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Supplier Management Module Research for ACQ-315

Supplier Management Module Research for ACQ-315

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  • 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.

Supplier management v4.0_11_mar_12 Supplier management v4.0_11_mar_12 Presentation Transcript

  • Jeran Binning
  •  (Lesson 5) Given a company contract award scenario and corporate goals, students will identify and assess a company’s management challenges in optimizing prime contractor relationships and decisions in shaping and managing its supply chain.
  •  Lesson 5: Supplier Management (Tuesday Afternoon 1500-1630) Learning Outcomes: Given a company contract award scenario and corporate goals, students will identify and assess a company’s management challenges in optimizing prime contractor relationships and decisions in shaping and managing its supply chain. Explain industry strategies to support system sustainability. Describe prime contractor methods used for task and risk flow down. Explain supplier management impact on company margins. Identify company resources needed for subcontractor management. Identify risks and financial considerations for various make-buy decisions to include company motivation to outsource scope. Describe prime contractor financial gains and reduced risks from managing “pass-through” to a subcontractor/supplier. Explain company management of critical supply chain priorities across the several programs. Describe agreements on data rights and licensing in protecting a company’s intellectual property
  •  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.
  •  Activities: The instructor will introduce a short Case Study to demonstrate financial gains and risks for managing supply chain subcontractors on a program to include business acumen considerations through subcontractors. Table teams will be split up representing a prime, sub (large company), and sub (small company). Instructor will note facilitated student offered business challenges and risks for their companies.
  •  Content 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.
  •  8.1 Explain industry strategies to support system sustainability. 8.2 Describe prime contractor methods used for task and risk flow down. 8.3 Explain supplier management impact on company margins. 8.4 Identify company resources needed for subcontractor management. 8.5 Identify risks and financial considerations for various make-buy decisions to include company motivation to outsource scope. 8.6 Describe prime contractor financial gains and reduced risks from managing “pass-through” to a subcontractor/supplier. 8.7 Explain company management of critical supply chain priorities across the several programs. 8.8 Describe agreements on data rights and licensing in protecting a company’s intellectual property.
  • Skill Set is Complex! contact Nick Little at MSU.8
  •  Conclusion International business supply chains provide the structure for the new world of globalized business. Much of U.S. international trade is conducted by globalized supply chains. For public policy, supply chains affect the magnitude of impact for fiscal stimulus packages and also the incidence of trade policy. Supply chains also are affected by the range of policies that have an impact on the competitiveness of U.S. business. Whether taxes, environmental regulations, labor policy, or shipping security, business supply chains are directly affected by changes in the business environment, whether in the domestic or foreign markets. In the world of globalized supply chains, a policy aimed at imports, may actually hit U.S. parented supply chains as well as foreign companies and countries.
  •  Public policy affects businesses in two distinct ways. The first is in the environment for business or the economic, political, and social crucible in which it operates. This includes a wide range of factors including basic institutions of private property, commercial law and rights, market access, rights of establishment, national treatment, border barriers, exchange rate policy, protection of intellectual property, infrastructure, education and training of workers, energy policy, the climate for innovation, political governance, and the panoply of policies aimed at the general climate for business that all companies face.
  •  The second way that public policy affects business is in actions that affect the internal operations of companies. These are actions that directly affect costs of production and profitability, and may include tax policy, specific customs duties, wage and employment policies, accounting and reporting rules, health and safety requirements, specific environmental requirements, and product safety. Some policies affecting the general business environment, such as energy costs and subsidies for research and development, also affect internal costs.
  •  The development of global supply chains adds another dimension to the impact of public policy. This appears in the incidence (who is affected) by policy. Since manufacturing processes now have become fractured, the incidence of policy likewise has become fractured. A supply chain consists of a domestic parent, domestic suppliers, foreign suppliers, and a community of supporting functions that include logistics, supply chain management, and quality assurance. Public policy may provide incentives or disincentives for supply chain parent companies to establish and retain their headquarters in the U.S. market. This applies both to historically American companies and to foreign companies that may locate regional headquarters in the United States. Public policies favorable to business in the United States also may induce both American and foreign-owned supply chains to locate more segments of their supply chains in the United States (and vice versa).
  •  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.
  •  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
  •  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.
  •  Global supply trains could not exist without international trade. Traditionally, trade and investment policy deals with border barriers. These include customs duties, import quotas, the freedom to move capital across borders, and the right to establish businesses (including taking over an existing company) in a given country. The development of globalized supply networks does not alter the role of traditional trade and investment policies.
  •  Labor 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)
  •  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
  •  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.
  •  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.
  •  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.
  •  Chinese counterfeits include many products, such as pharmaceuticals, electronics, batteries, auto parts, industrial equipment, toys, and many other products, that may be exported and could pose a direct threat to the health and safety of consumers in the United States. Inadequate IPR enforcement is a key factor contributing to these shortcomings. China has high criminal thresholds for prosecution of IPR violations as well as difficulties in initiating cases. This arguably results in limited deterrence. Civil damages are also low.
  • Deutsche Bank 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
  • Incentives Give You A Clue to Actions 27
  • 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
  • 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
  •  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.
  •  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.
  •  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.
  •  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.
  •  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.
  •  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.
  •  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.
  •  Making aircraft Full throttle Boeing and Airbus enjoy huge demand for their planes. Can they keep up? Nov 26th 2011 | from the print edition
  •  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 (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/
  • 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)
  • 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
  • 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/
  • 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
  •  Prepared by Science Applications International Corporation Under Contract DASW01-95-D-0076, Delivery Order 45 For the Deputy Assistant Secretary of the Army (Procurement)
  • 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
  •  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
  •  Several incentives viewed as having the highest impact were also voted the most difficult to implement. However, there were also contractual incentives that were considered to have high impact and relative ease of implementation. These included: • Award-term contracting—the idea that contract length can be shortened or extended, based on attaining or surpassing specified results metrics, and; • Output Contracting—defining deliverables as outputs (for example, copies rather than copiers). The cross section of contractual incentives from the Phase I study, the Phase II group efforts, and additional research are reflected in a Compendium of Contractual Incentives (Appendix B), intended as a baseline guide for the contracting and acquisition community in the development and crafting of more effective business relationships.
  • 5.2 Describe prime contractor methods used for task and risk flow down.
  • 5.3 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 http://www.Raytheon.com/connections/supplier/diversity 8/8/2012 Page 62
  •  5.5 Identify risks and financial considerations for various make-buy decisions to include company motivation to outsource scope.
  •  5.6 Describe prime contractor financial gains and reduced risks from managing “pass- through” to a subcontractor/supplier.
  • 5.7 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. 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]
  • What Drives Make vs Buy Decisions?
  • Rand 1992
  • Overhead Allocation and Incentives
  • 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
  • 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
  •  Interface Control Documentation (ICD) Interface Control Documentation includes Interface Control Drawings, Interface Requirements Specifications, and other documentation that depicts physical and functional interfaces of related or co- functioning systems or components. ICD is the product of ICWGs or comparable integrated teams, and their purpose is to establish and maintain compatibility between interfacing systems or components.
  •  4.4. Systems Engineering Design Considerations Subordinate sections to 4.4 cover the following topics: 4.4.1. Accessibility 4.4.2. Commercial Off-the-Shelf (COTS) 4.4.3. Corrosion Prevention and Control 4.4.4. Critical Safety Items (CSIs) 4.4.5. Disposal and Demilitarization 4.4.6. Diminishing Manufacturing Sources and Material Shortages (DMSMS) 4.4.7. Environment, Safety, and Occupational Health (ESOH) 4.4.8. Human Systems Integration (HSI) 4.4.9. Insensitive Munitions (IM) 4.4.10. Interoperability 4.4.11. Open Systems Design 4.4.12. Parts Management 4.4.13. Program Protection &System Assurance 4.4.14. Quality and Producibility 4.4.15. Reliability, Availability, and Maintainability 4.4.16. Software 4.4.17. Spectrum Management 4.4.18. Standardization 4.4.19. Supportability 4.4.20. Survivability and Susceptibility 4.4.21. Unique Identification of Items
  •  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.
  •  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
  • 12/16/2009 85
  • 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
  • Interface Management
  •  Another aspect of configuration identification to be considered during development is interface management, also referred to as interface control.
  •  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.
  •  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.
  •  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
  •  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.
  •  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.
  •  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.
  •  Once interfaces have been agreed-to by the parties concerned, they must be detailed at the appropriate level to constrain the design of each item and baseline the configuration documentation so that the normal configuration control process will maintain the integrity of the interface. Then it may be necessary to convene an ICWG or other mechanism on rare occasions to resolve change issues in a satisfactory manner. The Government is the arbitrator of issues that cannot be resolved by an ICWG or IPT, such as those issues which involve contractual issues requiring contract changes and agreement between different acquisition activities.
  •  Interface 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.
  •  “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
  • The Business ofAerospace and Defense September 2010 Robert H. Trice Senior Vice President Corporate Strategy and Business Development 117
  • Goal Foster Informed Discussion of the Business Aspects of the Aerospace and Defense Industry 118
  • Agenda • Business Principles • A&D Evolution • A&D Contributions • A&D Unique Characteristics • Defense Contracting Considerations • Summary 119
  • Business Principles 120
  • 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
  • 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
  • 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
  • A&D Evolution 124
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • A&D Contributions 131
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • Superior Systems for Warfighters 138
  • A&D UniqueCharacteristics 139
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • Defense Contracting Considerations 151
  • 152
  • 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
  • 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
  • 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
  • Summary 156
  • A&D Industry’s Unique Role SECURITY & SERVICES GOVERNMENT PRIVATE TAXES SECTOR AEROSPACE AND DEFENSE INDUSTRYTranslating Private Sector Resources into Public Sector Solutions 157
  • 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
  • Supply Chain Complexity in a Changing Environment November 17, 2011 Michael Forbes, CPSM Corporate Director, Supply Chain Northrop Grumman Corporation UNCLASSIFIED
  • 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
  • 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
  • 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
  • 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
  • Today‘s Environment167
  • Key Questions To Determine Approach Key questions • What are our relative strengths and weaknesses in supply chain management? Internal assessment • How significant are the capability gaps/shortfalls? • What are the relevant best practices and trends in Supply Chain? External assessment • What are the most likely future scenarios? • What are the best opportunities for us to differentiate itself? Evaluation and • What criteria should be used to prioritize strategic options? prioritization of • How can we build, buy, or ally to obtain strategic options critical capabilities? • What key investments are required and what Implementation are the expected savings/returns? plan & approach • What governance/structural issues need to be addressed to ensure success?16
  • Aligning Structure allows Supply Management to Excel • Industry dynamic has shifted and requires new skill sets and functional integration • Organizations may be out of sync with Business Shift • Understanding Supply Management Maturity Phase Drives Improvement Subcontracts is Management of Systems Integrators (70%) (80%) Suppliers Need 100- (60%) (65%) * 75- (50%) * * * • Add capability 50- * • Be acquired 1970s 1980s 1990s 2000s 2010s • Go out of business * Percent Outsourced 1990’s - 2010’s 1970’s - 1990’s Large Systems Integrations Large & Small Prime/OEM Systems Integration, Manufacturing Small Systems Integration Manufacturing Suppliers Systems, Subcontractors Systems Move up Manufacturing, Components Supply Components, Manufacturing Subcomponents Chain Suppliers Parts Subcomponents, Parts169 Graphic Source: Aerospace Industries Association
  • Supply Chain Management ComplexityDevelopment G Cost Type F Cross Functional Contracts Team E Development Percent of Supplier D Management personnel with management responsibility C B A Fixed Price Cost Type Production Buyer Type Contracts Contracts Low High Integration / Complexity Align Skills With Business Needs - One Size Does Not Fit All170
  • Participate in Supply Chain Associations Functions Associations National Contract Management Association (NCMA) Institute of Supply Management (ISM) Subcontracts Project Management Institute (PMI) Aerospace Industries Association (AIA) Business AAQG Registration Management Committee (RMC) Management Nadcap Management Council (NMC) Supplier American Society for Quality (ASQ) Assurance Society of Manufacturing Engineers International Compliance Professional Association (ICPA) Council of Supply Chain Management Professionals American Society of Transportation and Logistics (AST&L) Logistics National Institute of Packaging, Handling & Logistics Engineers (NIPHLE) National Association of Fleet Administrators (NAFA) American Association of Exporters and Importers (AAEI) Goods Association for Operations Management (APICS) Movement Socio-Economic 8 = Local Associations Business Prog. 6 = National171
  • Heightened Activity in 2010 & 2011 • DFAR 252.222-706, Restrictions on the Use of Mandatory Arbitration Agreements (MAY 2010) – Defense Appropriation Act for Fiscal Year 2010 – Requires Contractors to Certify that Covered Subcontractors Agree Not to Make a Condition of Employment Arbitration of Certain Employment Claims • FAR 52.222-99, Notification of Employee Rights Under the National Labor Relations Act (JUN 2010) • Executive Order 13496. Requires Contr‘s to Post Notice, Mandatory Flow-Down to Subs >$10,000, unless performing exclusively outside US • Dr. Carter (USD(AT&L)) Mandate (JUN 2010) – Deliver warfighting capability for the dollars we have while maintaining healthy defense industry • FAR 52.204-10, Reporting Executive Compensation and First-Tier Subcontract Awards (JUL 2010) – July 2010 >$20 M, Oct. 2010 >$550,000, Mar. 2011 >$25,000; Report to FSRS • Dodd-Frank Wall Street Reform Law, SEC Rule on use of ―conflict minerals‖ (JULY 2010) • Minerals from sources contributing to the conflict in the Congo (DRC or an adjoining country) • Due diligence of ores from which tin, tantalum, tungsten and gold are derived • Secretary Gates‘ Initiative announced (AUG 2010) – Reduce DoD‘s overhead, Find and redirect $100B within the Defense Budget • Dr. Carter Affordability Initiatives released (SEP 2010) – Guidance on 23 initiatives in 5 focus areas, DoD directed to implement immediately Significant Additional Requirements Levied on Supply Chain 2010-2011172
  • Conflict Minerals Overview • Minerals mined in conditions of armed conflict and human rights abuses – The U.S. Secretary of State is required to create a map showing which areas are under the control of the warlords in the Eastern Congo area. • Democratic Republic of the Congo and adjoining countries – Cassiterite chief ore from which Tin is processed – Wolframite most important Tungsten ore – Coltan ore from which Tantalum is processed – Gold • Related to government & commercial products – Tin is the majority element in solder; also a very common lead/termination plating on electronic components – Tungsten is commonly used in microcircuits in a sputtered titanium tungsten layer; it is used in high strength steels – Tantalum is used in electrolytic capacitors – Gold is used in terminations and wire for bonding applications as well as in external platings; The vast majority of electrical contacts are gold plated ―Conflict Material‖ reporting rules will severely impact component Manufacturers173
  • Material Authenticity Enterprise Material Authenticity Capability Leadership & Policy & Training & Tools & Engagement Processes Awareness Infrastructure • Enterprise Network • Corporate Policy • Enterprise Module • Alert Management • Multi-Discipline Team • Sector Procedures • Corporate Comms • Recording & Reporting • Improvement Plan • Guidance & Manuals • Annual Training • Counterfeit Verification • Rapid Response • Terms & Conditions • Industry Association • Industry Standards Reduce our risk through strict procurement practices, supplier management, and material authenticity verifications174
  • Additional Risks in the Electronic Supply Chain Total Counterfeit Incidents DoD Electronics Survey - Nov 2009 • Continued foreign growth in development and design of semiconductors (approx 1500 total with several hundred in China alone) • Government attention – Trusted computing platform – Build in security bus for validation checking of data calls – Change in culture to compartmentalize chip activities vs. assumed trust model • ~ 9,400 reported DoD incidents of counterfeit electronics according to ‗09 Dept. Commerce Survey • Society of Automotive Engineers (SAE) reports a 140% increase in counterfeit electronics in last 3 yrs Increased Demand for Awareness and Effective Countermeasures175
  • Tool Solutions Private Private Sector Analysis Detailed Analysis of Supplier(s) based Large Small on a variety of public and private information; to include Risk Profile private supplier financial statements, FRISK (where Public Public available), Altman Z-score, and other financial assessment Large Small criteria. Credit Risk Monitor offers 100% of US Public Corporations - FRISK Scores and News/Financial Information Push. Ability to enter private company financials into secure portal to utilize proprietary FRISK score ratings for small business.176 Tiered approach includes contractual protection to Boots on the Ground
  • Credit Risk Monitor FRISK scores on Watch list Portfolio The FRISK Score is reported on a scale from1 (worst) to 10 (best) The FRISK Score, calculated daily, indicates the probability of a company default over a 12 month horizon Inputs include: – most recent financial statements – Altman Z scores – the most recent ratings from S&P or Moodys – daily stock price volatility over the preceding 6-month period177
  • Risk Realized: Japanese Tsunami Response Stack International – Electronics Group ISM Supply Chain Alerts Plexus Commodity Impact Report Source: EE Times March 14 Link to Industry Associations, Working Groups and Consortiums to understand and react to supply chain impact178
  • Integrated Supply Chain Strategy179
  • How May I Prepare Today? Determine where you stand in these key areas: • Talent – Right Time & Place – How many CPSMs are in your Supply Chain Organization? • Industry Associations – Functional (Institute for Supply Chain Management, APICS) – Cross Industry (National Association for Manufacturers, TechAmerica) – Industry Specific (Aerospace Industries Association) • Academic Institutions – University of San Diego, Michigan State University, Arizona State University • Understand your Supply Chain Business Model – Where do you fall on the complexity scale? The Global Supply Chain IS Complex – But you are not Alone180
  • Doing Business With Raytheon Supplier Diversity
  • Supplier Diversity = Business Strategy Taxpayer Small, Minority, Women Business Owners Taxpayer dollars a Source Congress ContractorsPrime Contractors CongressWin Programs Prime Approve BudgetCompetitive SolutionsBest Value Selection Programs JobsCustomer Requirements Decisions Votes a a DoD DoD and Other Gov Agencies Budget Program Funding Best Value Solutions Support the Customer - Support Growth 8/8/2012 Page 183
  • Supplier Diversity Focus Raytheon‘s ―Supplier Diversity‖ Program is designed to drive supplier source selection strategy and ensure compliance with:  Public Law  Federal Acquisition Regulations  Customer Requirements  Company Policy concerning the utilization of businesses that are:  Small  Small Disadvantaged  Woman Owned – Small Businesses  Veteran Owned – Small Businesses (including Service Disabled)  Small Businesses meeting Hub Zone Criteria (historically under-utilized)  Historically Black Colleges, Universities and Minority Institutions  Minority and Women-Owned Businesses 8/8/2012 Page 184
  • Supplier Diversity Built in the Organization William Swanson Chairman and CEO Raytheon Company David Wilkins Vice President Contracts & Supply Chain Benita Fortner Supplier Diversity Director Mike Jarrett Janet Duffey Missile Systems Space & Airborne Systems Organized to support Dan RyanIntegrated Defense Systems Vince Hrenak supplier diversity objectives Network Centric Systems Paul Lovelady Stephanie Foster Intelligence & Raytheon Technical Information Systems Services Company Supply Chain Leadership team serves as RTN Vivek Kamath Supply Chain Operations Supplier Diversity Council 8/8/2012 Page 185
  • Supplier Diversity Leadership Team …and Staffed to develop Benita Fortner and execute Raytheon Supplier Diversity Director Supplier diversity strategy, Initiatives and outreach JoAnne Arvizu Shirley Patterson Missile Systems Space & Airborne Systems It’s all about collaboration Mike Murnane Don Brechtel Network Centric Systems Integrated Defense Systems Lee Wesner Crystal King Intelligence & Technical Information Systems Services Company Replace - Carol Phillips Supply Chain Operations this …Key players in local customer interface and developing goals Page 186
  • Supplier Diversity - Responsibilities Provide assistance to ―focus businesses‖ who are interested in doing business with Raytheon Assist in identifying potential sources for procurement opportunities and sourcing strategies. Ensure supplier diversity is addressed in all procurements and sourcing strategy activities including proposal support Track supplier diversity performance and provide customer and industry reports. Conduct training to ensure that Raytheon personnel are aware of Raytheon Supplier Diversity objectives Conduct outreach as a means of developing and counseling ―focus businesses‖ 8/8/2012 Page 187
  • Complete Supply Chain Support Supplier Diversity Business Leader  Supply Chain Expertise 8/8/2012 Page 188
  • Supply Chain Strategies In Global CompetitionTraditional Supplier Requirements Supply Chain Process Enablers Performance  E-Enabled business transactions Performance  Internet-based transactions Performance  Inventory Management Processes Cost  Barcode technology Quality  Just-in-time deliveries from suppliers Schedule / Delivery  Supplier managed inventory  Warehouse managementContemporary Supplier Requirements outsourcing Customer considerations  Supplier performance management Competitive market enablers  Supplier scorecards Supplier life cycle in the value chain  Web based supplier communications  Supplier consolidation and rationalization Supplier Diversity Integral to Supply Chain Strategy 8/8/2012 Page 189
  • Sourcing Opportunities and the Global Supply Base Indirect 28% Chemicals Facilities IT & Com Indirect Commodities Logistics Travel Machinery & Equipment IT Media services Direct MRO Contract 72% Contract Labor Labor Procurement tools Direct Commodities Travel Utilities Castings & Forgings Other Machined Parts Categories: Hardware Electrical Subcontracts Connectors Flex Harnesses CCA’s Magnetics Semiconductors Power Supplies Semiconductors Capacitors Connectors Direct Computers Capacitors MicroWave devices etc. Servos Remarkable Variation in Supply Chain 8/8/2012 Page 190
  • Performance - Relationships - SolutionsOutreach drives supplierdiversity performance National, Regional and Local events Focused outreach and networking within strategic business areas Raytheon business specific events Emphasis on Veteran, Hub Zone and Women businesses Raytheon’s performance is driven by a competitive supply base 8/8/2012 Page 191
  • Performance - Relationships - Solutions Build Relationships  Outreach to meet potential suppliers  Share Raytheon strategy and objectives  Respond to customer requests – Significant number of requests to support customer, industry and advocacy organization initiatives and events Committed to strong relationships with customers and suppliers 8/8/2012 Page 192
  • Performance - Relationships - Solutions Direct Commodity Indirect Commodity Agreements Agreements Art/Computer Graphics/Text Processing Household Goods Transportation Castings  Microwave Devices Chemical & Gas Management International Freight Forwarding & Color Film Processing Brokerage Services Chemicals & Gases  Optics Computer Hardware/Software Janitorial Supplies Consultants Lease/Purchase Vehicles Connectors  Outside Services Contract Labor Lithography Copier Paper/Fine Paper Manufacturing/Laboratory Supplies Electrical Products  Passive Devices Copiers & Print Services Office and Computer Supplies Energy Brokering Packaging Supplies Guidance and Controls  Power Supplies Express Air - Domestic Professional Services-Health & Welfare Express Mail - International Purchasing Card Hardware and Bearings  Propulsion Warheads & Facilities Services Reprographics Faxes Security Machining Pyrotechnics Flight Operations Services Software Development Food and Vending Services Solid Waste Management and Recycling Major Assemblies  PWBs / CCAs Forms Supplies & Services/Video Services Freight Payment - 3rd Party Telecommunications - Cell Phones Manufacturing Lab Supplies  Semiconductors Fuels & Oils Telecommunications - Pagers Furniture Telecommunications Long Distance Voice Packaging Suppliers  Test Equipment General Construction Test Equipment Graphic Supplies Test Equipment Calibration Wire & Cable Hazardous Waste & Environmental Test Equipment Rental Transportation Logistics Suppliers are a significant component of customer solutions 8/8/2012 Page 193
  • Supplier Diversity Planning Process National Regional Teaming Area of Support Agreements Expertise Joint Ventures Determine Strategy Diversity Industry Leader/ Suppliers Competition Small Business Risk Advocate Assessment Work with Small Business advocate to clarify  Are you in the position to bid for prime contracts with requirements. the right Teaming Agreement? Determine significant supply strategies (agreements/programs).  Research industry competition. Am I a leader in this field? Who held the last contract? Identify/highlight your areas of expertise and map to target company Utilize existing or develop strategic alliances/national and  Can you afford (time, money, technology) to pursue regional support requirements. this business? 8/8/2012 Page 194
  • Raytheon Supplier Diversity - Connect With Us RTN Supplier Diversity Website http://www.Raytheon.com/connections/supplier/diversity 8/8/2012 Page 195
  •  “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
  •  Air Force Global Logistics Support Center Air Force Nuclear Weapons Center Ogden Air Logistics Center Oklahoma City Air Logistics Center Warner Robins Air Logistics Center
  •  Serves as the Air Force supply chain manager, providing enterprise planning, global and control, and a single focal point, all in support of the full range warfighter operations. Overall, GLSC is a geographically dispersed organization with six operating locations. In addition to Scott AFB, these include Hill AFB, Utah; Langley AFB, Va.; Robins AFB, Ga.; Tinker AFB, Okla., and Wright-Patterson AFB.
  •  TheAir Force plans to build on a 34 percent improvement in supply rates through the eLog21 campaign and other recent improvements in logistics support. GLSC is considered to be one of the key elements in the Air Force logistics transformation. The main objectives of eLog21 are to increase the equipment availability rate by 20 percent and decrease operations and support costs by 10 percent by fiscal 2011. The GLSC has three primary functions: 1) The enterprise-wide planning of the Air Force supply chain including planning for material, maintenance and distribution. 2) The GLSC will exercise command and control as a single point of contact for customers to resolve immediate logistics issues at the point of execution. 3) The GLSC will be the single point of entry and authority for enterprise supply chain information management. This will include the management of business rules, policies and procedures, providing functional requirements for supply chain systems and measuring, assessing and taking action to improve supply chain performance through enterprise metrics and analysis capability. According to Trixie Brewer, the provisional organizations deputy director, between 4,000 and 5,000 people will be assigned to the GLSC when it is fully operational.
  •  Repairs and maintains bomber, refueling and reconnaissance aircraft, among others. Many crucial airborne accessories also are maintained at the center, including life-support systems. The center provides cradle-to-grave support for a variety of aircraft, including the E-3 AWACS, C/KC-135, B-52 and B-1. It is responsible for depot-level repair, modifications, overhaul and functional check flight of the B-1, B-52, C/KC-135, E-3 and the Navys E- 6 aircraft. Engines managed include a substantial inventory, from the older Pratt & Whitney TF33 to the state-of-the-art F119. Units: 72nd Air Base Wing, 76th Maintenance Wing and Aerospace Sustainment Directorate.
  •  Provides logistics, support, maintenance, distribution and engineering management for the F-16, C-130, A- 10, B-2, KC-135, T-38, T-37 and 22 other actively flying, mature and proven weapon systems, including the Minuteman III ICBM. The center is the leading provider of rocket motors, small missiles, air munitions and guided bombs, and serves as the ammunition control point for the Air Force. Units: 75th Air Base Wing, 508th Aircraft Sustainment Wing, 84th Combat Sustainment Wing, 309th Maintenance Wing, 526th Intercontinental Ballistic Missile Systems Wing.
  •  provides product support, purchasing and supply-chain management, and depot maintenance. It has management and engineering responsibility for repairing, modifying and overhauling the F-15, C-130 and all Air Force helicopters. It also provides logistical support for all Air Force air-to-air missiles, vehicles, general- purpose computers, and avionics and electronic systems on most aircraft. In addition, the center has management and engineering responsibility for the U-2 and performs Global Reach Improvement Program aircraft modifications and systems sustainment support on the C- 17. Units: 78th Air Base Wing, 330th Aircraft Sustainment Wing, 542nd Combat Sustainment Wing, 402nd Maintenance Wing.
  •  Is the commands center of expertise for nuclear weapon systems, ensuring safe, secure and reliable nuclear weapons are available to support the National Command Structure and Air Force. Center responsibilities include acquisition, modernization and sustainment of nuclear system programs.
  •  Naval Material Supply Chain Management (SCM) is NAVSUP’s largest Product & Service in terms of resources invested with over 3,000 civilian, military and contractor personnel involved, $21 billion of inventory on hand and an annual material budget of over $3.5 billion. It covers the over 430,000 class IX repair part line items of supply for which the NAVSUP Weapon Systems Support (NAVSUP WSS) is responsible. NAVSUP WSS uses funds from the NWCF (Navy Working Capital Fund) to buy and repair the parts and in turn sells them to Fleet customers.
  •  Fluctuating ship orders, with initially forecast orders typically exceeding what is ultimately purchased, discourage shipyards from making investments that could ultimately reduce the cost of ships. An unstable business base also causes fluctuations in the demand for skilled labor that are expensive and difficult to manage and prevents contractors from leveraging through long-term contracts purchases from subcontracting suppliers. Decreasing production rates tend to increase overhead rates and make the shipbuilders and their suppliers produce at lower efficiency.
  • http://www.hbs.edu/ Align or redesign Once companies have identified the root causes of incentive problems, they can use one of three types of solutions— contract based, information based, or trust based—to bring incentives back into line. Most organizations don’t have the influence to redesign an entire chain’s incentives—they can change only the incentives of their immediate partners. While it is often the biggest company in the supply chain that aligns incentives, size is neither necessary nor sufficient for the purpose.
  • http://www.hbs.edu/ One way companies can align incentives in supply chains is by altering contracts with partner firms. When misalignment stems from hidden actions, executives can bring those actions to the surface—unhide them, as it were—by creating a contract that rewards or penalizes partners based on outcomes.
  •  It’s necessary to alter contracts when badly designed incentives are the problem. Let us think back to the Canadian bread manufacturer whose deliverymen overstocked stores when they were paid sales-based commissions. The company changed the deliverymen’s behavior by altering their contracts to include penalties for stale loaves in stores, which could be tracked. While the penalties reduced the incentive to overstock stores, the commissions ensured that the deliverymen still kept shelves well stocked.
  •  Small changes in incentives can transform supply chains, and they can do so quickly. Take the case of Tweeter, a consumer-electronics retail chain that in May 1996 acquired the loss-making retailer Bryn Mawr Stereo and Video. For years, Bryn Mawr’s stores had reported lower sales than rivals had. Tweeter’s executives realized early that the incentives that Bryn Mawr offered its store managers would not lead to higher sales. For instance, while Tweeter penalized managers for a small part of the cost of products pilfered from their stores, Bryn Mawr deducted the full value of stolen goods from their pay. Since store managers faced more pressure to prevent shoplifting than to push sales, they behaved accordingly. They placed impulse-purchase products like audiotapes and batteries behind locked cases, which reduced theft but killed sales. They spent more time tracking merchandise receipts than they did showing products to consumers.
  •  In the 1990s, Hollywood movie studios, such as Universal Studios and Sony Pictures, found that frequent stockouts at video retailers, like Blockbuster and Movie Gallery, posed a major problem. A lack of inventory on store shelves meant that everyone suffered: The studios lost potential sales, video rental companies lost income, and consumers went home disgusted. Inventory levels were low because the incentives of the studio and the retailers weren’t in line. The studios sold retailers copies of movies at $60 a videotape. velocity At an average rental of $3, the retailers had to ensure that each tape went out at least 20 times to break even. The studios wanted to sell more tapes, but the retailers wished to buy fewer tapes and rent them out more often.
  •  In the late 1990s, when video rental companies proposed revenue-sharing contracts, the studios raised no objections. They agreed to sell tapes to the retailers for around $3 per tape. And receive 50% of the revenues from each rental.
  •  However, the studios needed to track the retailers’ revenues and inventories for the revenue-sharing system to work. The studios and the video rental companies relied on an intermediary, Rentrak, which obtained data from the retailers’ computerized records and conducted store audits to ensure that all tapes were accounted for. In fact, the contract-based solution wouldn’t have worked if Rentrak hadn’t revealed previously hidden information in the supply chain.
  •  “The Economics of Incentive Alignment, Harvard Business School, 2004.) In fact, both the publisher and the consumers would be happier if there were more copies of the newspaper on the stands, but the vendor would not be. The vendor stocks less than everyone else would like him to because it is in his best interest to do so. The publisher therefore needs to change the incentives of the news vendor so that when the vendor chooses an inventory level that is in his best interest, it increases the publisher’s profits. One way the publisher could do that is by using a revenue-sharing contract and lowering the price the vendor pays for each copy from 80 cents to 45 cents. In return, the vendor could retain, say,
  •  65% of the sale price and pass on 35% to the publisher. The retailer’s understocking costs would remain 20 cents, but his overstocking costs would fall because he’d pay less for each copy. The retailer would now be inclined to stock 131 copies instead of 120. The profits of both the retailer and the publisher would rise (see the table below). Alternately, the publisher could pay the retailer markdown money of, let’s suppose, 60 cents for every unsold copy. That would lower the overstocking cost of the retailer and encourage him to stock more copies. The publisher would more than make up for bearing some of that cost because of profits he’d gain in higher sales. In this case, the retailer would stock 150 copies. As the exhibit shows, both the publisher and the retailer would earn more profits under the revenue sharing and markdown-money contracts considered here than under the traditional system. The increase in profits would not come at the expense of consumers, who’d pay the same retail price. Inventory levels would also go up, which would result in greater consumer satisfaction.
  •  When Western companies link up with Asian manufacturers or component suppliers, each party has misgivings about the other’s interests. The importers are convinced that the vendors won’t deliver on time, can’t produce consistent quality, and will give greater priority to companies that will pay higher prices. They also fear that the contractors will reduce their costs by bribing government officials or using child labor. As Nike found, those dubious practices give importers, rather than their suppliers, bad reputations. For their part, suppliers fear that importers might reject products. Since importers enter into contracts six to nine months in advance of delivery, vendors doubt companies’ ability to predict consumer demand accurately. They worry that demand for products will be lower than anticipated and that importers will reject consignments, pretending that the quality wasn’t up to snuff.
  •  • Supply Chain Risk Management is related to cyber-security. The Department is preparing another Report to Congress on this issue entitled “Trusted Defense Systems” in response to the 2009 National Defense Authorization Act, Section 254. With thousands of tier III suppliers and a large proportion of tier III and tier IV work moving offshore, this is a serious area of concern. For example, a survey of OEMs, subcontractors and distributors by the Department of Commerce documented nearly 10,000 cases of counterfeit parts in 2008. These components not only have increased likelihood of failure but also the potential to house malware.
  •  DLA’s Industrial Base Extension (IBex) Program is a government/industry partnership with multiple global logistics providers that develops an overlapping global network of information on inventory, manufacturing, logistics, storage, transportation, humanitarian support, and base camp construction and maintenance. The IBex program provides OCONUS and CONUS asset visibility of inventory and global logistics capability available to support U.S. military operations and relief efforts following natural disasters with possible access to these capabilities if required. Strategic partnerships formed with industry experts allow supplier relationships to transcend purchasing transactions and enhance DLA’s ability to develop improvement opportunities that facilitate the sharing of information. For the expenditure of $200K per year, the government gains access and a better understanding of the global logistics networks and issues related to cultures, customs requirements/documentation, host nation knowledge, global constraints, and logistical nuances unique to any country or culture in areas of the world with limited U.S. resources.
  •  “Potential disruptions within and outside the DoD supply chain shall be identified, monitored, and assessed in order to mitigate risk to supply chain operations. Life-cycle management controls shall be applied to guard against counterfeit materiel in the DoD supply chain” and “additionally, life-cycle management controls shall be developed, applied, and maintained to guard against counterfeit materiel in the DoD supply chain.” CLL 032 Preventing Counterfeit Parts from Entering the DoD Supply Chain)
  •  Energy efficient products or services shall have preference in all procurements, except those products or services procured for combat or combat-related missions.” CLL 043 Green Logistics: Planning for Sustainability
  •  “The supply chain operational reference processes of plan, source, make and maintain, deliver, and return shall be used as a framework for developing, improving, and conducting materiel management activities throughout the DoD supply chain to satisfy customer support requirements developed collaboratively with the support providers.” LOG 102 System Sustainment Management Fundamentals)
  •  “Resourcing for all elements of the DoD supply chain shall be optimized through collaboration between support providers and customers. DoD investment shall be sufficient throughout the life cycle of new or existing weapons systems, equipment, and major end items to respond to warfighter needs.” LOG 102 System Sustainment Management Fundamentals and LOG 235 Performance Based Logistics)
  •  “Best-value materiel and services shall be provided to support rapid power projection and operational sustainment of U.S. forces as required by the National Military Strategy.” CLL 001 Life Cycle Management & Sustainment Metrics)
  •  A decision to use organic versus commercial sources should be part of developing an acquisition or sourcing strategy. This decision must be supported by a management analysis. The use of existing Government-owned inventory shall be maximized before seeking new commercial support on all performance- based logistics (PBL) arrangements and collaborating agreements. CLL 015 Product Support Business Case Analysis and CLL 005 Developing a Life Cycle Sustainment Plan)
  •  “All costs associated with materiel management, including acquiring, distributing, transporting, storing, maintaining, and disposing, shall be considered in making best value decisions throughout the DoD supply chain. ” (CLL 015 Product Support Business Case Analysis)
  •  “Supply chain risk management strategies shall be employed to identify, monitor, assess, and mitigate (reduce or eliminate) potential disruptions within the DoD supply chain (e.g., insufficient quality, unreliable suppliers, machine break-down, uncertain demand) and outside the supply chain (e.g., flooding, terrorism, labor strikes, natural disasters, large variability in demand).” LOG 206 Intermediate Systems Sustainment Management and CLM 017 Risk Management)
  •  DoD Components’ materiel management systems shall be designed to facilitate DoD- wide asset visibility of materiel throughout the DoD supply chain. Materiel managers shall use automatic identification technology to maintain accountability and control, effectively manage costs, and implement the DoD policies cited in this Instruction.” CLM 044 Radio Frequency Identification)
  •  Unique item level traceability is required for all DoD serially managed items that are also sensitive or pilferable, all DoD serially managed Critical Safety Items (CSI), and all NWRM using a unique item identifier (UII) assigned to each individual item, e.g. a single instance of a stock-numbered item or a single assembly or subassembly. Unique item level traceability is also required for depot level reparables as well as any item that the DoD materiel manager decides requires unique item level traceability. (CLE 040 IUID Markings)
  •  “Provide for an integrated, synchronized, end-to-end materiel distribution system to meet customer requirements for authorized information and materiel” CLL 017 Introduction to Defense Distribution and CLL 055 Joint Deployment & Distribution Metrics Framework)
  •  Modern materiel preservation, packaging, and marking techniques shall be used to provide all materiel within the DoD supply chain with the required level of protection and identification at the lowest possible cost. (CLL 013 DoD Packaging)
  • Performance Outcomes… Mission Success Platform Whole System Mission Availability Assurance Logistics Operational Availability Mission Weapons Systems Scope Chain Services Performance Supply Material Weapon Contract Scope Chain Services Availability System Delivery Performance Speed Logistics Performance Distribution Performance Stage 1 Stage 2 Stage 3 Stage 4 Component12/16/2009 Scope of PBL Strategies 242
  • 12-Step Framework12/16/2009 243
  • 1) Integrate Translate warfighter‘s Requirements top-level mission requirements into key system support performance objectives and Support 2) Form • Include key stakeholders & disciplines Team • Build trust and focus through open communication across boundaries 3) Baseline • Fielded system: Use actual data System • Replacing legacy: Parametric estimate • New system: Life-cycle estimate12/16/2009 244
  • 4) Identify Performance Translate top warfighter requirements (i.e. availability, cost) into Outcomes lower measures (i.e. reliability, supply time) 5) Select Identify single point accountable for Product delivering performance outcomes Support • Knowledgeable about the system • Accountable for system performance Integrator • Responsible for integrating support • Incentivized to continuously improve • Involved early in the systems life 6) Workload Apply statue (US Code Title 10 i.e. ―Core‖ Allocation and ―50/50‖), service policy/guidance, public-private partnering, existing support & Strategy infrastructure … & then select best value 24512/16/2009
  • 7) Supply Chain Tailor solutions for; • Unique repairables Management • Common repairables Strategy • Unique consumables • Common consumables 8) Performance Embed warfighter system support Based performance objectives into measures and incentives with Agreements support integrators and providers 9) Business Case Determine ―best value‖ solution by analyzing alternative performance Analysis benefits, costs and risks12/16/2009 246
  • 10) Award Select contract type based on system maturity and risks Contracts • Fixed-price when support costs stable • Include performance incentives, reward improvement, and maintain flexibility 11) Financial Facilitate ―buying performance‖ • Single line of accounting for support Enablers • Non-expiring, revolving fund enables long-term contracts and investments 12) Implement Performance assessment plan includes; & Oversight • Who & when will access performance • Performance measures & data sources12/16/2009 • Schedule for performance incentives 247
  • FOCUS INITIATIVES FOR 2011 ALIGN THE REQUIREMENTS, RESOURCES, AND ACQUISITION CNO GUIDANCE PROCESSES TO ACHIEVE ACCOUNTABILITY AND DELIVER THE RIGHT CAPABILITY AND CAPACITY ON TIME AND AT THE Under Secretary of Defense 2010 OPTIMUM COST THROUGHOUT THE LIFECYCLE for Acquisition, Technology, and Logistics “Better Buying Power” NAVAIR COMMANDER’S Memo REDUCE ACQUISITION CYCLE TIME & INTENT 2010 TOTAL OWNERSHIP COST (TOC) FOCUS AREA 2 1) Target Affordability and Control Cost Growth DECREASE ACQUISITION PROCESS CYCLE TIME 2) Incentivize Productivity and Innovation in Industry EXPECTED OUTCOME AND TOTAL OWNERSHIP COST ACROSS ALL NAVAL 3) Promote Real Competition AVIATION PROGRAMS WHILE CONSISTENTLY 4) Improve Tradecraft in Services DELIVERING EXPECTED CAPABILITY Acquisition 5) Reduce Non-Productive Processes and Bureaucracy CONTRACTOR TOC SUPPLIER PRODUCTION BUSINESS ENCULTURATION COST STRUCTURE TRANSPARENCY NETWORK METRICS COLLABORATION “Changing the Culture” & RATES• TOC COST DRIVERS • RATES TRAINING • BILL OF MATERIAL • DEVELOP DATA • NAVAIR / INDUSTRY • PROGRAM TRAINING AND TEMPLATES • CONTRACTOR RATE ANALYSIS ACQUISITION PLAN COLLABORATION ON • BOOK OF TRUTHS – DEVELOPMENT REVIEWS • CONTRACT • METRICS PACKAGE FOCUS INITIATIVES • ACADEMIA – PROCUREMENT – ROTARY WING REQUIREMENTS • SUPPLIER NETWORK – TOC TRANSPARENCY INVOLVEMENT – SUSTAINMENT • RATE COST DRIVERS & • SUPPLIER AND RATES – PRODUCTION METRICS • PROGRAM START-UP• PORTFOLIO VIEWS TEMPLATES – PERFORMANCE INTEGRATION – SUPPLIER NETWORK SUPPORT• SUPPORT EXTERNAL • PILOT RATES COCKPIT – DEPENDENCIES • SHOULD COST – CONTRACTOR COST • PUBLISH BEST STRUCTURE & RATES TOC INITIATIVES CHARTS – SUSTAINMENT INTERSECTION PRACTICE • UPDATE PENSION – CAPACITY • RAPID ANALYSIS PROTECTION ACT DIRECT ENABLERS OF • METRICS DICTIONARY ESTIMATES SHOULD COST MANAGEMENT 2011 OBJECTIVES SUPPORT REDUCING ACQUISITION CYCLE TIME & TOTAL OWNERSHIP COST, AND SHOULD COST MANAGEMENTCONFIG. MGR: JP, 7.1.1, (301) 757-7699FILE NAME: 00_Aviation_Week_16May11.pptx 248
  •  Finmeccanica’s other big foreign acquisition, of DRS Technologies, an American defence- electronics firm, for $5.2 billion (then €3.4 billion) in 2008, now looks too expensive. “It was bought at the top of the market when the US had a huge presence in Iraq and Afghanistan,” says Zafar Khan, an analyst at Société Générale, a bank. He adds that the business is now slowing. Buying DRS loaded Finmeccanica with debt. That frightens investors, especially when defence budgets are shrinking.
  • PBL Power by the Hour (PBH) contract with Rolls Royce.• The T-45’s F405-RR-401 engine is supported through a PBL Power by the Hour (PBH) contract with Rolls Royce. Performance is based on aircraft flying time and paid per flight hour. The engine contractor provides a minimum number of RFI engines to the aircraft PBL contractor. The ACO will be responsible to make any adjustments to the actual engine inventory. Performance Based Logistics (PBL) is the preferred Department of Defense (DoD) product support strategy to improve weapons system readiness by procuring performance, which capitalizes on integrated logistics chains and public/private partnerships. The cornerstone of PBL is the purchase of weapons system sustainment as an affordable, integrated package based on output measures such as weapons system availability, rather than input measures, such as parts and technical services.• http://www.globalsecurity.org/military/systems/aircraft/systems/f405.htm 12/16/2009 250
  • Power-By-the-Hour (PBTH®)• Rolls-Royce Defense Services Inc., Indianapolis, Ind., was awarded on 02 September 2003 a requirements contract with a not-to-exceed value of $51,197,805 to provide power-by-the-hour (PBTH) logistics support for approximately 175 T-45 F405-RR-401 engines. PBTH support to be provided includes maintaining and controlling the current inventory of F405-RR-401 engines, modules, spare and repair parts, as well as additional engines added to the fleet, including engines delivered with new production aircraft. Work will be performed in Meridian, Miss. (50.41%); Kingsville, Texas (49.04%); and Patuxent River, Md. (.55%), and is expected to be completed in September 2004. This contract was not competitively procured. The Naval Air Systems Command, Patuxent River, Md., is the contracting activity (N00019-03-D-0012).• Rolls-Royce Defense Services Inc., Indianapolis, Ind., was awarded on September 27, 2005 a $63,260,398 fixed-price modification to a previously awarded requirements contract (N00019-03-D- 0012) to exercise an option for Power-By-the-Hour (PBTH®) logistics support for approximately 188 T-45 F405-RR-401 engines. Work will be performed at the Naval Air Station (NAS) Meridian, Miss. (50 percent); NAS Kingsville, Texas (48.94 percent); and NAS Patuxent River, Md. (1.06 percent), and is expected to be completed in September 2006. Contract funds will not expire at the end of the current fiscal year. The Naval Air Systems Command, Patuxent River, Md., is the contracting activity. 12/16/2009 251
  • Power-By-the-Hour (PBTH®)• Rolls-Royce is optimistic about getting new contracts, as the Navy says the PBTH work has led to a dramatic improvement in maintenance quality and performance reliability in the more than 190 F405 engines used in T-45s at the Navys major combat pilot lead- in training sites, Naval Air Station Meridian, Miss., and NAS Kingsville, Texas, and for two test aircraft at Patuxent River, Md.• Ready-for-issue engine availability, which had declined at one point to 70%, exceeded the 80% requirement in the initial year of the Rolls-Royce contract, October 2003-2004. Since then, the RFI metric has been increased to 85% and has been exceeded, said Capt. Win Everett, program manager for naval undergraduate flight training systems. Additionally, the average mean time between removal (MTBR) of engines from T-45s rose from 700 to more than 900 hours.• Expected engine removals fell by 15% and average engine release life rose from a low of 500 hours to more than 1,000 hours, meeting the expected norm of between 1,000 and 2,000 hours. Those improvements took place as more aircraft and engines were entering the inventory.• "The Navy and Rolls-Royce worked very hard to bring our commercially successful PBTH concept into the world of DOD to produce a contracting vehicle that would work for both of us," Wilson said.• Under PBTH, Rolls-Royce gets paid a flat fee for each hour the engines are in the air - 75,000 to 80,000 hours a year. The company is responsible for all repairs and replacement parts. It handles all intermediate and depot-level maintenance and supplies line replaceable units and technical support for flight-line operational level maintenance, which is performed by L-3 Communications Vertex Aerospace.• "When there is a problem with an engine, we do more than fix the problem. Rather than concentrate on a fixed work package, we look over the whole engine. If there are modules that will need replacement or overhaul in the imminent future, we do that work," Wilson said. "That saves having to pull the engine off the aircraft again a few days or a week later, which saves us money and gives the Navy an engine that will fly more hours before it has to return to the shop."• The $51 million PBHT contract, which has four option years, initially was awarded to Rolls-Royce in September 2003. It was followed by a one-year option beginning in October 2004 for up to $60 million, depending on the total hours flown.• "The Navy said it intends to exercise the second year option, also worth up to $60 million, which will begin this October," Wilson said.• Aviation Week Jun 13, 2005 By John Terino 12/16/2009 252
  •  1 Randy T. Fowler, “Misunderstood Superheroes: Batman and Performance-Based Logistics,” Defense AT&L, January-February 2009. 2 Randy T. Fowler, op. cit. 3 Office of the Secretary of Defense, Public-Private Partnerships for Depot-level Maintenance through the end of Fiscal Year 2006, Department of Defense, July 2007, pp. II-23 to II-28. 4 Aerospace Industries Association, “U.S. Defense Modernization: Today’s Choices for Tomorrow’s Readiness,” August 2008, p. 45. 5 U.S. Department of Defense, DOD Weapons Systems Acquisition Reform: Product Support Assessment, November 2009, p. 11. 6 Ibid, p. 32. 7 The United States Air Force Depot Maintenance Strategic Master Plan, April 2008, p. 7. 8 Paul Klevan, “Navy Success with PBL,” Briefing to DoD Maintenance Symposium, October 27, 2008. 9 Rebecca L. Kirk and Thomas J. DePalma, Performance Based Logistics Contracts: A Basic Overview, CRM D0012881A2, Center for Naval Analyses, November 2005, p. 44 . 10 PEO TACAIR, Briefing on F/A 18 E/F FIRST Program, 2006. 11 Vice Admiral W.B. Massenburg, Performance Based Logistics (PBL) Guidance and Best Practices, Naval Air Systems Command, Department of the Navy, February 2007. 12 Ronnie Chronister, AMCOM: Performance Based Logistics, Briefing to SOLE Conference, 2007. 13 Peter Buxbaum, “Performance Made to Order,” Military Logistics Forum, November/December, 2009. 14 Aerospace Industries Association, Modernizing Defense Logistics, June 25, 2009, p. 6. 15 Peter Buxbaum, op, cit.
  • 16 Quoted in Amy Butler, “USAF Spending Too Much On Support Contracts, Donley Says,” Aerospace Daily & DefenseReport,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 tothePresidents 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 tothePresident’s Budget.21 Government Accountability Office, Air Force Depot Maintenance: Improved Pricing and Cost Reduction PracticesNeeded, GAO04-498, June 2004.22 Bradley W. Bergmann II and Robert L. Buckley, Assessment of Successful Performance-Based Logistics 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. Government Directed Logistics,” Second Line of Defense, February 2010, at http://www.sldinfo.com.25 Government Accountability Office, Depot Maintenance: Actions Needed to Identify and Establish Core Capability atMilitaryDepots, GAO 09-83, May 2009.26 U.S. Department of Defense, Creating an Effective National Security Industrial Base for the 21st Century; An Action PlantoAddress the Coming Crisis, Report of the Defense Science Board Task Force on Defense Industrial Structure forTransformation,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.
  • TABLE A - Cost Structure for Performance Based Logistics Business Case Analysesþ Significant Element ý Legacy Baseline Baseline Program New Legacy Subsystem Subsystem Organic New Program Organic Total CLS Program Program CLS Ctr "I" Lvl, Ctr Repair, Repair New Total CLS incl Repair Legacy Incl "O" CLS excl excl "O" Repair, InventorySupport Element System "O" Level System Level "O" Level Level Inventory Mgt MgtAcquisition Cost: Nonrecurring Design þ þ þ Production þ þ þAcquisition Logistics Support Cost: Maintenance Planning þ þ ý ý ý ý ý ý Support Support (Spares) þ þ ý ý þ ý þ Support Equipment þ þ ý þ ý ý ý Technical Data þ þ þ þ þ þ þ Training þ þ ý þ ý þ þ Facilities þ þ ý þ ý ý ý Packaging, Handling, Storate & Trans þ þ ý þ ý þ ýOperations and Support Cost: "O" Level Maintenance Personnel Military Labor þ þ Contractor Labor þ þ "I Level Maintenance Personnel Military Labor þ þ Contractor Labor þ þ þ þ þ Depot Level Repairables (DLRs) Costs of Repair þ þ þ þ þ þ þ þ Supply System Cost Recovery þ ý þ ý ý ý ý ý Burdening (Trans, Washout, Obs) þ þ þ þ þ þ þ þ Consumables/Repair Parts þ þ þ þ þ þ þ þ Weapon System Rework Organic Repair þ þ Commercial reapir þ þ þ þ Engine Depot Rework Organic Repair þ þ Commercial repair þ þ þ þ Sustaining Engineering Government Technical Assistance Visits þ þ þ þ þ þ ý ý Distance Support þ þ þ þ þ þ ý ý Disposal Actions þ þ ý þ ý þ þ Contractor RMS Analysis þ þ ý þ ý þ þ DMSMS Actions þ þ ý þ ý þ þ Software Maintenance þ þ þ þ þ þ ý ý Recurring Training þ þ þ þ þ þ ý ý Support Equipment Maintenance þ þ þ þ þ þ ý ý Modifications þ þ þ þ þ þ
  •  The US Air Force is taking back control of maintenance functions for the C-17 and F-22 previously outsourced t0 Boeing and Lockheed Martin.The USAF confirmed to Flight International in early April that Lockheedsperformance-based logistics contract for the F-22 will cease, ending months ofspeculation about the potential re-insourcing move. That confirmation came only three months after the USAF announced that Boeings performance-based logistics deal for the C-17 also would be stripped away. In those two strokes, the USAF reversed more than a decade of policy momentum building in favor of such long-term outsourcing deals, and threw into doubt a pillar of projected profit growth across the defense industry.
  •  The appeal of bundling is partly that it reduces transaction costs: instead of having to figure out how much each part of a package is worth to you, you can make a blanket judgment. Bundling eliminates the problem of fretting about small expenditures, which may be one reason that flat-rate pricing is very common in the vacation industry (cruise ships, all- inclusive travel packages, and so on). It also offers what economists call option value: you may never watch those sixty other channels, but the fact that you could if you wanted to is worth something. Many consumers also perceive bundles as bargains; getting a bunch of things for one price feels like a deal, even when it‘s not. http://www.newyorker.com/talk/financial/2010/01/25/100125ta_talk_surowiecki#ixzz0eFitIO1r Final 259
  • TIMELINES PHOTOS 3 STEPS Supply Chain Management: Is an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive and high-performing business model. It includes all of the logistics management activitiesEncompasses the planningand management of all noted above, as well as manufacturingactivities involved in operations, and it drives coordination of processessourcing andprocurement, conversion, a and activities with and acrossnd all logistics marketing, sales, product design, finance, andmanagement activities. information technology. Supply Chain Management: Logistics Management: Supplier Relationship Management (SRM):
  • Logistics Management: Logistics management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management, supply/demand planning, andEncompasses the management of third party logistics servicesplanning andmanagement of all providers.activities involved insourcing and To varying degrees, the logistics function alsoprocurement, conversio includes sourcing and procurement, productionn, and all logisticsmanagement activities. planning and scheduling, packaging and assembly, and customer service. Supply Chain Management: Supplier Relationship Management (SRM): Logistics Management:
  • Supplier Relationship Management (SRM): The goal of supplier relationship management (SRM) is to streamline and make more effective the processes between an enterprise and its suppliers just as customer relationship management (CRM) is intended to streamline and make more effective the processes between an enterprise and its customers. SRM includes both business practices and software and is part of theIs a comprehensive information flow component of Supply Chain Management (SCM).approach to managing SRM practices create a common frame of reference to enable effectivean enterprises communication between an enterprise and suppliers who may use quiteinteractions with the different business practices and terminology.organizations that supplythe goods and services it As a result, SRM increases the efficiency of processes associated withuses. acquiring goods and services, managing inventory, and processing materials. Supply Chain Management: Logistics Management: Supplier Relationship Management (SRM):
  • Subcontract Management : Establishing Goals –When selecting or managing subcontractors , subcontractor managers must optimize their opportunity to achieve these goals by using third parties companies. Selecting Subcontractors – The fine art of matching the right company with the desired performance characteristics. Failure to consider this comprehensively could lead to complete failure.The discipline of Managing Subcontractors – On a daily basis, vendor managers must monitor performance, provide feedback, champion new projects, define orestablishing approve/disapprove change control processes, and develop vendors.service, quality, cost, andsatisfaction goals and Consistently Meet Goals – Operations must perform within statistically acceptable upperselecting and managing and lower control bounds. The vendor manager focuses on meeting goals, from providingthird party companies to forecasts to defining requirements, from ensuring vendors have adequate staff to ensuringconsistently meet these the staff have completed all required training.goals. Subcontract Management:
  •  It also should be noted that firms tend to cluster to take advantage of concentrations of skills, similar production processes, and specialized suppliers. Within the United States, there is Silicon Valley in California, the Research Triangle, in North Carolina, the High-Tech Community along Route 128 in Boston, financial services and transportation in Atlanta, and plastics and aerospace in Wichita, Kansas. The same is true for clusters of industries abroad, including financial services in London, medical research and development in Singapore, and fashion design in Paris. These centers seem to attract industries regardless of their relatively high cost of labor. Studies of such clusters indicate that the most important sources of prosperity can be created and are not dependent on “inherited” advantages, such as relative wage costs.46
  •  Working groups are focused on broad areas  Technology Demonstration and Development  Procurement Goal: Helping to position industry to take greater advantage of “emerging opportunities” in the US and elsewhere. Focus: Developing a mechanism for helping companies to identify those opportunities
  •  Montreal and the surrounding province of Quebec are using a top-to- bottom approach of government and industry support to help their small and medium-size aerospace manufacturers be more competitive by innovating within the supply chain. Working with industry and provincial officials, Canada is building a policy framework designed to assist companies, particularly in doing business internationally, since there is little domestic market for their products and services. The effort includes a review of all federal policies that might have significant impact on the industry; including restrictions on technology sharing. Mecham, M and Velocci Jnr, A.L. 2011. Clustering. Aviation Week and Space Technology. 19/26 December 2011. pp 59-60
  •  Economists from Adam Smith to Paul Krugman have noted that similar businesses tend to congregate geographically ("agglomerate"); opening near similar companies attracts workers with skills in that business, which draws in more businesses seeking experienced employees. There may have been no reason to prefer one place to another before the industry developed, but as it concentrates geographically participants elsewhere are at a disadvantage, and will tend to move into the hub, further increasing its relative efficiency. This network effect follows a statistical power law in the idealized case,[12] though negative feedback can occur (through rising local costs).[13]
  •  There are five aviation clusters in the world: Dallas-Fort Worth, Montreal, Puget Sound/Seattle, Toulouse, and Wichita. These zones either have one huge, dominant player (Seattle and Toulouse) or enough players to reach a similar level of critical mass (Fort Worth, Montreal, Wichita). There are many other important aviation sites – from Savannah to São Jose Dos Campos to Shenyang – but these five clusters are responsible for about 65% of the world’s aircraft production – roughly $80 billion in new deliveries. They also perform huge volumes of MRO, spares, development, and aero-engine work.
  •  Four main-assembly factories: Two Boeing operated plants at:  Renton, Washington, and  Wichita, Kansas, The Bell plant at Marietta, Georgia ("Bell-Atlanta"), and The Martin plant at Omaha, Nebraska ("Martin-Omaha").
  •  Wichita has the highest concentration of aerospace manufacturing employment and skills in the nation. About 55% of Wichita metro area
  •  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.