World Trade - August 2008 - (Page 49)

company has one organization responsible for selling Product and services combine for total value original products and another organization selling warrantee and service contracts. These organizations are measured independently. Therefore, they sub-optimize Risk/value each part of the business and do not look at total lifecycle tradeoffs value to the customer. On the opposite end of the maturity spectrum is the company that measures total lifecycle value of the comDemand visibility bined original product and post-sale services delivered to the customer. The ﬁnal measure of value delivered is Supply visibility performance-based, such as the uptime or availability of a process, or based on the output of that process. It would be misguiding to state that manufacturers are at the most mature stage of this transition even if they wish to be. Reliable Demand responses from The manufacturers we speak with describe service as management Demand supply complex: no contract is the same customers require diftranslation ferent service levels depending on maturity. An example of the time it can take to agree on a performance-based logistics (PBL) contract was presented at the 2007 Product + Service Innovation = Customer Value Defense Logistics Conference, with representatives from Risk/opportunity tradeoffs are inherent the U.S. Air Force and Lockheed Martin discussing the lessons learned as they partnered on the F-22A Raptor. Source: AMR Research, 20 The relationship began four years ments vary, calling for different ago and is still being ﬁnalized as types of service agreements. We they solidify metrics and serviceManufacturers no longer have found that the customer has level agreements (SLAs). can separate the delivery a profound impact on not only Here are some of the highlights the contract deliverables but on of their negotiations: of original equipment from the ability for a manufacturer to • Metrics took two years to successfully deﬁne the value of a mature, and the PBL negothe services that follow. contract and to execute upon the tiations still continue. agreement. • There was a change in culCustomers are seeking a • Organizations must align to ture, with Air Force depot solution that combines achieve total lifecycle value – employees now reporting Alignment of incentives across to Lockheed Martin. original equipment and the organization is central to • The business case for a multaking a value-based view of tiyear contract is difﬁcult with post-sale services. the product and customer one-year budget dollars. lifecycle. This combines the value of the original equipment plus the services PBLs are not new to the department of defense. Howrequired to deliver the desired performance. This ever, the complexity and sophistication of the agreements does not work well if the business is not measured are evolving. They come in different levels, with many at and aligned consistently with this value stream the lower component management level, such as the manapproach. agement of tires and wheels. Fewer are at the full-system • Partner networks are forming to support capability level, but the Boeing C-17 Globemaster is post-sale services – General Norton Schwartz, approaching this level, and the F35 Joint Strike Fighter Commander of U.S. Transportation Command hopes to achieve it. (USTRANSCOM), summed up the partnership Performance-based contracts require theme at a recent defense logistics conference when customer and business alignment he stated, “It’s all about keeping promises to our Manufacturers wrestling with the evolution toward pertroops. Help us do this.” He was speaking about formance-based contracts must consider the maturity of the need to focus logistics and the supply chain on their customer base to accept these contracts. They must delivering capability to soldiers in battle, and not also look at whether their business model and supplier simply managing inventories of parts. relationships will support these contracts. Some of the important considerations include: A similar requirement exists in commercial indus• Customer demands vary where one size does not try where value chain networks are becoming more ﬁt all – Keeping the customer satisﬁed is an altru- prevalent due to outsourcing. Cisco gets an estimated istic goal, but don’t underestimate how important 90 percent of its final product from supply chain parta role this relationship plays in executing a perfor- ners. Boeing is in the process of creating its GoldCare mance-based service contract. Customer require- program to support the new 787 Dreamliner, where Plants, suppliers and partners Customers and consumers WWW.WORLDTRADEMAG.COM 49 http://WWW.WORLDTRADEMAG.COM

Table of Contents Feed for the Digital Edition of World Trade - August 2008

World Trade - August 2008 Contents Weathering the Storm Helping the World’s Poorest Nations Benefit from Global Trade Supply Chain Watch Tradewinds World Trade’s Top U.S. Trading Partners LTL Shipping ‘On the Fly’ Air Cargo Flies a New Heading Getting More from China Sourcing Why 3PLs Need a Seat at the C-TPAT Table Performance-based Supply Chains Drive Total Lifecycle Value SmartWay Navigates Sustainable Transportation Around the World in 80 Days—Hours—Minutes

World Trade - August 2008

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