The aerospace and defense (A&D) customer support and sustainment (CS&S) market once provided a safe haven for original equipment manufacturers (OEMs) to deliver spare parts and services on a pay-for-event basis. Cost-plus contracting offered providers a relatively low-risk method of addressing customer requirements. At the same time, this business arrangement gave virtually no incentive to improve service delivery and offered little in the way of guaranteed service outcomes to the customer. However, a new way of contracting is changing things.

The emergence of performance based logistics (PBL) is forcing A&D providers to adopt radically different ways of thinking about their sustainment businesses. PBL requires providers to assume the risk of providing the requisite spares and support services, while guaranteeing product and service performance outcomes. What worked in the past will no longer guarantee future profitable performance. With all of this assumption of risk, interacting with customers, supply chain partners and internal stakeholders demands a fundamentally new approach.

However, we believe that most defense providers engaged in PBL-type contracting are neglecting to re-examine their core capabilities, processes and behaviors. Why? Because a powerful legacy culture with the mindset "win the contract at all costs and we’ll figure out how to deliver it" is pervasive in the industry. Though this culture of "heroism" worked in a cost-plus environment, in which the cost of the inefficiencies could be passed on to the customer, it will not work under PBL. Inefficiency is absorbed by the provider, placing once favorable margins at risk.

"Profitable Performance Based Logistics – The Cultural Imperative" examines why the service provider culture needs to change for defense providers to maintain reasonable profitability under PBL and describes ways that such change can be achieved. Learn more from the full report, attached below in PDF format.