Outcome-Based and Performance-Based Contracts (Contract Engineering)
Outcome-based contracts are growing in popularity for both governmental and non-governmental acquisitions of critical systems. These contracts allow the customer to buy an outcome rather than purchase the system, and/or to buy the availability of the system rather than pay for maintenance. Performance-based contracting is a proven strategy that reduces costs and improves the quality of the product or service. Unfortunately, the contract design (if done at all) is nearly always performed separate from the engineering design process and provided (best case) as a requirement to the engineering design process. This process (or lack of process) creates significant risks for all parties.
Outcome-based contracts are used for defense systems (system-level performance-based logistics), energy generation (power purchase agreements), and civil infrastructure (public private partnerships). Performance-based logistics, in particular, has been used to significantly reduce system sustainment costs and increase system reliability. This research area focuses on optimizing outcome-based contracting arrangements and addressing barriers to their expanded use.
Research experience includes:
- Performance-Based Logistics (PBLs)
- Maintenance optimization under outcome-based contracts
- Design for availability
- Levelized Cost of Energy (LCOE) under Power Purchase Agreements (PPAs)sign for availability
- Optimization of renewable energy credits
Representative publications:
- Gansler, J.S. and W. Lucyshyn, HIMARS: A High Performance PBL, Naval Postgraduate School, August 2014gistics (PBLs)
- Lucyshyn, W. and J. Burdg, Performance Based Logistics: The Case of the Navy Aviation Tires Program, CPPPE, August 2014
- Lucyshyn, W., Performance Based Logistics: Addressing Impediments to Expanded Use, CPPPE, March 2015
- Lucyshyn, W., E. Forrest, and R. Rodgers, Applying “Smart Competition” to Performance-Based Logistics, CPPPE, June 2016
- Lucyshyn, W., J. Rigilano, and D. Safai, Performance-Based Logistics: Examining the Successes and Challenges when Operating in Stressful Environments, Naval Postgraduate School, July 2016
- Lucyshyn, W., J. Rigilano, Trends in Performance-Based Services Acquisition, Naval Postgraduate School, July 2017
- T. Jazouli, P. Sandborn, and A. Kashani-Pour, “A Direct Method for Determining Design and Support Parameters to Meet an Availability Requirement,” International Journal of Performability Engineering,
Vol. 10, No. 2, pp. 211-225, March 2014.
Life-Cycle Cost Modeling and Return on Investment (ROI)
Life-cycle cost (sometimes referred to as LCC) is the sum of all recurring and non-recurring costs over the complete life of a product or service. Life-cycle cost includes the design cost, manufacturing cost, installation cost, operating costs, maintenance and upgrade costs, the remaining (residual or salvage) value at the end of ownership or useful life, and disposal costs.
The factors that influence the total cost of ownership of a product or system are shown below. Generally the total cost of ownership captures all costs that are passed along to the owner or user through the product, system or service price; plus the infrastructure and business process costs borne by the owner or user. For low-cost, high-volume products, the manufacturer of the product seeks to maximize their profit by minimizing its cost. For higher-cost products, a more important customer requirement for the product may be the minimization of the total cost of ownership of the product.
For safety-, mission- and infrastructure-critical systems, it is not uncommon that only about a third of a system’s life-cycle costs are incurred during development and production; the remainder is incurred during operations and sustainment. However, a significant proportion of these costs are “built in” during the concept design stage, therefore it is important for the customers to understand all the life-cycle costs when making procurement decisions. This research area focuses on how to reduce systems’ lifecycle costs—both prior to their production and once they are fielded.
Representative publications:
- P. Sandborn, Cost Analysis of Electronic Systems, 2nd, P. Sandborn, World Scientific, Singapore, 2017.
- E. Lillie, P. Sandborn, and D. Humphrey, “Assessing the Value of a Lead-Free Solder Control Plan Using Cost Based FMEA,” Microelectronics Reliability, Vol. 55, No. 6, pp. 969-979, May 2015.
- Cost Analysis and Sustainment of Electronic Systems Blog
- Gansler, J.S., W. Lucyshyn and J. Rigilano, Toward a Valid Comparison of Contractor and Government Costs, Naval Postgraduate School, November 2011
- Gansler, J.S. , W. Lucyshyn, and L.H. Harrington, An Analysis of Through-Life Support – Capability Management at the U.K.’s Ministry of Defence, June 2012
- Gansler, J.S., W. Lucyshyn, and J. Lu, Fixed-Price Development Contracts: A Historical Perspective, Naval Postgraduate School, September 2012
- Gansler, J.S. and W. Lucyshyn, Cost As a Military Requirement, Naval Postgraduate School, November 2012
- Gansler, J.S. and W. Lucyshyn, Improving The DoD’s “Tooth To Tail” Ratio, Naval Postgraduate School, January 2014
- R. Bakhshi and P. Sandborn, “A Return on Investment Model for the Implementation of New Technologies on Wind Turbines,” IEEE Transactions on Sustainable Energy, vol. 9, no. 1, pp. 284-292, January 2018.
Long-term Sourcing
Due to the nature of the manufacturing and support activities associated with long life-cycle products, the supply of parts that products require must be dependable. However, the parts that comprise long lifetime products are susceptible to a variety of supply-chain disruptions. In order to minimize the impact of these disruptions on product production and long-term support, manufacturers can implement proactive mitigation strategies. Two mitigation strategies that have been shown to decrease the penalty costs associated with disruptions are: dual sourcing and buffering. Dual sourcing involves selecting two distinct suppliers from which to purchase parts over the life of the part’s use within a product or organization. Dual sourcing reduces the probability of part unavailability (and its associated penalties) at the expense of qualification and support costs for multiple suppliers. An alternative disruption mitigation strategy is buffering (also referred to as hoarding or safety stock). Buffering involves stocking enough parts in inventory to satisfy the forecasted part demand (for both manufacturing and maintenance requirements) for a fixed future time period so as to offset the impact of disruptions. Careful selection of the mitigation strategy (dual sourcing, buffering, or a combination of the two) is key, as it can dramatically impact a part’s total cost of ownership.
Research experience includes:
- Selection and source risk analysis
- Allocation (optimal part “buffering” and second sourcing)
Representative publications:
- H. Allison, P. Sandborn, and B. Eriksson, “On the Applicability of Analytical Supply Chain Disruption Models for Selecting the Optimum Contingency Strategies for Electronic Supply Chain Disruption Management: A Comparison with Simulation,” Proceedings of the ASME International Design Engineering Conferences & Computers and Information in Engineering Conference, Buffalo, NY, August 2014.
- V.J. Prabhakar and P. Sandborn, “A Model for Comparing Sourcing Strategies for Parts in Long Life Cycle Products Subject to Long-Term Supply Chain Disruptions,” International Journal of Product Lifecycle Management, Vol. 6, No. 3, pp. 228-249, 2013.
- V. Prabhakar and P. Sandborn, “A Part Total Ownership Cost Model for Long-Life Cycle Electronic Systems,” International J. of Computer Integrated Manufacturing, Vol. 25, Nos. 4-5, pp. 384-397, 2012.
Maintenance Optimization
Maintenance refers to the measures taken to keep a product in operable condition or to repair it to an operable condition. The term maintainability is used to denote the study and improvement of the ability to maintain products, primarily focused on reducing the amount of time required to diagnose and repair failures.
Research experience includes:
- Maintenance options (real options analysis)
- End of Maintenance analysis
Representative publications:
- G. Haddad, P. A. Sandborn and M. G. Pecht, “Using Maintenance Options to Maximize the Benefits of Prognostics for Wind Farms,” Wind Energy 17, pp. 775-791, 2014.
- D. Galar, L. Berges, P. Sandborn, and U. Kumar, “The Need for Aggregated Indicators in Performance Asset Management,” Eksploatacja i Niezawodnosc – Maintenance and Reliability, Vol. 16, No. 1, pp. 120–127, 2014.
- D. Galar, P. Sandborn, and U. Kumar, CRC Press, 2017.
- Konoza and P. Sandborn, “Evaluating the End of Maintenance Dates for Electronic Assemblies Composed of Obsolete Parts,” ASME Journal of Mechanical Design, Vol. 136, No. 3, March 2014.
Critical Skills Workforce Management
The loss of critical human skills that are either non-replenishable or take very long periods of time to reconstitute, impacts the support of legacy systems ranging from infrastructure, military and aerospace to IT. Many legacy systems must be supported for long periods of time because they are prohibitively expensive to replace. Loss of critical human skills is a problem for legacy system support organizations as they try to understand and mitigate the effects of an aging workforce with highly specialized, low-demand skill sets. The existing research focuses on workers that have skills that are obsolete and therefore need to be retrained to remain employable; alternatively our work addresses the system support impacts due to the lack of workers with the required skill set. We developed a model for forecasting the loss of critical human skills and the impact of that loss on the future cost of system support. The model can be used to support business cases for system replacement.
Research experience includes:
- Forecasting the impact of critical skills loss
Representative publication:
Obsolescence Management (Diminishing Manufacturing Sources and Materials Shortages – DMSMS)
The rapid growth of the electronic systems industry has spurred dramatic changes in the components that comprise electronic products and systems. Increases in speed, reductions in feature size and supply voltage, and changes in interconnection and packaging technologies are becoming events that occur continuously. As a result, many of the electronic parts that compose a product have a life cycle that is significantly shorter than the life cycle of the product they go into. A part becomes obsolete when it is no longer manufactured, either because demand has dropped to low enough levels that it is not practical for manufacturers to continue to make it, or because the materials or technologies necessary to produce it are no longer available.
Product sectors that involve safety-, mission- and infrastructure- critical systems are subject to lengthy and expensive certification/qualification cycles may be required even for minor design changes and systems are fielded (and must be maintained) for long periods of time. Such systems can derive significant cost avoidance from understanding the risk of obsolescence of their constitute parts, optimization of approaches when obsolescence does occur and planning/budgeting for design refreshes.
DMSMS research experience includes:
- Electronic part obsolescence forecasting
- Design refresh planning
- Lifetime buy (or life-of-need buy) optimization
- Software obsolescence
Representative publications:
- P. Sandborn, F. Mauro, and R. Knox, “A Data Mining Based Approach to Electronic Part Obsolescence Forecasting,” IEEE Trans. on Components and Packaging Technologies, Vol. 30, No. 3, pp. 397-401, September 2007.
- R. Solomon, P. Sandborn and M. Pecht, “Electronic Part Life Cycle Concepts and Obsolescence Forecasting,” IEEE Trans. on Components and Packaging Technologies, pp. 707-713, December 2000.
- P. Singh and P. Sandborn, “Obsolescence Driven Design Refresh Planning for Sustainment-Dominated Systems,” The Engineering Economist, Vol. 51, No. 2, pp. 115-139, April-June 2006.
- R. Nelson III and P. Sandborn, “Strategic Management of Component Obsolescence Using Constraint-Driven Design Refresh Planning,” International Journal of Product Life Cycle Management, Vol. 6, No. 2, pp. 99-120, 2012.
- D. Feng, P. Singh, and P. Sandborn, “Optimizing Lifetime Buys to Minimize Lifecycle Cost,” Proceedings of the 2007 Aging Aircraft Conference, Palm Springs, CA, April 2007.
- P. Sandborn, “Software Obsolescence - Complicating the Part and Technology Obsolescence Management Problem,” IEEE Transactions on Components and Packaging Technologies, Vol. 30, No. 4, pp. 886-888, December 2007.
- P. Sandborn, "Trapped on Technology's Trailing Edge," IEEE Spectrum, Vol. 45, No. 4, pp. 42, April 2008.
Counterfeit Part Management
Purchase of electronic parts from part manufacturers and its authorized suppliers is the lowest risk step in parts procurement. However, for various reasons, including part obsolescence, lead time requirements, or unavailability of parts from authorized sources, parts may be purchased from unauthorized sources such as independent distributors and brokers. There is a need for authentication and screening of parts purchased from such sources to verify their authenticity.
For research and publications see: