PEO Ammunition creates greater flexibility to procure medium-caliber ammunition with an innovative acquisition strategy to make ‘family buys,’ reducing ammunition costs and keeping its industrial base warm.
By Maj. Edwin Churchill
As the pace of combat operations has become widely variable, the Program Executive Office for Ammunition (PEO Ammunition) has created the flexibility to quickly ramp up medium-caliber ammunition production in response to rapidly changing requirements by having multiple manufacturing sources with warm lines.
With the Medium Caliber Family acquisition (MCFA) strategy, PEO Ammunition is focusing on key capabilities specific to the production of medium cannon-caliber ammunition, reducing the administrative costs of the contract vehicle and maximizing the buying power of the combined services’ requirements. Through long-term strategic planning and a novel view of the acquisition planning process, the MCFA revamped the conventional methods of acquiring cannon-caliber ammunition for the Army and its sister services.
While the MCFA was designed to specifically address the security of critical capabilities in the medium-caliber ammunition industrial base, it also holds potential for PEOs across the Army as they deal with budget constraints. The strategy recognizes the realities of fiscal austerity; instead of fighting for more funding to maintain the status quo, it focuses on maintaining the production capabilities needed to operate within a tight budget.
PEO Ammunition’s Product Director for Medium Caliber Ammunition team looked within its operations to identify inefficiencies, such as multiple contract vehicles and their administrative costs, then took action to eliminate those areas of waste, bucking “business as usual.”
In July 2005, the PEO authorized its Project Manager for Maneuver Ammunition Systems (PM MAS) to establish a Product Manager for Medium Cannon Caliber Ammunition (PM MCC) to provide life-cycle management of combat and training ammunition for 20 mm, 25 mm and 30 mm caliber ammunition. In 2010, PM MCC was designated as the Product Director for Medium Caliber Ammunition (PD MC) with the addition of the 40 mm Grenade Program. Given that PEO Ammunition serves as the single manager for conventional ammunition, PD MC is responsible for procuring medium-caliber combat and training ammunition for the Army, Air Force, Navy and U.S. Special Operations Command.
When the PD MC office was established, all types of medium-caliber ammunition were being procured as single items for a single year’s budget. There are dozens of different types of ammunition in PD MC’s portfolio, and each had its own contract vehicle for procurement. Contracting and ammunition prime contractors could only react to the release of the Army budget as well as the release of funds for execution from various joint-service program offices. This acquisition approach required immense resources from the program office as well as from multiple contracting personnel at U.S. Army Contracting Command – Rock Island [IL], the Joint Munitions Command and the Defense Contract Management Agency.
In late 2007 and early 2008, the United States was in the middle of the Iraq surge and had a second major front in Afghanistan. While the ammunition industrial base was healthy in the short term, it had the potential to become extremely unstable. The medium-caliber training ammunition stockpiles were filled and, in some cases, exceeded inventory authorizations. In addition, the Army and sister services’ operational tempo had drastically reduced the amount of available training time, which led to decreased use of training ammunition.
These two factors were leading to decreased funding for training rounds to be available in the out-years. Although the military was still engaged on two separate fronts, the operations in Iraq and Afghanistan were meeting with increased public and political resistance, contributing to a strong expectation that operations would diminish significantly in scope or end outright in the next five to eight years.
As the combat efforts diminished, the expenditures of tactical ammunition would also decline. Since the tactical stockpiles had already been replenished with supplemental funds for overseas contingency operations and by reprogramming, the funding for medium-caliber tactical ammunition would also see a major reduction.
THE FAMILY BUY STRATEGY
The PD and deputy PD, in conjunction with the PM MAS team, conceived a new method of acquiring medium-caliber ammunition as a “family” as opposed to individual cartridge types. MCFA was designed to preserve and protect the shrinking medium-caliber industrial base by consolidating all medium cannon-caliber rounds into one buy and restricting the competition to the only proven suppliers with the capability to produce all of the rounds.
To further protect the industrial base, all awards and options would be based on maintaining key production capabilities to reduce production risk to suppliers and sub-tier suppliers. This strategy would also reduce administrative costs to the U.S. government and maximize the buying power of the combined services’ requirements through economies of scale, resulting in lower unit costs.
The national technology and industrial base (NTIB) is responsible for the production of high-quality medium-caliber ammunition in an efficient, timely and affordable manner. The NTIB had developed significant capabilities and capacity during the previous five years. But, with growing uncertainty and reduced budgets as well as unknown requirements for tactical and training rounds, the NTIB for medium-caliber ammunition production faced tough decisions.
If the government’s requirements for ammunition fell too low, it was likely that the ammunition producers would consolidate or go out of business entirely. Such a contraction in the NTIB could lead to multiple single points of failure, as well as significantly reduced capacity in the United States or the complete loss of U.S.-based suppliers.
The single most important facet of the MCFA was the protection of the NTIB’s critical capabilities for producing medium-caliber ammunition for DOD. Critical capabilities are those functions that require defense contractor proficiency to produce the medium-caliber ammunition to exacting standards and precision.
The program office gathered the subject-matter experts in medium-caliber ammunition and created a list of eight critical capabilities: 20 mm load, assembly and pack (LAP); 25 mm LAP; 30 mm x 113 mm LAP; 30 mm x 173 mm LAP; mechanical and pyrotechnic fuze design and production; high-explosive pressing; and cartridge trace. There were only two NTIB contractors with the requisite facilities and expertise to handle all eight critical capabilities.
The MCFA consolidated all medium-caliber ammunition items under a multiple-award, indefinite-delivery indefinite-quantity (IDIQ) contract and included contract language to allow for industrial base considerations to ensure dual-source capabilities for the identified critical capabilities. This methodology allowed the Army not only to consider price, but also to make awards to mitigate the risks of creating a single-source producer for any one capability. The MCFA also improved economies of scale and reduced administrative costs for the government and the contractors. It ensured that the significant reduction in all services’ requirements did not negatively impact unit prices or critical capabilities.
Before the MCFA, there were 22 separate contract vehicles to control the production of the 33 medium-caliber rounds. The MCFA approach consolidated Army and sister-service requirements into one, resulting in the award of two IDIQ contracts for all tactical and training ammunition over a five-year period (FY13-17) with a total ceiling of $1.5 billion.
As a result of the MCFA, the NTIB for medium-caliber ammunition has sustained dual-source capabilities for all eight critical capabilities and has maintained the lines and facilities to produce all required medium-caliber ammunition for DOD. This provides flexibility in the manufacture of medium-caliber ammunition through the availability of warm production lines operating below their capacities. As stated in the 2014 Army Strategic Planning Guidance, “it is inevitable that there will be a next crisis at an unanticipated time, in an unforeseen place, unfolding in an unforeseen manner, requiring the rapid commitment of Army forces.”
In ammunition, it can take 36 to 60 months and millions of dollars to stand up a capability from a nonoperational line. The MCFA strategy created the ability to respond rapidly to the changing operational requirements of warfighters through multiple sources with warm lines. Through careful management of the critical capabilities in the NTIB, the government protected more than $100 million of its prior investments.
The MCFA also provided the product director a means to create economies of scale when purchasing medium-caliber ammunition. Instead of having to buy small, individual lots of ammunition for each service, the office was able to combine the services’ requirements into larger lots, which lowered the ammunition unit cost. Also, combining the services’ orders tempered the volatility of one service’s requirements through the others’ orders, allowing steady operations for the NTIB ammunition producers. The economies of scale also created a cost avoidance. For example, component-level first article tests (FATs) for like cartridges now are done once, instead of each time a purchase is made on an individual contract, which avoids the expenditure of $20,000 to $50,000 per FAT, depending on the component.
Another advantage of implementing the family-buy strategy was to lessen the administrative and managerial burdens with the reduction in contracts from 22 to two. Previously, each time a contract clause changed for the medium-caliber ammunition, the change had to be made to 22 separate contracts. The MCFA strategy also reduced acquisition cycles because the primary contracting officer had to handle only two contracts. Based on the average cost for administering a contract, the MCFA strategy of consolidation saves an estimated $3.5 million annually.
Through strategic foresight and careful planning, the PM MAS team and its newly created product office created an innovative solution that protects the PEO’s ability to procure the most lethal, accurate and reliable medium-caliber ammunition in the world for the Army and its sister services. The MCFA strategy ensures the flexibility to ramp up production immediately to respond to future contingencies. The end result of the MCFA is a protected, stable industrial base capable of producing the highest-quality medium-caliber ammunition for the warfighter, now and into the future.
MAJ EDWIN CHURCHILL is the assistant product manager for medium-caliber ammunition for PM MAS, Picatinny Arsenal, New Jersey. He holds an M.S. in management science and engineering from Stanford University and a B.S. in mechanical engineering from San Diego State University. He is Level II certified in program management and Level I certified in systems planning, research, development and engineering.
This article was originally published in the October – December 2015 issue of Army AL&T magazine.
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