BY LT GEN DR ANIL KAPOOR AVSM, VSM (RETIRED)
Introduction
- Equipment in the Armed Forces is exploited for over forty years unlike any other Organisation. Technology life cycles have condensed and disruption is the nom. In this long equipment exploitation time period the technology would upgrade over 20 times and upgrades in hardware and software would be a major cost centre in addition to MRO interventions. Procurement of equipment, therefore, based on the given two bid methods of quality cum cost based L1 /L2 etc could result in astronomically high Life Cycle Sustainment Cost. This has been the past practice the world over.
- Life Cycle Costing (LCC) is an economic analysis tool to determine the most cost effective option to procure, exploit, sustain and dispose off products. Simply put it is the cost of the complete iceberg (Figure 1 refers). The conventional procurement focuses on the initial cost of procurement, the Capital Expenditure (CAPEX), of an equipment which comprises the equipment, manufacturer recommended List of spares (MRLS), Specialised tools, specialised test equipment, training and warranty. LCC is the total cost of ownership or total expenditure which comprises Capex and Opex, to include life time operating cost, life time maintenance cost, cost of upgrades and major interventions including overhaul, disposal and residual cost. A number of statistical studies and mathematical models exist for life cycle costing but given the complexity of the equipment exploitation in varying terrains, climatic conditions, varying durations of exploitation from high surge in field to dormant in garage and many other tangible and intangible factors, it has remained in the realms of a study with limited application in real world. Technology and data analytics today can help graduate to a Life Cycle Costing Procurement Methodology.
Aim
- The aim of this article is to generate a thought process and ideation in favour of LCC, as a potential procurement best practice.
Taming the Elephant in the Room – LCC
- AUCRT. Accelerated User Cum Reliability Trials has been acknowledged as a well established practice for generating Maintenance, Repair and Overhaul data which gives an insight into risk modelling, fault modes and frequencies, recurring defects, facilitate product improvement and can give an insight to assembly /system life cycles and product life cycles. This data can be analysed for computing life cycle costs. A lot of data may already exist for equipment, specially imported equipment, which is under exploitation in another Armed Forces. Obviously, these data analytics tools can help derive Life Cycle Costing.
- Digital Twins. Technology and data are two sides of the same coin wherein data is the new oil and technology the new oil refinery. Any equipment today can be modelled and simulated as a digital twin. In fact, digital twins provide constant optimization in design, development and manufacturing of products. The digital twin eco system is data driven rendering value add virtual and physical products by complex modelling and simulation, real time data analytics with what if scenarios to make the product life cycle more predictable and agile. Digital twins can be repositories of multiple data models related to assets or products, humanising assets for condition based monitoring, manufacturing product improvement, supply chain and life cycle sustenance and services support. This is where OEMs must be motivated to upgrade themselves to embrace digital twins to impart digital velocity to LCC.
- Condition Monitoring Systems. Use of sensors, IoT and ICT technologies in systems and sub systems of assets help in humanising assets. Humanising asset implies asset assisted by the sensor based eco system talks and conveys data to announce its health condition.This condition monitoring systems will bring in asset health /condition visibility so important in enhancing mission reliability, reduce maintenance cost and aid in evaluating LCC.
- Gain – Pain Points in the Present System. The present system in vogue is a two bid system wherein the first technical bid is opened and the equipment of all qualifying OEMs is subjected to field based user and maintainability evaluation trials. Those which pass the muster are taken forward to the second commercial bid to arrive at the L1 vendor who is invited to meet the equipment needs of the Armed Forces. Simple as it may sound, it has its complexities, more so, in case the equipment is ex import. With the negative list of imported equipment in vogue, joint ventures have been concluded between Indian and foreign vendors to meet the capability needs of the Armed Forces. The major pain points are the high cost of MRLS which may be 10-20 % of contact value (in real terms for a complex missile radar system may be Rs300 Crores per system) most of which goes into slow /dead inventory, since no exploitation data is available or studied. The cost of training, technical manuals, SMTs and STEs all form part of the initial capital procurement. The exploitation of equipment during a standard two years warranty period may not be enough to get a realistic idea of the sustenance support challenges. Major intervention policies are defined in terms of vintage and exploitation, which adds to the maintenance costs and down times of overhaul, and those due to upgrades etc and hence, life cycle costs go high.
- Embrace LCC Through a Three Bid System. There is a dire need to incorporate into the LCC procurement committees experts in data science and hard core trained negotiators. These should ideally be SMEs trained on the aforesaid from MRO agencies or veterans (with Non Disclosure Agreement Legal Bonds) who have immense domain knowledge who may be hired as a Chair or Member or Advisor or Consultant to steer the LCC Procurement.
- The first technical bid is sacrosanct with exhaustive user and maintainability trials or preferably AUCRT to derive actionable data.
- The second bid by the vendor may be Life Cycle Sustenance (LCS) Data with KPIs listed. This data may be provided by the vendor based on actual exploitation in another country ,in case available and allowed, or experience based on design documentation and digital twin based modelling and simulation. Those vendors who qualify the first bid would be subjected to the Second LCS bid wherein the Committee will be augmented by the Trials Teams for data science based analytics. The Trial teams carry the conviction of the exploitation reality which can be checked with respect to vendor data. A time bound technology obsolescence forecast and upgradation of both hardware and software must form part of this analysis. Thus, the LCS will capture all events / interventions based on what if scenario data, as a work time maintenance plan, as envisaged by the OEM. In the foreseeable future, Digital twins and condition based monitoring systems will be embedded in the equipment and help in better systemic reliability and evaluation of LCC.
- The third commercial bid will have all elements of LCS built in to decide in favour of the best LCC equipment and the most optimum LCC vendor. This may be a good start point to build quality, Life Cycle Sustenance and Cost based Procurement. In high cost low volume procurements, the cost of equipment and post warranty AMC may be a good matrix for evaluating LCC.
- The three bids will decide the best vendor from a life cycle sustenance support perspective which is the major missing link and pain point in the present system.
- Performance Based Logistics (PBL) & Unravelling MRLS. MRLS is the biggest bug bear of PBL. Most of the Depots holding stocks of spares do carry a lot of slow moving and dead inventory which over a period of time becomes a huge cost centre. The cost of moving, maintaining, storing and holding costs only add exponentially and compound in costs with time. It would make perfect sense to contain the MRLS and dead inventory. A suggested model for the same may be analysed based on some important parameters:
- The warranty period may be extended to five years and a minimum inventory based on life cycle sustenance data , as war pack, may be only held with the requisite repair echelons akin to minimum stock level in the case of FOL.
- Based on the equipment exploitation including AUCRT / exploitation in exercises /actual ops adequate data for spares holding beyond war pack would be identified and indented as per LCS or a modified plan.
- The balance spares or erstwhile MRLS, be provided by OEM based on a legal binding akin to continued guaranteed reserve in FOL, This will sharpen the inventory and add agility to equipment readiness based on an assured PBL. This would entail that all foreign OEMS would need to conclude MoUs / Strategic partnerships for life cycle sustenance support which would get mandated in RFPs and, therefore, contracts. This will not only give momentum to Aatmanirbhar Bharat but also Make in India and reinvigorate the MSME Sector.
- This shall immensely enhance PBL.
Figure 1 Life Cycle Costs of Procurement
- Recommendations for Enhanced Procurement Effectiveness. Life Cycle Costing is an idea he time of which has arrived. Salient value added proposition to embrace LCC are given below:
- QLC – the Three Bid System Quality (Q), Life Cycle Sustenance (L), Cost (C) will be paradigm shift with better pay offs for capturing LCC.
- Digital twins and condition monitoring systems will lend better visibility to product development and life cycle sustenance support.
- All maintenance interventions will have better visibility and be optimised through just in time predictive & prescriptive condition based reliability centric maintenance with KPIs as against just in case cost prohibitive periodic preventive maintenance.
- All upgrades in hardware and software would have been pre-documented with triggers for implementation.
- Extended five years warranty and assured PBL will immensely aid Specific Measurable Agile Realistic just in Time (SMART) life cycle sustenance support through modified MRLS of war pack and continued guaranteed reserve with OEMs.
- Incorporating data scientists and hard core negotiators into LCC Committees for better impact.
- A Management Study Board is proposed through academia industry interface to prepare a blue print for change to LCC procurement model.
Conclusion
- Capital procurements (Capex) in the Armed Forces are the biggest enablers of capability development. Given the technology landscape, even cars and consumer products become redundant in a span of 10 years or so. However, given the complexities of the Armed Forces, changing an equipment profile entails an extraordinarily long useful life of 40 years after which obsolescence may take up to a decade to dispose an equipment. This entails a huge revenue expenditure (opex) of life cycle sustenance support. There is a dire need to capture the totex comprising capex -opex at the initial stage through life cycle costing. The academia and industry are rife given the huge push to Aatmanirbhar Bharat, Make in Indi and Start Up India to come up with a cost effective time efficient QLC model for LCC. Lets do it !
