White paper discusses Giuntini & Co.\'s \'Trailing Edge Technology Business Model\' for use in logistics consulting and military COTS.

1. The Trailing Edge Technology Business
Model: A Paradigm Shift for the Acquisition and Product
Support of COTS Configured Weapons Systems
By Ron Giuntini
Principal, Giuntini & Company, Inc.
Giuntini & Company, Inc. 1/6 2010

2. Over the last several years there has been a marked increase in the use of Commercial-
Off-The-Shelf (COTS) components in configuring new weapon systems. This initiative
has been driven by Commanders in-theatre requiring the rapid fielding of new weapon
systems to fight a new type of enemy. The traditional approach of sourcing components
that are Developmental Items has been recognized by Program Manager (PM) Offices as
being much too lengthy to meet the urgent needs for most new weapon systems; our
Special Forces commands have been the most aggressive in using COTS based weapon
systems. COTS items have been identified as the solution to field a weapon system
quickly and relatively inexpensively.
System integration efforts are typically higher for COTS based systems compared to
those of Development Item based systems, but due to the materially lower unit costs of
COTS items, the overall weapon system is often an attractive value proposition to the PM
Office.
Note that there is also a macro-issue that is driving greater use of COTS items; the
commercial market dwarfs that of the defense community and contractors have been
more and more “forced” to look for COTS solutions for their customers. In 1980 US
defense costs were approximately 10% of GDP. By 2000 it had dropped to about 3.2%
and now is at about 3.8% due to our current conflict in Southwest Asia. It is estimated
that in five years, due to the reduction in the current conflict and a continually growing
economy, defense expenditures may fall below 3.2%. From all indications, COTS items
will come to dominate most US defense weapon system acquisition programs.
The majority of PM Offices, working closely with contractors, have been very effective
in providing field commanders with COTS based solutions. The PM’s track record in
being efficient in dealing with the upgrading of COTS products, as well as in dealing
with the product support of a system, has been at a lower level of performance compared
to that of acquiring the system. Joint PM Offices have been the most challenged in
dealing with these shortcomings. The Congressional passage of the Weapon System
Acquisition Reform Act (WSARA) of 2009 is direct result of attempting to address these
cost overrun issues.
Note that as a result of an abundance of supplemental funds to pay for system acquisition,
as well as for paying for a good part of the product support processes employed during
the early years of a fielded system, most PM Offices have had little pushback from
leadership regarding the often unfavorable variance from planned Total Ownership Cost
(TOC); a good fitness report for an O5/O6 is still being primarily driven by the
effectiveness of fielding a new weapon system.
As supplemental funds begin to decrease in the next one to three years, due to many
Giuntini & Company, Inc. 2/6 2010

3. reasons, many of the acquisition/product support business models crafted by the PM
Offices will begin to be severely challenged due to a reduction in the amount of funds
that a PM Office is able to utilize to deal with “problems;” system availability levels will
decrease and product support costs will increase. Unfortunately, the PM who had crafted
the business model for the COTS based system will have long been gone, leaving the
current PM and Product Support Manager/ILS Lead in the PM Office to cope with
multiple challenges.
Vice Admiral Mark Edwards, Deputy of Naval Operations for Communications
Networks (N6) in April 2008 stated below his opinion regarding the promise of COTS
technology and the reality of the acquisition and product support processes.
"Millennium sailors were born with laptops in their hands...but when we get them into the
Fleet, the disconnect between what they were promised and what they find will be
profoundly disappointing--a veritable bait-and-switch scheme. They will discover that
our ‘leading-edge-off-the-shelf’ and ‘state-of-the-art’ technology is at best ancient....”
The two-way communication bandwidth of a single BlackBerry is three times greater
than the bandwidth of the entire Arleigh Burke destroyer. Looked at another way, the
Navy's most modern in-service multi-mission warship has only five percent of the
bandwidth we have in our home Internet connection.... By the time it gets to the people
who need it, it is already out of date.
The important point that the Admiral was making is that our men and women in uniform
are often technology savvy for COTS items; it is what they use as consumers on a day-to-
day basis. Think PC, think router, think cellular phone and think GPS. Young adults, the
majority of military personnel, have been conditioned as consumers to replace their
technology every one to two years. When members of our volunteer military see COTS
technology, which they know is three to seven years-old, they can easily feel that they
have been “betrayed” in not being provided with the latest and greatest technology to
fight our enemies. As for Developmental Items, our soldiers have had none or very little
experience as a consumer and cannot equate whether an item is in fact state-of-the-art.
Note that Al-Qaeda can cruise the internet for new COTS technology, place an order with
a credit card and have it delivered via DHL to their country of choice within 48 hours. It
is not hard to see why our Warfighters are confused as to understanding why our PM
Offices cannot have similar flexibility.
To summarize the above, it is the belief of the author that a new business model must be
created for the acquisition/product support of COTS based weapon systems; the
processes employed in this new business model must be effective and efficient over the
life of the weapon system.
Below are some of features of this concept, referred to as the Trailing Edge Business
Model:
• COTS items employed during the manufacturing process would be in a not-new
Giuntini & Company, Inc. 3/6 2010

4. condition: repaired, refurbished, or overhaul conditions resulting from a lease
return or warranty return. COTS products lose 75% of their value within 18
months after being produced, thus a $1,000 computer is worth about $250 after 18
months. The strategy proposed is to acquire 18 month old not-new COTS
products for $.25 on the dollar of the planned acquisition cost during the
production stage and take the “extra”$.75 and use it for future not-new condition
upgrades to be performed every 18 months. Below is the series of actions
comparing to the legacy approach for managing COTS based systems versus that
of a new business model.
o Legacy business model
1. Acquisition budget is $1,000
2. Employ $1,000 new condition COTS in production process on 1-1-10.
Item was manufactured on 1-1-10
3. On 7-1-14, warfighter is employing a technology that is 4.5 years old,
based upon an expenditure of $1,000
o New business model
1. Acquisition budget is $1,000
2. Employ $250 not-new COTS in production process on 1-1-10. Item
was manufactured on 7-1-08
3. Employ $250 not-new COTS in upgrade program on 7-1-11. Item was
manufactured on 1-1-10
4. Employ $250 not-new COTS in upgrade program on 1-1-13. Item was
manufactured on 7-1-11
5. Employ $250 not-new COTS in upgrade program on 7-1-14. Item was
manufactured on 1-1-13. The result above is that the warfighter, after
4.5 years of the COTS item being fielded, employs a technology that is
1.5 years old, based upon an expenditure of $1,000.
This approach has been embraced by DoD in the past; the Navy has utilized a
similar concept for their acquisition of sonar COTS items.
• The repair costs of reparable Line Replacement Units (LRUs) employed during
the Product Support Stage of the lifecycle of a weapon system would be
Giuntini & Company, Inc. 4/6 2010

5. materially reduced as a result of the acquisition of not-new COTS items versus
the repair of COTS items. Below is the series of actions comparing the legacy
approach for managing COTS based systems versus that of a new business model.
o Legacy business model
1. Impaired reparable LRU has a new condition acquisition value of
$1,000 and was manufactured 07-06
2. Normal Beyond Economic Repair (BER) rate, as a percent of
acquisition value, is typically 65% or $650
3. Item received requires $400 of repair on 03-10, is repaired and is
inducted into an exchange pool of reparable LRUs
4. Repaired item is employed by maintainer on 07-10. 48 month old LRU
is now employed on system
o New business model
1. Impaired reparable LRU has a new condition acquisition value of
$1,000 and was manufactured 07-06
2. Beyond Economic Repair (BER) rate, as a percent of acquisition
value, is 25% or $250
3. Item received has an estimated repair cost of $400 on 3-10. Item is
classified as BER, not repaired and a not-new item is acquired for
$250. The acquired item was manufactured on 9-08 and is inducted
into an exchange pool of reparable items.
4. Repaired item is employed by maintainer on 07-10. Twenty-two
month old LRU is now employed on system for $250
The new business model also materially reduces Diminishing Manufacturing
Sources/Material Shortages (DMS/MS) issues.
This new business model requires great attention to the details of execution. It is perfectly
positioned to be employed in an outcome-based/PBL construct. It is time that DoD
leadership begin to think out-of-box in order to assure that our Warfighters have close to
the most advanced technology that is available for COTS items.
Giuntini & Company, Inc. 5/6 2010

6. About Us
Giuntini & Company, Inc. is a 20 year-old management consulting, education and
research organization focused on assisting military and commercial sectors develop and
implement outcome-based product support business models. We are Subject Matter
Experts (SMEs) in Product Support financial analysis, Performance Based Logistics
(PBL), service parts planning and organizational development.
Our mission is to assist our clients to favorably impact the availability level, reliability
level, Total Ownership Cost (TOC), support resource footprint and capability level of a
product for an end-user. Products for the defense sector include weapon systems of
systems, weapon systems, weapon subsystems, non-embedded software and weapon
support systems. Products for the commercial sector are referred to as capital goods,
equipment, fixed investments, machinery or others.
We work closely on the military side with Program Management Offices, Life Cycle
Management Commands and Contractors, as well as work with an OEM’s Business
Development, Customer/Product Support and Financial organizations on the commercial
side.
Giuntini & Company, Inc. has assisted in Product Support for General Dynamics,
Lockheed Martin, L-3, Flir, DynCorp, Navistar, BAE Systems, Northrop Grumman, ICx,
Oshkosh, Rockwell Collins, Bell Helicopter, US Army, USMC, US Navy, FMC
Technologies, DRS and many others.
Ron Giuntini
Principal, Giuntini & Co.
570.523.0992
ron@giuntinicompany.com
www.giuntinicompany.com
Giuntini & Company, Inc. 6/6 2010