WASHINGTON — The U.S. Navy is trying to improve its readiness while reining in the rising costs of maintenance and modernization. While these goals can seem at odds, the service’s first stab at this effort allowed it to boost its fighter jet mission-capable rates from below 50 percent to 80 percent in 2019. The Navy said it revamped processes rather than throwing money at the problem.

The program marked the first implementation of the Performance to Plan (P2P) and Naval Sustainment System (NSS) initiatives, which apply best practices from commercial industry, create clear communication and responsibility between supported and supporting commands, and use data analytics to highlight problem areas and identify solutions. After this success, the Navy expanded the models to NSS-Shipyard — meant to boost on-time maintenance rates at the Navy’s four public shipyards — and NSS-Supply — meant to address the supply chain that provides spare parts throughout the fleet.

Rear Adm. Peter Stamatopoulos, the commander of Naval Supply Systems Command, sat down with Defense News to discuss how NSS-Supply aims to transform readiness generation throughout the fleet.

This interview was edited for length and clarity.

What role does NAVSUP play in the supply chain throughout the Navy fleet?

It’s been my observation that in the Navy’s journey over the past decade or so, we’ve longed for a supply chain integrator. And when often a question came up — “Who is the Navy’s supply chain integrator?” — that was a difficult question to answer for some. To me, it was very clear. To me, that answer is the Naval Supply Systems Command.

Our leadership, who have all served on ships, in aircraft squadrons, submarines, aircraft carriers — they really understand the relationship that the supply officer has onboard those commands and ships in supporting the engineer, deck division officer, operations, and what they bring to make a war-fighting team even better. The Naval Supply Systems Command and the experience of supply corps officers really can look all the way upstream, where things happen in program offices, and understand all the downstream effects that may occur — those that enhance operations at the tactical edge and those decisions that sometimes are made for a variety of reasons and circumstances which can be to the detriment of the weapon systems.

The vice chief of naval operations challenged us to take a look at end-to-end supply chains, so that’s where we stood up and devised the NSS-Supply and our six pillars that we’re organized around.

How does NSS-Supply compare to NSS-Aviation, which explicitly seeks to raise aircraft mission-capable rates, or NSS-Shipyard, which seeks to get ships out of maintenance faster?

It started off by going out and studying industry. We looked at a few companies that had developed some supply chain metrics. We’ve always heard of: What is the return on investment? We need to buy more parts; what’s the return on investment for buying more parts? We need to do more maintenance; what’s the return on investment?

I recall being a lieutenant on an aircraft carrier and thinking about these things. I would open up my business books [from college] and I would play with the various formulas and metrics, trying to come up with something that might work. We had the idea, we just didn’t know how to put it all together.

Now what we’ve done is we’ve developed a “Supply Effectiveness Figure of Merit,” which really looks at readiness through a cash lens. We can apply that SEFOM to airplanes; we can apply it to ships, to submarines; we can apply it to discrete weapon systems. Behind the formula — we’ll use the aircraft example — if we look at our F/A-18 fleet of aircraft, we count the entire fleet of F-18s. [In NSS-Aviation, only aircraft assigned to squadrons are counted, not the total inventory that includes aircraft in depot maintenance or otherwise in long-term repair efforts. NSS-Supply, on the other hand, looks at the entire inventory.] We then work to monetize the value of each aircraft over its life cycle. If an aircraft is going to last, let’s just say notionally for 10 years, how much did that airplane cost? What’s its replacement value? And we could get an annualized per-airplane value over its life cycle, and then we can look at how many of those airplanes are mission-capable. That’s the readiness.

On the other side of the equation, what did it take to achieve that readiness? How much cash was put in? We look at cost of goods sold in terms of what we pay our commercial vendors to support that aircraft, and then also our cost of goods sold for our organic repair capabilities in our fleet readiness centers or aircraft intermediate maintenance departments. And we can put a dollar value associated with how many people do we have, how much is our test equipment.

So for the first time we have the value of the F-18 inventory, and what that formula showed us was that for every dollar that’s put into that ecosystem, we get about 18 cents of readiness out of that. Now that sounds really, really small, but when you compare us to commercial: Some of the best performing airlines get 25 cents per dollar. So it’s 18 cents per dollar versus 25 cents per dollar. Even making a one-penny change in that direction is a huge gain when you’re talking about billions of dollars. We’ve set ourselves a five-year goal of improving by 5 cents, and those will be huge gains for the Navy. We’ve analyzed the data, we’ve looked at leverage points throughout the end-to-end supply chain, and we have a really strong sense of what we can do over time to get greater readiness out of the dollars that we’re putting in.

What are those leverage points in the aircraft readiness example?

One of our six pillars is called demand management. The demand management pillar is led by Vice Adm. Kenneth Whitesell, the commander of Naval Air Forces, and by the commander of Naval Air Systems Command, [now-Vice Adm. Carl Chebi, who took command of NAVAIR on Sept. 9], and supported by a vanguard of supply officers, maintenance officers in uniform, and then also government civilians and contractors.

One of the things that we did is we looked at reliability. Although we’ve had a Reliability Control Board for the last couple of years, we took it a step further and linked that reliability all the way down to the squadron level. We can start to see through data analytics how each aircraft is performing in terms of the amount of parts it’s consuming. We found several instances where we could improve the reliability of a component, or we found out that certain airplanes or lots of airplanes were demanding more parts because the parts weren’t lasting as long as what we thought they should last on the wing. That drove further causative analysis down at the deck plate level, which has really freed up and resolved some problems for us.

That’s demand management: We found out that there are some things that we can do to change maintenance practices that would reduce the demand; you don’t order as many parts, don’t require as much maintenance. We can actually adjust our demand models to reflect that we end up buying fewer parts.

An important component of NSS is identifying supported commanders versus supporting commanders, and clarifying that relationship to ensure clearer accountability and decision-making. What’s the relationship between NAVSUP and the NAVAIR or Naval Air Forces team, for example, since you’re the supported commander in NSS-Supply, but they are the supported commanders in NSS-Aviation?

In my day job at Naval Supply Systems Command, I make it clear to all the Navy that I am supporting to each one of the type commanders, each one of the fleet commanders, each one of our commanding officers in our squadrons and on our ships. I support them every single day. And that’s our focal point.

However, when you take a step back and you look across aviation, surface, submarine, aircraft carriers, nuclear, we can start to see some broader supply chain trends. That’s really what we’re starting to illuminate and get after because we’ve energized a supply and maintenance vanguard across all these communities. And so while they’re making step-change improvements in the business processes of fixing airplanes, of getting ships out of their availabilities on time, we can come in and look at some of the supply chain threads that go through all those key activities and operations. We can start to see where improvements can be made upstream, where if we can make upstream improvements, it’s actually way more cost-affordable to do and will drive effects downstream.

So as the supported commander in NSS-Supply, we have set targets for each of those supporting commanders: targets in demand management aviation, targets in demand management surface, targets in our reshaping of the industrial base, targets in our increasing of end-to-end velocity or repair turnaround times. Then we hold ourselves accountable. We decide what the metrics are going to be that we look at. We all agree upon those, and we set ourselves really aggressive stretch goal metrics that, frankly, many of our teams believe are completely out of reach. As we start to dive deep into these areas, we’re just seeing incredible gains that they’re making.

The goal to reach an 80 percent mission-capable rate for fighter jets was set for the Navy and the Air Force by former Defense Secretary Jim Mattis. Why was the Navy able to make rapid improvements in aircraft readiness when the Air Force couldn’t and ultimately dropped the goal?

The way that we fight at sea and from the sea from aircraft carriers and amphibious ship decks, we have to know our business. That’s been one of the motivating factors behind this — to really be able to think about what’s happening at the pointy end of the spear [and ask]: How can we keep those airplanes mission-capable because they’ll be operating likely in a contested environment?

We may have very long lines of communication for resupply; we’ve got to do all the fixing that we can at the tip of the spear, and then we have to be supported throughout that end-to-end supply chain back into the industrial base, to be able to make sure that we have the throughput of parts that are coming out and the return of non-ready-for-issue parts that are consumed at sea.

Vice Chief of Naval Operations Adm. Bill Lescher has talked about “embracing the red,” or shining a light on areas that aren’t performing well and seeking help in improving, rather than being afraid to acknowledge poor performance. What does embracing the red mean to NSS-Supply?

First of all, we find the red all over the place. We’ve got a $37 billion inventory, and we’ve got over 1,000 vendors. It begins with being able to see ourselves clearly. Every commander wants to understand: What does the operational environment look like? That’s what we’re really doing, looking at that operational environment. Then, as we look at our metrics that we’ve had, some of these traditional metrics, some are green and some are red. But as we start to dissect through looking at an end-to-end supply chain, we’re seeing that maybe we don’t have the right metrics; maybe some of the metrics that the commercial industry is using, they have great utility.

But when we embrace the red, it allows our teams to know that they can go after a problem and work together to figure it out. We want to have tough, candid conversations with each other. It’s empowered all levels of our workforce to be able to work together. I think the most transforming piece is that culture shift is allowing us to work across other commands, rather than pointing fingers at one another.

Megan Eckstein is the naval warfare reporter at Defense News. She has covered military news since 2009, with a focus on U.S. Navy and Marine Corps operations, acquisition programs and budgets. She has reported from four geographic fleets and is happiest when she’s filing stories from a ship. Megan is a University of Maryland alumna.

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