A Simulation Model for Setting Terms for Performance Based Contract Terms

Abstract

This paper sets forth a model-based approach for selecting terms applicable to a heavyweight torpedoes (HWT) Performance Based Logistics (PBL) contract capable of addressing both near- and long-term support considerations over the torpedo life cycle. Several performance measures commonly used in PBL contracts are described, and a model is presented that is based on an availability metric. This metric is calculated using the number of times a required part is not available at field maintenance sites. The metric is computed at the Functional Item Replacement (FIR) or modular level of replacements. The contractor is made responsible for maintaining an inventory of parts on the shelf at the maintenance locations. This is referred to as the Coordinated Shipboard Allowance List (COSAL), which is not to exceed a negotiated maximum. Terms of the contract are not specified with regard to lead times such as logistical delays and manufacturing and restocking lags. These times are assumed to be under the contractor control as are production quantities, quality, and responsiveness. A newsvendor approach for determining optimal shelf inventory levels is first developed. An augmented model is evaluated using a simulation to determine the performance sensitivity to changes in product quality, demand rates, and various supply chain related lead times. Practical collateral issues such as obsolescence, reliability, and cost are also discussed. This concept is being evaluated as a possible go-forward supportability strategy for the MK48 Common Broadband Advanced Sonar System (CBASS) Torpedo.