Your SlideShare is downloading. ×
0
Jeran Binning
   (Lesson 5) Given a company contract award    scenario and corporate goals, students will    identify and assess a comp...
   Lesson 5: Supplier Management (Tuesday Afternoon 1500-1630)   Learning Outcomes: Given a company contract award scen...
   The instructor briefs the Supplier Management concepts in the    Thursday morning session.   Use of segments of LOG 3...
   Activities: The instructor will introduce a short    Case Study to demonstrate financial gains and    risks for managi...
   Content available is 20% principally using    LOG-340 framework. References include    LOG-340 Student Guide, commerci...
   8.1 Explain industry strategies to support system sustainability.   8.2 Describe prime contractor methods used for ta...
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. ...
   Public policy affects businesses in two distinct ways. The    first is in the environment for business or the    econo...
   The second way that public policy affects business is in    actions that affect the internal operations of companies....
   The development of global supply chains adds another dimension to the impact    of public policy.   This appears in t...
   One example of how public policy may enter into business    decision making to determine where to manufacture product ...
   Taxation   Trade and Investment Policy   Labor and Health Care Costs   Environmental Regulation   Currencies and E...
   Numerous other tax provisions affect U.S.    businesses and their manufacturing decisions.   The taxation of income b...
   Global supply trains could not exist without international    trade.   Traditionally, trade and investment policy dea...
   Labor Costs   Labor costs are one of the most controversial aspects of globalized    manufacturing chains.43 The argu...
   In the United States, much of health care is provided    by employers, so health care costs have become an    integral...
   As with labor issues, environmental regulation both as    applied to businesses in the United States and as    contain...
   One part of infrastructure and transportation that is critical to    global supply chains seems to be oceanic shipping...
   In 2007, the Global Supply Chain Council in Shanghai conducted a    survey of international companies there dealing wi...
   Chinese counterfeits include many products, such as    pharmaceuticals, electronics, batteries, auto    parts, industr...
Deutsche Bank                                                                       A Wall St Perspective on the          ...
Incentives Give You A Clue to Actions                                        27
Dealing with the Downside of a Budget Cycle:                           Follow the Customer or the Technology?     • Strong...
Valuation                                                                                                     P/E Trends  ...
   The head of Boeing’s commercial-airliner    division, Jim Albaugh, admits that with hindsight    too much of the Dream...
   It has signed a long-term deal with a    Russian metals firm to ensure a    steady supply of crucial components    mad...
   And it has hired hundreds of “examiners” to    visit suppliers, to check that they are building    up production to me...
   It has about 1,200 “tier-    one” suppliers, which    provide parts directly to the    plane maker from 5,400    facto...
   Beverly Wyse, who oversees production of    the 737, admits that it has sometimes been a    job to persuade all these ...
   At Boeing’s Everett factory to the north of Seattle and another    plant in South Carolina, plans are afoot to churn o...
   More delays followed as production problems mounted. In    2008, the company blamed another delay on a 58-day strike b...
   JORGE NIOSI & MAJLINDA ZHEGU   School of Management Science, Universite         Que bec a` Montre , Montreal, Canada...
   Making aircraft   Full throttle   Boeing and Airbus enjoy huge demand for    their planes. Can they keep up?   Nov ...
   May 12th 2011, 15:53 by J.F. |    MOBILE, ALABAMA
5.1 Explain industry strategies to support system sustainability
Redefining Supportability     • New Design Related Metrics     • Integrated with Producibility48
Our Supportability Approach Emphasizes Support Event         Characterization Beyond Traditional Operational Availability ...
Integrated Producibility and Supportability Requirements        Development is Pivotal to Systems Engineering        DESIG...
Future Organizational Relationships                                         LOGISTICS ENGINEERING                      SUS...
Comprehensive Supportability Design-To Requirements (SDTRs)                  Reduce Support Event Frequency, Duration and ...
The Supportability Degrader Algorithm differentiates between Mission,      Design and Infrastructure Issues - NAVY or AIR ...
   Prepared by Science Applications International    Corporation   Under Contract DASW01-95-D-0076, Delivery    Order 45...
Susceptibility to disruptions in funding, schedule, requirements, and political and other support.   While the government...
   Requirement   Acquisition Phase   Primary Incentive Areas   Size   Contract Type   Program Stability   Program/C...
   Several incentives viewed as having the highest impact were also voted the    most difficult to implement.   However,...
5.2 Describe prime contractor methods used for task and risk flow down.
5.3 Explain supplier management impact on company margins.
5.4 Identify company resources needed for subcontractor management.
Raytheon Supplier Diversity - Connect With Us                         RTN Supplier Diversity Website                      ...
 5.5 Identify risks and financial considerations for various make-buy decisions to include company motivation to outsourc...
 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.
5.8 Describe agreements on data rights and licensing in protecting a company’s intellectual property.
ACQ-315
   Two costs typically drive an organization’s “make-or-buy” decisions:    production costs and transaction costs. Conven...
What Drives Make vs Buy Decisions?
Rand 1992
Overhead Allocation and      Incentives
Semiconductors          Capital Asset   High              Shipbuilding                         Intensity                  ...
Nominal        HighMust pull work back        Capital                 Must Pushinto the Prime             Intensity       ...
   Interface Control Documentation (ICD)   Interface Control Documentation includes Interface    Control Drawings, Inter...
   4.4. Systems Engineering Design Considerations   Subordinate sections to 4.4 cover the following topics:   4.4.1. Ac...
   Pentagon’s industrial policy chief says he worries that the U.S. aerospace    industry could follow in the footsteps o...
   OUTSOURCE IN HASTE, REPENT AT LEISURE              By Stefan Stern   So now we know. BP did not have “the tools you w...
12/16/2009   85
Recursive and Iterative                             Systems Engineering Vee Model                            Stakeholders ...
Interface Management
   Another aspect of configuration    identification to be considered during    development is interface    management, a...
   Interfaces are the functional and physical    characteristics which exist at a common    boundary with co-functioning ...
   During development, part of the contractor’s    design effort is to arrive at and document    external interface agree...
   To understand how a particular interface should    be defined and managed, it is necessary to    categorize the interf...
   Each interface must be defined and    documented; the documentation varies from    performance or detailed specificati...
   Whether formal or informal interface management is employed, it is    necessary that there be a legal responsibility o...
   Within an organization, and often with    subcontractors, integrated product teams may    be used to establish interfa...
   Once interfaces have been agreed-to by the parties    concerned, they must be detailed at the appropriate    level to ...
   Interface Control Documentation (ICD)   Interface Control Documentation includes    Interface Control Drawings, Inter...
   “DoD operates 17 major depot activities, employing    more than 77,000 personnel and expending more    than 98 million...
The Business ofAerospace and Defense      September 2010                 Robert H. Trice                 Senior Vice Presi...
Goal       Foster Informed Discussion         of the Business Aspects of the Aerospace and Defense Industry               ...
Agenda • Business Principles • A&D Evolution • A&D Contributions • A&D Unique Characteristics • Defense Contracting Consid...
Business Principles                      120
What All BusinessesHave in Common • Capacity to Produce   – Employees and Facilities • Opportunity to Sell   – Customers a...
What All Successful BusinessesHave in Common• Effective Business Rhythms  – Strategy for Success and Determination to Exec...
Financial Flow                                                  Sales                                        Minus Cost of...
A&D Evolution                124
Defense Industry Evolution Government             Industrial            Specialized           “Pure” A & D  Arsenal       ...
A&D Industry Consolidation           Lockheed       GD Ft. Worth                                                          ...
Defense Systems Procured                 Aircraft Procurement                                 Ship Procurement  531       ...
A&D Primes’ Portfolios                                                       (2009 Sales)Lockheed Martin - $45B           ...
A&D Industry Supports Global Security            Global Peer Warfare             Conventional Regional Conflicts          ...
Three-Tiered Global A&D Industry   A&D Global Primes      Sub-Primes &    Systems Partners      Lower-Tier                ...
A&D Contributions                    131
A&D Workforce Contributions                                                                                               ...
Over 40K A&D Jobs Lost Since 2009                  WA = 6578               Notes: Since First Quarter 2009, Actual and Ann...
Competitive Compensation (2009)                                                                All Employee Annual Earning...
Aerospace: A Leader in Net Exports     $ Millions                                                                         ...
A&D Technology Contributions               R&D Investment as a Proportion of Net Sales                            2.9%    ...
A&D Technology Contributions      Nuclear Power                                                                           ...
Superior Systems for Warfighters                                   138
A&D UniqueCharacteristics                  139
A&D Industry Market Value                          Aerospace & Defense                          Market Cap as % of S&P    ...
Industry Comparisons                                       Market Cap / Sales ($B)               Publicly Traded Companies...
Gross Earnings Sector Comparisons                                   EBITDA Margin from 2007 – 20091   Telecommunications  ...
Net Earnings as % of RevenueCompany Comparisons from Various Industries  A&D Sector                                       ...
Aerospace & Defense Elements       Commercial                       Defense                               Military Aircraf...
Commercial vs. Gov’t Contractors     Commercial Business             Government Business • Open Markets                   ...
Commercial vs. Gov’t Contractors     Commercial Business              Government Business • Limited Government Oversight  ...
Defense Program Reductions                                                                                 F-22 Fighter   ...
Terminations for Convenience                                   TSAT/TMOS      RAH-66 Comanche            $10 Billion Spent...
Why Invest in the A&D Industry • Reasonable Returns on Investment • Strong Cash Flows • Consistent Dividend Returns • Long...
Five Year Stock Performance(through December 31, 2009)    115%    100%     85%     70%     55%     40%                    ...
Defense Contracting  Considerations                      151
152
Government vs. Industry View of ProfitGovernment Perspective                      Industry PerspectiveTotal Allowable Cost...
Revenue Distribution      Net Lockheed Martin 2009 Sales $45.2B                $3B  $1.2B                                 ...
Cash Deployment                                                    Internal Investment:                                   ...
Summary          156
A&D Industry’s Unique Role                        SECURITY & SERVICES        GOVERNMENT                             PRIVAT...
A Healthy Defense Industrial Base • Supports Investment    –Research and Development    –Facilities and Infrastructure • C...
Supply Chain Complexity in a      Changing Environment            November 17, 2011               Michael Forbes, CPSM    ...
Supply Chain Complexity: Today‘s Topics      • Northrop Grumman Introduction      • Do You Have the Right Talent?      • R...
Northrop Grumman Today      • $34.8 billion sales in 2010*      • $64 billion total backlog (as of December 31, 2010)     ...
Four Operating Sectors at a Glance      Aerospace Systems             Electronic Systems        Information Systems       ...
Last Decade‘s Environment                 I’ll take 300 widgets for delivery                   next Friday… Payment terms ...
Today‘s Environment167
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Supplier management v4.0_11_mar_12
Upcoming SlideShare
Loading in...5
×

Supplier management v4.0_11_mar_12

1,295

Published on

Supplier Management Module Research for ACQ-315

Published in: Business, Technology
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
1,295
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
34
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • The SAFE Port Act enacted in 2006 required, among other things, that U.S.Customs and Border Protection (CBP) conduct a pilot program to determine the feasibility ofscanning 100% of U.S.-bound containers. In order to fulfill this and other requirements, inDecember 2006, the CBP and the U.S. Department of Energy jointly announced the formation ofthe Secure Freight Initiative.71
  • THERE are not many businesses in which the next six years’ worth of customers form an orderly queue, putting down fat deposits and topping them up with further instalments as they wait in line. But that is Boeing’s fortunate position. On January 25th it announced a 21% rise in annual net profits, to $4 billion.Last September, after three years of delay, Boeing made the first deliveries of its newest model, the 787 Dreamliner. A revamped version of the trusty but ageing 747 jumbo has also arrived, two years late. A few airlines got fed up and cancelled, but most had little choice but to keep waiting. Boeing’s main rival, Airbus, has an even longer backlog—up to eight years at current production rates. And the delivery schedule for Airbus’s answer to the Dreamliner, the A350, has been slipping.Last year, straining to ramp up production to meet soaring demand, the two big planemakers turned out a record 1,011 airliners between them. But for every plane they delivered, they won more than two fresh orders (net of cancellations), so the queue got longer. On January 25th Boeing won its largest-ever order from Europe: Norwegian Air Shuttle is to buy 122 planes worth $11.4 billion at list prices.The lion’s share of 2011’s advance orders were for the A320neo, a re-engined version of Airbus’s short-haul airliner, which should enter service in 2015. This year the plane most in demand looks to be the 737MAX, a re-engined version of Boeing’s short-haul plane, deliveries of which are due to start in 2017.At Boeing’s Renton factory near Seattle the existing version of the 737 is now being turned out at a record rate of 35 a month, after a recent speeding-up of the two assembly lines. At the front of assembly line number one, a plane destined for flydubai, an airline that can’t afford capital letters, is ready to roll. Behind it is the latest addition to Ryanair’s huge fleet of 737s, which has just had its engines fitted. Next, a Korean Air plane which is about to receive rows of seats; then an Azerbaijan Airlines jet, its toilet cubicles lined up alongside ready for installation. The plan is to increase the production rate further, to 42 a month by 2014. Fortunately, there is space to squeeze a third assembly line into the giant hangar.Likewise, 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.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 planemaker has also set up a “war room” that constantly monitors the world’s supply of aircraft parts and raw materials. It has signed a long-term deal with a Russian metals firm to ensure a steady supply of crucial components made from titanium. 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’s assembly plants are the final stage in a long and hugely complex global supply chain. It has about 1,200 “tier-one” suppliers, which provide parts directly to the planemaker 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. 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.Even with all these new measures in place, Boeing’s plans to boost production of the Dreamliner remain “hugely ambitious”, reckons Richard Aboulafia of Teal Group, an aviation consultancy. He wonders if the planemaker is serious about its target of making ten of them a month, or whether it is just bandying about an unrealistic figure to rev up its suppliers. “Not true,” retorts MrAlbaugh. Boeing has every intention of reaching the goal, he says.Fasten your seat beltsStill, with the world economy looking wobbly and the euro-area crisis far from over, might suppliers not have good reason to fear that the recent surge in aircraft orders could go into reverse thrust? Myles Walton, an aerospace analyst at Deutsche Bank, believes that both Boeing and Airbus have quietly begun double-booking some of their delivery slots, in case a customer collapses. He reckons they have done enough of this to cope with the worst imaginable recession in Europe.Perhaps the biggest risk on the horizon would be a sustained surge in the price of oil, which could send airlines into a tailspin of losses and bankruptcy. So far, though, the chief worry for Boeing and its main rival is how to get their products flying out of the door faster.
  • BoeingFaster, faster, fasterThe planemaker struggles to fulfil a rush of ordersJan 28th 2012 | SEATTLE | from the print editionTHERE are not many businesses in which the next six years’ worth of customers form an orderly queue, putting down fat deposits and topping them up with further instalments as they wait in line. But that is Boeing’s fortunate position. On January 25th it announced a 21% rise in annual net profits, to $4 billion.Last September, after three years of delay, Boeing made the first deliveries of its newest model, the 787 Dreamliner. A revamped version of the trusty but ageing 747 jumbo has also arrived, two years late. A few airlines got fed up and cancelled, but most had little choice but to keep waiting. Boeing’s main rival, Airbus, has an even longer backlog—up to eight years at current production rates. And the delivery schedule for Airbus’s answer to the Dreamliner, the A350, has been slipping.Last year, straining to ramp up production to meet soaring demand, the two big planemakers turned out a record 1,011 airliners between them. But for every plane they delivered, they won more than two fresh orders (net of cancellations), so the queue got longer. On January 25th Boeing won its largest-ever order from Europe: Norwegian Air Shuttle is to buy 122 planes worth $11.4 billion at list prices.The lion’s share of 2011’s advance orders were for the A320neo, a re-engined version of Airbus’s short-haul airliner, which should enter service in 2015. This year the plane most in demand looks to be the 737MAX, a re-engined version of Boeing’s short-haul plane, deliveries of which are due to start in 2017.At Boeing’s Renton factory near Seattle the existing version of the 737 is now being turned out at a record rate of 35 a month, after a recent speeding-up of the two assembly lines. At the front of assembly line number one, a plane destined for flydubai, an airline that can’t afford capital letters, is ready to roll. Behind it is the latest addition to Ryanair’s huge fleet of 737s, which has just had its engines fitted. Next, a Korean Air plane which is about to receive rows of seats; then an Azerbaijan Airlines jet, its toilet cubicles lined up alongside ready for installation. The plan is to increase the production rate further, to 42 a month by 2014. Fortunately, there is space to squeeze a third assembly line into the giant hangar.Likewise, 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.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 planemaker has also set up a “war room” that constantly monitors the world’s supply of aircraft parts and raw materials. It has signed a long-term deal with a Russian metals firm to ensure a steady supply of crucial components made from titanium. 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’s assembly plants are the final stage in a long and hugely complex global supply chain. It has about 1,200 “tier-one” suppliers, which provide parts directly to the planemaker 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. 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.Even with all these new measures in place, Boeing’s plans to boost production of the Dreamliner remain “hugely ambitious”, reckons Richard Aboulafia of Teal Group, an aviation consultancy. He wonders if the planemaker is serious about its target of making ten of them a month, or whether it is just bandying about an unrealistic figure to rev up its suppliers. “Not true,” retorts MrAlbaugh. Boeing has every intention of reaching the goal, he says.Fasten your seat beltsStill, with the world economy looking wobbly and the euro-area crisis far from over, might suppliers not have good reason to fear that the recent surge in aircraft orders could go into reverse thrust? Myles Walton, an aerospace analyst at Deutsche Bank, believes that both Boeing and Airbus have quietly begun double-booking some of their delivery slots, in case a customer collapses. He reckons they have done enough of this to cope with the worst imaginable recession in Europe.Perhaps the biggest risk on the horizon would be a sustained surge in the price of oil, which could send airlines into a tailspin of losses and bankruptcy. So far, though, the chief worry for Boeing and its main rival is how to get their products flying out of the door faster.
  • BoeingFaster, faster, fasterThe planemaker struggles to fulfil a rush of ordersJan 28th 2012 | SEATTLE | from the print editionTHERE are not many businesses in which the next six years’ worth of customers form an orderly queue, putting down fat deposits and topping them up with further instalments as they wait in line. But that is Boeing’s fortunate position. On January 25th it announced a 21% rise in annual net profits, to $4 billion.Last September, after three years of delay, Boeing made the first deliveries of its newest model, the 787 Dreamliner. A revamped version of the trusty but ageing 747 jumbo has also arrived, two years late. A few airlines got fed up and cancelled, but most had little choice but to keep waiting. Boeing’s main rival, Airbus, has an even longer backlog—up to eight years at current production rates. And the delivery schedule for Airbus’s answer to the Dreamliner, the A350, has been slipping.Last year, straining to ramp up production to meet soaring demand, the two big planemakers turned out a record 1,011 airliners between them. But for every plane they delivered, they won more than two fresh orders (net of cancellations), so the queue got longer. On January 25th Boeing won its largest-ever order from Europe: Norwegian Air Shuttle is to buy 122 planes worth $11.4 billion at list prices.The lion’s share of 2011’s advance orders were for the A320neo, a re-engined version of Airbus’s short-haul airliner, which should enter service in 2015. This year the plane most in demand looks to be the 737MAX, a re-engined version of Boeing’s short-haul plane, deliveries of which are due to start in 2017.At Boeing’s Renton factory near Seattle the existing version of the 737 is now being turned out at a record rate of 35 a month, after a recent speeding-up of the two assembly lines. At the front of assembly line number one, a plane destined for flydubai, an airline that can’t afford capital letters, is ready to roll. Behind it is the latest addition to Ryanair’s huge fleet of 737s, which has just had its engines fitted. Next, a Korean Air plane which is about to receive rows of seats; then an Azerbaijan Airlines jet, its toilet cubicles lined up alongside ready for installation. The plan is to increase the production rate further, to 42 a month by 2014. Fortunately, there is space to squeeze a third assembly line into the giant hangar.Likewise, 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.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 planemaker has also set up a “war room” that constantly monitors the world’s supply of aircraft parts and raw materials. It has signed a long-term deal with a Russian metals firm to ensure a steady supply of crucial components made from titanium. 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’s assembly plants are the final stage in a long and hugely complex global supply chain. It has about 1,200 “tier-one” suppliers, which provide parts directly to the planemaker 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. 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.Even with all these new measures in place, Boeing’s plans to boost production of the Dreamliner remain “hugely ambitious”, reckons Richard Aboulafia of Teal Group, an aviation consultancy. He wonders if the planemaker is serious about its target of making ten of them a month, or whether it is just bandying about an unrealistic figure to rev up its suppliers. “Not true,” retorts MrAlbaugh. Boeing has every intention of reaching the goal, he says.Fasten your seat beltsStill, with the world economy looking wobbly and the euro-area crisis far from over, might suppliers not have good reason to fear that the recent surge in aircraft orders could go into reverse thrust? Myles Walton, an aerospace analyst at Deutsche Bank, believes that both Boeing and Airbus have quietly begun double-booking some of their delivery slots, in case a customer collapses. He reckons they have done enough of this to cope with the worst imaginable recession in Europe.Perhaps the biggest risk on the horizon would be a sustained surge in the price of oil, which could send airlines into a tailspin of losses and bankruptcy. So far, though, the chief worry for Boeing and its main rival is how to get their products flying out of the door faster.
  • BoeingFaster, faster, fasterThe planemaker struggles to fulfil a rush of ordersJan 28th 2012 | SEATTLE | from the print editionTHERE are not many businesses in which the next six years’ worth of customers form an orderly queue, putting down fat deposits and topping them up with further instalments as they wait in line. But that is Boeing’s fortunate position. On January 25th it announced a 21% rise in annual net profits, to $4 billion.Last September, after three years of delay, Boeing made the first deliveries of its newest model, the 787 Dreamliner. A revamped version of the trusty but ageing 747 jumbo has also arrived, two years late. A few airlines got fed up and cancelled, but most had little choice but to keep waiting. Boeing’s main rival, Airbus, has an even longer backlog—up to eight years at current production rates. And the delivery schedule for Airbus’s answer to the Dreamliner, the A350, has been slipping.Last year, straining to ramp up production to meet soaring demand, the two big planemakers turned out a record 1,011 airliners between them. But for every plane they delivered, they won more than two fresh orders (net of cancellations), so the queue got longer. On January 25th Boeing won its largest-ever order from Europe: Norwegian Air Shuttle is to buy 122 planes worth $11.4 billion at list prices.The lion’s share of 2011’s advance orders were for the A320neo, a re-engined version of Airbus’s short-haul airliner, which should enter service in 2015. This year the plane most in demand looks to be the 737MAX, a re-engined version of Boeing’s short-haul plane, deliveries of which are due to start in 2017.At Boeing’s Renton factory near Seattle the existing version of the 737 is now being turned out at a record rate of 35 a month, after a recent speeding-up of the two assembly lines. At the front of assembly line number one, a plane destined for flydubai, an airline that can’t afford capital letters, is ready to roll. Behind it is the latest addition to Ryanair’s huge fleet of 737s, which has just had its engines fitted. Next, a Korean Air plane which is about to receive rows of seats; then an Azerbaijan Airlines jet, its toilet cubicles lined up alongside ready for installation. The plan is to increase the production rate further, to 42 a month by 2014. Fortunately, there is space to squeeze a third assembly line into the giant hangar.Likewise, 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.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 planemaker has also set up a “war room” that constantly monitors the world’s supply of aircraft parts and raw materials. It has signed a long-term deal with a Russian metals firm to ensure a steady supply of crucial components made from titanium. 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’s assembly plants are the final stage in a long and hugely complex global supply chain. It has about 1,200 “tier-one” suppliers, which provide parts directly to the planemaker 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. 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.Even with all these new measures in place, Boeing’s plans to boost production of the Dreamliner remain “hugely ambitious”, reckons Richard Aboulafia of Teal Group, an aviation consultancy. He wonders if the planemaker is serious about its target of making ten of them a month, or whether it is just bandying about an unrealistic figure to rev up its suppliers. “Not true,” retorts MrAlbaugh. Boeing has every intention of reaching the goal, he says.Fasten your seat beltsStill, with the world economy looking wobbly and the euro-area crisis far from over, might suppliers not have good reason to fear that the recent surge in aircraft orders could go into reverse thrust? Myles Walton, an aerospace analyst at Deutsche Bank, believes that both Boeing and Airbus have quietly begun double-booking some of their delivery slots, in case a customer collapses. He reckons they have done enough of this to cope with the worst imaginable recession in Europe.Perhaps the biggest risk on the horizon would be a sustained surge in the price of oil, which could send airlines into a tailspin of losses and bankruptcy. So far, though, the chief worry for Boeing and its main rival is how to get their products flying out of the door faster.
  • BoeingFaster, faster, fasterThe planemaker struggles to fulfil a rush of ordersJan 28th 2012 | SEATTLE | from the print editionTHERE are not many businesses in which the next six years’ worth of customers form an orderly queue, putting down fat deposits and topping them up with further instalments as they wait in line. But that is Boeing’s fortunate position. On January 25th it announced a 21% rise in annual net profits, to $4 billion.Last September, after three years of delay, Boeing made the first deliveries of its newest model, the 787 Dreamliner. A revamped version of the trusty but ageing 747 jumbo has also arrived, two years late. A few airlines got fed up and cancelled, but most had little choice but to keep waiting. Boeing’s main rival, Airbus, has an even longer backlog—up to eight years at current production rates. And the delivery schedule for Airbus’s answer to the Dreamliner, the A350, has been slipping.Last year, straining to ramp up production to meet soaring demand, the two big planemakers turned out a record 1,011 airliners between them. But for every plane they delivered, they won more than two fresh orders (net of cancellations), so the queue got longer. On January 25th Boeing won its largest-ever order from Europe: Norwegian Air Shuttle is to buy 122 planes worth $11.4 billion at list prices.The lion’s share of 2011’s advance orders were for the A320neo, a re-engined version of Airbus’s short-haul airliner, which should enter service in 2015. This year the plane most in demand looks to be the 737MAX, a re-engined version of Boeing’s short-haul plane, deliveries of which are due to start in 2017.At Boeing’s Renton factory near Seattle the existing version of the 737 is now being turned out at a record rate of 35 a month, after a recent speeding-up of the two assembly lines. At the front of assembly line number one, a plane destined for flydubai, an airline that can’t afford capital letters, is ready to roll. Behind it is the latest addition to Ryanair’s huge fleet of 737s, which has just had its engines fitted. Next, a Korean Air plane which is about to receive rows of seats; then an Azerbaijan Airlines jet, its toilet cubicles lined up alongside ready for installation. The plan is to increase the production rate further, to 42 a month by 2014. Fortunately, there is space to squeeze a third assembly line into the giant hangar.Likewise, 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.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 planemaker has also set up a “war room” that constantly monitors the world’s supply of aircraft parts and raw materials. It has signed a long-term deal with a Russian metals firm to ensure a steady supply of crucial components made from titanium. 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’s assembly plants are the final stage in a long and hugely complex global supply chain. It has about 1,200 “tier-one” suppliers, which provide parts directly to the planemaker 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. 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.Even with all these new measures in place, Boeing’s plans to boost production of the Dreamliner remain “hugely ambitious”, reckons Richard Aboulafia of Teal Group, an aviation consultancy. He wonders if the planemaker is serious about its target of making ten of them a month, or whether it is just bandying about an unrealistic figure to rev up its suppliers. “Not true,” retorts MrAlbaugh. Boeing has every intention of reaching the goal, he says.Fasten your seat beltsStill, with the world economy looking wobbly and the euro-area crisis far from over, might suppliers not have good reason to fear that the recent surge in aircraft orders could go into reverse thrust? Myles Walton, an aerospace analyst at Deutsche Bank, believes that both Boeing and Airbus have quietly begun double-booking some of their delivery slots, in case a customer collapses. He reckons they have done enough of this to cope with the worst imaginable recession in Europe.Perhaps the biggest risk on the horizon would be a sustained surge in the price of oil, which could send airlines into a tailspin of losses and bankruptcy. So far, though, the chief worry for Boeing and its main rival is how to get their products flying out of the door faster.
  • BoeingFaster, faster, fasterThe planemaker struggles to fulfil a rush of ordersJan 28th 2012 | SEATTLE | from the print editionTHERE are not many businesses in which the next six years’ worth of customers form an orderly queue, putting down fat deposits and topping them up with further instalments as they wait in line. But that is Boeing’s fortunate position. On January 25th it announced a 21% rise in annual net profits, to $4 billion.Last September, after three years of delay, Boeing made the first deliveries of its newest model, the 787 Dreamliner. A revamped version of the trusty but ageing 747 jumbo has also arrived, two years late. A few airlines got fed up and cancelled, but most had little choice but to keep waiting. Boeing’s main rival, Airbus, has an even longer backlog—up to eight years at current production rates. And the delivery schedule for Airbus’s answer to the Dreamliner, the A350, has been slipping.Last year, straining to ramp up production to meet soaring demand, the two big planemakers turned out a record 1,011 airliners between them. But for every plane they delivered, they won more than two fresh orders (net of cancellations), so the queue got longer. On January 25th Boeing won its largest-ever order from Europe: Norwegian Air Shuttle is to buy 122 planes worth $11.4 billion at list prices.The lion’s share of 2011’s advance orders were for the A320neo, a re-engined version of Airbus’s short-haul airliner, which should enter service in 2015. This year the plane most in demand looks to be the 737MAX, a re-engined version of Boeing’s short-haul plane, deliveries of which are due to start in 2017.At Boeing’s Renton factory near Seattle the existing version of the 737 is now being turned out at a record rate of 35 a month, after a recent speeding-up of the two assembly lines. At the front of assembly line number one, a plane destined for flydubai, an airline that can’t afford capital letters, is ready to roll. Behind it is the latest addition to Ryanair’s huge fleet of 737s, which has just had its engines fitted. Next, a Korean Air plane which is about to receive rows of seats; then an Azerbaijan Airlines jet, its toilet cubicles lined up alongside ready for installation. The plan is to increase the production rate further, to 42 a month by 2014. Fortunately, there is space to squeeze a third assembly line into the giant hangar.Likewise, 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.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 planemaker has also set up a “war room” that constantly monitors the world’s supply of aircraft parts and raw materials. It has signed a long-term deal with a Russian metals firm to ensure a steady supply of crucial components made from titanium. 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’s assembly plants are the final stage in a long and hugely complex global supply chain. It has about 1,200 “tier-one” suppliers, which provide parts directly to the planemaker 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. 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.Even with all these new measures in place, Boeing’s plans to boost production of the Dreamliner remain “hugely ambitious”, reckons Richard Aboulafia of Teal Group, an aviation consultancy. He wonders if the planemaker is serious about its target of making ten of them a month, or whether it is just bandying about an unrealistic figure to rev up its suppliers. “Not true,” retorts MrAlbaugh. Boeing has every intention of reaching the goal, he says.Fasten your seat beltsStill, with the world economy looking wobbly and the euro-area crisis far from over, might suppliers not have good reason to fear that the recent surge in aircraft orders could go into reverse thrust? Myles Walton, an aerospace analyst at Deutsche Bank, believes that both Boeing and Airbus have quietly begun double-booking some of their delivery slots, in case a customer collapses. He reckons they have done enough of this to cope with the worst imaginable recession in Europe.Perhaps the biggest risk on the horizon would be a sustained surge in the price of oil, which could send airlines into a tailspin of losses and bankruptcy. So far, though, the chief worry for Boeing and its main rival is how to get their products flying out of the door faster.
  • a wing and a prayer:outsourcing at boeingREUTERS/Anthony BolanteThe Dreamliner is three years behind schedule and massively over budget.What went wrong? Critics point to outsourcing.
  • Industry and Innovation, Vol. 12, No. 1, 1–25, March 2005ARTICLEAerospace Clusters: Local or Global Knowledge Spillovers?JORGE NIOSI & MAJLINDA ZHEGUSchool of Management Science, Universite ́ du Que ́bec a` Montre ́al, Montreal, CanadaABSTRACT 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 aircraftFull throttleBoeing and Airbus enjoy huge demand for their planes. Can they keep up?Nov 26th 2011 | from the print editionNot all air travel is miserableEXECUTIVES at aircraft-makers sometimes grumble that there are too many air shows nowadays. But it was well worth their turning up to Dubai’s, held on November 13th-17th, given the bumper orders they won. The star of the show was Qatar Airways’ wonderfully outspoken boss, Akbar Al Baker, who gave Airbus the runaround for almost three days—at one point publicly accusing it of still learning how to make planes—before agreeing to buy 55 of them, worth $6.4 billion at list prices. Even this whopping order was put into the desert shade by Emirates’ $18 billion order for Boeings, with options to buy a further $8 billion-worth. As the Dubai show ended, President Barack Obama, on a visit to Indonesia, witnessed Boeing sign a record $21.7 billion deal with Lion Air, with options to buy a further $14 billion-worth.Of course, orders this big enjoy substantial, undisclosed discounts from the sticker price. But the two main makers of full-sized commercial jets can look forward to years of guaranteed business, with firm orders at a record (see chart). The order book for Airbus’s short-to-medium-haul A320, for example, stretches into the 2020s. Ten years ago North American carriers accounted for almost 60% of all aircraft orders; now they have been overtaken by Asian ones, which so far this year have placed 32% of the orders of planes from Boeing and Airbus combined, compared with North America’s 26%.If the world economy takes a turn for the worse, some airlines will no doubt seek to cancel or postpone orders. But Paul Sheridan of Ascend, an aviation consultancy, says that worldwide demand for air travel is growing so strongly that today’s order books represent only 25-30% of the planes that airlines are likely to need in the coming 20 years. The new generation of planes are significantly cheaper to run than those currently flying, so a harsh economic climate may in fact encourage airlines to press on with renewing their fleets. American Airlines, for example, is seeking to overcome its chronic losses with a huge programme to swap old planes for new.At a time when cuts in defence spending are making life tough for suppliers of military aircraft, those who make commercial planes are working flat out to expand their factories. Boeing’s commercial side has hired 11,000 new workers this year, whereas Sikorsky, a supplier of military helicopters, this week announced job cuts.It is an auspicious time for three emerging rivals to the Boeing-Airbus duopoly to seek to establish themselves. Canada’s Bombardier, a maker of smaller “regional” jets, has launched the CSeries, a rival to Boeing’s 737 and Airbus’s A320. At Dubai, Atlasjet of Turkey became the tenth airline to sign up for the CSeries. Comac of China and Irkut of Russia are also developing similar aircraft in the 100- to 200-seat class.Can the planemakers and their suppliers keep up? Now that Boeing has delivered the first of its long-haul 787 Dreamliners, following problems with suppliers, it is promising to throttle up the programme and turn out ten a month by the end of 2013. Airbus has just announced further delays to its equivalent, the A350, which is threatening to become as much of a “nightmareliner” as its rival’s plane. However, Mr Sheridan says the main worry is right back at the start of the supply chain. Many aircraft parts are made from highly specialised metals and other materials: will there be enough of these to go around?
  • Naval shipbuildingSmall is the new big in naval shipyardsMay 12th 2011, 15:53 by J.F. | MOBILE, ALABAMATHE naval ships under construction in Austal’s yard on the Mobile River in Alabama are only small by military standards: the littoral combat ship (LCS), pictured above, is 127.1 metres long, with 76 berths and room for 210 tonnes of cargo. It is designed for mine hunting, anti-submarine warfare and surface-warfare close to shore. The joint high speed vessel (JHSV), which will ferry troops and equipment, is 103 metres long with 312 seats and room enough on the top deck to park a helicopter. The contracts Austal won from the United States Navy do not seem small either: $3.5 billion in late 2010 to build 10 LCSs, and roughly $1.6 billion to build 10 JHSVs. (By way of comparison, Nimitz-class aircraft carriers, of which the navy has 10, are nearly 333 metres long and cost $4.5 billion each.) To the navy, these small ships are a big deal: 27 of the 55 new battle-force ships the navy plans to build between now and the end of FY2016 are either LCSs or JHSVs.They are a big deal to Austal, too: in 2009 the company employed just over 1,000 people at its Mobile shipyard, mostly in manufacturing. Today that number stands at just over 2,100. By 2017 Austal plans to more than double that number under an expansion plan that sees them adding around 130 employees each month for the next two years. The navy also contracted with Marinette Marine, a shipyard in north-east Wisconsin, to build LCSs of a different design. After laying off 180 employees in December, it has rehired most of them and plans to began expanding later this year.Marinette and Austal share more than just a sizeable naval contract. Both are foreign owned: Fincantieri, an Italian shipbuilder, bought Marinette in 2008, while Austal’s Mobile facility is its first outside its native Australia. But while Marinette has been building military vessels for decades, Austal mainly builds commercial craft. Its JHSV takes design elements from its passenger ferries (and like them is made of aluminium rather than steel). Its 34,000 square metre modular manufacturing facility in Mobile is lean and efficient: rather than building ships keel-up, in the traditional manner, it builds in an assembly-line fashion that will eventually be able to crank out two JHSVs and two LCSs each year. Its becoming a naval contractor is, in the words of its sales and marketing chief, Craig Hooper, “a Cinderella story…We are not a typical defence contractor.”Austal may not be a Raytheon or a General Dynamics, but in the world of military shipbuilding Mr Hooper’s statement is not as true as it once would have been. The dominance of the traditional “Big Six” yards— Bath Iron Works in Maine, the Electric Boat company in Connecticut, NASSCO in California, Newport News Shipbuilding in Virginia, Ingalls Shipbuilding in Mississippi and Avondale Shipyard in Louisiana (which is scheduled to close by 2012)—is fading. Between now and 2013 the number of ships commissioned from mid-tier yards, such as Austal and Marinette, is projected to rise, while the number commissioned from the Big Six is forecast to fall. The bigger yards will continue producing the navy’s largest and most complex ships—aircraft carriers and submarines—but how many of them they can build in an era of American budgetary austerity is an open question. Between 2009 and 2011 the navy decreased the numbers of both carriers and submarines in its 30-year shipbuilding plans. The little guy’s day is dawning.
  • . 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. “The small guys are getting squeezed for credit,” he said during the Space and Missile Defense Conference here Aug. 15-18. Though names of these small companies are often unknown to the larger public, their work is critical to the manufacture of defense hardware. They contribute to the kinds of innovations that lead to dramatic technology leaps for U.S. forces, Lambert says, citing the invention of stealth as one example. And, in some cases, they are one-of-a-kind, highly specialized shops.Prior to the financial crisis, it was typical for small businesses to receive guaranteed lines of credit from local banks for 80-90% of a contract’s value. But today, they are having trouble getting support from banks—and not just local ones. “The risk profile went up and they can’t get access to capital,” Lambert says. “We need to get money into their pockets as quickly as possible.”He also says he meets regularly with investors in New York to encourage them to back aerospace businesses. “This is still an attractive market” for investors, Lambert says. Though returns of roughly 6-12% may not be as “flashy” as some investments, they are “better than the T-bill—and almost as safe,” he notes.Another measure Lambert is pushing for is to reduce the time in which the Pentagon pays small businesses. Turnaround used to be about 30 days; now it is around 20. He says the goal is 10 days.Though cuts to some defense programs are certain, the industry overall will remain supported by the Pentagon, Lambert says. “We must eliminate programs that, while valuable, are not valuable enough to sustain in this budget environment,” he said in a speech at the conference. The fiscal environment is “simply a fact,” but, it is not an indicator that this sector will be lacking on financial return.Separately, Lambert is exploring ways to improve the flow of cash from the primes to sub-tier suppliers. At least 65 cents of each dollar sent to a prime contractor flows to the sub-tiers. He is considering the insertion of language in contracts to ensure sub-tier suppliers are paid for prompt work even if there are larger problems delivering on a program at the prime level. In essence, he suggests that small subcontractors should not be punished for performance problems at the prime level. The Pentagon is planning to roll out in the coming months a new “superior supplier” incentive plan to reward good suppliers with a variety of benefits, he says.Meanwhile, the Pentagon continues to review responses from thousands of companies canvassed as part of the S2T2 study. Based on three programs of record, the Pentagon narrowed down thousands of contractors to a list of roughly 5,400 from which it solicited input via a Commerce Department questionnaire.One early finding—from the 1,000 questionnaires that have been completed—is that design teams at small companies are fragile, partially because of lack of access to capital but also because of disjointed workflow from the U.S. government.“In the past, with the industrial base, when a program was bleeding, we just cauterized the wound with more money,” Lambert says. “We are just not there any more,” and the Pentagon is being forced to make choices about those critical skill sets that must be maintained and those that can be allowed to atrophy.The S2T2 study is designed to develop a more nuanced understanding of the industrial base and consequences behind programmatic decisions. For example, NASA’s decision to shelve its space shuttle replacement booster in favor of supporting the commercial space industry is having a ripple effect on the solid-rocket motor industry and impacting the American Pacific Corp., or Ampac, the nation’s only manufacturer of ammonium perchlorate. Each space shuttle stack equaled about 273,000 Hellfire missiles’ worth of ammonium perchlorate; the Pentagon alone cannot make up for the gap in business from NASA’s decision.Lambert aims for more circumspect government planning so that programmatic decisions do not create future crises. This includes decisions to terminate or to start a program, he says: “We want our folks to go out as they design a system and to ask, ‘Is there a base for this?’”In the case of the remaining solid-rocket motor business—including tactical and strategic missiles—Lambert says the Pentagon is trying to synchronize buys among the services to stabilize the workflow for Aerojet and Alliant Techsystems as well as Ampac. The services have not had much success in such synchronization in the past, but one industry watcher says in today’s fiscal climate, they may not have a choice.
  • In more practical terms, the systems engineer takes a big problem, and through the SE process breaks that problem down into smaller problems (e.g., item performance specifications), each of those smaller problems then become an input to the SE process at a lower level. The process is reversed on the realization side of the Vee. This is recursion. This recursion also happens across life-cycle phases. The output of MSA phase—validated concepts, technologies, capability needs—become the input to the systems engineering process of the TD phase. Outputs of the TD phase—validated system level and allocated requirements, matured technologies—become input to the EMD phase. Iteration is exemplified by the process of documenting performance requirements at each level of decomposition on the downward side of the Vee and then verifying these requirements as each level on the upward side of the Vee. Discrepancies found during this upward verification will then drive changes to the documented performance requirements developed on the downward side. Also, as a design becomes more detailed and engineers “impose more reality” on the design; mistakes, gaps, and shortcomings originating in the previous step will inevitably be identified and require that previous step to be repeated in order to refine the solution.Steps in the Vee process are intended to move forward in parallel, but be completed in order! SLIDE BUILDS to show the original 8 TPs and 8 TMPs. Emphasize that the TPMs are in play through the entire SE process
  • Acquisition program managers responsible for new systems may have interfaces with other systems. Those interfaces constitute design constraints imposed on the programs. As the system is defined, other interfaces between system components become apparent. All of the interfaces between co-functioning items need to be identified and documented so that their integrity may be maintained through a disciplined configuration control process. In some cases a formal interface management process must be employed in order to define and document the interface.
  • The purpose of all interface management activity is that: The detailed design of each of the co-functioning items contains the necessary information to assure that the items, when individually designed and produced will work together (as the 115-volt plug to the 115-volt electrical outlet), and If either item needs to be changed for any reason, its performance, functional or physical attributes, that are involved in the interface, act as constraints on the design change.
  • Figure 5-5 illustrates many (but not all) of the possible interfaces that may exist between systems and within a system. Interfaces include external interfaces with other systems, internal interfaces between CIs that comprise the system, and internal interfaces between CIs and other components of the system (e.g., personnel, non-developmental items (NDIs), facilities); as well as the interfaces between acquiring activities and supplying activities. In some cases, interfaces between two or more acquiring activities must be established (See Interface 3 in Figure 5-5 and Table 5-15.), typically by means of a Memorandum of Agreement between service components or commands with in a service component that are acquirers of or users of interfacing equipment.
  • Contractual relationship - Are the items supplied by the same contractor or by different contractors? If different contractors, is there, or will there be, a contractual relationship (such as a subcontract or purchase order) between the parties to the interface?Customer relationship (Acquisition activity(ies) - Is the same acquisition activity responsible for both interfacing entities or are different activities or even services involved?Hierarchical relationship - Is the interface at the system, CI, assembly, or part level?Type(s) and complexity of technical interface attribute(s) involved - Is the interface a mechanical, electrical, electronic, installation, data, language, power, hydraulic, pneumatic, space, operating range, frequency, transmission rate, capacity, etc. (to name a few)Developmental status - Is one both or none of the interfacing items a non-developmental item (NDI)? Do the interfacing items require parallel design and development?
  • Categorizing the interface in this manner defines the context and environment of the interface, and enables the appropriate measures to be taken to define and control it. Some interfaces are completely managed within the design process; others require specific types of formal interface management activity. The simplest and most straightforward approach that will satisfy the above objective should always be chosen. Extravagant and complex interface management activity, should only be undertaken when other methods are inappropriate.
  • The three primary stakeholders for a business are: Employees Customers ShareholdersTo create an enduring business you need to balance your response in addressing the value drivers of all three stakeholders.
  • 238 of the companies listed on the 1999 Fortune .600 largest companies disappeared from that same list in 2009; or about 5% every year.In the end, businesses are economic entities whose central purpose is to increase the value of the investments made in them by human beings like you and me.
  • This chart portrays the evolution of the defense industry. At the turn of the century, the government had an arsenal that would develop the equipment needed, principally ammunition and guns. WWII brought incredible technology advances to war fighting (planes, bombs, etc) and commercial industry (Ford, IBM, Goodyear, GE, etc…) turned their factories over to fulfilling government contracts to support the war effort. Following the war, most of these entities retained a small, non-core part of their business to continue to serve the national interest by providing specialized components. Since these were non-core parts of the business and they were serving the national interest, these elements typically accepted lower profits than available in the commercial market. At the end of the 1980’s and early 1990’s for a variety of reasons … shrinking defense budgets after the fall of the Soviet Union and other economic challenges … most of the industrials sold off their defense businesses. At the same time, there was government encouragement for consolidation of the industry to rationalize capacity. In this environment the government looked for cost sharing with the commercial markets, encouraging pseudo commercial entities that would accept fixed price development activity (launch services and C130-J) as well as allowing development costs to be recouped in production. The industry invested on this commitment and saw significant development losses, that were unrecoverable since the government reverted to certified cost and pricing for production. This brings us to the industry that we have today… consisting mostly of pure aerospace and defense entities.
  • The line on the chart at 1993 is used to signify the encouragement by DoD for industry consolidation. In 1993, analysts assigned by Secretary of Defense Les Aspin to conduct a "bottom-up review" of U.S. defense posture concluded that the defense industry needed to be restructured. Then Deputy Secretary of Defense William J. Perry announced to industry leaders, at what has come to be referred to as the "Last Supper," the Department of Defense (DoD) policy to encourage consolidation
  • Notably, the 5 major US A&D primes are exclusively government contractors, with the exception of the commercial aerospace business in Boeing and GD (Gulfstream). You also see an expansion of all the portfolios (with the exception of Boeing) of significant Information Systems and Technology capabilities over the last 10 years. You also see the competitive capabilities that are retained across multiple players in the industry.
  • The focus of most industrial base analyses tends to be on the relatively few remaining primes, but the important role of managing a vibrant, complex, competitive global supply chain appears to be less valued than would seem appropriate, given that that’s where the bulk of the resources are expended. The primes are the source of financial stability and revenue sustainment for a vast “below the surface” set of sub-primes and lower tier suppliers who supply the critical systems, subsystems, component, and materials that make up 60-75% of the content of the products delivered. The primes play the critical role of complex systems designers, systems integrators, systems testers, and systems producers/manufacturers while leveraging their size, talent, infrastructure, resources, and political weight to deliver the systems, solutions, and services needed by governments to maintain global security. AIA studies conservatively identify 30,000 suppliers that support the A&D industry.  Some Boeing published numbers that indicate they have between 35,000 and 45,000 suppliers. Lockheed Martin: Our active suppliers in 2009 were 28,800.  Over a two year period, we have used 32,000+ suppliers. LM contracted with over 20,000 small businesses last year.Our supplier spend profile is fairly consistent year over year.  In dollar breakdown:Top 150 Suppliers account for 80-85% of spend# Suppliers with spend over $1M …  700# Suppliers with spend $100K - $1M … 7200Since we are a systems integrator, we contract with the key ‘competimates’ and other sub-primes.  The effect is like the M1 money supply: there is a multiplier effect with the contracting at lower levels of the multi-tier supply chain.  This makes it hard to capture all of the companies (particularly commercial) that are supporting the industry.
  • Although the industry is a small part of the S&P, it provides economic contributions well above that level.Every $1B in export sales = 3600 jobs for 5 years, or 18,000 person years of work.Notes:Employment goes through 2009Investment is 2008Percentage of private sector employees that are represented by a union in 2009 is 8%. For LM, our % represented by unions is 13%, including international. For the A&D industry, the % represented by unions is 16%. From the 2010 Aerospace Industry pay practice survey. It notes that of the 18 companies responding (including Bell , Boeing, L3, Pratt& Whitney) the aggregate percent of their populations that are represented by labor organizations is approximately 16%.
  • LossesCityStateCompany 168 Huntsville AL Boeing 194 Geneva AL BAE 14 Huntsville AL USA 14 Decatur AL ULA 146 Mesa AZ Boeing 100 Phoenix AZ BAE 225 Tucson AZ Raytheon 1450 Long Beach CA Boeing 100 Anaheim CA Boeing 100 Huntington Beach CA Boeing 360 Santa Clara CA BAE 535 San Jose CA LM 400 Sunnyvale CA LM 375 El Segundo CA NG 375 Redondo Beach CA NG 560 San Diego CA GD 200 Long Beach CA GD 400 Denver CO LM 87 Denver CO ULA 129 Cheshire CT UTC 333 East Hartford CT UTC 434 Groton CT GD 36 Cape Canaveral FL Boeing 190 Orlando FL LM 70 Melbourne FL NG 217 Martin County FL UTC 902 Cape Canaveral FL USA 100 Cape Canaveral FL USA 250 Cape Canaveral FL USA 123 Cape Canaveral FL ULA 220 Cape Canaveral FL USA 8000 Cape Canaveral FL Various 400 Savannah GA GD 200 Brunswick GA GD 80 Cahokia IL GD 100 Indianapolis IN UTC 25 Indianapolis IN LM 821 Wichita KS Boeing 66 Michoud LA LM 500 Michoud LA LM 1000 Michoud LA LM 110 Avondale LA NG 95 Tallulah LA NG 5000 New Orleans LA NG 37 North Berwick ME UTC 600 Bethesda MD LM 100 Potomac MD Boeing 37 Middle River MD LM 142 Linthicum and Annapolis MD NG 153 Hagerstown MD NG 179 Linthicum MD NG 163 Westminster MD GD 80 Carroll County MD GD 40 Sterling Heights MI BAE 650 Sterling Heights MI BAE 314 Fridley MN BAE 47 Eagan MN LM 500 St. Louis MO Boeing 642 Pascagoula MS NG 125 Nashua NH BAE 130 Moorestown NJ LM 65 Camden NJ L-3 225 Johnson City NY BAE 130 Owego NY LM 53 Syracuse NY LM 1000 Owego NY LM 600 Owego NY LM 600 Salina NY LM 74 Amherst NY NG 910 West Chester TWP OH BAE 119 West Manchester PA BAE 50 Archbald PA LM 373 Grainger TN BAE 100 Houston TX Boeing 200 Dallas TX GD 650 Sealy TX BAE 90 Dallas TX LM 478 Houston TX USA 150 Houston TX USA 550 Clearfield UT ATK 19 Manassas VA LM 173 Fort Eustis VA NG 26 Charlottesville VA NG 520 Puget Sound WA Boeing 130 Puget Sound WA Boeing 775 Puget Sound WA Boeing 100 Puget Sound WA Boeing 4500 Puget Sound WA Boeing 353 Spokane WA GD 200 Appleton WI GD Total 42,056
  • Energy …Health ITMagnelink … IroncladAdvanced Composite Cargo Aircraft …Desert HawkHULC Exoskeleton …Symphony IED Jammer
  • But at the end of the day, the industry and the acquisition community exist to develop, produce and field the most militarily effective systems possible for the men and women who protect this country and its allies, and when we do get it right, what we can do together is genuinely eye-watering, with capabilities never before seen on this planet.
  • When considering the significant amount of government oversight, you need to also recognize the unique costs associated with complying with all of the oversight requirements (time charging, expense reporting, etc..)The last bullet associated with the defense or government business, the effects of both annual funding and government policy, are best illustrated by the next two charts.
  • This chart says it all. The process is not simple and takes experience to successfully navigate.
  • As we think about how we can move forward to improve acquisition excellence, one of the simple things we can do is to ensure we all have a better, common understanding when we use terms like profits, return on sales, and net income. We are working with Defense Acquisition University to introduce a course on the fundamentals of business for incoming acquisition officials.A version of this chart originally came from DAU. There was a key problem with the original chart. What is labeled Net Income as a % of Sales was labeled Return on Sales. A misunderstanding of this terminology could generate a significant difference in results. Examples of Unallowable Costs Senior Executive Compensation: 48 CFR 31.205-6 (p) limits total executive compensation for 2008 to $612,196. Public Relations and Advertising Travel above per diem limits Contributions and Donations Memberships in Professional Organizations LobbyingThese are the costs of doing business. A&D companies minimize them to the maximum extent possible and do not (cannot) charge the government for them.
  • Included in any fundamentals of business course should be an explanation of what happens to a dollar when it is handed over to a prime contractor, remembering that 60-75% goes directly to that global supplier base.Cost of Sales is 90.7%Interest and Taxes is 2.7%Net Earnings is 6.6%
  • This chart indicates examples of how cash is deployed to the benefit of the various stakeholder segments Dividends – the return of a portion of earnings expected by shareholders in a healthy company. Internal investment – investments made by the company in itself and its employees to improve its competitive position and ability to meet stakeholder expectations. This also includes pension expense. Debt retirement – the return of principal and interest to creditors. Acquisitions – investments in increased capabilities and capacities to accelerate growth and return for stakeholders. Share repurchase – return to shareholders through purchase of outstanding stock thus affording stockholder liquidity and improving the potential for stock appreciation through improved earnings per share (EPS). The single largest holder of LM stock is our employees.
  • A&D is a unique and relatively small sector in the US industrial landscape: 640,000 employees out of ~140 million, and with less than 2% of the total value of the S&P 500. But our role is vital and our responsibility is enormous.
  • From Lexington Institute’s Early Warning BlogWhen you consider all the areas where military production dovetails with the Obama Administration's agenda, it's a little hard to understand why the White House seems so determined to make life hard for defense contractors. Let's consider some of those areas... 1. Jobs -- The defense industry employs hundreds of thousands of union members in swing states such as Colorado, Florida, Ohio, Pennsylvania and Virginia. Those workers typically have much better pay and benefits than people employed in other sectors such as hospitality, utilities, transportation and commercial manufacturing. 2. Trade -- The U.S. defense industry dominates the global market for military goods, outselling all other major exporters of weapons combined. There is much room for military exports to grow as overseas friends and allies prepare to replace Cold War weapons with a new generation of more capable systems. 3. Security -- The Obama Administration says it wants to partner with other countries to foster a more effective framework for global security. The most important step in achieving this goal is to provide foreign partners with the same weapons U.S. warfighters have, so coalition forces are agile, survivable and interoperable. 4. Investment -- The defense industry invests more money in domestic plant and technology than any other industrial sector, and routinely generates innovations with commercial value. Some of the most important new commercial technologies of the postwar era, from jet engines to global positioning to the internet, originated in the defense sector. 5. Equality -- The defense industry has more experience than many other sectors at advancing women and minorities into senior management. While defense companies shy away from describing themselves with loaded terms such as "progressive," they have exceptional track records on everything from partner benefits to using disadvantaged suppliers.
  • From DeloitteStudy 2010Performance Based Logistics inAerospace & DefenseA rapidly growing market providinglower overall sustainment costs formilitary equipment and profitablegrowth opportunities for defensecontractors
  • From DeloitteStudy 2010Performance Based Logistics inAerospace & DefenseA rapidly growing market providinglower overall sustainment costs formilitary equipment and profitablegrowth opportunities for defensecontractors
  • From DeloitteStudy 2010Performance Based Logistics inAerospace & DefenseA rapidly growing market providinglower overall sustainment costs formilitary equipment and profitablegrowth opportunities for defensecontractors
  • FinmeccanicaOpen targetInvestors open fire on Italy’s defence and aerospace giantAug 6th 2011 | PARIS AND ROME | from the print editionWHEN Finmeccanica announced bad results on July 27th, investors strafed its share price, cutting it down by 28% in four days (see chart). In the first half of 2011, excluding a gain from the sale of one of its businesses, the firm made barely any profit: €13m ($18.2m) on revenues of €8.4 billion. Shareholders are spitting fire.The Italian government holds a 32% stake. That prevents the company from sensibly quitting unprofitable businesses. Meshed together from a ragbag of defence and technology businesses formerly owned by the state’s IRI and EFIM holding companies, Finmeccanica has everything from helicopters to trains to gas turbines. Its former boss, Pier Francesco Guarguaglini, tried to simplify the group down to three areas: aeronautics, helicopters and defence. But the group still owns several businesses that do not fit.Its biggest problem is AnsaldoBreda, a maker of trains and trams, which has lost more than €1 billion. The government’s unwillingness to allow job cuts makes a solution impossible. Politicians from AnsaldoBreda’s home region in Tuscany objected loudly this week after Finmeccanica’s new boss, Giuseppe Orsi, talked about selling the division. Some 60% of Finmeccanica’s employees are Italian, though the domestic market yields just a fifth of its revenues.Finmeccanica is used as a dumping-ground for unwanted state assets. In 2008, when the government finally found a solution for Alitalia, the country’s loss-making airline, private investors gobbled up its profitable flight division but curled their lips at its maintenance business, so in 2009 it was sold to another group of Italian firms, with Finmeccanica taking 10%. Politicians have long pushed for a merger with Fincantieri, a troubled shipbuilder also under the government’s thumb. Last September MrGuarguaglini was obliged to point out that Fincantieri’s activities have little to do with Finmeccanica’s.A little problem in LibyaIn one way, Finmeccanica has won some freedom. It has become a global company, despite politicians’ urging that it invest chiefly in Italy. In 2004 it seized full control of AgustaWestland, a helicopter manufacturer, by buying a 50% stake from GKN, a British engineering firm. The helicopter business continues to thrive.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 SociétéGénérale, 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.A foray into Libya, at the behest of Silvio Berlusconi, Italy’s prime minister, has proved costly. The Libyan Investment Authority took a 2% stake in the firm in 2009 and is its fourth-largest shareholder. Finmeccanica won rail and border-security contracts from Muammar Qaddafi’s regime. This year’s revolt against the bemedalled despot will reduce Finmeccanica’s revenue by some €300m.MrOrsi took over in May, and has pledged to make the business more efficient. MrGuarguaglini remains at the company as chairman, though he has been weakened by a probe into alleged slush funds at Finmeccanica. (Both he and the firm deny wrongdoing.) “Being in defence means state-sector inefficiencies, political interference and perhaps corruption,” says GiacomoVaciago of the UniversitàCattolica in Milan. Still, an arms firm that barely makes money is unusual.
  • 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 SystemsCommand, 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.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 thePresidents Budget.19 Michael Boito, Cynthia R. Cook, and John C. Graser, Contractor Logistics Support in the U.S. Air Force, MG779, RANDCorporation, 2009, p. xv.20 Analysis based on data extracted from the Working Capital Fund Attachment to the Air Force and Navy submissions to thePresident’s Budget.21 Government Accountability Office, Air Force Depot Maintenance: Improved Pricing and Cost Reduction Practices Needed, GAO04-498, June 2004.22 Bradley W. Bergmann II and Robert L. Buckley, Assessment of Successful Performance-BasedLogistics Efforts, LogisticsManagement 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. GovernmentDirectedLogistics,” Second Line of Defense, February 2010, at http://www.sldinfo.com.25 GovernmentAccountability Office, Depot Maintenance: Actions Needed to Identify and EstablishCoreCapabilityatMilitaryDepots, 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 toAddress 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.
  • This image is a work of a U.S. Air Force Airman or employee, taken or made as part of that person's official duties. As a work of the U.S. federal government, the image is in the public domain.
  • t involved four main-assembly factories: a pair of Boeing operated plants at Renton, Washington, and Wichita, Kansas, a Bell plant at Marietta, Georgia ("Bell-Atlanta"), and a Martin plant at Omaha, Nebraska ("Martin-Omaha").
  • 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.
  • Transcript of "Supplier management v4.0_11_mar_12"

    1. 1. Jeran Binning
    2. 2.  (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.
    3. 3.  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
    4. 4.  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.
    5. 5.  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.
    6. 6.  Content available is 20% principally using LOG-340 framework. References include LOG-340 Student Guide, commercial supply chain whitepapers provided on K:LCICBusiness AcumenACQ 3158 Supplier Management.
    7. 7.  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.
    8. 8. Skill Set is Complex! contact Nick Little at MSU.8
    9. 9.  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.
    10. 10.  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.
    11. 11.  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.
    12. 12.  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).
    13. 13.  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.
    14. 14.  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
    15. 15.  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.
    16. 16.  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.
    17. 17.  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)
    18. 18.  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
    19. 19.  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.
    20. 20.  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.
    21. 21.  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.
    22. 22.  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.
    23. 23. Deutsche Bank A Wall St Perspective on the Defense Industry November 2010 Myles Walton, PhD, CFA Myles.Walton@db.com 617.217.6259 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
    24. 24. Incentives Give You A Clue to Actions 27
    25. 25. 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 Repositioning28
    26. 26. Valuation P/E Trends S&P and Large-cap Defense Defense Historical P/E Analysis Current 5 yr 10 yr CY12E Historical Historical Defense Average P/E 25 GAAP P/ E S&P 500 P/E General Dynamics 8.8 13.3 10.6 Lockheed Martin 8.6 15.0 13.0 Northrop Grumman 8.4 13.4 10.0 Raytheon 8.5 15.2 10.6 15 Average GAAP P/ E 8. 6 14. 2 11. 1Source: Capital IQ 5 1997 1999 2001 2003 2005 2007 2009 Source: Capital IQ. Multiples very reasonable Post 9/11, the group began to reflecting budget uncertainty move in line with the market Defense multiples beginning to diverge again 29
    27. 27.  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.
    28. 28.  It has signed a long-term deal with a Russian metals firm to ensure a steady supply of crucial components made from titanium.
    29. 29.  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.
    30. 30.  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.
    31. 31.  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.
    32. 32.  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.
    33. 33.  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.
    34. 34.  JORGE NIOSI & MAJLINDA ZHEGU School of Management Science, Universite Que bec a` Montre , 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.
    35. 35.  Making aircraft Full throttle Boeing and Airbus enjoy huge demand for their planes. Can they keep up? Nov 26th 2011 | from the print edition
    36. 36.  May 12th 2011, 15:53 by J.F. | MOBILE, ALABAMA
    37. 37. 5.1 Explain industry strategies to support system sustainability
    38. 38. Redefining Supportability • New Design Related Metrics • Integrated with Producibility48
    39. 39. Our Supportability Approach Emphasizes Support Event Characterization Beyond Traditional Operational Availability (AO) TRADITIONAL APPROACH NGC Approach ? AO = SUPPORTABILITY (S) Answer: Ao = 1.0 OT + ST BUT NOT TO THE SQUADRON BUT • GIVEN: AO = (?) + OT + ST + TCM + TPM + A/LDT COMMANDER!! MISSING EVENTS OT + ST AO = OT + ST + TCM + TPM + A/LDT - SERVICING - COMBAT OPERATIONS - RECONFIGURING - LAUNCH ACTIVITIES -GROUND/CARRIER HANDLING - MISSION VARIATIONS WHERE: OT = TOTAL OPERATING TIME DURING -SET UP AND TEAR DOWN - OTHER NON R&M ACTIONS A SPECIFIC INTERVAL • THEREFORE: AO ≤ S ST = TOTAL STANDBY DURING A SPECIFIED INTERVAL • BECAUSE: S IS NOT ADDITIVE BUT CONSISTS OF FINITE, SIMULTANEOUS SUPPORT EVENTS FROM = TOTAL CORRECTIVE MAINTENANCE ALIGN TO WINTERIZE (500+ EVENTS DEFINED) TCM TIME DURING THE SAME SPECIFIED • AND: S = {OPERATIONAL SUITABILITY, READINESS, INTERVAL SUSTAINABILITY, SURVIVABILITY, MOBILITY, LIFE CYCLE COSTS, AO} Events TPM = TOTAL PREVENTIVE MAINTENANCE TIME DURING THE SAME SPECIFIED INTERVAL • WHERE: S = F (f, d, c) IS A CHARACTERISTIC OF DESIGN f = SUPPORT EVENT FREQUENCY A/LDT = TOTAL ADMINISTRATIVE AND LOGISTICS DOWNTIME DURING THE d = SUPPORT EVENT DURATION SPECIFIED INTERVAL c = SUPPORT EVENT COST • HENCE, AO ADDRESSES R&M ONLY • HENCE, SUPPORTABILITY REQUIREMENTS ADDRESS ALL EVENTS DESIGN FOR S BASELINE (WARTIME OPERATIONS) SUPPORT PLANNING BASELINE (PEACETIME OPERATIONS) 4912/16/
    40. 40. Integrated Producibility and Supportability Requirements Development is Pivotal to Systems Engineering DESIGN Design Integration Solution – Producibility and Supportability INTEGRATION DILEMA DESIGNER DESIGNERS SYSTEM DESIGNERS ENGINEERS FORMAL INFORMAL Producibility Supportability Other S Sustainment Logistics P FIELD PRODUCIBILITY SUPPORT ENGINEER • HUMAN SUPPORTABILITY FACTORS ENGINEERPOWER SOURCES PRODUCTIONELECTRO- PLANNING AND • SAFETY ILS DISCIPLINES/ELEMENTSMECHANICAL • PDTR* CONTROL • SDTR INTEGRATION** • MAINTENANCE PLANNING& HARNESS OPTIMIZATION RELIABILITY • SUPPORTABILITY • MANPOWER AND PERSONNEL • TECHNOLOGIES TECHNOLOGIES • SUPPLY SUPPORT INSERTION FABRICATION & • TRADE STUDIES • TRAINING ASSEMBLY • TRADE STUDIES PRECISION • INDEPENDENT • TECHNICAL DATA AND TEST • INDEPENDENT MECHANICAL MAINTAINABILITY RESEARCH & • COMPUTER RESOURCES SUPT RESEARCH ASSEMBLY DEVELOPMENT • PKG, HANDLING AND STORAGE & DEVELOPMENT (IRAD) • TRANSPORTATION (IRAD) LOGISTICS • FACILITIES MACHINE SHOP INTEGRATION SUPPORT • STANDARDIZATION AND AND PLATING AND TEST ANALYSIS INTEROPERABILITY **Supportability DESIGN HYBRID * Producibility Design-To-Requirements • SUPPORT EQUIPMENT MANUFACTURING Design-To-Requirements (SDTRs) • TRAINING DEVICES (PDTRs)
    41. 41. Future Organizational Relationships LOGISTICS ENGINEERING SUSTAINMENT PRODUCT ENGINEERING SUPPORT Design for Design forSUPPORTABILITY PRODUCIBILITY INFRASTRUCTURE FOOTPRINT• Supportability Design -To • Producibility Design-to • Supply Support • FacilitiesRequirements (SDTR) Requirements (PDTR) •Provisioning • Fielding•Maintenance Planning •Spares Acquisition • Spares • Deployment Integrated with Production • Failure related •Technical Data •Size •Ease of Equipment • Non-failure related Installation • Training and Training •Weight• Support and Test Equipment Support • Design for ease of access •Personnel• Manpower and Personnel • Type Classification • Modularity • PHS&T• Design for Availability • Material Release • Fasteners• Reduction in TOC • Demil • Tooling • Reduction in TOC
    42. 42. Comprehensive Supportability Design-To Requirements (SDTRs) Reduce Support Event Frequency, Duration and Cost for AM S = F(f, d, c) SELECTED SET OF Operational Availability (Ao) SDTRs RELIABILITY & • SUPPORTABILITY (S) ELEMENTS MAINTAINABILITY - MAINTENANCE - OPERATIONAL SUITABILITY • PREVENTIVE - READINESS Materiel • CORRECTIVE - INFLIGHT SUSTAINABILITY Availability - SUPPLY DELAY - OPERATIONAL SUSTAINABILITY - ADMIN DELAY - MOBILITY/TRANSPORTABILITY (AM) Design (128 PARAMETERS - LOGISTICS LIFE CYCLE COST FROM - AVAILABILITY (A0) MIL-STD-721C) - RELIABILITY - MAINTAINABILITY DESIGNER - EQUIPMENT DISPLACEMENT (TEAR-DOWN) SUPPORT EVENTS • 500+ PARAMETERS - NAVY OPERATIONS (OCEAN, SUB-SEA) - EQUIPMENT EMPLACEMENT (SET-UP) • DESIGN TO ALGORITHMS - AUSTERE FIELD (3rd WORLD) - SPECIAL OPERATIONS - TRAINING MISSIONS TAILORED SDTRs - COMBAT MISSIONS - FERRY MISSIONS - REACTION TIME OPERATIONS - ALERT TIME - FLEXIBILITY SYSTEM SPEC GENERAL OPERATIONS SUPPORT • ACTIONS Supportability Design-to Framework 5212/16/
    43. 43. The Supportability Degrader Algorithm differentiates between Mission, Design and Infrastructure Issues - NAVY or AIR FORCE Data Bases Design f AD d AD r mh c AD o f AD d AD r mh c AD AVDLR AD i AD DS Mission NMC s NMC m PMC s PMC m C na EqInfrastructure f AI d AI r mh c AI o f AI d AI rmh c AI AVDLR AI i AI Eq 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. 12/16/2009 53
    44. 44.  Prepared by Science Applications International Corporation Under Contract DASW01-95-D-0076, Delivery Order 45 For the Deputy Assistant Secretary of the Army (Procurement)
    45. 45. 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
    46. 46.  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
    47. 47.  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.
    48. 48. 5.2 Describe prime contractor methods used for task and risk flow down.
    49. 49. 5.3 Explain supplier management impact on company margins.
    50. 50. 5.4 Identify company resources needed for subcontractor management.
    51. 51. Raytheon Supplier Diversity - Connect With Us RTN Supplier Diversity Website http://www.Raytheon.com/connections/supplier/diversity 8/8/2012 Page 62
    52. 52.  5.5 Identify risks and financial considerations for various make-buy decisions to include company motivation to outsource scope.
    53. 53.  5.6 Describe prime contractor financial gains and reduced risks from managing “pass- through” to a subcontractor/supplier.
    54. 54. 5.7 Explain company management of critical supply chain priorities across the several programs.
    55. 55. 5.8 Describe agreements on data rights and licensing in protecting a company’s intellectual property.
    56. 56. ACQ-315
    57. 57.  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]
    58. 58. What Drives Make vs Buy Decisions?
    59. 59. Rand 1992
    60. 60. Overhead Allocation and Incentives
    61. 61. Semiconductors Capital Asset High Shipbuilding Intensity Large Vessels Goal = Capacity Loading Goal VariesInventory IntensityLow High Goal = More Sales Volume Goal = Faster Payment Cycles Low Large Scale Commercial Software Consulting
    62. 62. Nominal HighMust pull work back Capital Must Pushinto the Prime Intensity Capacity Out Loading Low High Nominal condition Few examples in For low intensity model This quadrant Low
    63. 63.  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.
    64. 64.  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
    65. 65.  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.
    66. 66.  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
    67. 67. 12/16/2009 85
    68. 68. Recursive and Iterative Systems Engineering Vee Model Stakeholders Stakeholder Validate System to RequirementsRequirements, CONOPS, Definition Validation Transition Stakeholder Validation Planning Requirements and Definition CONOPS Requirements Analysis Validation System Performance Integrate System and Specification and Verification Verify to System Verification Planning Specification Architecture Validation Design Configuration Item Assemble Configuration Performance Verification Items and Verify to CI Specification and Performance Verification Planning Implementation Integration Specification These are Configuration Item Detail Specification and Verification Inspect and test to critical in a Detail Specification Verification Procedures Buy situatonTechnical Requirements Configuration InterfacePlanning Management Management Management Fabricate, code, buy, or reuse Decision Risk Data Technical Analysis Management Management Assessment 86
    69. 69. Interface Management
    70. 70.  Another aspect of configuration identification to be considered during development is interface management, also referred to as interface control.
    71. 71.  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.
    72. 72.  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.
    73. 73.  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
    74. 74.  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.
    75. 75.  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.
    76. 76.  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.
    77. 77.  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.
    78. 78.  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.
    79. 79.  “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
    80. 80. The Business ofAerospace and Defense September 2010 Robert H. Trice Senior Vice President Corporate Strategy and Business Development 117
    81. 81. Goal Foster Informed Discussion of the Business Aspects of the Aerospace and Defense Industry 118
    82. 82. Agenda • Business Principles • A&D Evolution • A&D Contributions • A&D Unique Characteristics • Defense Contracting Considerations • Summary 119
    83. 83. Business Principles 120
    84. 84. 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 121
    85. 85. 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 122
    86. 86. Financial Flow Sales Minus Cost of Sales Order Development, Operating Production & Delivery Profit Minus Interest and Taxes Backlog Net Earnings Divide by # of Shares Earnings Per Share 123
    87. 87. A&D Evolution 124
    88. 88. Defense Industry Evolution Government Industrial Specialized “Pure” A & D Arsenal Mobilization Components Industry 40% 35% Defense Cuban Desert Storm Spending WWII Missile 30% Crisis as % of 25% GDP Vietnam Korea 20% Berlin Wall WWI 15% 12/07/41 9/11/01 10% 5% Cold War 0 1910 1930 1950 1970 1990 2010 Chart Source: Lexington Defense Industry was Formed from Threats to National Institute Security and Needs for Technological Investments 125
    89. 89. A&D Industry Consolidation Lockheed GD Ft. Worth LOCKHEED MARTIN Martin Marietta GE Aerospace GD Space Loral LTV Missiles IBM Federal Comsat ACS SAVI PAE Acculight Unitech Northrop Grumman Westinghouse NORTHROP GRUMMAN Logicon Litton Newport News TRW Essex 3001 Int’l RaytheonBAe Corporate Jets E-Systems RAYTHEON GM-Hughes GD Missiles Texas Instruments Boeing Australia Flight Options Sarcos Research SI Govt Boeing RockwellMcDonnell Douglas BOEING Hughes S&C Aviall Insitu General Dynamics United Defense GulfStream GENERAL DYNAMICS Motorola IISG GM Defense Veridian Anteon & FCBS SNC Jet Aviation Group 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2007 2008 Reduced Demand and Market Forces Reshaped the Primes 126
    90. 90. Defense Systems Procured Aircraft Procurement Ship Procurement 531 497 33 337 31 188 11 138 108 8 6 5 1980 1985 1990 2000 2005 2009 1980 1985 1990 2000 2005 2009 Missile Procurement Helicopter Procurement 353 87,113 65,107 243 248 124 18,466 7,581 14,661 66 5,702 28 1980 1985 1990 2000 2005 2009 1980 1985 1990 2000 2005 2009Source: DoD Procurement Programs P-1 127
    91. 91. A&D Primes’ Portfolios (2009 Sales)Lockheed Martin - $45B Boeing - $68B Northrop Grumman - $34B Space Military Systems Shipbuilding Aeronautics Aircraft Aerospace Commercial Systems Aircraft Network Information Information & Space Systems & Systems & Electronic Systems Technical Global Global Electronic Services Systems Services & Services Systems Support Raytheon - $25B General Dynamics - $32B Integrated Marine Aerospace Intel, Info, & Defense Systems Net Centric Systems Systems & Technical Missile Information Combat Services Systems Systems & Systems Space & Technology Airborne Systems Primes are Adapting to Changing Market Demands 128
    92. 92. A&D Industry Supports Global Security Global Peer Warfare Conventional Regional Conflicts Defense of Allied Nations Major Combat War on Terrorism Counter Insurgency Coping with a Faltering or Irregular Conflict Collapsed Government Nation Building Peace Keeping Disaster Response Humanitarian Maintaining Social Order Assistance & Secure Commerce Managing Resources & The Environment Exploration of SpaceSolutions for the Entire Spectrum of Engagement Providing for Society Effective Government 129
    93. 93. Three-Tiered Global A&D Industry A&D Global Primes Sub-Primes & Systems Partners Lower-Tier • 30,000+ Subsystems and materials suppliers Suppliers • Includes small, minority-owned and disadvantaged businesses (20,000+) • Includes commercial companies • Network of use extends to additional suppliers 60 to 75% of Work Subcontracted 130
    94. 94. A&D Contributions 131
    95. 95. A&D Workforce Contributions (Aviation Week 2009 Workforce Age Distribution Workforce Study) 23% Under 35 38% 35-49 39% Over 50Aerospace Workers (thousands) 1200 Hundreds of Thousands of Jobs 30% 1000 Workforce Eligible to Retire by 2013 Eligible to Retire 25% 800 20% 15% 600 10% 400 5% 0% 200 Engineering Research & Manufacturing Program Development Labor Management 0 91 94 97 00 03 06 09 132
    96. 96. Over 40K A&D Jobs Lost Since 2009 WA = 6578 Notes: Since First Quarter 2009, Actual and Announced = 100 Jobs Cut NY = 2682CA = 4458Plus: Layoff of 560 A&D workers in San FL = 10,108Diego who cannot find work in the regionwithin one year could result in the loss of760 supplier jobs and 400 jobs related tospending cutbacks by those laid off. Thiscould mean a total nation-wide loss of~120,000 A&D-connected jobs since 2009. LA = 6771(Source: Institute for Policy Research) 133
    97. 97. Competitive Compensation (2009) All Employee Annual Earning Production Workers Hourly Wage Comparisons $33 $84,400 $78,904 $31 $74,403 $73,000 $23 $56,243 $22 $21 $20 $47,174 $19 $18 $16 $27,206$11Sources: Bureau of Labor & Statistics, U.S. Census, (Average U.S. Salary: $38,000 per year ) Aerospace Industries Association, TechAmerica 134
    98. 98. Aerospace: A Leader in Net Exports $ Millions 2008 2007 60,000 50,000 40,000 30,000 20,000 10,000 0-10,000-20,000-30,000-40,000-50,000-60,000Source: Bureau of the Census (seasonally adjusted), Foreign Trade Division 135
    99. 99. A&D Technology Contributions R&D Investment as a Proportion of Net Sales 2.9% 13.3% All Industry Aerospace Non-Company Funded Company Funded (AIA, Bureau of Labor Statistics, National Science Foundation) 136
    100. 100. A&D Technology Contributions Nuclear Power EZ Pass Jeep Hydraulic Brakes Traffic Cameras Air Traffic Control Airbags Pagers Smoke Internet Detectors Satellite Jet Engines Communications Cordless Power GPS Computers Tools Climate Monitoring Legacy of Innovation and Public Benefit 137
    101. 101. Superior Systems for Warfighters 138
    102. 102. A&D UniqueCharacteristics 139
    103. 103. A&D Industry Market Value Aerospace & Defense Market Cap as % of S&P 4.2% 3.8% 2.4% 1.8% 1.7% 0.9% 1960 1970 1980 1990 2000 2009* * A&D as sum of LMT, BA, NOC, RTN, GDSources: Company Reports, Morgan Stanley, Yahoo! Finance (Includes Commercial Aircraft) 140
    104. 104. Industry Comparisons Market Cap / Sales ($B) Publicly Traded Companies on NYSE or AMEX Market Cap Sources: CNN Money, Yahoo! Finance 2009 Sales $251 $243 $221 $219 $184 $180 $164 $115 $107 $96 $77 $71 $58 $43 Cigarette Industry Beer Brewers Microsoft Apple IBM HP A&DAerospace 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 CerveceriasUnidas, Boston Beer, and China New Borun Corporation 141
    105. 105. Gross Earnings Sector Comparisons EBITDA Margin from 2007 – 20091 Telecommunications Energy IT Healthcare Utilities Materials Consumer StaplesConsumer Discretionary Industrials A&D 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 Aerospace and Defense Margins Lag Other Industries 142
    106. 106. Net Earnings as % of RevenueCompany Comparisons from Various Industries A&D Sector Other Industries Yr 2009 Yr 2009 47 30 28 17 14 12 7.8 7.5 6.7 7 5.0 1.9 Merck GSachs MSoft Cisco IBM Intel HP RTN GD LMT NOC BA Sources: Company Reports, Fortune, Yahoo Finance (Includes Commercial Aircraft) Note: Recent S&P Average is 7-8% 143
    107. 107. Aerospace & Defense Elements Commercial Defense Military Aircraft Military Space & Missiles Commercial Aircraft Sustainment, IT & Services Commercial and Defense Sectors Share Technical Skills, But Require Segmented Business Systems 144
    108. 108. Commercial vs. Gov’t Contractors Commercial Business Government Business • Open Markets • Monopsony • Multiple Customers With • Single Customer Comprised Individual Transactions of Multiple Constituencies • Anti-trust Limits • Industrial Base Policy Limits • Price-based Business Model • Cost-based Business Model • Closed Books • Truth In Negotiations Act (TINA) • Maximize Sales • Maximize Sales • Upside/Downside Unlimited • Upside/Downside Capped • R&D Investments Recouped in Production Price • R&D Investments Funded or Reimbursed by Government 145
    109. 109. Commercial vs. Gov’t Contractors Commercial Business Government Business • Limited Government Oversight • Significant Government Oversight • Subject To Federal Acquisition • Not Subject To Federal Regs Acquisition Regs • Export Licenses Required to Sell • Limited Export Control Overseas • Multi Year Projections; • Annual Funding; Government Consumer Driven Policy Driven 146
    110. 110. Defense Program Reductions F-22 Fighter Programmed: 750 Being Built: 187 B-2 BomberProgrammed: 132 Built: 21 Expeditionary Fighting Vehicle Programmed: 1025 Being Built: 593 DDG-1000 Programmed: 32 Being Built: 3 V-22 Tiltrotor Programmed: 913 Being Built: 458 147
    111. 111. Terminations for Convenience TSAT/TMOS RAH-66 Comanche $10 Billion Spent $9 Billion Spent VH-71 Presidential Helicopter $5 Billion Spent Airborne Laser $7 Billion Spent Future Combat System $24 Billion Spent XM2001 Crusader $2 Billion Spent 148
    112. 112. 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 149
    113. 113. Five Year Stock Performance(through December 31, 2009) 115% 100% 85% 70% 55% 40% Lockheed Martin 36% Raytheon 33% General Dynamics 30% 25% S&P A&D 24% 10% Boeing 5% NASDAQ 4% -5% Northrop Grumman 3% Dow Jones -3% S&P 500 -8% -20% -35% -50% 150
    114. 114. Defense Contracting Considerations 151
    115. 115. 152
    116. 116. Government vs. Industry View of ProfitGovernment Perspective Industry PerspectiveTotal Allowable Cost $9,000,000Profit/Fee @ 12% $1,080,000Price $10,080,000 Sales $10,080,000Return on Sales 10.7% 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% 153
    117. 117. Revenue Distribution Net Lockheed Martin 2009 Sales $45.2B $3B $1.2B Cost of Sales Interest and Taxes Net Earnings $41B Cost of Sales Includes: • Subcontracts • Direct Labor and Travel • Materials and Distribution • Amortized Property, Plant & Equipment • IRAD • Bid and Proposal • Unallowable Compensation • Charitable Contributions 154
    118. 118. Cash Deployment Internal Investment: Capital Expenditures (Property, Plant & Equipment) Working Capital (Inventory, Accounts Receivable / Payable) Dividends: PensionsReturn to Shareholders Internal Dividends Investment Acquisitions: Increase Capabilities Acquisitions/ and Capacities Share Ventures Repurchase Share Repurchase: Return to Shareholders Debt Retirement Debt Retirement: Return to Creditors Supports All Stakeholders 155
    119. 119. Summary 156
    120. 120. A&D Industry’s Unique Role SECURITY & SERVICES GOVERNMENT PRIVATE TAXES SECTOR AEROSPACE AND DEFENSE INDUSTRYTranslating Private Sector Resources into Public Sector Solutions 157
    121. 121. A Healthy Defense Industrial Base • 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 Stability Supports an Industrial Base that Can Respond to Tomorrow’s Challenges 158
    122. 122. Supply Chain Complexity in a Changing Environment November 17, 2011 Michael Forbes, CPSM Corporate Director, Supply Chain Northrop Grumman Corporation UNCLASSIFIED
    123. 123. Supply Chain Complexity: Today‘s Topics • Northrop Grumman Introduction • Do You Have the Right Talent? • Responding to Customer, Legislative & Regulatory Changes • Material Authenticity • Risk Management163
    124. 124. 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 *2010 sales included sales from Northrop Grumman Shipbuilding, a business that was spun-off in the first quarter of 2011. Focus on Performance164
    125. 125. Four Operating Sectors at a Glance Aerospace Systems Electronic Systems Information Systems Technical Services Large Scale Systems Radar Sensors & Systems Command & Control Defense and Government Integration Systems Services RF/IR Countermeasures C4ISR Ground Vehicle Communications Unmanned Systems EO/IR Targeting & Reconstitution Surveillance Intelligence, Surveillance & Airborne Ground Nuclear Security Services Navigation & Positioning Reconnaissance Systems Surveillance / C2 Systems Training Solutions Naval BMC2 Enterprise Systems Space Sensors and Security Technical and Global / Theater Strike Operational Training Support Systems C4ISR Networked Systems IT/Network Outsourcing Electronic Combat Live, Virtual and Constructive Operations Marine & Undersea Systems Intelligence Domains ISR Satellite Systems Propulsion & Power Integrated Logistics and Federal, State/Local Generation Modernization Missile Defense Satellite & Commercial Systems Air Defense Systems Irregular Warfare/Quick Homeland Security Reaction Capability MILSATCOM Systems Environmental & Space Health IT Aircraft System/Platform Science Satellite Systems Sustainment & Modernization Cybersecurity Directed Energy Systems Aircraft Subsystem/Component Strategic Space Systems Sustainment & Modernization165
    126. 126. 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.166
    127. 127. Today‘s Environment167
    1. A particular slide catching your eye?

      Clipping is a handy way to collect important slides you want to go back to later.

    ×