the recent conference discussions at the Lexington Institute.

The “Miracle” of COTS Products

Jul 09
2010

The Department Of Defense and its research organizations have always been touted as working on the “bleeding edge” of a multiple array of technologies. This is often true, leading to more effective (i.e. lethal) mission capabilities, but rarely are these initiatives more efficient (i.e. cost per outcome) in completing a mission.  See Undersecretary Carter’s comments regarding this issue here.

When we move to the COTS product world, the employment of COTS products in the processes of everyday life has resulted in both improvements in effectiveness and efficiency. In a recent article in the Journal of the American Enterprise Institute,  a striking comparison of what could be purchased in 1964 and today with the same purchasing power (price as a % of average salary) was illustrated below based upon an average one month salary.

1964:
 A moderately priced Radio Shack stereo system.

2010:
Panasonic Home Theater System, Insignia 50″ Plasma HDTV, Apple 8GB iPod Touch, Sony 3D Blu-ray Disc Player, Sony 300-CD Changer, Garmin Portable GPS, Sony 14.1-Megapixel Digital Camera, Dell Inspiron Laptop Computer, TiVo High-Definition Digital Video Recorder.

Also note that a personal computer in 1978, the Radio Shack Model 1, with 4K of RAM, a tape recorder as a data storage device, a green screen and little application software cost $600, or equivalent to about $3,000 today.

The above are stunning testimonials as to the value of COTS products and the inevitable greater and greater employment by DoD. Though our enemies have the same access to COTS products, it is the Acquisition corps that has to use their prowess at COTS product integration in developing solutions for the Warfighter. The US is second to none when it comes to integration and our enemies will never be able to duplicate our COTS products integration efforts resulting in our remaining the most efficient and effective military force of all time .

OEM PSE Profits -The Secret The Industry Doesn’t Know About

Jul 06
2010

Commercial OEMs create from 15% to 40% of their profits as a result of the revenues generated from each Product Support Enterprise (PSE) that employs their product. A PSE engages all the processes employed by a product end-user to: meet materiel availability levels, increase maintainability, assure capability, grow reliability, improve deployability and decrease costs. The remainder of an OEM’s profits is primarily derived from the sale of new-condition products, with the exception being those OEMs that have a financial arm.

When I have had nothing to do at 0400 on a Sunday morning, I have used that time “wisely” to dig into the Quarterly (10Q) or Annual (10K) Security and Exchange Commission (SEC) financial reports of capital goods OEMs in order to better understand the financial impact of PSEs upon their balance sheet….but I have been highly “disappointed” when virtually no information could be found to satisfy this longing of mine! I have reviewed close to 200 OEMs and I have developed a list below of only 13 OEMs who are willing to acknowledge, in even a minor detail, the existence of investments employed in PSEs.

When an OEM truly believes that being proactively engaged in PSEs is material to their financial health they often segment their balance sheet investments employed for PSEs. Note that for some OEMs, creating opaqueness in being engaged with PSEs is by design; they often do not want to indicate to their competitors that their business model is more like the razor-and-razorblade then one that focuses on the sale of the razor…but that is another story.

# OEM or Key Supplier Sector Financial Statement Description
1 AGCO Farm Balance Sheet: Current Assets Repair and Replacement Parts
2 NCR Office Balance Sheet: Current Assets Service Parts
3 Pitney Bowes Office Balance Sheet: Current Assets Supplies and Service Parts
4 Cognex Mfg. Automation Balance sheet: Long-term Assets Service Inventory
5 Ciena Data/Voice/Network Balance sheet: Long-term Assets Maintenance Spares Inventories
6 Diebold Specialty Balance Sheet: Current Assets Service Parts
Balance sheet: Long-term Assets Rotable Parts
7 KLA-Telcor Mfg. Semiconductor Balance Sheet: Current Assets Customer Service Parts
8 Rofin-Sinar Technologies Mfg. Automation Balance Sheet: Current Assets Service Parts
9 Faro Technologies Mfg. Automation Balance sheet: Long-term Assets Service Inventory
10 PAR Technologies Transactions Balance Sheet: Current Assets Service Parts
11 Terex Construction Balance Sheet: Current Assets Replacement Parts
12 Applied Materials Mfg. Semiconductor Balance Sheet: Current Assets Customer Service Spares
13 Wabash National Transportation: Trucks/Engines Balance Sheet: Current Assets Aftermarket Parts

The COTS Wagon Keeps On Rolling…But Is Anyone Watching?

Jul 02
2010

It is inevitable that the Services Acquisition Commands continue to focus on employing COTS products in the design of their new weapons systems and key infrastructure; this is aligned with the focus of Secretary Gates and Undersecretary Carter to reduce costs, but retain the military’s effectiveness.

Below are two recent acquisition initiatives at employing COTS products. I know of no DoD study that annually measuring the COTS content of new weapon systems…if there is none, one should be started.

1. The U.S. Navy’s Space and Naval Warfare Systems Command (SPAWAR) is placing orders under the Common Afloat Local Area Network Infrastructure (CALI). Under the CALI contracts, contractors will provide ships and submarines with Common Computing Environment (CCE) Components, Integrated Logistics Support (ILS), Configuration Management (CM), Test and Evaluation (T&E), Quality Assurance (QA), and Installation Support. Each contractor will deliver a secure, commercial-off-the-shelf (COTS) hardware, software and networking equipment. Each CALI contract has a total potential value of $502 million if all options are exercised. 

2. The Air Force is working on the Common Large Area Display Set (CLADS) acquisition program to replace aging CRTs in the Airborne Warning   And Control System (AWACS) aircraft with one of three flat-screen technologies: active matrix LCD (AMLCD), gas plasma, or a digital micro-mirror device. “The heart and soul of this is COTS, with some heavy ruggedization to operate under depressurization. The prices we`re seeing coming in the door are a third of what the old technology stuff now costs,” Bill Sirmon, a civilian contract negotiator at the Warner Robins Air Logistics Center at Robins Air Force Base, Ga. Aboard the AWACS now are CRTs that operate for about 300 hours between failures; the new products are planned to increase that operating time to 3,000 to 5,000 hours between failures.

info@giuntinicompany.com

Tel: 570-713-4795