Performance Based Logistics

The concept Performance Based Logistics (PBL) was invented by the US Department of Defense (DoD) in 2001. PBL is directed particularly towards logistics services for major weapons systems. The purpose of PBL is to increase the performance, while maintaining, or reducing, the costs. PBL can be delivered by organic as well as commercial suppliers. The objective of PBL is to provide a contract structure that gives the supplier incentives to make investments in order to increase operational availability and reliability, keep development costs under control, ensure profit margins for the supplier and reduce the costs for the end user. An important aspect of PBL is that the responsibility and risk taking in achieving the desired result is transferred from the buyer to the supplier. The core of PBL is a shift of paradigm, from transaction based defence equipment acquisition, to performance based defence acquisition. The concept Performance Based Contract (PBC) is synonymous with similar concepts from the academic sphere, e.g. Product-Service-System (PSS), and corresponding concepts from industry, e.g. Power-by-the-Hour (PBH). PBC is a necessary prerequisite for PBL in those cases when external, commercial suppliers are contracted to deliver the logistics support. Without a signed contract, which regulates that which is supposed to be performance based, how it should be measured and rewarded, how responsibility and roles should be distributed, how risk and reward should be shared, etc., there will not be any PBL. In those cases when internal, organic suppliers are used, the corresponding aspects will have to be addressed with internal Performance Based Agreements (PBA) within the defence sector. From one perspective, PBL can be regarded as a concept that is wider in scope than PBC, since PBL, as opposed to PBC, encompasses organic as well as commercial suppliers. However, from another perspective PBC can be seen as a concept that is wider in scope than PBL, since PBC can be used to contract for other functions than logistics. To date, PBL has been used for advanced platforms and complex, integrated technical systems in the US; spares provisioning and system availability in the UK; and simulators for training systems in Norway. Consequently, there is a wide variety in the practical application of PBL. In this report, a case is made for why PBL should be regarded as something new, a shift of paradigm even, in the area of defence acquisition. The novelty consists of the transition from a transaction based perspective to a performance based perspective, as well as the transition from a fragmented perspective on defence equipment acquisition and logistics support, to an integrated, lifecycle based perspective on defence acquisition. Consequently, PBL is about creating integration between defence equipment acquisition and the provision of logistics support throughout the lifecycle of a weapons system. PBL is also about setting performance objectives, and giving the supplier, organic or commercial, incentives to work towards achieving those objectives. In this report the following definition of performance based logistics is proposed: "Performance Based Logistics is an outcome oriented strategy for integrated acquisition and sustainment of weapons systems. The purpose of the strategy is to enhance capability, availability and reliability from a lifecycle perspective. This is achieved through Performance Based Agreements and Contracts with organic and commercial suppliers which are based on long-term relations with the suppliers, include performance goals regarding the logistics support, and include appropriate incentives in order to generate value for the end user as well as the supplier".