by Joe Bauer
| September 25, 2014
“On 29 July 2003, the Acting Under Secretary of Defense (Acquisition, Technology
and Logistics) signed a policy memorandum entitled “Policy for Unique
Identification (UID) of Tangible Items – New Equipment, Major Modifications,
and Reprocurements of Equipment and Spares”. This Policy made UID a mandatory
DoD requirement on all new equipment and materiel delivered pursuant to
solicitations issued on or after January 1, 2004. USD(AT&L) issued verbal guidance
that tangible assets manufactured by DoD’s organic depots were to be considered
“new” items which fall under UID marking policy, beginning 1 January,
2005. An item is considered “significant”, and will be uniquely identified if: (1)
the acquisition cost (manufacturing cost for DoD depots) is $5,000 or more, (2) it
is either a serially managed, mission essential or controlled inventory piece of
equipment, or a reparable item, or a consumable item or materiel where permanent
identification is required, (3) it is a component of a delivered item, if the
Program Manager has determined that unique identification is required, or (4) a
UID or a DoD-recognized UID equivalent is available.” (www.acq.osd.mil)
To summarize the paragraph above, the Defense Logistics Agency is requiring all high-value and/or high-dollar components to contain some unique identifier, such as a special marking or bar code so it can be tracked throughout the acquisition life cycle. The latest requirement, involving semi-conductors, is for each component to be marked with DNA-based materials. Plant-based DNA material is gaining traction as a reliable identification / tracking mechanism. Whether or not it can be successfully applied to Department of Defense equipment is a matter of debate.
The requirement for Unique Identification (UID) is not new. In fact, the policy has existed for nearly ten years. We may be familiar with the concept and requirement for Unique Identification, but how has the implementation affected the way we estimate hardware?
According to a recent article by John Keller in the December 2012 edition of Military and Aerospace Electronics, our lack of understanding of the policy’s “cost” has begun to impact the quantity and quality of bidders for electronic materiel contracts. Specifically, the cost and difficulty in conforming to the plant-based DNA requirement for semi-conductors has reduced profit margins and increased the challenges of competing in the market.
As competitors choose to no longer submit bids for electronics and semi-conductor contracts, the higher-risk “parts brokers” will gain more market share. These brokers are considered to be a higher risk due to counterfeit or sub-par quality materiel making its way into the supply chain. The obvious risk here: “increase in critical system failures in military equipment, or even foreign manipulation of electronic parts without traceable pedigrees.” (Keller)
There is no doubt the UID requirement will add cost to DoD hardware components. The implementation cost may be the easiest to quantify. However, there will be hidden costs, as well. Consider the risk of supply chain stability, component failure, military readiness, just to name a few.
Is there a return on this investment? That is the goal. The UID program should result in lower logistics management costs, reduced Fraud / Waste / Abuse (FWA), and better data on spares requirements in the supply chain. The upfront cost in development and production should help reduce cost in the later stages of the acquisition life cycle.
The question on the estimator’s mind should be: How do I account for these costs? First, we have to understand there will be a discrete cost to implement the program. As preferred vendors decide to comply with UID requirements, it is nearly a certainty that the cost of implementing this process will result in higher unit costs. Sometimes, UID implementation is captured under a totally separate program funding stream. Other times, it must be accounted for within each estimate. It is policy, and avoiding the requirement will not make it go away.
Second, there will be additional risk associated with some components, such as electronics and semi-conductors. This risk may manifest itself through uncertainty on operational hours, Mean Time to Repair (MTTR) and Mean Time Between Failures (MTBF). How can TruePlanning® help? The ultimate solution may include a combination of discrete “Other Direct Costs” and adjusted risk ranges within the TruePlanning® framework.
Unique ID requirements pose a unique challenge to estimators. If you suspect UID requirements are not being captured adequately, discuss the requirements with your program manager. The earlier these risks are identified, the fewer surprises we will experience during the program acquisition process.