supplier management v4.0_11_mar_12
TRANSCRIPT
Supplier Management Module 5 ACQ-315
Jeran Binning
(Lesson 5) Given a company contract award scenario and corporate goals, students will identify and assess a company’s management challenges in optimizing prime contractor relationships and decisions in shaping and managing its supply chain.
Lesson 5: Supplier Management (Tuesday Afternoon 1500-1630) Learning Outcomes: Given a company contract award scenario and
corporate goals, students will identify and assess a company’s management challenges in optimizing prime contractor relationships and decisions in shaping and managing its supply chain.
Explain industry strategies to support system sustainability. Describe prime contractor methods used for task and risk flow down. Explain supplier management impact on company margins. Identify company resources needed for subcontractor management. Identify risks and financial considerations for various make-buy decisions to
include company motivation to outsource scope. Describe prime contractor financial gains and reduced risks from managing
“pass-through” to a subcontractor/supplier. Explain company management of critical supply chain priorities across the
several programs. Describe agreements on data rights and licensing in protecting a company’s
intellectual property
ACQ-315 Excercise The instructor briefs the Supplier Management concepts in the
Thursday morning session.
Use of segments of LOG 340 will be included but adjusted for an industry perspective.
Industry motivations to engage in product support activities will address impacts on market opportunity and company margins.
An overall supplier management process will emphasize issues related to supporting both a manufacturing production line as well as sustaining an aging, legacy system.
The legacy system may be experiencing rising sustainment costs, declining availability, obsolescence issues, and the need for modifications/upgrades/new capabilities.
Case Study Activities: The instructor will introduce a short
Case Study to demonstrate financial gains and risks for managing supply chain subcontractors on a program to include business acumen considerations through subcontractors.
Table teams will be split up representing a prime, sub (large company), and sub (small company). Instructor will note facilitated student offered business challenges and risks for their companies.
Content/References:
Content available is 20% principally using LOG-340 framework. References include LOG-340 Student Guide, commercial supply chain whitepapers provided on K:\LCIC\Business Acumen\ACQ 315\8 Supplier Management.
Learning Outcomes 8.1 Explain industry strategies to support system sustainability.
8.2 Describe prime contractor methods used for task and risk flow down.
8.3 Explain supplier management impact on company margins.
8.4 Identify company resources needed for subcontractor management.
8.5 Identify risks and financial considerations for various make-buy decisions to include company motivation to outsource scope.
8.6 Describe prime contractor financial gains and reduced risks from managing “pass-through” to a subcontractor/supplier.
8.7 Explain company management of critical supply chain priorities across the several programs.
8.8 Describe agreements on data rights and licensing in protecting a company’s intellectual property.
Skill Set is Complex! contact Nick Little at MSU.8
Conclusion International business supply chains provide the structure for the new
world of globalized business. Much of U.S. international trade is conducted by globalized supply chains.
For public policy, supply chains affect the magnitude of impact for fiscal stimulus packages and also the incidence of trade policy.
Supply chains also are affected by the range of policies that have an impact on the competitiveness of U.S. business.
Whether taxes, environmental regulations, labor policy, or shipping security, business supply chains are directly affected by changes in the business environment, whether in the domestic or foreign markets.
In the world of globalized supply chains, a policy aimed at imports, may actually hit U.S. parented supply chains as well as foreign companies and countries.
Public policy affects businesses in two distinct ways. The first is in the environment for business or the economic, political, and social crucible in which it operates.
This includes a wide range of factors including basic institutions of private property, commercial law and rights, market access, rights of establishment, national treatment, border barriers, exchange rate policy, protection of intellectual property, infrastructure, education and training of workers, energy policy, the climate for innovation, political governance, and the panoply of policies aimed at the general climate for business that all companies face.
The second way that public policy affects business is in actions that affect the internal operations of companies.
These are actions that directly affect costs of production and profitability, and may include tax policy, specific customs duties, wage and employment policies, accounting and reporting rules, health and safety requirements, specific environmental requirements, and product safety.
Some policies affecting the general business environment, such as energy costs and subsidies for research and development, also affect internal costs.
The development of global supply chains adds another dimension to the impact of public policy.
This appears in the incidence (who is affected) by policy. Since manufacturing processes now have become fractured, the incidence of policy likewise has become fractured.
A supply chain consists of a domestic parent, domestic suppliers, foreign suppliers, and a community of supporting functions that include logistics, supply chain management, and quality assurance.
Public policy may provide incentives or disincentives for supply chain parent companies to establish and retain their headquarters in the U.S. market. This applies both to historically American companies and to foreign companies that may locate regional headquarters in the United States.
Public policies favorable to business in the United States also may induce both American and foreign-owned supply chains to locate more segments of their supply chains in the United States (and vice versa).
Dow Chemical Model One example of how public policy may enter into business
decision making to determine where to manufacture product is an analytical tool reportedly used by Dow Chemical.
Dow has manufacturing capacity in several countries and can move production from location to location on short notice.
The company has used a linear programming model25 that takes account of international differences in exchange rates, tax rates, and transportation and labor costs to determine the best mix of production by location for each planning period.26
The company is able to respond quickly to government policies that may affect exchange rates, taxes, or other cost factors.
iPod Supply Chain
Major Policies Affecting Global Supply Chains Taxation
Trade and Investment Policy
Labor and Health Care Costs
Environmental Regulation
Currencies and Exchange Rates
Infrastructure and Transportation
Product and Food Safety
Education and Training
Protection of Intellectual Property
Risks
Fiscal, Monetary, and Industrial Policies
Taxation Numerous other tax provisions affect U.S.
businesses and their manufacturing decisions.
The taxation of income by Americans working abroad, the rate of taxation of corporations, various tax incentives or rebates aimed at promoting specific desired activities (such as technological change), the taxation of corporate dividends, and other tax-related issues are being debated widely.
These are beyond the purview of this report.
Trade and investment policy
Global supply trains could not exist without international trade.
Traditionally, trade and investment policy deals with border barriers.
These include customs duties, import quotas, the freedom to move capital across borders, and the right to establish businesses (including taking over an existing company) in a given country.
The development of globalized supply networks does not alter the role of traditional trade and investment policies.
Labor and Health Care Costs Labor Costs Labor costs are one of the most controversial aspects of
globalized manufacturing chains.43 The argument is that U.S. companies are “shipping jobs overseas” or “outsourcing jobs” in search of cheap labor to reduce costs of production.44
In 2007, for example, hourly compensation costs for production workers were
$37.66 in Germany $24.59 in the United States, $28.91 in Canada, $16.02 in Korea $2.92 in Mexico, $0.81 in China (2006 data)
Health Care In the United States, much of health care is provided
by employers, so health care costs have become an integral part of labor costs.
The costs for health care in the United States are the highest in the world.
The Congressional Budget Office (CBO) estimates that spending on health care and related activities will account for about 17% of gross domestic product in 2009 ($2.6 trillion or $8,300 per capita) and under current law CBO projected that share to reach nearly 20% ($13,000 per capita) by 2017.57
Environmental Regulation As with labor issues, environmental regulation both as
applied to businesses in the United States and as contained in various international trade and other agreements tends to be quite controversial.
The issue for governments is how to find a balance between three potentially conflicting objectives:
security of supply,
industrial competitiveness, and
environmental sustainability.
Currencies and Exchange Rates
Infrastructure and Transportation One part of infrastructure and transportation that is critical to
global supply chains seems to be oceanic shipping and air freight.
The oceans are no longer a barrier that isolates and protects countries.
Instead, modern communications and transportation have brought markets of the world onto each other’s doorsteps.
The oceans and skies have become avenues of interaction rather than barriers of separation.
Shipping, however, raises certain issues for public policy. These revolve around risks in the supply chain, particularly costs, security risks and delays in shipping.
Transportation In 2007, the Global Supply Chain Council in Shanghai conducted
a survey of international companies there dealing with secure logistics. The respondents indicated that security in logistics had become an important element in their strategy and operations. Many of the companies surveyed had reorganized their international supply chains to comply with new international regulations, such as the Container Security Initiative.
In addition, many technological initiatives had been launched that were aimed at improving the security of the supply chain. These included the use of radio frequency identification, E-seals (physical locking mechanisms with technology to detect and report tampering), satellite supported tracking of containers, electronic locks, image recognition devices, and biometric identification.
Intellectual Property Chinese counterfeits include many products, such as
pharmaceuticals, electronics, batteries, auto parts, industrial equipment, toys, and many other products, that may be exported and could pose a direct threat to the health and safety of consumers in the United States.
Inadequate IPR enforcement is a key factor contributing to these shortcomings. China has high criminal thresholds for prosecution of IPR violations as well as difficulties in initiating cases.
This arguably results in limited deterrence. Civil damages are also low.
Deutsche Bank
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 007/05/2010
A Wall St Perspective on the Defense Industry November 2010
Myles Walton, PhD, CFA [email protected]
617.217.6259
Incentives Give You A Clue to Actions
27
28
Dealing with the Downside of a Budget Cycle: Follow the Customer or the Technology?
• Strong Balance Sheets And Declining Addressable Markets Will Test Discipline
• Adjacencies Are Likely to Be Better Forged Through Customer Than Technology Know-How
• The Bad News: Sharp Drops Will Be Felt the Hardest Down the Chain• The Good News: Sellers and Buyers Will Be Motivated to Consolidate
“Their death rays, they say, will treat cancer. Their electric rail guns will loft commercial payloads into space and enrich earthling entrepreneurs. Their nuclear reactors, originally meant for war in space, will instead hurl astronauts toward the moon and Mars.”
NYT, April 8, 1990 on the Military Industrial Base Repositioning
29
Valuation
Post 9/11, the group began to
move in line with the market
Multiples very reasonable
reflecting budget uncertainty
Source: Capital IQ
Source: Capital IQ.
Defense multiples beginning to diverge again
P/ E TrendsS&P and Large-cap Defense
5
15
25
1997 1999 2001 2003 2005 2007 2009
Defense Average P/E
S&P 500 P/E
Defense Historical P/E Analysis Current 5 yr 10 yr CY12E Historical Historical
GAAP P/EGeneral Dynamics 8.8 13.3 10.6Lockheed Martin 8.6 15.0 13.0Northrop Grumman 8.4 13.4 10.0Raytheon 8.5 15.2 10.6
Average GAAP P/E 8.6 14.2 11.1
Outsourcing
Boeing Dreamliner
Boeing Dreamliner The head of Boeing’s commercial-airliner
division, Jim Albaugh, admits that with hindsight too much of the Dreamliner programme was contracted out to other firms.
Some work has been brought back in-house so that it can be more closely supervised.
The plane maker has also set up a “war room” that constantly monitors the world’s supply of aircraft parts and raw materials.
Boeing Dreamliner
It has signed a long-term deal with a Russian metals firm to ensure a steady supply of crucial components made from titanium.
Rand Titanium Study
Boeing Dreamliner
And it has hired hundreds of “examiners” to visit suppliers, to check that they are building up production to meet Boeing’s increasing needs and chivvy them along if not.
Boeing Dreamliner It has about 1,200 “tier-
one” suppliers, which provide parts directly to the plane maker from 5,400 factories in 40 countries. These in turn are fed by thousands more “tier-two” suppliers, which themselves receive parts from countless others.
Boeing Dreamliner
Beverly Wyse, who oversees production of the 737, admits that it has sometimes been a job to persuade all these suppliers to invest enough to meet future demand. To do so, Boeing has had to learn to be more open with them about its production plans, and a bit less paranoid about whether such information might reach the ears of its competitors.
Boeing Dreamliner
At Boeing’s Everett factory to the north of Seattle and another plant in South Carolina, plans are afoot to churn out more of the company’s bigger jets, including the 787. But the 40-odd unfinished Dreamliners scattered around the Everett campus and elsewhere are a reminder of how such attempts to ramp up production can go wrong.
Having first suffered from a worldwide shortage of the fasteners that hold bits of the plane together, the 787 was then held back further by other mishaps, including faulty horizontal stabilisers sent by an Italian supplier.
Boeing is struggling to correct the problems on the unfinished planes even as it strives to get its production lines turning out ten fault-free 787s a month by the end of next year.
Boeing Dreamliner REUTERS January
2011
More delays followed as production problems mounted. In 2008, the company blamed another delay on a 58-day strike by Boeing assembly workers over contract terms.
The next year, Boeing bought portions of business units of two of its suppliers to help regain control of its Dreamliner production.
It paid $580 million for the South Carolina operations of Vought Aircraft Industries, the company that worked on the 787 aft fuselage section.
Boeing later purchased Alenia North America’s half of Global Aeronautica LLC, the South Carolina fuselage subassembly facility for the 787. Boeing did not disclose financial terms of that deal. “By taking Alenia out of the ownership equation, this tidies up the situation in Charleston,” Boeing said in a statement at the time.
Aerospace Clusters: Local or Global Knowledge Spillovers?
JORGE NIOSI & MAJLINDA ZHEGU School of Management Science, Universite ́ du Que ́bec a` Montre ́al, Montreal, Canada
ABSTRACT: The literature about regional innovation systems, clusters and industrial districts insists on the importance of local knowledge spillovers.
Nevertheless, more recently a few authors have put in question the importance of local knowledge spillovers. This paper provides an analysis of some of the most dynamic aerospace clusters in the world, located in Montreal, Seattle, Toulouse and Toronto.
We start by discussing theories of clustering, then provide research questions as well as empirical evidence on the international nature of knowledge spillovers.
Local knowledge spillovers are less significant, of a different nature, and they may make a scanty contribution to explain the geographical agglomeration of firms.
Conversely, international spillovers help to explain the relative dispersion of industry across nations.
Resilient geographical clustering is related to the anchor tenant effects as creators of labour pools and owners of very large manufacturing plants creating regional inertia.
We thus reject the local knowledge spillover explanation of aerospace clusters in favour of another one based on anchor firms and their effects on the local labour pool.
Making aircraft
Making aircraftFull throttleBoeing and Airbus enjoy huge
demand for their planes. Can they keep up?
Nov 26th 2011 | from the print edition
Naval shipbuildingSmall is the new big in naval shipyards
May 12th 2011, 15:53 by J.F. | MOBILE, ALABAMA
5.1 Explain industry strategies to support system sustainability.
5.1 Explain industry strategies to support system sustainability
48
Redefining Supportability• New Design Related Metrics• Integrated with Producibility
49
Our Supportability Approach Emphasizes Support EventCharacterization Beyond Traditional Operational Availability (AO)
TRADITIONAL APPROACH
AO = SUPPORTABILITY (S)?
AOOT + ST
OT + ST + TCM + TPM + A/LDT=
WHERE: TOTAL OPERATING TIME DURINGA SPECIFIC INTERVAL
TOTAL STANDBY DURING ASPECIFIED INTERVAL
TOTAL CORRECTIVE MAINTENANCETIME DURING THE SAME SPECIFIEDINTERVAL
TOTAL PREVENTIVE MAINTENANCETIME DURING THE SAME SPECIFIEDINTERVAL
TOTAL ADMINISTRATIVE ANDLOGISTICS DOWNTIME DURING THESPECIFIED INTERVAL
• HENCE, AO ADDRESSES R&M ONLY • HENCE, SUPPORTABILITY REQUIREMENTS ADDRESS ALL EVENTS
• GIVEN: AO
OT
ST
TCM
TPM
A/LDT
=
=
=
=
=
OT + ST(?) + OT + ST + TCM + TPM + A/LDT
=
MISSING EVENTS
- SERVICING- RECONFIGURING-GROUND/CARRIER HANDLING-SET UP AND TEAR DOWN
- COMBAT OPERATIONS- LAUNCH ACTIVITIES- MISSION VARIATIONS- OTHER NON R&M ACTIONS
• THEREFORE: AO ≤ S
• AND: S = {OPERATIONAL SUITABILITY, READINESS,SUSTAINABILITY, SURVIVABILITY, MOBILITY, LIFE CYCLE COSTS, AO} Events
• BECAUSE: S IS NOT ADDITIVE BUT CONSISTS OF FINITE,SIMULTANEOUS SUPPORT EVENTS FROMALIGN TO WINTERIZE (500+ EVENTS DEFINED)
SUPPORT PLANNING BASELINE(PEACETIME OPERATIONS)
DESIGN FOR S BASELINE (WARTIME OPERATIONS)
• WHERE:
f = SUPPORT EVENT FREQUENCYd = SUPPORT EVENT DURATIONc = SUPPORT EVENT COST
S = F (f, d, c) IS A CHARACTERISTIC OF DESIGN
Answer: Ao = 1.0BUT NOT TO THE SQUADRON
COMMANDER!!BUT
NGC Approach
12/16/2009
Integrated Producibility and Supportability Requirements Development is Pivotal to Systems Engineering
Reliab
ility
Maintai
nabilit
y
Producibilit
y
Logistics
Other
DESIGNINTEGRATION DILEMA
DESIGNER
Design Integration Solution – Producibility and Supportability
DESIGNERS DESIGNERSSYSTEMENGINEERS
ProducibilityP Other Supportability
S
POWER SOURCESELECTRO-MECHANICAL& HARNESS
ASSEMBLYAND TEST
MACHINE SHOPAND PLATING
PRODUCIBILITYENGINEER
• PDTR* OPTIMIZATION• TECHNOLOGIES INSERTION• TRADE STUDIES• INDEPENDENT RESEARCH & DEVELOPMENT (IRAD)
HYBRIDMANUFACTURING
INTEGRATIONAND TEST
FABRICATION &PRECISIONMECHANICALASSEMBLY
PRODUCTIONPLANNING ANDCONTROL
• HUMAN FACTORS• SAFETY
RELIABILITY
MAINTAINABILITY
LOGISTICS SUPPORTANALYSIS
DESIGN• SUPPORT EQUIPMENT• TRAINING DEVICES
SUPPORTABILITYENGINEER
• SDTR INTEGRATION**• SUPPORTABILITY TECHNOLOGIES• TRADE STUDIES• INDEPENDENT RESEARCH & DEVELOPMENT (IRAD)
FIELDSUPPORT
ILS DISCIPLINES/ELEMENTS• MAINTENANCE PLANNING• MANPOWER AND PERSONNEL• SUPPLY SUPPORT• TRAINING• TECHNICAL DATA• COMPUTER RESOURCES SUPT• PKG, HANDLING AND STORAGE• TRANSPORTATION• FACILITIES• STANDARDIZATION AND INTEROPERABILITY
* Producibility Design-To-Requirements (PDTRs)
**Supportability Design-To-Requirements (SDTRs)
FORMALINFORMAL
Sustainment Logistics
Future Organizational Relationships
LOGISTICS ENGINEERING
INFRASTRUCTURE FOOTPRINT
• Supply Support• Provisioning• Spares
•Technical Data• Training and Training Support• Type Classification• Material Release• Demil
• Facilities• Fielding• Deployment
• Size• Weight• Personnel
• PHS&T
• Producibility Design-to Requirements (PDTR)•Spares Acquisition Integrated with Production•Ease of Equipment Installation• Design for ease of access
• Modularity• Fasteners• Tooling
• Reduction in TOC
SUSTAINMENT
ENGINEERING
Design for SUPPORTABILITY
Design for PRODUCIBILITY
• Supportability Design -To Requirements (SDTR)•Maintenance Planning
• Failure related• Non-failure related
• Support and Test Equipment• Manpower and Personnel• Design for Availability• Reduction in TOC
PRODUCT
SUPPORT
52
Comprehensive Supportability Design-To Requirements (SDTRs)Reduce Support Event Frequency, Duration and Cost for AM
• SUPPORTABILITY (S) ELEMENTS- OPERATIONAL SUITABILITY
- READINESS- INFLIGHT SUSTAINABILITY
- MOBILITY/TRANSPORTABILITY- LOGISTICS LIFE CYCLE COST
- AVAILABILITY (A0)- RELIABILITY
- MAINTAINABILITY
- OPERATIONAL SUSTAINABILITY
• SUPPORT ACTIO
NS
- GROUND HANDLIN
G
- SERVIC
ING (FUEL, O
IL...)
- ARMAMENT &
WEAPONS
• LOADIN
G
• UNLOADIN
G
- RADIO
/RADAR FREQ CHANGES
- HOT/COLD W
EATHER KITS
- BALLAST LOADIN
G/UNLOADING
- MISSIO
N RECONFIG
URATION
- TAPE IN
STALLATIO
N (PROMS)
- CHAFF LOADIN
G/UNLOADING
- PRESERVA
TION
- DEPRESERVA
TION
- ENGINE RUNUP IN
TEST CELL
- INSPECTIO
NS (MAJO
R, MIN
OR)
• OPE
RAT
ION
S- A
LER
T TI
ME
- REA
CTI
ON
TIM
E
- FLE
XIB
ILIT
Y
- CO
MB
AT M
ISSI
ON
S
- TR
AIN
ING
MIS
SIO
NS
- FER
RY M
ISSI
ON
S
- SPE
CIA
L O
PER
ATIO
NS
- AU
STER
E FI
ELD
(3rd
WO
RLD
)
- EQ
UIP
MEN
T EM
PLA
CEM
ENT
(SET
-UP)
- EQ
UIP
MEN
T D
ISPL
AC
EMEN
T (T
EAR
-DO
WN
)- N
AVY
OPE
RAT
ION
S (O
CEA
N, S
UB
-SEA
)
Operational Availability (Ao)
RELIABILITY & MAINTAINABILITY - MAINTENANCE • PREVENTIVE • CORRECTIVE - SUPPLY DELAY - ADMIN DELAY(128 PARAMETERS FROMMIL-STD-721C)
OPERATIONSGENERALSUPPORTACTIONS
SELECTED SET OFSDTRs
SUPPORT EVENTS• 500+ PARAMETERS• DESIGN TO ALGORITHMS
DESIGNER
TAILORED SDTRs
SYSTEM SPEC
Supportability Design-to Framework
Materiel Availability (AM) Design
S = F(f, d, c)
12/16/2009
12/16/2009 53
DS
f d r c f d r c AVDLR
NMC NMC PMC PMC C
f d r c f d r c AVDLR
A A mh A o A A mh A A iA
s m s m na
A A mh A o A A mh A A iA Eq
Eq
D D D D D D DD
I I I I I I II
SUPPORTABILITY DEGRADER ALGORITHM (DS) PURPOSE: The purpose of the Supportability Degrader Algorithm is to provide focused
characterization and assessment of cause and effect relationships within a selected range of supportability degraders. A secondary purpose is to enhance developing supportability design-to requirements (SDTRs) for inclusion in Technical Data Packages or LECPs.
SCOPE: Implementing the Supportability Degrader Algorithm will allow managers to
determine if the degrader is design, mission, or infrastructure driven as defined by the individual equations above. The algorithm will generate rankings across the entire range of NALDA reported systems with respect to Total Ownership Cost. TERMS AND DEFINITIONS ARE AVAILABLE.
The Supportability Degrader Algorithm differentiates between Mission, Design and Infrastructure Issues - NAVY or AIR FORCE Data Bases
Design
Mission
Infrastructure
Constructing Successful Business Relationships: Innovation in Contractual Incentives
Prepared by Science Applications International Corporation
Under Contract DASW01-95-D-0076, Delivery Order 45
For the Deputy Assistant Secretary of the Army (Procurement)
Program Stability
Susceptibility to disruptions in funding, schedule, requirements, and political and other support.
While the government and the contractor will view basic program stability more or less in the same light, the contractor may also view stability in additional ways, including:
• The ability to project forward with certainty
• The stability to develop an efficient supply chain
• The ability to recover front-loaded costs
Contractor Considerations
Requirement Acquisition Phase Primary Incentive Areas Size Contract Type Program Stability Program/Contract Flexibility Competitive Environment Entry Barriers Performance History Future Effort Corporate Strategy Inherent Risk Industry Dynamic
Constructing Successful Business Relationships: Innovation in Contractual Incentives
Several incentives viewed as having the highest impact were also voted the most difficult to implement.
However, there were also contractual incentives that were considered to have high impact and relative ease of implementation. These included:
• Award-term contracting—the idea that contract length can be shortened or extended, based on attaining or surpassing specified results metrics, and;
• Output Contracting—defining deliverables as outputs (for example, copies rather than copiers).
The cross section of contractual incentives from the Phase I study, the Phase II group efforts, and additional research are reflected in a Compendium of Contractual Incentives (Appendix B), intended as a baseline guide for the contracting and acquisition community in the development and crafting of more effective business relationships.
5.2 Describe prime contractor methods used for task and risk flow down.
5.2 Describe prime contractor methods used for task and risk flow down.
5.3 Explain supplier management impact on company margins.
5.3 Explain supplier management impact on company margins.
5.4 Identify company resources needed for subcontractor management.
5.4 Identify company resources needed for subcontractor management.
Page 6205/03/2023
RTN Supplier Diversity Websitehttp://www.Raytheon.com/connections/supplier/diversity
Raytheon Supplier Diversity - Connect With Us
The On-line
Supplier
Registration tool
will aid in matching
suppliers to
opportunity.
8.5 Identify risks and financial considerations for various make-buy decisions to include company motivation to outsource scope.
5.5 Identify risks and financial considerations for various make-buy decisions to include company motivation to outsource scope.
5.6 Describe prime contractor financial gains and reduced risks from managing “pass-through” to a subcontractor/supplier.
5.6 Describe prime contractor financial gains and reduced risks from managing “pass-through” to a subcontractor/supplier.
5.7 Explain company management of critical supply chain priorities across the several programs.
5.7 Explain company management of critical supply chain priorities across the several programs.
8.8 Describe agreements on data rights and licensing in protecting a company’s intellectual property.
5.8 Describe agreements on data rights and licensing in protecting a company’s intellectual property.
Make Vs BuyACQ-315
Intracompany Transdfers and Make vs Buy
“make-or-buy” Two costs typically drive an organization’s “make-or-buy” decisions:
production costs and transaction costs. Conventional economic analysis focuses on production costs (economies of scale and scope, learning curves, etc.).
The “buy” (or outsourcing) option is routinely prescribed whenever external production costs are substantially lower than internal production costs.
Although recognizing the importance of production cost savings in the decision to outsource, there is another key factor, transaction costs (e.g. search and information costs; bargaining, decision and contracting costs; and monitoring and enforcement costs).
As Oliver Williamson rhetorically queries:“What...does zero transaction costs mean? All of the relevant information is freely available and can be costlessly processed by the participants? Comprehensive contracting is feasible? Actions can be costlessly monitored? Decisions will always be made in a benign way?” [1999 p.316]
Make Buy TradeoffsWhat Drives Make vs Buy Decisions?
Rand 1992
Overhead Allocation and Incentives
Business Models Compared
Inventory Intensity
Low High
Capital Asset HighIntensity
LowCommercial Software
ShipbuildingLarge Vessels
Semiconductors
Large ScaleConsulting
Goal = Capacity Loading Goal Varies
Goal = More Sales Volume Goal = Faster Payment Cycles
Motivations Compared
Loading
Low High
Nominal High Capital Intensity
Low
Must PushCapacity Out
Few examples in This quadrant
Nominal condition For low intensity model
Must pull work back into the Prime
ICD’s Interface Control Documentation (ICD)
Interface Control Documentation includes Interface Control Drawings, Interface Requirements Specifications, and other documentation that depicts physical and functional interfaces of related or co-functioning systems or components.
ICD is the product of ICWGs or comparable integrated teams, and their purpose is to establish and maintain compatibility between interfacing systems or components.
4.4. Systems Engineering Design Considerations Subordinate sections to 4.4 cover the following topics: 4.4.1. Accessibility 4.4.2. Commercial Off-the-Shelf (COTS) 4.4.3. Corrosion Prevention and Control 4.4.4. Critical Safety Items (CSIs) 4.4.5. Disposal and Demilitarization 4.4.6. Diminishing Manufacturing Sources and Material Shortages (DMSMS) 4.4.7. Environment, Safety, and Occupational Health (ESOH) 4.4.8. Human Systems Integration (HSI) 4.4.9. Insensitive Munitions (IM) 4.4.10. Interoperability 4.4.11. Open Systems Design 4.4.12. Parts Management 4.4.13. Program Protection &System Assurance 4.4.14. Quality and Producibility 4.4.15. Reliability, Availability, and Maintainability 4.4.16. Software 4.4.17. Spectrum Management 4.4.18. Standardization 4.4.19. Supportability 4.4.20. Survivability and Susceptibility 4.4.21. Unique Identification of Items
Aviation Week & Space TechnologyAugust 29, 2011 Pg. 38Starved For CashPentagon industrial policy chief defends aerospace as a safe investmentBy Amy Butler, Huntsville, Ala.
Pentagon’s industrial policy chief says he worries that the U.S. aerospace industry could follow in the footsteps of the domestic automobile industry by cutting corners in manufacturing, churning out inferior products and eventually losing market share to superior foreign competitors.“What happened to the auto industry could happen to aerospace,” Brett Lambert tells Aviation Week. Shortsighted financial decisions, such as using cheaper parts, drove customers to “stop having confidence in cars, companies to start losing profit, [and the large companies] put that burden onto the supplier,” he says. U.S. automakers “weren’t competitive with the market” as a result, he says.
As the defense budget declines and the Pentagon continues to demand management efficiencies, Lambert says this burden should not be disproportionately transferred from the prime contractors to the third- and fourth-tier suppliers.
Diminished access to capital for small suppliers is one of the preliminary findings of his sweeping Sector-by-Sector, Tier-by-Tier (S2T2) industrial base study under way now.
Outsourcing OUTSOURCE IN HASTE, REPENT AT LEISURE By Stefan Stern
So now we know. BP did not have “the tools you would want in your toolkit”, in the candid words of its chief executive, Tony Hayward. While the unexpected will, by definition, always happen, when disaster struck on April 20 in the Gulf of Mexico the company lacked the necessary expertise and capacity to deal with a deepwater oil leak. The PhD geologist boss did not have enough specialist engineers to turn to.
One unattractive aspect of the Deepwater Horizon catastrophe was the sight of executives from BP, rig operator Transocean and maintenance provider Halliburton, all seeking to play down their responsibility for the accident. “Mistakes were made, but not by us,” seemed to be the attitude. Responsibility for the accident was shared, but no one could agree by whom exactly, and in what proportion. In effect, the sort of discussions that should have taken place before contracts were signed ended up being played out on Capitol Hill, in front of the television cameras.
This article can be found at:http://www.ft.com/cms/s/0/15f7acf6-727e-11df-9f82-00144feabdc0,_i_email=y.html"FT" and "Financial Times" are trademarks of The Financial Times.Copyright The Financial Times Ltd 2011
Major Supply Chain Challenges
Today’s Supply Chains Are Multi-Dimensional and Complex
Today’s Supply Chains Are Multi-Dimensional and Complex(Cont)
12/16/2009 85
Recursive and Iterative Systems Engineering Vee Model
86
Stakeholder Requirements, CONOPS,
Validation Planning Definition
System Performance Specification and
Verification Planning
Configuration Item Performance
Specification and Verification Planning
Configuration Item Detail Specification and Verification Procedures
Fabricate, code, buy, or reuse
Inspect and test to Detail Specification
Assemble Configuration Items and Verify to CI
Performance Specification
Integrate System and Verify to System
Specification
Validate System to Stakeholder
Requirements and CONOPS
Validation
Verification
Verification
Verification
Stakeholders Requirements
Definition
Requirements Analysis
Architecture Design
Implementation Integration
Transition
Validation
Validation
Technical Planning
Requirements Management
Risk Management
Decision Analysis
Data Management
Technical Assessment
Configuration Management
Interface Management
These are critical in a
Buy situaton
MIL-HDBK-61A: Configuration Identification
Interface Management
5.8 Interface Management Another aspect of configuration
identification to be considered during development is interface management, also referred to as interface control.
5.8.1 Interface Management Concepts Interfaces are the functional and
physical characteristics which exist at a common boundary with co-functioning items and allow systems, equipment, software, and data to be compatible.
Design
During development, part of the contractor’s design effort is to arrive at and document external interface agreements, as well as to identify, define, control and integrate all lower-level (i.e., detailed design) interfaces.
Categorize the interface To understand how a particular interface
should be defined and managed, it is necessary to categorize the interface in a number of ways:
Contractual relationship Customer relationship (Acquisition
activity(ies) Hierarchical relationship Developmental status
Categorize the interface
Each interface must be defined and documented; the documentation varies from performance or detailed specifications to item, assembly, or installation drawings, to interface control documents/drawings.
Levels of Interface
Interface Management Whether formal or informal interface management is employed, it is
necessary that there be a legal responsibility on the part of the interfacing parties, since even the best intentioned technical agreements can break down in the face of fiscal pressure.
If there is a contractual relationship, including a teaming arrangement, between two or more parties to an interface, there is already a vehicle for definition and control.
However, where there is no contractual relationship, a separate interface agreement may be necessary to define the interface process and provide protection of proprietary information.
When the agreement involves two or more contractors, it is referred to as an associate contractor agreement; when two or more Government activities are the parties to the agreement, a Memorandum of Understanding (MOU) is generally used.
ICWG Within an organization, and often with
subcontractors, integrated product teams may be used to establish interfaces. Some interfaces must be defined through a formal interface management process involving interface control working groups (ICWGs). An ICWG is a specialized integrated product team comprised of appropriate technical representatives from the interfacing activities. Its sole purpose is to solve interface issues that surface and cannot be resolved through simple engineer-to-engineer interaction.
ICWG and IPT Once interfaces have been agreed-to by the parties
concerned, they must be detailed at the appropriate level to constrain the design of each item and baseline the configuration documentation so that the normal configuration control process will maintain the integrity of the interface. Then it may be necessary to convene an ICWG or other mechanism on rare occasions to resolve change issues in a satisfactory manner. The Government is the arbitrator of issues that cannot be resolved by an ICWG or IPT, such as those issues which involve contractual issues requiring contract changes and agreement between different acquisition activities.
Interface Flow
ICD’s Interface Control Documentation (ICD) Interface Control Documentation includes
Interface Control Drawings, Interface Requirements Specifications, and other documentation that depicts physical and functional interfaces of related or co-functioning systems or components. ICD is the product of ICWGs or comparable integrated teams, and their purpose is to establish and maintain compatibility between interfacing systems or components.
Government Infrastructure
“DoD operates 17 major depot activities, employing more than 77,000 personnel and expending more than 98 million direct labor hours (DLHs) annually… The property, plant, and equipment of DoD’s depots are valued at more than $48 billion.
That infrastructure comprises more than 5,600 buildings and structures, with 166 million square feet used for depot maintenance.”
- Logistics Management Institute Depot Maintenance Report, 2011
GAO on Subcontracting
117
Robert H. TriceSenior Vice PresidentCorporate Strategy andBusiness Development
The Business of Aerospace and Defense
September 2010
117
118
Foster Informed Discussionof the Business Aspects
of the Aerospace and Defense Industry
Goal
119
Agenda
• Business Principles • A&D Evolution• A&D Contributions• A&D Unique Characteristics• Defense Contracting Considerations• Summary
120
Business Principles
121
What All BusinessesHave in Common
• Capacity to Produce– Employees and Facilities
• Opportunity to Sell– Customers and Markets
• Access to Capital– Lending Institutions and Shareholders
Stakeholders’ Values Drive Business
122
What All Successful BusinessesHave in Common
• Effective Business Rhythms
– Strategy for Success and Determination to Execute It
• Strong Cash Flow
– Processes Enabling Financing, Sales, Execution, and Collection
• Prudent Risk Management
• Reasonable Shareholder Returns
Returns Enable Success
123
Financial Flow
Development, Production & Delivery
Earnings Per Share
Sales
Order
Backlog
Operating Profit
Net Earnings
Minus Cost of Sales
Minus Interest and Taxes
Divide by # of Shares
124
A&D Evolution
125
1910 1950 1970 19900
5%
10%
15%
20%
25%
30%
35%
40%
Defense Industry Evolution
Chart Source: Lexington Institute
1930
WWII
KoreaVietnam
Cold War
WWI9/11/01
Berlin Wall
12/07/41
CubanMissileCrisis
Desert Storm
Defense Industry was Formed from Threats to National Security and Needs for Technological Investments
Defense Spending as % of
GDP
GovernmentArsenal
IndustrialMobilization
SpecializedComponents
“Pure” A & DIndustry
2010
126
A&D Industry Consolidation
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2007 2008
LOCKHEED MARTINLockheedGD Ft. Worth
Martin MariettaGE Aerospace
GD SpaceLoral
LTV MissilesIBM Federal
Comsat
SAVIPAE
AcculightUnitech
ACS
NorthropGrumman
WestinghouseLogicon
LittonNewport News
TRWEssex
3001 Int’lRaytheon
BAe Corporate JetsE-Systems
GM-HughesGD Missiles
Texas InstrumentsBoeing Australia
Flight OptionsSarcos Research
SI GovtBoeing
RockwellMcDonnell Douglas
Hughes S&CAviallInsitu
General Dynamics
GulfStreamMotorola IISG
GM DefenseVeridian
United Defense
Anteon & FCBSSNC
Jet Aviation Group
NORTHROP GRUMMAN
RAYTHEON
BOEING
GENERAL DYNAMICS
Reduced Demand and Market Forces Reshaped the Primes126
127
7,581
Defense Systems Procured
Ship Procurement
1980 1985 1990
2000 2005
11
33 31
6
Missile Procurement
1980 1985 1990 2000 2005
18,466
87,11365,107
5,702
Aircraft Procurement
531497
337
138
1980 1985 1990 2000 2005
188
Source: DoD Procurement Programs P-1
81082009
14,661
2009
52009
Helicopter Procurement
124
353
243
1980 1985 1990 2000 2005
6628
248
2009
128
A&D Primes’ PortfoliosBoeing - $68B
General Dynamics - $32B
Northrop Grumman - $34BLockheed Martin - $45B
Raytheon - $25B
(2009 Sales)
AeronauticsSpace Systems
Electronic Systems
Information Systems & Global Services
Military Aircraft
Global Services & Support
Network & Space Systems
Integrated Defense Systems
Space & Airborne Systems
Missile Systems
Intel, Info, & Net Centric Systems & Technical Services
Aerospace Systems
Shipbuilding
Electronic Systems
Information Systems & Technical Services
AerospaceMarine Systems
Combat Systems
Information Systems & Technology
Commercial Aircraft
Primes are Adapting to Changing Market Demands
129
Major Combat
Irregular Conflict
Humanitarian Assistance
Providing for Society
Disaster Response
Nation Building
Conventional Regional Conflicts
Coping with a Faltering or Collapsed Government
Defense of Allied Nations
War on Terrorism
Counter Insurgency
Peace Keeping
Maintaining Social Order & Secure Commerce
Managing Resources & The Environment
Global Peer Warfare
Effective GovernmentSolutions for the Entire Spectrum of EngagementExploration of Space
A&D Industry Supports Global Security
130
Three-Tiered Global A&D Industry
• 30,000+ Subsystems and materials suppliers• Includes small, minority-owned and
disadvantaged businesses (20,000+)• Includes commercial companies• Network of use extends to additional suppliers
Lower-Tier Suppliers
Sub-Primes & Systems Partners
A&D Global Primes
60 to 75% of Work Subcontracted
131
A&D Contributions
132
A&D Workforce Contributions
0
200
400
600
800
1000
1200
91 94 97 00 03 06 09
Aer
ospa
ce W
orke
rs (t
hous
ands
)
Hundreds of Thousands of Jobs
Workforce Age Distribution
Under 3535-49Over 50
38%39%
23%
0%5%
10%15%20%25%30%
Engineering Research & Development
Manufacturing Labor
Program Management
Elig
ible
to R
etire Workforce Eligible to Retire by 2013
(Avi
atio
n W
eek
2009
W
orkf
orce
Stu
dy)
133
= 100 Jobs Cut
Over 40K A&D Jobs Lost Since 2009Notes: Since First Quarter 2009, Actual and Announced
Plus: Layoff of 560 A&D workers in San Diego who cannot find work in the region within one year could result in the loss of 760 supplier jobs and 400 jobs related to spending cutbacks by those laid off. This could mean a total nation-wide loss of ~120,000 A&D-connected jobs since 2009. (Source: Institute for Policy Research)
WA = 6578
CA = 4458
NY = 2682
FL = 10,108
LA = 6771
133
134
Competitive Compensation(2009)
Tech
A&D
Governmen
tAuto
Financia
l Serv
ices
Educatio
n and Hea
lth
Leisure
and Hosp
itality
$84,400 $78,904
$74,403 $73,000
$56,243
$47,174
$27,206
All Employee Annual Earning Comparisons
Leisure
Transp
ortatio
n
Manufac
turing
Educatio
n
Financia
l
Professio
nal
Constructi
on
Govern
ment
Autos
Aerosp
ace
$11
$16$18 $19 $20 $21 $22 $23
$31$33
Production Workers Hourly Wage
Sources: Bureau of Labor & Statistics, U.S. Census,Aerospace Industries Association, TechAmerica (Average U.S. Salary: $38,000 per year )
135
Aerospace: A Leader in Net Exports
-60,000-50,000-40,000-30,000-20,000-10,000
010,00020,00030,00040,00050,00060,000
$ Millions
Source: Bureau of the Census (seasonally adjusted), Foreign Trade Division
Aeros
pace
Semico
nduc
tors
Chemica
ls
Medica
l
Equipm
ent
Food
s, Fe
eds,
and
Bever
ages
Telec
om
Equipm
ent
House
hold
Applia
nces
Pharm
aceu
ticals
Compu
ters a
nd
Compu
ter
Acces
sorie
s
Newsp
rint
20072008
136
A&D Technology Contributions
(AIA, Bureau of Labor Statistics, National Science Foundation)
R&D Investment as a Proportion of Net Sales
AerospaceAll Industry
2.9% 13.3%
Non-Company Funded Company Funded
137
Jeep
Internet
Hydraulic Brakes Traffic Cameras
Pagers
Smoke Detectors
A&D Technology Contributions
Legacy of Innovation and Public Benefit
138
Superior Systems for Warfighters
139
A&D UniqueCharacteristics
140
4.2%3.8%
1.8%
0.9%
1.7%
2.4%
1960 1970 1980 1990 2000 2009*
A&D Industry Market Value
Aerospace & Defense Market Cap as % of S&P
Sources: Company Reports, Morgan Stanley, Yahoo! Finance (Includes Commercial Aircraft)
* A&D as sum of LMT, BA, NOC, RTN, GD
141
Industry Comparisons
Cigarette Industry
Beer Brewers Microsoft Apple IBM HP A&D
$221
$184
$219
$243
$164
$107
$180
$77 $71 $58
$43
$96
$115
$251
Market Cap / Sales ($B)Market Cap2009 SalesSources: CNN Money, Yahoo! Finance
Aerospace and Defense: Lockheed Martin, Boeing, Northrop Grumman, General Dynamics, Raytheon, L3, and Honeywell CorporationCigarette Industry: Lorillard, Reynolds American, Vector Group, Star Scientific, Altria Group, Philip Morris International, and British American Tobacco IndustriesBeer Brewers: Anheuser-Busch InBev, Fomento Economico Mexicano, Companhia de Bebidas das Americas, Molson Coors Brewing Co, Compania Cervecerias Unidas, Boston Beer, and China New Borun Corporation
Publicly Traded Companies on NYSE or AMEX
142
EBITDA Margin from 2007 – 20091
Gross Earnings Sector Comparisons
Aerospace and Defense Margins Lag Other Industries
A&D
Industrials
Consumer Discretionary
Consumer Staples
Materials
Utilities
Healthcare
IT
Energy
Telecommunications
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%2007 2008 2009
Source: CapitalIQ Note: (1) Analysis includes publicly-traded, US-based companies with revenues >$1B in CY2008
143
Net Earnings as % of RevenueCompany Comparisons from Various Industries
Sources: Company Reports, Fortune, Yahoo Finance (Includes Commercial Aircraft) Note: Recent S&P Average is 7-8%
Other IndustriesYr 2009 Yr 2009
A&D Sector
RTN GD LMT NOC BA
7.8 7.5 6.7 5.01.9
Merck G'Sachs M'Soft Cisco IBM Intel HP
47
3028
1714
12
7
144
Aerospace & Defense Elements
Commercial Defense
Commercial and Defense Sectors Share Technical Skills,But Require Segmented Business Systems
Military Aircraft
Military Space & Missiles
Military Ships
Sustainment, IT & ServicesGround Systems
Commercial Aircraft
Commercial Space
145
Commercial vs. Gov’t ContractorsGovernment Business
• Monopsony• Single Customer Comprised
of Multiple Constituencies • Industrial Base Policy Limits
• Cost-based Business Model• Truth In Negotiations Act
(TINA)• Maximize Sales• Upside/Downside Capped• R&D Investments Funded or
Reimbursed by Government
• Open Markets• Multiple Customers With
Individual Transactions• Anti-trust Limits
• Price-based Business Model• Closed Books• Maximize Sales• Upside/Downside Unlimited• R&D Investments Recouped
in Production Price
Commercial Business
146
Commercial vs. Gov’t ContractorsCommercial Business Government Business
• Significant Government Oversight
• Subject To Federal Acquisition Regs
• Export Licenses Required to Sell Overseas
• Annual Funding; Government Policy Driven
• Limited Government Oversight
• Not Subject To Federal Acquisition Regs
• Limited Export Control• Multi Year Projections;
Consumer Driven
147
Defense Program Reductions
B-2 Bomber Programmed: 132 Built: 21
V-22 Tiltrotor Programmed: 913 Being Built: 458
F-22 Fighter Programmed: 750 Being Built: 187
DDG-1000 Programmed: 32 Being Built: 3
Expeditionary Fighting Vehicle Programmed: 1025 Being Built: 593
148
Terminations for ConvenienceRAH-66 Comanche
$9 Billion Spent
XM2001 Crusader $2 Billion Spent
Future Combat System $24 Billion Spent
TSAT/TMOS$10 Billion Spent
Airborne Laser $7 Billion Spent
VH-71 Presidential Helicopter$5 Billion Spent
149
Why Invest in the A&D Industry
• Reasonable Returns on Investment
• Strong Cash Flows
• Consistent Dividend Returns
• Longer Term Business Outlook
• Sustainable Revenue Streams
• Government Indemnification from Catastrophic Risk
• Counter Cyclic to the Market
150
Five Year Stock Performance (through December 31, 2009)
General Dynamics 30%Raytheon 33%
S&P 500 -8%
Boeing 5%
Lockheed Martin 36%
Dow Jones -3%
S&P A&D 24%
Northrop Grumman 3%NASDAQ 4%
12/31
/2004
3/31/2
005
6/30/2
005
9/30/2
005
12/31
/2005
3/31/2
006
6/30/2
006
9/30/2
006
12/31
/2006
3/31/2
007
6/30/2
007
9/30/2
007
12/31
/2007
3/31/2
008
6/30/2
008
9/30/2
008
12/31
/2008
3/31/2
009
6/30/2
009
9/30/2
009
12/31
/2009
-50%
-35%
-20%
-5%
10%
25%
40%
55%
70%
85%
100%
115%
151
Defense Contracting Considerations
152
153
Government vs. Industry View of Profit
Government Perspective Industry Perspective
Total Allowable Cost $9,000,000
Profit/Fee @ 12% $1,080,000
Price $10,080,000 Sales $10,080,000
Total Allowable Cost ($9,000,000)
Unallowable Cost @ 3% of Sales ($310,500)
Earnings Before Taxes 769,500
Income Taxes @ 35% ($269,325)
Net Income $500,175
Net Income as % of Sales 4.96%
How 12% Yields 4.96%
Return on Sales 10.7%
154
Revenue DistributionNet Lockheed Martin 2009 Sales $45.2B
Cost of Sales
Interest and Taxes
Net Earnings
$41B
$1.2B$3B
Cost of Sales Includes:• Subcontracts• Direct Labor and Travel• Materials and Distribution• Amortized Property, Plant & Equipment• IRAD• Bid and Proposal• Unallowable Compensation• Charitable Contributions
155
Cash Deployment
Internal Investment
Debt Retirement
Acquisitions/ VenturesShare
Repurchase
Dividends
Internal Investment: Capital Expenditures (Property, Plant & Equipment)
Working Capital (Inventory, Accounts Receivable / Payable)Pensions
Debt Retirement: Return to Creditors
Dividends: Return to Shareholders
Share Repurchase: Return to Shareholders
Acquisitions: Increase Capabilities
and Capacities
Supports All Stakeholders
156
Summary
157
A&D Industry’s Unique Role
REVENUES
SOLUTIONS
CAPITAL &
TALE
NTRETURNS
SECURITY & SERVICES
TAXESGOVERNMENT
AEROSPACE AND DEFENSE
INDUSTRY
PRIVATE SECTOR
Translating Private Sector Resources into Public Sector Solutions
158
• Supports Investment– Research and Development– Facilities and Infrastructure
• Creates and Protects American Jobs• Is a Major Exporter• Attracts and Retains Top-Tier Talent• Promotes American Technology Preeminence• Enables a Stable Partner for a Long Cycle of
Business• Enhances Allied Political, Military and Industrial
Partnerships
A Healthy Defense Industrial Base
Stability Supports an Industrial Base that Can Respond toTomorrow’s Challenges
Canadian Response to Downsizing in Defense
Tiers
UNCLASSIFIED
Supply Chain Complexity in a Changing Environment
Michael Forbes, CPSMCorporate Director, Supply Chain
Northrop Grumman Corporation
November 17, 2011
163
Supply Chain Complexity: Today’s Topics
• Northrop Grumman Introduction
• Do You Have the Right Talent?
• Responding to Customer, Legislative & Regulatory Changes
• Material Authenticity
• Risk Management
164
Northrop Grumman Today
• $34.8 billion sales in 2010*
• $64 billion total backlog (as of December 31, 2010)
• 75,000 people, 50 states, 25 countries
• Leading capabilities in:– C4ISR and battle management– Cybersecurity– Defense electronics– Homeland Security– Information technology and networks– Logistics – Space and missile defense– Systems integration– Unmanned Systems
Focus on Performance*2010 sales included sales from Northrop Grumman Shipbuilding, a business that was spun-off in the first quarter of 2011.
165
Four Operating Sectors at a Glance
Defense and Government Services
Ground Vehicle Reconstitution
Nuclear Security Services
Training Solutions
Technical andOperational Training Support
Live, Virtual and Constructive Domains
Integrated Logistics and Modernization
Irregular Warfare/Quick Reaction Capability
Aircraft System/Platform Sustainment & Modernization
Aircraft Subsystem/Component
Sustainment & Modernization
Technical Services
Radar Sensors & Systems
RF/IR Countermeasures
EO/IR Targeting & Surveillance
Navigation & Positioning Systems
Space Sensors
C4ISR Networked Systems
Marine & Undersea Systems
Propulsion & Power Generation
Air Defense Systems
Electronic Systems
Large Scale Systems Integration
C4ISR
Unmanned Systems
Airborne Ground Surveillance / C2
Naval BMC2
Global / Theater Strike Systems
Electronic Combat Operations
ISR Satellite Systems
Missile Defense Satellite Systems
MILSATCOM Systems
Environmental & Space Science Satellite Systems
Directed Energy Systems
Strategic Space Systems
Aerospace Systems
Command & Control Systems
Communications
Intelligence, Surveillance & Reconnaissance Systems
Enterprise Systemsand Security
IT/Network Outsourcing
Intelligence
Federal, State/Local & Commercial
Homeland Security
Health IT
Cybersecurity
Information Systems
166
Last Decade’s Environment
I’ll take 300 widgets for delivery next Friday…
Payment terms are net 30… Thank you for being a
preferred supplier.
167
Today’s Environment
Key Questions To Determine Approach
External assessment
Evaluation and prioritization of strategic options
Implementationplan & approach
• What criteria should be used to prioritize strategic options?
• How can we build, buy, or ally to obtain critical capabilities?
• What key investments are required and what are the expected savings/returns?
• What governance/structural issues need to be addressed to ensure success?
Key questions
Internal assessment
• What are the relevant best practices and trends in Supply Chain?
• What are the most likely future scenarios?
• What are the best opportunities for us to differentiate itself?
• What are our relative strengths and weaknesses in supply chain management?
• How significant are the capability gaps/shortfalls?
168
Aligning Structure allows Supply Management to Excel
• Industry dynamic has shifted and requires new skill sets and functional integration
• Organizations may be out of sync with Business Shift• Understanding Supply Management Maturity Phase Drives
Improvement
Subcontracts is Management of Systems Integrators
100-75-50- * * * * *(50%)
(60%) (65%)(70%) (80%)
* Percent Outsourced
Prime/OEMLarge & Small
Systems Integration, Manufacturing
1970’s - 1990’s
SubcontractorsSystems,
Manufacturing,Components
Suppliers SubcomponentsParts
Large Systems Integrations
Small Systems IntegrationManufacturing
Systems
Components, Manufacturing
Subcomponents, Parts
1990’s - 2010’s
Suppliers
Move up
Supply
Chain
Suppliers Need
• Add capability• Be acquired• Go out of business1970s 1980s 1990s 2000s 2010s
Graphic Source: Aerospace Industries Association169
Dev
elop
men
t
Integration / Complexity
Development
High
Cross Functional
Team
Team Mix Variance*
G
D
E
F
Cost Type ContractsFixed Price
Type ContractsLow
Production Buyer
C
B
A
Cost Type Contracts
Supply Chain Management Complexity
Percent of Supplier Management personnel
with management responsibility
Align Skills With Business Needs - One Size Does Not Fit All170
Participate in Supply Chain AssociationsFunctions Associations
Subcontracts
National Contract Management Association (NCMA)
Institute of Supply Management (ISM)
Project Management Institute (PMI)
Aerospace Industries Association (AIA)
Business Management
AAQG Registration Management Committee (RMC)
Supplier Assurance
Nadcap Management Council (NMC)
American Society for Quality (ASQ)
Society of Manufacturing Engineers
Logistics
International Compliance Professional Association (ICPA)
Council of Supply Chain Management Professionals American Society of Transportation and Logistics
(AST&L)National Institute of Packaging, Handling & Logistics
Engineers (NIPHLE)National Association of Fleet Administrators (NAFA)
American Association of Exporters and Importers (AAEI)
Goods Movement
Association for Operations Management (APICS)
Socio-Economic Business Prog.
8 = Local Associations6 = National
171
172
Heightened Activity in 2010 & 2011
• DFAR 252.222-706, Restrictions on the Use of Mandatory Arbitration Agreements (MAY 2010)
– Defense Appropriation Act for Fiscal Year 2010– Requires Contractors to Certify that Covered Subcontractors Agree Not to Make a Condition of
Employment Arbitration of Certain Employment Claims
• FAR 52.222-99, Notification of Employee Rights Under the National Labor Relations Act (JUN 2010)
• Executive Order 13496. Requires Contr’s to Post Notice, Mandatory Flow-Down to Subs >$10,000, unless performing exclusively outside US
• Dr. Carter (USD(AT&L)) Mandate (JUN 2010)– Deliver warfighting capability for the dollars we have while maintaining healthy defense industry
• FAR 52.204-10, Reporting Executive Compensation and First-Tier Subcontract Awards (JUL 2010)
– July 2010 >$20 M, Oct. 2010 >$550,000, Mar. 2011 >$25,000; Report to FSRS
• Dodd-Frank Wall Street Reform Law, SEC Rule on use of “conflict minerals” (JULY 2010)• Minerals from sources contributing to the conflict in the Congo (DRC or an adjoining country)• Due diligence of ores from which tin, tantalum, tungsten and gold are derived
• Secretary Gates’ Initiative announced (AUG 2010)– Reduce DoD’s overhead, Find and redirect $100B within the Defense Budget
• Dr. Carter Affordability Initiatives released (SEP 2010)– Guidance on 23 initiatives in 5 focus areas, DoD directed to implement immediately
Significant Additional Requirements Levied on Supply Chain 2010-2011
Conflict MineralsOverview
“Conflict Material” reporting rules will severely impact component Manufacturers
173
• Minerals mined in conditions of armed conflict and human rights abuses– The U.S. Secretary of State is required to create a map showing
which areas are under the control of the warlords in the Eastern Congo area.
• Democratic Republic of the Congo and adjoining countries– Cassiterite chief ore from which Tin is processed– Wolframite most important Tungsten ore– Coltan ore from which Tantalum is processed– Gold
• Related to government & commercial products– Tin is the majority element in solder; also a very common lead/termination
plating on electronic components– Tungsten is commonly used in microcircuits in a sputtered titanium
tungsten layer; it is used in high strength steels– Tantalum is used in electrolytic capacitors– Gold is used in terminations and wire for bonding applications as well as in
external platings; The vast majority of electrical contacts are gold plated
174
Enterprise Material Authenticity Capability
Leadership &
Engagement
Policy & Processes
Training & Awareness
Tools & Infrastructure
• Enterprise Network• Multi-Discipline
Team• Improvement Plan• Rapid Response
• Corporate Policy• Sector Procedures• Guidance &
Manuals• Terms &
Conditions
• Enterprise Module• Corporate Comms• Annual Training• Industry
Association
• Alert Management• Recording &
Reporting• Counterfeit
Verification• Industry Standards
Material Authenticity
Reduce our risk through strict procurement practices, supplier management, and material authenticity verifications
Additional Risks in the Electronic Supply Chain
• Continued foreign growth in development and design of semiconductors (approx 1500 total with several hundred in China alone)
• Government attention– Trusted computing platform– Build in security bus for validation checking of
data calls– Change in culture to compartmentalize chip
activities vs. assumed trust model
• ~ 9,400 reported DoD incidents of counterfeit electronics according to ‘09 Dept. Commerce Survey
• Society of Automotive Engineers (SAE) reports a 140% increase in counterfeit electronics in last 3 yrs
Total Counterfeit IncidentsDoD Electronics Survey - Nov 2009
Increased Demand for Awareness and Effective Countermeasures175
176
Tool Solutions
Credit Risk Monitor offers 100% of US Public Corporations - FRISK Scores and News/Financial Information Push. Ability to enter private company financials into secure portal to utilize proprietary FRISK score ratings for small business.
Sector Analysis Detailed Analysis of Supplier(s) based on a variety of public and private information; to include private supplier financial statements, FRISK (where available), Altman Z-score, and other financial assessment criteria.
Tiered approach includes contractual protection to Boots on the Ground
Private Large
Private Small
Public Large
Public Small
Risk Profile
177
Credit Risk MonitorFRISK scores on Watch list Portfolio
The FRISK Score is reported on a scale from1 (worst) to 10 (best)
The FRISK Score, calculated daily, indicates the probability of a company default over a 12 month horizon
Inputs include:– most recent financial statements– Altman Z scores – the most recent ratings from S&P or Moody's– daily stock price volatility over the preceding 6-month period
Stack International – Electronics Group ISM Supply Chain Alerts
Risk Realized: Japanese Tsunami Response
Link to Industry Associations, Working Groups and Consortiums to understand
and react to supply chain impact
Plexus Commodity Impact ReportSource: EE Times March 14
178
Integrated Supply Chain Strategy
179
180
How May I Prepare Today?
Determine where you stand in these key areas:
• Talent – Right Time & Place– How many CPSMs are in your Supply Chain Organization?
• Industry Associations– Functional (Institute for Supply Chain Management, APICS)– Cross Industry (National Association for Manufacturers, TechAmerica)– Industry Specific (Aerospace Industries Association)
• Academic Institutions– University of San Diego, Michigan State University, Arizona State University
• Understand your Supply Chain Business Model– Where do you fall on the complexity scale?
The Global Supply Chain IS Complex – But you are not Alone
Supplier Diversity
Doing Business With Raytheon
Page 18305/03/2023
Taxpayer Small, Minority, Women
Business Owners
Congress Approve Budget
ProgramsJobsVotes
DoD and Other Gov Agencies Budget
Program FundingBest Value Solutions
Prime ContractorsWin ProgramsCompetitive SolutionsBest ValueCustomer Requirements
Supplier Diversity = Business Strategy
Support the Customer - Support Growth
Taxpayer dollars
a
a
a
Congress
Source Selection Decisions
DoD
Prim
e C
ontra
ctor
s
Page 18405/03/2023
Supplier Diversity FocusRaytheon’s “Supplier Diversity” Program is designed to drive supplier source selection strategy and ensure compliance with:
Public Law Federal Acquisition Regulations Customer Requirements Company Policy
concerning the utilization of businesses that are:
Small Small Disadvantaged Woman Owned – Small Businesses Veteran Owned – Small Businesses (including Service Disabled) Small Businesses meeting Hub Zone Criteria (historically under-utilized) Historically Black Colleges, Universities and Minority Institutions Minority and Women-Owned Businesses
Page 18505/03/2023
Supplier Diversity Built in the Organization
Benita FortnerSupplier Diversity Director
William SwansonChairman and CEORaytheon Company
David WilkinsVice President
Contracts & Supply Chain
Mike JarrettMissile Systems
Janet DuffeySpace & Airborne Systems
Dan RyanIntegrated Defense Systems
Vince HrenakNetwork Centric Systems
Paul LoveladyIntelligence &
Information Systems
Stephanie FosterRaytheon TechnicalServices Company
Vivek KamathSupply Chain Operations
Organized to support supplier diversity objectives
Supply Chain Leadership team serves as RTN Supplier Diversity Council
Page 186
…and Staffed to develop and executeSupplier diversity strategy, Initiatives and outreach
It’s all about collaboration
…Key players in local customer interface and developing goals
Benita FortnerRaytheon
Supplier Diversity Director
JoAnne ArvizuMissile Systems
Mike MurnaneIntegrated Defense Systems
Lee WesnerIntelligence &
Information Systems
Shirley PattersonSpace & Airborne Systems
Don BrechtelNetwork Centric Systems
Crystal KingTechnical
Services Company
Carol PhillipsSupply Chain Operations
Supplier Diversity Leadership Team
Replace - this
Page 18705/03/2023
Supplier Diversity - Responsibilities Provide assistance to “focus businesses” who are interested in doing
business with Raytheon
Assist in identifying potential sources for procurement opportunities and sourcing strategies.
Ensure supplier diversity is addressed in all procurements and sourcing strategy activities including proposal support
Track supplier diversity performance and provide customer and industry reports.
Conduct training to ensure that Raytheon personnel are aware of Raytheon Supplier Diversity objectives
Conduct outreach as a means of developing and counseling “focus businesses”
Page 18805/03/2023
Supplier Diversity Business Leader
Complete Supply Chain Support
Supply Chain Expertise
Page 18905/03/2023
Traditional Supplier Requirements Performance Performance Performance Cost Quality Schedule / Delivery
Contemporary Supplier Requirements Customer considerations Competitive market enablers Supplier life cycle in the value chain
Supply Chain Strategies In Global Competition
Supplier Diversity Integral to Supply Chain Strategy
Supply Chain Process Enablers E-Enabled business transactions
Internet-based transactions Inventory Management Processes
Barcode technology Just-in-time deliveries from suppliers Supplier managed inventory Warehouse management
outsourcing Supplier performance management
Supplier scorecards Web based supplier communications Supplier consolidation and
rationalization
Page 19005/03/2023
Sourcing Opportunities and the Global Supply Base
Indirect Commodities
Direct Commodities
Travel IT
Contract Labor
Connectors
Semiconductors
Capacitors
Other Categories:SubcontractsCCA’sPower SuppliesDirect Computersetc.
Remarkable Variation in Supply Chain
Page 19105/03/2023
National, Regional and Local events
Focused outreach and networking within strategic business areas
Raytheon business specific events
Emphasis on Veteran, Hub Zone and Women businesses
Performance - Relationships - Solutions
Outreach drives supplier diversity performance
Raytheon’s performance is driven by a competitive supply baseRaytheon’s performance is driven by a competitive supply base
Page 19205/03/2023
Performance - Relationships - Solutions
Outreach to meet potential suppliers
Share Raytheon strategy and objectives
Respond to customer requests– Significant number of requests
to support customer, industry and advocacy organization initiatives and events
Build Relationships
Committed to strong relationships with customers and suppliers
Page 19305/03/2023
Performance - Relationships - Solutions
CastingsCastings
Chemicals & GasesChemicals & Gases
ConnectorsConnectors
Electrical ProductsElectrical Products
Guidance and ControlsGuidance and Controls
Hardware and Bearings Hardware and Bearings
MachiningMachining
Major AssembliesMajor Assemblies
Manufacturing Lab SuppliesManufacturing Lab Supplies
Packaging SuppliersPackaging Suppliers
Wire & CableWire & Cable
Microwave DevicesMicrowave Devices
OpticsOptics
Outside ServicesOutside Services
Passive DevicesPassive Devices
Power SuppliesPower Supplies
Propulsion Warheads & Propulsion Warheads &
PyrotechnicsPyrotechnics
PWBs / CCAsPWBs / CCAs
SemiconductorsSemiconductors
Test EquipmentTest Equipment
Art/ Computer Graphics/ Text ProcessingChemical & Gas ManagementColor Film ProcessingComputer Hardware/ SoftwareConsultantsContract LaborCopier Paper/ Fine PaperCopiers & Print ServicesEnergy BrokeringExpress Air - DomesticExpress Mail - InternationalFacilities ServicesFaxesFlight Operations ServicesFood and Vending ServicesFormsFreight Payment - 3rd PartyFuels & OilsFurnitureGeneral ConstructionGraphic SuppliesHazardous Waste & Environmental
Household Goods TransportationInternational Freight Forwarding & Brokerage ServicesJanitorial SuppliesLease/ Purchase VehiclesLithographyManufacturing/ Laboratory SuppliesOffice and Computer SuppliesPackaging SuppliesProfessional Services-Health & WelfarePurchasing CardReprographicsSecuritySoftware DevelopmentSolid Waste Management and RecyclingSupplies & Services/ Video ServicesTelecommunications - Cell PhonesTelecommunications - PagersTelecommunications Long Distance VoiceTest EquipmentTest Equipment CalibrationTest Equipment RentalTransportation Logistics
Direct Commodity Agreements
Indirect Commodity Agreements
Suppliers are a significant component of customer solutions
Page 19405/03/2023
Work with Small Business advocate to clarify requirements.
SmallBusiness Advocate
Are you in the position to bid for prime contracts with the right Teaming Agreement?
TeamingAgreements
Joint Ventures
Diversity Supplier
s
DetermineStrategy
Determine significant supply strategies (agreements/programs).
Area ofExpertise
Identify/highlight your areas of expertise and map to target company
IndustryLeader/
Competition
Research industry competition. Am I a leader in this field? Who held the last contract?
RiskAssessment
Can you afford (time, money, technology) to pursue this business?
NationalRegionalSupport
Utilize existing or develop strategic alliances/national and regional support requirements.
Supplier Diversity Planning Process
Page 19505/03/2023
RTN Supplier Diversity Websitehttp://www.Raytheon.com/connections/supplier/diversity
Raytheon Supplier Diversity - Connect With Us
The On-line
Supplier
Registration tool
will aid in
matching
suppliers to
opportunity.
DoD Sustainment Infrastructure
“DoD operates 17 major depot activities, employing more than 77,000 personnel and expending more than 98 million direct labor hours (DLHs) annually... The property, plant, and equipment of DoD’s depots are valued at more than $48 billion.
That infrastructure comprises more than 5,600 buildings and structures, with 166 million square feet used for depot maintenance.”
- Logistics Management Institute Depot Maintenance Report, 2011
USAF Sustainment Infrastructure
Air Force Global Logistics Support Center
Air Force Nuclear Weapons Center
Ogden Air Logistics Center
Oklahoma City Air Logistics Center
Warner Robins Air Logistics Center
Global Logistics Support Center, Scott AFB, Ill Serves as the Air Force supply chain manager,
providing enterprise planning, global and control, and a single focal point, all in support of the full range warfighter operations.
Overall, GLSC is a geographically dispersed organization with six operating locations.
In addition to Scott AFB, these include Hill AFB, Utah; Langley AFB, Va.; Robins AFB, Ga.; Tinker AFB, Okla., and Wright-Patterson AFB.
USAF Global Logistics Support Center TheAir Force plans to build on a 34 percent improvement in supply rates through the
eLog21 campaign and other recent improvements in logistics support.
GLSC is considered to be one of the key elements in the Air Force logistics transformation.
The main objectives of eLog21 are to increase the equipment availability rate by 20 percent and decrease operations and support costs by 10 percent by fiscal 2011.
The GLSC has three primary functions: 1) The enterprise-wide planning of the Air Force supply chain including planning for
material, maintenance and distribution. 2) The GLSC will exercise command and control as a single point of contact for customers
to resolve immediate logistics issues at the point of execution. 3) The GLSC will be the single point of entry and authority for enterprise supply chain
information management. This will include the management of business rules, policies and procedures, providing functional requirements for supply chain systems and measuring, assessing and taking action to improve supply chain performance through enterprise metrics and analysis capability.
According to Trixie Brewer, the provisional organization's deputy director, between 4,000 and 5,000 people will be assigned to the GLSC when it is fully operational.
Oklahoma City Air Logistics Center, Tinker AFB, Okla., Repairs and maintains bomber, refueling and
reconnaissance aircraft, among others. Many crucial airborne accessories also are maintained at the center, including life-support systems. The center provides cradle-to-grave support for a variety of aircraft, including the E-3 AWACS, C/KC-135, B-52 and B-1. It is responsible for depot-level repair, modifications, overhaul and functional check flight of the B-1, B-52, C/KC-135, E-3 and the Navy's E-6 aircraft. Engines managed include a substantial inventory, from the older Pratt & Whitney TF33 to the state-of-the-art F119. Units: 72nd Air Base Wing, 76th Maintenance Wing and Aerospace Sustainment Directorate.
Ogden Air Logistics Center, Hill AFB, Utah Provides logistics, support, maintenance,
distribution and engineering management for the F-16, C-130, A-10, B-2, KC-135, T-38, T-37 and 22 other actively flying, mature and proven weapon systems, including the Minuteman III ICBM. The center is the leading provider of rocket motors, small missiles, air munitions and guided bombs, and serves as the ammunition control point for the Air Force. Units: 75th Air Base Wing, 508th Aircraft Sustainment Wing, 84th Combat Sustainment Wing, 309th Maintenance Wing, 526th Intercontinental Ballistic Missile Systems Wing.
Warner Robins Air Logistics Center, Robins AFB, Ga., provides product support, purchasing and supply-chain
management, and depot maintenance. It has management and engineering responsibility for repairing, modifying and overhauling the F-15, C-130 and all Air Force helicopters. It also provides logistical support for all Air Force air-to-air missiles, vehicles, general-purpose computers, and avionics and electronic systems on most aircraft. In addition, the center has management and engineering responsibility for the U-2 and performs Global Reach Improvement Program aircraft modifications and systems sustainment support on the C-17. Units: 78th Air Base Wing, 330th Aircraft Sustainment Wing, 542nd Combat Sustainment Wing, 402nd Maintenance Wing.
Nuclear Weapons Center, Kirtland AFB, N.M., Is the command's center of expertise
for nuclear weapon systems, ensuring safe, secure and reliable nuclear weapons are available to support the National Command Structure and Air Force.
Center responsibilities include acquisition, modernization and sustainment of nuclear system programs.
Naval Sea Systems Command
Naval Air Systems Command
Naval Supply Systems Command Mechanicsburg and Philadelphia
Naval Material Supply Chain Management (SCM) is NAVSUP’s largest Product & Service in terms of resources invested with over 3,000 civilian, military and contractor personnel involved, $21 billion of inventory on hand and an annual material budget of over $3.5 billion.
It covers the over 430,000 class IX repair part line items of supply for which the NAVSUP Weapon Systems Support (NAVSUP WSS) is responsible.
NAVSUP WSS uses funds from the NWCF (Navy Working Capital Fund) to buy and repair the parts and in turn sells them to Fleet customers.
Why Have Navy Ship Costs Risen?
What Do Shipbuilders Say About Cost Escalation?
Fluctuating ship orders, with initially forecast orders typically exceeding what is ultimately purchased, discourage shipyards from making investments that could ultimately reduce the cost of ships.
An unstable business base also causes fluctuations in the demand for skilled labor that are expensive and difficult to manage and prevents contractors from leveraging through long-term contracts purchases from subcontracting suppliers.
Decreasing production rates tend to increase overhead rates and make the shipbuilders and their suppliers produce at lower efficiency.
Harvard Business Review
Align or redesign
Once companies have identified the root causes of incentive problems, they can use one of three types of solutions—
contract based, information based, or trust based—to bring incentives back into line.
Most organizations don’t have the influence to redesign an entire chain’s incentives—they can change only the incentives of their immediate partners. While it is often the biggest company in the supply chain that aligns incentives, size is neither necessary nor sufficient for the purpose.
http://www.hbs.edu/
Harvard Business Review
One way companies can align incentives in supply chains is by altering contracts with partner firms.
When misalignment stems from hidden actions, executives can bring those actions to the surface—unhide them, as it were—by creating a contract that rewards or penalizes partners based on outcomes.
http://www.hbs.edu/
HBR Incentives in Supply Chains
It’s necessary to alter contracts when badly designed incentives are the problem. Let us think back to the Canadian bread manufacturer whose deliverymen overstocked stores when they were paid sales-based commissions.
The company changed the deliverymen’s behavior by altering their contracts to include penalties for stale loaves in stores, which could be tracked. While the penalties reduced the incentive to overstock stores, the commissions ensured that the deliverymen still kept shelves well stocked.
Small changes in incentives can transform supply chains, and they can do so quickly. Take the case of Tweeter, a consumer-electronics retail chain that in May 1996 acquired the loss-making retailer Bryn Mawr Stereo and Video. For years, Bryn Mawr’s stores had reported lower sales than rivals had. Tweeter’s executives realized early that the incentives that Bryn Mawr offered its store managers would not lead to higher sales. For instance, while Tweeter penalized managers for a small part of the cost of products pilfered from their stores, Bryn Mawr deducted the full value of stolen goods from their pay. Since store managers faced more pressure to prevent shoplifting than to push sales, they behaved accordingly.
They placed impulse-purchase products like audiotapes and batteries behind locked cases, which reduced theft but killed sales. They spent more time tracking merchandise receipts than they did showing products to consumers.
HBR Incentives in Supply Chains
“The Economics of Incentive Alignment.”
In the 1990s, Hollywood movie studios, such as Universal Studios and Sony Pictures, found that frequent stockouts at video retailers, like Blockbuster and Movie Gallery, posed a major problem. A lack of inventory on store shelves meant that everyone suffered:
The studios lost potential sales, video rental companies lost income, and consumers went home disgusted. Inventory levels were low because the incentives of the studio and the retailers weren’t in line. The studios sold retailers copies of movies at $60 a videotape.
At an average rental of $3, the retailers had to ensure that each tape went out at least 20 times to break even. The studios wanted to sell more tapes, but the retailers wished to buy fewer tapes and rent them out more often.
velocity
In the late 1990s, when video rental companies proposed revenue-sharing contracts, the studios raised no objections.
They agreed to sell tapes to the retailers for around $3 per tape. And receive 50% of the revenues from each rental.
“The Economics of Incentive Alignment.”
“The Economics of Incentive Alignment.”
However, the studios needed to track the retailers’ revenues and inventories for the revenue-sharing system to work.
The studios and the video rental companies relied on an intermediary, Rentrak, which obtained data from the retailers’ computerized records and conducted store audits to ensure that all tapes were accounted for. In fact, the contract-based solution wouldn’t have worked if Rentrak hadn’t revealed previously hidden information in the supply chain.
Video RetailerRevenue Sharing “The Economics of Incentive Alignment, Harvard Business School, 2004.)
In fact, both the publisher and the consumers would be happier if there were more copies of the newspaper on the stands, but the vendor would not be. The vendor stocks less than everyone else would like him to because it is in his best interest to do so. The publisher therefore needs to change the incentives of the news vendor so that when the vendor chooses an inventory level that is in his best interest, it increases the publisher’s profits.
One way the publisher could do that is by using a revenue-sharing contract and lowering the price the vendor pays for each copy from 80 cents to 45 cents.
In return, the vendor could retain, say,
Video RetailerRevenue Sharing 65% of the sale price and pass on 35% to the publisher. The retailer’s
understocking costs would remain 20 cents, but his overstocking costs would fall because he’d pay less for each copy.
The retailer would now be inclined to stock 131 copies instead of 120. The profits of both the retailer and the publisher would rise (see the table below).
Alternately, the publisher could pay the retailer markdown money of, let’s suppose, 60 cents for every unsold copy. That would lower the overstocking cost of the retailer and encourage him to stock more copies. The publisher would more than make up for bearing some of that cost because of profits he’d gain in higher sales. In this case, the retailer would stock 150 copies.
As the exhibit shows, both the publisher and the retailer would earn more profits under the revenue sharing and markdown-money contracts considered here than under the traditional system.
The increase in profits would not come at the expense of consumers, who’d pay the same retail price. Inventory levels would also go up, which would result in greater consumer satisfaction.
Economics of Incentive Alignment
When Western companies link up with Asian manufacturers or component suppliers, each party has misgivings about the other’s interests.
The importers are convinced that the vendors won’t deliver on time, can’t produce consistent quality, and will give greater priority to companies that will pay higher prices. They also fear that the contractors will reduce their costs by bribing government officials or using child labor. As Nike found, those dubious practices give importers, rather than their suppliers, bad reputations. For their part, suppliers fear that importers might reject products.
Since importers enter into contracts six to nine months in advance of delivery, vendors doubt companies’ ability to predict consumer demand accurately.
They worry that demand for products will be lower than anticipated and that importers will reject consignments, pretending that the quality wasn’t up to snuff.
Cost Composition
ISSR Cost Driver Framework
ISSR
ISSR
DoD Industrial Base Study 2010 • Supply Chain Risk Management is related to cyber-security.
The Department is preparing another Report to Congress on this issue entitled “Trusted Defense Systems” in response to the 2009 National Defense Authorization Act, Section 254.
With thousands of tier III suppliers and a large proportion of tier III and tier IV work moving offshore, this is a serious area of concern.
For example, a survey of OEMs, subcontractors and distributors by the Department of Commerce documented nearly 10,000 cases of counterfeit parts in 2008.
These components not only have increased likelihood of failure but also the potential to house malware.
DLA IBEX Industrial Base Extension DLA’s Industrial Base Extension (IBex) Program is a government/industry
partnership with multiple global logistics providers that develops an overlapping global network of information on inventory, manufacturing, logistics, storage, transportation, humanitarian support, and base camp construction and maintenance.
The IBex program provides OCONUS and CONUS asset visibility of inventory and global logistics capability available to support U.S. military operations and relief efforts following natural disasters with possible access to these capabilities if required.
Strategic partnerships formed with industry experts allow supplier relationships to transcend purchasing transactions and enhance DLA’s ability to develop improvement opportunities that facilitate the sharing of information.
For the expenditure of $200K per year, the government gains access and a better understanding of the global logistics networks and issues related to cultures, customs requirements/documentation, host nation knowledge, global constraints, and logistical nuances unique to any country or culture in areas of the world with limited U.S. resources.
DoD Supply Chain Materiel Management Policy “Potential disruptions within and outside the DoD
supply chain shall be identified, monitored, and assessed in order to mitigate risk to supply chain operations.
Life-cycle management controls shall be applied to guard against counterfeit materiel in the DoD supply chain” and “additionally, life-cycle management controls shall be developed, applied, and maintained to guard against counterfeit materiel in the DoD supply chain.”
CLL 032 Preventing Counterfeit Parts from Entering the DoD Supply Chain)
DoD Supply Chain Materiel Management Policy Energy efficient products or services
shall have preference in all procurements, except those products or services procured for combat or combat-related missions.”
CLL 043 Green Logistics: Planning for Sustainability
DoD Supply Chain Materiel Management Policy “The supply chain operational reference
processes of plan, source, make and maintain, deliver, and return shall be used as a framework for developing, improving, and conducting materiel management activities throughout the DoD supply chain to satisfy customer support requirements developed collaboratively with the support providers.”
LOG 102 System Sustainment Management Fundamentals)
DoD Supply Chain Materiel Management Policy “Resourcing for all elements of the DoD
supply chain shall be optimized through collaboration between support providers and customers. DoD investment shall be sufficient throughout the life cycle of new or existing weapons systems, equipment, and major end items to respond to warfighter needs.”
LOG 102 System Sustainment Management Fundamentals and LOG 235 Performance Based Logistics)
DoD Supply Chain Materiel Management Policy “Best-value materiel and services
shall be provided to support rapid power projection and operational sustainment of U.S. forces as required by the National Military Strategy.”
CLL 001 Life Cycle Management & Sustainment Metrics)
DoD Supply Chain Materiel Management Policy A decision to use organic versus commercial
sources should be part of developing an acquisition or sourcing strategy. This decision must be supported by a management analysis. The use of existing Government-owned inventory shall be maximized before seeking new commercial support on all performance-based logistics (PBL) arrangements and collaborating agreements.
CLL 015 Product Support Business Case Analysis and CLL 005 Developing a Life Cycle Sustainment Plan)
DoD Supply Chain Materiel Management Policy “All costs associated with materiel
management, including acquiring, distributing, transporting, storing, maintaining, and disposing, shall be considered in making best value decisions throughout the DoD supply chain.
” (CLL 015 Product Support Business Case Analysis)
DoD Supply Chain Materiel Management Policy “Supply chain risk management strategies
shall be employed to identify, monitor, assess, and mitigate (reduce or eliminate) potential disruptions within the DoD supply chain (e.g., insufficient quality, unreliable suppliers, machine break-down, uncertain demand) and outside the supply chain (e.g., flooding, terrorism, labor strikes, natural disasters, large variability in demand).”
LOG 206 Intermediate Systems Sustainment Management and CLM 017 Risk Management)
DoD Supply Chain Materiel Management Policy DoD Components’ materiel management
systems shall be designed to facilitate DoD-wide asset visibility of materiel throughout the DoD supply chain. Materiel managers shall use automatic identification technology to maintain accountability and control, effectively manage costs, and implement the DoD policies cited in this Instruction.”
CLM 044 Radio Frequency Identification)
DoD Supply Chain Materiel Management Policy Unique item level traceability is required for all DoD
serially managed items that are also sensitive or pilferable, all DoD serially managed Critical Safety Items (CSI), and all NWRM using a unique item identifier (UII) assigned to each individual item, e.g. a single instance of a stock-numbered item or a single assembly or subassembly. Unique item level traceability is also required for depot level reparables as well as any item that the DoD materiel manager decides requires unique item level traceability.
(CLE 040 IUID Markings)
DoD Supply Chain Materiel Management Policy “Provide for an integrated,
synchronized, end-to-end materiel distribution system to meet customer requirements for authorized information and materiel”
CLL 017 Introduction to Defense Distribution and CLL 055 Joint Deployment & Distribution Metrics Framework)
DoD Supply Chain Materiel Management Policy Modern materiel preservation,
packaging, and marking techniques shall be used to provide all materiel within the DoD supply chain with the required level of protection and identification at the lowest possible cost. (CLL 013 DoD Packaging)
Deloitte Analysis PBL Margins
Deloitte
Model Based Approach to PBL Pricing
24212/16/2009
PBL Maturity ModelCo
ntra
ct S
cope
Wea
pons
Sys
tem
s Sc
ope
Component
Platform
Performance Outcomes…
Stage 1 Stage 2 Stage 3 Stage 4
Delivery Speed
Operational
AvailabilityMaterial
Availability
MissionAssuranc
e
MissionPerforman
ceWeapon System
PerformanceLogistics
Performance
Distribution
Performance
Logistics Chain Services
SupplyChain Services
Whole SystemAvailability
Mission Success
Scope of PBL Strategies
PBL Implementation
12/16/2009 243
12-StepFramework
244
PBL Foundation1) Integrate Requirements and Support
Translate warfighter’s top-level mission requirements into key system support performance objectives
2) Form Team
• Include key stakeholders & disciplines• Build trust and focus through open communication across boundaries
3) Baseline System
• Fielded system: Use actual data• Replacing legacy: Parametric estimate• New system: Life-cycle estimate
12/16/2009
245
PBL Planning4) Identify Performance Outcomes
Translate top warfighter requirements (i.e. availability, cost) into lower measures (i.e. reliability, supply time)
5) Select Product Support Integrator
Identify single point accountable for delivering performance outcomes• Knowledgeable about the system• Accountable for system performance • Responsible for integrating support • Incentivized to continuously improve • Involved early in the system's life
6) Workload Allocation Strategy
Apply statue (US Code Title 10 i.e. “Core” and “50/50”), service policy/guidance, public-private partnering, existing support & infrastructure … & then select best value
12/16/2009
246
PBL Execution7) Supply Chain Management Strategy
Tailor solutions for; • Unique repairables• Common repairables• Unique consumables• Common consumables
8) Performance Based Agreements
Embed warfighter system support performance objectives into measures and incentives with support integrators and providers
9) Business Case Analysis
Determine “best value” solution by analyzing alternative performance benefits, costs and risks
12/16/2009
247
PBL Control10) Award Contracts
Select contract type based on system maturity and risks • Fixed-price when support costs stable• Include performance incentives, reward improvement, and maintain flexibility
11) Financial Enablers
Facilitate “buying performance” • Single line of accounting for support • Non-expiring, revolving fund enables long-term contracts and investments
12) Implement & Oversight
Performance assessment plan includes; • Who & when will access performance • Performance measures & data sources • Schedule for performance incentives
12/16/2009
CONFIG. MGR: JP, 7.1.1, (301) 757-7699FILE NAME: 00_Aviation_Week_16May11.pptx 248
• TOC COST DRIVERS AND TEMPLATES – DEVELOPMENT– PROCUREMENT– SUSTAINMENT
• PORTFOLIO VIEWS• SUPPORT EXTERNAL
TOC INITIATIVES
• BILL OF MATERIAL ANALYSIS
• CONTRACT REQUIREMENTS
• SUPPLIER– PERFORMANCE– DEPENDENCIES– SUSTAINMENT– CAPACITY
• NAVAIR / INDUSTRY COLLABORATION ON FOCUS INITIATIVES– TOC TRANSPARENCY– PRODUCTION METRICS– SUPPLIER NETWORK– CONTRACTOR COST
STRUCTURE & RATES
BUSINESSCOLLABORATION
SUPPLIERNETWORK
TOCTRANSPARENCY
• RATES TRAINING• CONTRACTOR RATE
REVIEWS – ROTARY WING
• RATE COST DRIVERS & TEMPLATES
• PILOT RATES COCKPIT CHARTS
• UPDATE PENSION PROTECTION ACT ESTIMATES
CONTRACTORCOST STRUCTURE
& RATES• DEVELOP DATA
ACQUISITION PLAN• METRICS PACKAGE• SUPPLIER NETWORK
AND RATES INTEGRATION
• SHOULD COST INTERSECTION
PRODUCTIONMETRICS
• PROGRAM TRAINING• BOOK OF TRUTHS• ACADEMIA
INVOLVEMENT• PROGRAM START-UP
SUPPORT• PUBLISH BEST
PRACTICE• RAPID ANALYSIS• METRICS DICTIONARY
ENCULTURATION“Changing the Culture”
2011 OBJECTIVES SUPPORT REDUCING ACQUISITION CYCLE TIME& TOTAL OWNERSHIP COST, AND SHOULD COST MANAGEMENT
DECREASE ACQUISITION PROCESS CYCLE TIMEAND TOTAL OWNERSHIP COST ACROSS ALL NAVAL
AVIATION PROGRAMS WHILE CONSISTENTLY DELIVERING EXPECTED CAPABILITY
REDUCE ACQUISITION CYCLE TIME &TOTAL OWNERSHIP COST (TOC)
ALIGN THE REQUIREMENTS, RESOURCES, AND ACQUISITION PROCESSES TO ACHIEVE ACCOUNTABILITY AND DELIVER
THE RIGHT CAPABILITY AND CAPACITY ON TIME AND AT THE OPTIMUM COST THROUGHOUT THE LIFECYCLE
CNO GUIDANCE2010
NAVAIR COMMANDER’S INTENT 2010
FOCUS AREA 2
EXPECTED OUTCOME
DIRECT ENABLERS OFSHOULD COST MANAGEMENT
1) Target Affordability and Control Cost Growth
2) Incentivize Productivity and Innovation in Industry
3) Promote Real Competition4) Improve Tradecraft in Services
Acquisition5) Reduce Non-Productive Processes and
Bureaucracy
Under Secretary of Defensefor Acquisition, Technology,
and Logistics“Better Buying Power”
Memo
FOCUS INITIATIVES FOR 2011
M & A Activity Finmeccanica’s other big foreign acquisition, of
DRS Technologies, an American defence-electronics firm, for $5.2 billion (then €3.4 billion) in 2008, now looks too expensive. “It was bought at the top of the market when the US had a huge presence in Iraq and Afghanistan,” says Zafar Khan, an analyst at Société Générale, a bank. He adds that the business is now slowing. Buying DRS loaded Finmeccanica with debt. That frightens investors, especially when defence budgets are shrinking.
250
PBL Power by the Hour (PBH) contract with Rolls Royce.
• The T-45’s F405-RR-401 engine is supported through a PBL Power by the Hour (PBH) contract with Rolls Royce. Performance is based on aircraft flying time and paid per flight hour. The engine contractor provides a minimum number of RFI engines to the aircraft PBL contractor. The ACO will be responsible to make any adjustments to the actual engine inventory. Performance Based Logistics (PBL) is the preferred Department of Defense (DoD) product support strategy to improve weapons system readiness by procuring performance, which capitalizes on integrated logistics chains and public/private partnerships. The cornerstone of PBL is the purchase of weapons system sustainment as an affordable, integrated package based on output measures such as weapons system availability, rather than input measures, such as parts and technical services.
• http://www.globalsecurity.org/military/systems/aircraft/systems/f405.htm
12/16/2009
251
Power-By-the-Hour (PBTH®)
• Rolls-Royce Defense Services Inc., Indianapolis, Ind., was awarded on 02 September 2003 a requirements contract with a not-to-exceed value of $51,197,805 to provide power-by-the-hour (PBTH) logistics support for approximately 175 T-45 F405-RR-401 engines. PBTH support to be provided includes maintaining and controlling the current inventory of F405-RR-401 engines, modules, spare and repair parts, as well as additional engines added to the fleet, including engines delivered with new production aircraft. Work will be performed in Meridian, Miss. (50.41%); Kingsville, Texas (49.04%); and Patuxent River, Md. (.55%), and is expected to be completed in September 2004. This contract was not competitively procured. The Naval Air Systems Command, Patuxent River, Md., is the contracting activity (N00019-03-D-0012).
• Rolls-Royce Defense Services Inc., Indianapolis, Ind., was awarded on September 27, 2005 a $63,260,398 fixed-price modification to a previously awarded requirements contract (N00019-03-D-0012) to exercise an option for Power-By-the-Hour (PBTH®) logistics support for approximately 188 T-45 F405-RR-401 engines. Work will be performed at the Naval Air Station (NAS) Meridian, Miss. (50 percent); NAS Kingsville, Texas (48.94 percent); and NAS Patuxent River, Md. (1.06 percent), and is expected to be completed in September 2006. Contract funds will not expire at the end of the current fiscal year. The Naval Air Systems Command, Patuxent River, Md., is the contracting activity.
12/16/2009
252
Power-By-the-Hour (PBTH®)
• Rolls-Royce is optimistic about getting new contracts, as the Navy says the PBTH work has led to a dramatic improvement in maintenance quality and performance reliability in the more than 190 F405 engines used in T-45s at the Navy's major combat pilot lead-in training sites, Naval Air Station Meridian, Miss., and NAS Kingsville, Texas, and for two test aircraft at Patuxent River, Md.
• Ready-for-issue engine availability, which had declined at one point to 70%, exceeded the 80% requirement in the initial year of the Rolls-Royce contract, October 2003-2004. Since then, the RFI metric has been increased to 85% and has been exceeded, said Capt. Win Everett, program manager for naval undergraduate flight training systems. Additionally, the average mean time between removal (MTBR) of engines from T-45s rose from 700 to more than 900 hours.
• Expected engine removals fell by 15% and average engine release life rose from a low of 500 hours to more than 1,000 hours, meeting the expected norm of between 1,000 and 2,000 hours. Those improvements took place as more aircraft and engines were entering the inventory.
• "The Navy and Rolls-Royce worked very hard to bring our commercially successful PBTH concept into the world of DOD to produce a contracting vehicle that would work for both of us," Wilson said.
• Under PBTH, Rolls-Royce gets paid a flat fee for each hour the engines are in the air - 75,000 to 80,000 hours a year. The company is responsible for all repairs and replacement parts. It handles all intermediate and depot-level maintenance and supplies line replaceable units and technical support for flight-line operational level maintenance , which is performed by L-3 Communications Vertex Aerospace.
• "When there is a problem with an engine, we do more than fix the problem. Rather than concentrate on a fixed work package, we look over the whole engine. If there are modules that will need replacement or overhaul in the imminent future, we do that work," Wilson said. "That saves having to pull the engine off the aircraft again a few days or a week later, which saves us money and gives the Navy an engine that will fly more hours before it has to return to the shop."
• The $51 million PBHT contract, which has four option years, initially was awarded to Rolls-Royce in September 2003. It was followed by a one-year option beginning in October 2004 for up to $60 million, depending on the total hours flown.
• "The Navy said it intends to exercise the second year option, also worth up to $60 million, which will begin this October," Wilson said. • Aviation Week Jun 13, 2005 By John Terino
12/16/2009
Lexington Institute 1 Randy T. Fowler, “Misunderstood Superheroes: Batman and Performance-Based Logistics,” Defense
AT&L, January-February 2009. 2 Randy T. Fowler, op. cit.
3 Office of the Secretary of Defense, Public-Private Partnerships for Depot-level Maintenance through the end of Fiscal Year 2006,
Department of Defense, July 2007, pp. II-23 to II-28.
4 Aerospace Industries Association, “U.S. Defense Modernization: Today’s Choices for Tomorrow’s Readiness,” August 2008, p. 45.
5 U.S. Department of Defense, DOD Weapons Systems Acquisition Reform: Product Support Assessment, November 2009, p. 11.
6 Ibid, p. 32.
7 The United States Air Force Depot Maintenance Strategic Master Plan, April 2008, p. 7.
8 Paul Klevan, “Navy Success with PBL,” Briefing to DoD Maintenance Symposium, October 27, 2008.
9 Rebecca L. Kirk and Thomas J. DePalma, Performance Based Logistics Contracts: A Basic Overview, CRM D0012881A2,
Center for Naval Analyses, November 2005, p. 44 . 10 PEO TACAIR, Briefing on F/A 18 E/F FIRST Program, 2006.
11 Vice Admiral W.B. Massenburg, Performance Based Logistics (PBL) Guidance and Best Practices, Naval Air Systems
Command, Department of the Navy, February 2007.
12 Ronnie Chronister, AMCOM: Performance Based Logistics, Briefing to SOLE Conference, 2007.
13 Peter Buxbaum, “Performance Made to Order,” Military Logistics Forum, November/December, 2009.
14 Aerospace Industries Association, Modernizing Defense Logistics, June 25, 2009, p. 6.
15 Peter Buxbaum, op, cit.
Lexington Institute 16 Quoted in Amy Butler, “USAF Spending Too Much On Support Contracts, Donley Says,”
Aerospace Daily & Defense Report, Nov. 3, 2009.
17 Stan Soloway, “Insourcing Benefits are Smoke and Mirrors,” Washington Technology, October 29, 2009.
18 Analysis based on data extracted from the Working Capital Fund Attachment to the Air Force and Navy submissions to the
Presidents Budget.
19 Michael Boito, Cynthia R. Cook, and John C. Graser, Contractor Logistics Support in the U.S. Air Force, MG779, RAND
Corporation, 2009, p. xv.
20 Analysis based on data extracted from the Working Capital Fund Attachment to the Air Force and Navy submissions to the
President’s Budget.
21 Government Accountability Office, Air Force Depot Maintenance: Improved Pricing and Cost Reduction Practices Needed, GAO
04-498, June 2004.
22 Bradley W. Bergmann II and Robert L. Buckley, Assessment of Successful Performance-Based Logistics Efforts, Logistics
Management Institute, DAC90T1, September 2009. 23 The Honorable Jacques Gansler, “Global War on Contractors Must Stop,” ExecutiveBiz Blog,
January 15, 2010, at http://www.blog.executivebiz.com/jacques-gansler-global-war-on-contractors-must-stop/7105. 24 “From PBL to U.S. Government Directed Logistics,” Second Line of Defense, February 2010, at
http://www.sldinfo.com. 25 Government Accountability Office, Depot Maintenance: Actions Needed to Identify and Establish
Core Capability at Military Depots, GAO 09-83, May 2009. 26 U.S. Department of Defense, Creating an Effective National Security Industrial Base for the 21st
Century; An Action Plan to Address the Coming Crisis, Report of the Defense Science Board Task Force on Defense Industrial
Structure for Transformation, Office of the Under Secretary of Defense for Acquisition, Technology and Logistics, July 2008, pp.
9-10. 27 DOD Weapons System Acquisition Reform: Product Support Assessment, op. cit., pp. 43-47. 28 Aerospace Industries Association, op. cit., p. 6.
Business Case Analysis
From Flight Global April 2o1o
The US Air Force is taking back control of maintenance functions for the C-17 and F-22 previously outsourced t0 Boeing and Lockheed Martin.
The USAF confirmed to Flight International in early April that Lockheed's performance-based logistics contract for the F-22 will cease, ending months of speculation about the potential re-insourcing move.
That confirmation came only three months after the USAF announced that Boeing's performance-based logistics deal for the C-17 also would be stripped away.
In those two strokes, the USAF reversed more than a decade of policy momentum building in favor of such long-term outsourcing deals, and threw into doubt a pillar of projected profit growth across the defense industry.
S- Curve
Bundling
The appeal of bundling is partly that it reduces transaction costs: instead of having to figure out how much each part of a package is worth to you, you can make a blanket judgment.
Bundling eliminates the problem of fretting about small expenditures, which may be one reason that flat-rate pricing is very common in the vacation industry (cruise ships, all-inclusive travel packages, and so on).
It also offers what economists call option value: you may never watch those sixty other channels, but the fact that you could if you wanted to is worth something. Many consumers also perceive bundles as bargains; getting a bunch of things for one price feels like a deal, even when it’s not.
http://www.newyorker.com/talk/financial/2010/01/25/100125ta_talk_surowiecki#ixzz0eFitIO1r
Final 259
Is an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive and high-performing business model.
It includes all of the logistics management activities noted above, as well as manufacturing operations, and it drives coordination of processes and activities with and across marketing, sales, product design, finance, and information technology. Supply Chain
Management:
Encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Logistics
Management: Supplier Relationship Management (SRM):
TIMELINES PHOTOS 3 STEPSSupply Chain Management:
Logistics management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management, supply/demand planning, and management of third party logistics services providers.
To varying degrees, the logistics function also includes sourcing and procurement, production planning and scheduling, packaging and assembly, and customer service. Supply Chain
Management:
Encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Logistics
Management: Supplier Relationship Management (SRM):
Logistics Management:
The goal of supplier relationship management (SRM) is to streamline and make more effective the processes between an enterprise and its suppliers just as customer relationship management (CRM) is intended to streamline and make more effective the processes between an enterprise and its customers.SRM includes both business practices and software and is part of the information flow component of Supply Chain Management (SCM).
SRM practices create a common frame of reference to enable effective communication between an enterprise and suppliers who may use quite different business practices and terminology.
As a result, SRM increases the efficiency of processes associated with acquiring goods and services, managing inventory, and processing materials.
Supply Chain Management:
Is a comprehensive approach to managing an enterprise's interactions with the organizations that supply the goods and services it uses.
Logistics Management: Supplier Relationship Management (SRM):
Supplier Relationship Management (SRM):
Subcontract Management:
The discipline of establishing service, quality, cost, and satisfaction goals and selecting and managing third party companies to consistently meet these goals.
Subcontract Management :
Establishing Goals –When selecting or managing subcontractors , subcontractor managers must optimize their opportunity to achieve these goals by using third parties companies.
Selecting Subcontractors – The fine art of matching the right company with the desired performance characteristics. Failure to consider this comprehensively could lead to complete failure.
Managing Subcontractors – On a daily basis, vendor managers must monitor performance, provide feedback, champion new projects, define or approve/disapprove change control processes, and develop vendors.
Consistently Meet Goals – Operations must perform within statistically acceptable upper and lower control bounds. The vendor manager focuses on meeting goals, from providing forecasts to defining requirements, from ensuring vendors have adequate staff to ensuring the staff have completed all required training.
Clustering It also should be noted that firms tend to cluster to take advantage of
concentrations of skills, similar production processes, and specialized suppliers.
Within the United States, there is Silicon Valley in California, the Research Triangle, in North Carolina, the High-Tech Community along Route 128 in Boston, financial services and transportation in Atlanta, and plastics and aerospace in Wichita, Kansas.
The same is true for clusters of industries abroad, including financial services in London, medical research and development in Singapore, and fashion design in Paris.
These centers seem to attract industries regardless of their relatively high cost of labor. Studies of such clusters indicate that the most important sources of prosperity can be created and are not dependent on “inherited” advantages, such as relative wage costs.46
Clustering Working groups are focused on broad areas
Technology Demonstration and Development Procurement
Goal: Helping to position industry to take greater advantage of “emerging opportunities” in the US and elsewhere.
Focus: Developing a mechanism for helping companies to identify those opportunities
Clustering. Aviation Week and Space Technology. 19/26 December 2011. pp 59-60
Montreal and the surrounding province of Quebec are using a top-to-bottom approach of government and industry support to help their small and medium-size aerospace manufacturers be more competitive by innovating within the supply chain.
Working with industry and provincial officials, Canada is building a policy framework designed to assist companies, particularly in doing business internationally, since there is little domestic market for their products and services.
The effort includes a review of all federal policies that might have significant impact on the industry; including restrictions on technology sharing.
Mecham, M and Velocci Jnr, A.L. 2011. Clustering. Aviation Week and Space Technology. 19/26 December 2011. pp 59-60
Clustering Economists from Adam Smith to Paul Krugman have noted
that similar businesses tend to congregate geographically ("agglomerate"); opening near similar companies attracts workers with skills in that business, which draws in more businesses seeking experienced employees.
There may have been no reason to prefer one place to another before the industry developed, but as it concentrates geographically participants elsewhere are at a disadvantage, and will tend to move into the hub, further increasing its relative efficiency.
This network effect follows a statistical power law in the idealized case,[12] though negative feedback can occur (through rising local costs).[13]
Aviation Clusters There are five aviation clusters in the world: Dallas-Fort
Worth, Montreal, Puget Sound/Seattle, Toulouse, and Wichita.
These zones either have one huge, dominant player (Seattle and Toulouse) or enough players to reach a similar level of critical mass (Fort Worth, Montreal, Wichita).
There are many other important aviation sites – from Savannah to São Jose Dos Campos to Shenyang – but these five clusters are responsible for about 65% of the world’s aircraft production – roughly $80 billion in new deliveries.
They also perform huge volumes of MRO, spares, development, and aero-engine work.
B-29 Superfortress
B-29 Production Four main-assembly factories:
Two Boeing operated plants at: Renton, Washington, and Wichita, Kansas,
The Bell plant at Marietta, Georgia ("Bell-Atlanta"), and
The Martin plant at Omaha, Nebraska ("Martin-Omaha").
Aerospace and Defense in Texas
Aerospace and Defense in Texas
Wichita has the highest concentration of aerospace manufacturing employment and skills in the nation.
About 55% of Wichita metro area manufacturing employment (52,900) – or some 29,300 persons – is in aerospace products and parts.
Wichita Cluster The Wichita area hosts four OEMs (Boeing Defense, Space & Security;
Bombardier Learjet; Cessna Aircraft; and Hawker Beechcraft.)
Wichita is also home to an Airbus Engineering Design Center.
During 2010, Wichita companies delivered 58% of all general aviation aircraft built in the United States, and accounted for 39% of global general aviation deliveries.
Located in Wichita is some of the most specialized equipment in the world for metal and composite material fabrication. Decades of aircraft production has built a comprehensive network of over 200 precision machine shops, tool & die shops and other aerospace subcontract manufacturers.
There are more than 40 Boeing-certified gold and silver suppliers within a 200-mile radius. Those leading edge suppliers include Spirit AeroSystems, the world’s largest independent producer of commercial aircraft structures.
Wichita firms either directly manufacture, or provide critical components for, over half of all general aviation, commercial and military aircraft.
Montreal Cluster