LeanEnterprise

Value

Lean Supply Chain Management Principles and

Practices

LeanEnterprise

Value

Lean Supply Chain Management Basics Learning Points

Lean supply chain management represents a new way of thinking about supplier networks 1048707

Lean principles require cooperative supplier relationships while balancing cooperation and competition

Cooperation involves collaborative relationships amp coordination

mechanisms Supplier partnerships amp strategic alliances

represent a key feature of lean supply chain management a spectrum of

LeanEnterprise

Value

Theory Lean Represents a ldquoHybridrdquo Approach to Organizing Interfirm Relationships

ldquoMarketsrdquo (Armrsquos Length) Lower production costs higher coordination costs Firm buys (all) inputs from outside specialized suppliers Inputs are highly standardized no transaction-specific assets Prices serve as sole coordination mechanism

ldquoHierarchiesrdquo (Vertical Integration) Higher production costs lower coordination costs

Firm produces required inputs in-house (in the extreme all inputs) Inputs are highly customized involve high transaction costs or dedicated investments

and require close coordination ldquoLeanrdquo (Hybrid)Lowest production and coordination costs economicall

y most efficient choice-- new model Firm buys both customized amp standardized inputs Customized inputs often involve dedicated investments Partnerships amp strategic alliances provide collaborative advantage

Dominant conventional approach Vertical integration armrsquos length relationships with suppliers

LeanEnterprise

Value

Lean Supply Chain Management Differs Sharply from Conventional Practices

ILLUSTRATIVE

CHARACTERISTICS

CONVENTIONAL MODEL LEAN MODEL

Number amp structure Many vertical Fewer clustered

Procurement personnel Large Limited

Outsourcing Cost-based Strategic

Nature of interactions Adversarial zero-sum Cooperative positive-sum

Relationship focus Transaction-focused Mutually-beneficial

Selection length Lowest price Perfomance

Contract length Short-term Long-term

Pricing practices Competitive bids Target costing

Price changes Upward Downward

Quality Inspection-intensive Designed-in

Delivery Large quantities Smaller quantities (JIT)

Inventory buffers Large Minimized eliminated

Communication Limited task-related Extensive multi-level

Information flow Directive one-way Collaborative two-way

Role in development Limited build-to-print Substantial

Production flexibility Low High

Technology sharing Very limited nonexistent Extensive

Dedicated investments Minimal-to-some Substantial

Mutual commitment Very limited nonexistent High

Govemance Market-driven Self-governing

Future expectations No Quarantee Considerable

LeanEnterprise

Value

Lean Supply Chain Management Principles Derive from Basic Lean Principles

Focus on the supplier network value stream Eliminate waste Synchronize flow Minimize both transaction and production costs Establish collaborative relationships while balancing co

operation and competition Ensure visibility and transparency Develop quick response capability Manage uncertainty and risk Align core competencies and complementary capabilitie

s Foster innovation and knowledge-sharing

LeanEnterprise

Value

A Set of Mutually-Reinforcing Lean Practices Translate these Principles into Action

This lecture highlights key enablers amp practices by focusing on bull Synchronized production and deliverybull Partnerships and strategic alliancesbull Early supplier integration into design and development IPTs

Design supplier network architecture Design of supplier network driven by strategic thrust Fewer suppliers ldquoclustered controlrdquo Supplier selection based on performance

Develop complementary supplier capabilities Ensured process capability (certification) Targeted supplier development (SPC Kaizen) Greater responsibilities delegated to suppliers

Create flow and pull throughout supplier network Linked business processes ITIS infrastructure Two-way information exchange amp visibility Synchronized production and delivery (JIT)

Establish cooperative relationships amp effective coordination mechanisms

Joint problem-solving mutual assistance Partnerships amp strategic alliances Open and timely communications Increased interdependence amp ldquoshared destinyrdquo

Maximize flexibility amp responsiveness Seamless information flow Flexible contracting Rapid response capability

Optimize product development through early supplier integration

Integrate suppliers early into design amp development IPTs Collaborative design architectural innovation Open communications and information sharing Target costing design-to-cost

Integrate knowledge and foster innovation Knowledge-sharing technology transfer Aligned technology roadmaps

LeanEnterprise

Value

Synchronized Production and Delivery Throughout the Supplier Network is a Central

Lean Concept

Integrated supplier lead times and delivery schedules Flows from suppliers pulled by customer demand (using

takt time load leveling line balancing single piece flow) Minimized inventory through all tiers of the supply chain On-time supplier delivery to point of use Minimal source or incoming inspection Effective two-way communication links to coordinate pro

duction amp delivery schedules Striving for zero quality defects essential to success Greater efficiency and profitability throughout the supplie

r network

LeanEnterprise

Value

Aerospace Firms Have Faced an UphillChallenge in Synchronizing Flow with Suppliers

PERCENT OF SUPPLIER SHIPMENTS TO STOCKROOMFACTOWO INCOMING OR PRIOR INSPECTIONS

DefenseCommercial Morethan 75 of sales to defer

or commercial markets

Defense (25) Commercial (9)

(Year 1993 N= Number of responding business unitsc

LeanEnterprise

Value

Supplier Certification has been an Important Early Enabler of Achieving Synchronized

Flow in Aerospace

PERCENT OF DIRECT PRODUCTION SUPPLIERS OF A TYPICAL AEROSPACE ENTERPRISE THAT ARE CERTIFIED (1991 1993 1995)

Industry (48) Airframe (13) Electronics (20) Engines and Other (15)

(N=Number of respondents answering this question for all three years)

LeanEnterprise

Value

Closer Communication Links with Suppliers Paved the Way for Synchronizing Flow

TYPES OF INFORMATION PROVIDED TO RESPONDING BUSINESS UNITS BY THEIR MOST IMPORTANT SUPPLIERS ON A FORMAL BASIS 1989 vs 1993

1989 (381432151614) 1993 (556569554154)(N=78Total number of responding business units)

LeanEnterprise

Value

Concrete Example Engine Parts CastingSupplier Worked with Customer Company to

Achieve Synchronized Flow

LeanEnterprise

Value

Mastering amp Integrating Lean Basics with Prime was Necessary for Achieving

Synchronized Flow

6S -- Visual factory Total productive maintenance Quality control Process certification Mistake proofing Setup reduction Standard work Kaizen

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Ensure Substantial Performance

Improvements

Long-term relationships and mutual commitments Intensive and regular sharing of technical and cost infor

mation Mutual assistance and joint problem-solving Customized (relationship-specific) investments Risk-sharing cost-sharing benefit-sharing arrangement

s Trust-building practices -- ldquoone teamrdquo mindset collocati

on of technical staff ldquoopen kimonordquo Progressively increasing mutual dependence -- shared f

ate discouraging opportunistic behavior Self-enforcing contracting driving continuous improvem

ent

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Bring Important Mutual Benefits

Reduced transaction costs (cost of information gathering negotiation contracting billing)

Improved resource planning amp investment decisions Greater production predictability amp efficiency Improved deployment of complementary capabilities Greater knowledge integration and RampD effectiveness Incentives for increased innovation (through cost- shari

ng risk-sharing knowledge-sharing) Increased mutual commitment to improving joint long- t

erm competitive performance

LeanEnterprise

Value Major Lean Lessons for Aerospace Industry

Supply chain design linked to corporate strategic thrust Fewer first-tier suppliers Greater supplier share of product content

Strategic supplier partnerships with selected suppliers Trust-based relationships long-term mutual commitment Close communications knowledge-sharing Multiple functional interfaces

Early supplier integration into design Early and major supplier role in design Up-front design-process integration Leveraging supplier technology base for innovative solutions

Self-enforcing agreements for continuous improvement Target costing Sharing of cost savings

LeanEnterprise

Value

Chrysler Supplier PartnershipsSpeed Development

Length of Product Development Cycle

234 Weeks 232 Weeks

183 Weeks180 Weeks

184 Weeks

160 Weeks

K-Car (81) Minivan (84) Shadow (87)

Dakota Truck (87)

LH Cars (93) Neon (94) JA Cirrus Stratus (95)

LH Cars (98E)

Source Dyer (1998)Estimated

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Lean Supply Chain Management Basics Learning Points

Lean supply chain management represents a new way of thinking about supplier networks 1048707

Lean principles require cooperative supplier relationships while balancing cooperation and competition

Cooperation involves collaborative relationships amp coordination

mechanisms Supplier partnerships amp strategic alliances

represent a key feature of lean supply chain management a spectrum of

LeanEnterprise

Value

Theory Lean Represents a ldquoHybridrdquo Approach to Organizing Interfirm Relationships

ldquoMarketsrdquo (Armrsquos Length) Lower production costs higher coordination costs Firm buys (all) inputs from outside specialized suppliers Inputs are highly standardized no transaction-specific assets Prices serve as sole coordination mechanism

ldquoHierarchiesrdquo (Vertical Integration) Higher production costs lower coordination costs

Firm produces required inputs in-house (in the extreme all inputs) Inputs are highly customized involve high transaction costs or dedicated investments

and require close coordination ldquoLeanrdquo (Hybrid)Lowest production and coordination costs economicall

y most efficient choice-- new model Firm buys both customized amp standardized inputs Customized inputs often involve dedicated investments Partnerships amp strategic alliances provide collaborative advantage

Dominant conventional approach Vertical integration armrsquos length relationships with suppliers

LeanEnterprise

Value

Lean Supply Chain Management Differs Sharply from Conventional Practices

ILLUSTRATIVE

CHARACTERISTICS

CONVENTIONAL MODEL LEAN MODEL

Number amp structure Many vertical Fewer clustered

Procurement personnel Large Limited

Outsourcing Cost-based Strategic

Nature of interactions Adversarial zero-sum Cooperative positive-sum

Relationship focus Transaction-focused Mutually-beneficial

Selection length Lowest price Perfomance

Contract length Short-term Long-term

Pricing practices Competitive bids Target costing

Price changes Upward Downward

Quality Inspection-intensive Designed-in

Delivery Large quantities Smaller quantities (JIT)

Inventory buffers Large Minimized eliminated

Communication Limited task-related Extensive multi-level

Information flow Directive one-way Collaborative two-way

Role in development Limited build-to-print Substantial

Production flexibility Low High

Technology sharing Very limited nonexistent Extensive

Dedicated investments Minimal-to-some Substantial

Mutual commitment Very limited nonexistent High

Govemance Market-driven Self-governing

Future expectations No Quarantee Considerable

LeanEnterprise

Value

Lean Supply Chain Management Principles Derive from Basic Lean Principles

Focus on the supplier network value stream Eliminate waste Synchronize flow Minimize both transaction and production costs Establish collaborative relationships while balancing co

operation and competition Ensure visibility and transparency Develop quick response capability Manage uncertainty and risk Align core competencies and complementary capabilitie

s Foster innovation and knowledge-sharing

LeanEnterprise

Value

A Set of Mutually-Reinforcing Lean Practices Translate these Principles into Action

This lecture highlights key enablers amp practices by focusing on bull Synchronized production and deliverybull Partnerships and strategic alliancesbull Early supplier integration into design and development IPTs

Design supplier network architecture Design of supplier network driven by strategic thrust Fewer suppliers ldquoclustered controlrdquo Supplier selection based on performance

Develop complementary supplier capabilities Ensured process capability (certification) Targeted supplier development (SPC Kaizen) Greater responsibilities delegated to suppliers

Create flow and pull throughout supplier network Linked business processes ITIS infrastructure Two-way information exchange amp visibility Synchronized production and delivery (JIT)

Establish cooperative relationships amp effective coordination mechanisms

Joint problem-solving mutual assistance Partnerships amp strategic alliances Open and timely communications Increased interdependence amp ldquoshared destinyrdquo

Maximize flexibility amp responsiveness Seamless information flow Flexible contracting Rapid response capability

Optimize product development through early supplier integration

Integrate suppliers early into design amp development IPTs Collaborative design architectural innovation Open communications and information sharing Target costing design-to-cost

Integrate knowledge and foster innovation Knowledge-sharing technology transfer Aligned technology roadmaps

LeanEnterprise

Value

Synchronized Production and Delivery Throughout the Supplier Network is a Central

Lean Concept

Integrated supplier lead times and delivery schedules Flows from suppliers pulled by customer demand (using

takt time load leveling line balancing single piece flow) Minimized inventory through all tiers of the supply chain On-time supplier delivery to point of use Minimal source or incoming inspection Effective two-way communication links to coordinate pro

duction amp delivery schedules Striving for zero quality defects essential to success Greater efficiency and profitability throughout the supplie

r network

LeanEnterprise

Value

Aerospace Firms Have Faced an UphillChallenge in Synchronizing Flow with Suppliers

PERCENT OF SUPPLIER SHIPMENTS TO STOCKROOMFACTOWO INCOMING OR PRIOR INSPECTIONS

DefenseCommercial Morethan 75 of sales to defer

or commercial markets

Defense (25) Commercial (9)

(Year 1993 N= Number of responding business unitsc

LeanEnterprise

Value

Supplier Certification has been an Important Early Enabler of Achieving Synchronized

Flow in Aerospace

PERCENT OF DIRECT PRODUCTION SUPPLIERS OF A TYPICAL AEROSPACE ENTERPRISE THAT ARE CERTIFIED (1991 1993 1995)

Industry (48) Airframe (13) Electronics (20) Engines and Other (15)

(N=Number of respondents answering this question for all three years)

LeanEnterprise

Value

Closer Communication Links with Suppliers Paved the Way for Synchronizing Flow

TYPES OF INFORMATION PROVIDED TO RESPONDING BUSINESS UNITS BY THEIR MOST IMPORTANT SUPPLIERS ON A FORMAL BASIS 1989 vs 1993

1989 (381432151614) 1993 (556569554154)(N=78Total number of responding business units)

LeanEnterprise

Value

Concrete Example Engine Parts CastingSupplier Worked with Customer Company to

Achieve Synchronized Flow

LeanEnterprise

Value

Mastering amp Integrating Lean Basics with Prime was Necessary for Achieving

Synchronized Flow

6S -- Visual factory Total productive maintenance Quality control Process certification Mistake proofing Setup reduction Standard work Kaizen

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Ensure Substantial Performance

Improvements

Long-term relationships and mutual commitments Intensive and regular sharing of technical and cost infor

mation Mutual assistance and joint problem-solving Customized (relationship-specific) investments Risk-sharing cost-sharing benefit-sharing arrangement

s Trust-building practices -- ldquoone teamrdquo mindset collocati

on of technical staff ldquoopen kimonordquo Progressively increasing mutual dependence -- shared f

ate discouraging opportunistic behavior Self-enforcing contracting driving continuous improvem

ent

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Bring Important Mutual Benefits

Reduced transaction costs (cost of information gathering negotiation contracting billing)

Improved resource planning amp investment decisions Greater production predictability amp efficiency Improved deployment of complementary capabilities Greater knowledge integration and RampD effectiveness Incentives for increased innovation (through cost- shari

ng risk-sharing knowledge-sharing) Increased mutual commitment to improving joint long- t

erm competitive performance

LeanEnterprise

Value Major Lean Lessons for Aerospace Industry

Supply chain design linked to corporate strategic thrust Fewer first-tier suppliers Greater supplier share of product content

Strategic supplier partnerships with selected suppliers Trust-based relationships long-term mutual commitment Close communications knowledge-sharing Multiple functional interfaces

Early supplier integration into design Early and major supplier role in design Up-front design-process integration Leveraging supplier technology base for innovative solutions

Self-enforcing agreements for continuous improvement Target costing Sharing of cost savings

LeanEnterprise

Value

Chrysler Supplier PartnershipsSpeed Development

Length of Product Development Cycle

234 Weeks 232 Weeks

183 Weeks180 Weeks

184 Weeks

160 Weeks

K-Car (81) Minivan (84) Shadow (87)

Dakota Truck (87)

LH Cars (93) Neon (94) JA Cirrus Stratus (95)

LH Cars (98E)

Source Dyer (1998)Estimated

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Theory Lean Represents a ldquoHybridrdquo Approach to Organizing Interfirm Relationships

ldquoMarketsrdquo (Armrsquos Length) Lower production costs higher coordination costs Firm buys (all) inputs from outside specialized suppliers Inputs are highly standardized no transaction-specific assets Prices serve as sole coordination mechanism

ldquoHierarchiesrdquo (Vertical Integration) Higher production costs lower coordination costs

Firm produces required inputs in-house (in the extreme all inputs) Inputs are highly customized involve high transaction costs or dedicated investments

and require close coordination ldquoLeanrdquo (Hybrid)Lowest production and coordination costs economicall

y most efficient choice-- new model Firm buys both customized amp standardized inputs Customized inputs often involve dedicated investments Partnerships amp strategic alliances provide collaborative advantage

Dominant conventional approach Vertical integration armrsquos length relationships with suppliers

LeanEnterprise

Value

Lean Supply Chain Management Differs Sharply from Conventional Practices

ILLUSTRATIVE

CHARACTERISTICS

CONVENTIONAL MODEL LEAN MODEL

Number amp structure Many vertical Fewer clustered

Procurement personnel Large Limited

Outsourcing Cost-based Strategic

Nature of interactions Adversarial zero-sum Cooperative positive-sum

Relationship focus Transaction-focused Mutually-beneficial

Selection length Lowest price Perfomance

Contract length Short-term Long-term

Pricing practices Competitive bids Target costing

Price changes Upward Downward

Quality Inspection-intensive Designed-in

Delivery Large quantities Smaller quantities (JIT)

Inventory buffers Large Minimized eliminated

Communication Limited task-related Extensive multi-level

Information flow Directive one-way Collaborative two-way

Role in development Limited build-to-print Substantial

Production flexibility Low High

Technology sharing Very limited nonexistent Extensive

Dedicated investments Minimal-to-some Substantial

Mutual commitment Very limited nonexistent High

Govemance Market-driven Self-governing

Future expectations No Quarantee Considerable

LeanEnterprise

Value

Lean Supply Chain Management Principles Derive from Basic Lean Principles

Focus on the supplier network value stream Eliminate waste Synchronize flow Minimize both transaction and production costs Establish collaborative relationships while balancing co

operation and competition Ensure visibility and transparency Develop quick response capability Manage uncertainty and risk Align core competencies and complementary capabilitie

s Foster innovation and knowledge-sharing

LeanEnterprise

Value

A Set of Mutually-Reinforcing Lean Practices Translate these Principles into Action

This lecture highlights key enablers amp practices by focusing on bull Synchronized production and deliverybull Partnerships and strategic alliancesbull Early supplier integration into design and development IPTs

Design supplier network architecture Design of supplier network driven by strategic thrust Fewer suppliers ldquoclustered controlrdquo Supplier selection based on performance

Develop complementary supplier capabilities Ensured process capability (certification) Targeted supplier development (SPC Kaizen) Greater responsibilities delegated to suppliers

Create flow and pull throughout supplier network Linked business processes ITIS infrastructure Two-way information exchange amp visibility Synchronized production and delivery (JIT)

Establish cooperative relationships amp effective coordination mechanisms

Joint problem-solving mutual assistance Partnerships amp strategic alliances Open and timely communications Increased interdependence amp ldquoshared destinyrdquo

Maximize flexibility amp responsiveness Seamless information flow Flexible contracting Rapid response capability

Optimize product development through early supplier integration

Integrate suppliers early into design amp development IPTs Collaborative design architectural innovation Open communications and information sharing Target costing design-to-cost

Integrate knowledge and foster innovation Knowledge-sharing technology transfer Aligned technology roadmaps

LeanEnterprise

Value

Synchronized Production and Delivery Throughout the Supplier Network is a Central

Lean Concept

Integrated supplier lead times and delivery schedules Flows from suppliers pulled by customer demand (using

takt time load leveling line balancing single piece flow) Minimized inventory through all tiers of the supply chain On-time supplier delivery to point of use Minimal source or incoming inspection Effective two-way communication links to coordinate pro

duction amp delivery schedules Striving for zero quality defects essential to success Greater efficiency and profitability throughout the supplie

r network

LeanEnterprise

Value

Aerospace Firms Have Faced an UphillChallenge in Synchronizing Flow with Suppliers

PERCENT OF SUPPLIER SHIPMENTS TO STOCKROOMFACTOWO INCOMING OR PRIOR INSPECTIONS

DefenseCommercial Morethan 75 of sales to defer

or commercial markets

Defense (25) Commercial (9)

(Year 1993 N= Number of responding business unitsc

LeanEnterprise

Value

Supplier Certification has been an Important Early Enabler of Achieving Synchronized

Flow in Aerospace

PERCENT OF DIRECT PRODUCTION SUPPLIERS OF A TYPICAL AEROSPACE ENTERPRISE THAT ARE CERTIFIED (1991 1993 1995)

Industry (48) Airframe (13) Electronics (20) Engines and Other (15)

(N=Number of respondents answering this question for all three years)

LeanEnterprise

Value

Closer Communication Links with Suppliers Paved the Way for Synchronizing Flow

TYPES OF INFORMATION PROVIDED TO RESPONDING BUSINESS UNITS BY THEIR MOST IMPORTANT SUPPLIERS ON A FORMAL BASIS 1989 vs 1993

1989 (381432151614) 1993 (556569554154)(N=78Total number of responding business units)

LeanEnterprise

Value

Concrete Example Engine Parts CastingSupplier Worked with Customer Company to

Achieve Synchronized Flow

LeanEnterprise

Value

Mastering amp Integrating Lean Basics with Prime was Necessary for Achieving

Synchronized Flow

6S -- Visual factory Total productive maintenance Quality control Process certification Mistake proofing Setup reduction Standard work Kaizen

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Ensure Substantial Performance

Improvements

Long-term relationships and mutual commitments Intensive and regular sharing of technical and cost infor

mation Mutual assistance and joint problem-solving Customized (relationship-specific) investments Risk-sharing cost-sharing benefit-sharing arrangement

s Trust-building practices -- ldquoone teamrdquo mindset collocati

on of technical staff ldquoopen kimonordquo Progressively increasing mutual dependence -- shared f

ate discouraging opportunistic behavior Self-enforcing contracting driving continuous improvem

ent

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Bring Important Mutual Benefits

Reduced transaction costs (cost of information gathering negotiation contracting billing)

Improved resource planning amp investment decisions Greater production predictability amp efficiency Improved deployment of complementary capabilities Greater knowledge integration and RampD effectiveness Incentives for increased innovation (through cost- shari

ng risk-sharing knowledge-sharing) Increased mutual commitment to improving joint long- t

erm competitive performance

LeanEnterprise

Value Major Lean Lessons for Aerospace Industry

Supply chain design linked to corporate strategic thrust Fewer first-tier suppliers Greater supplier share of product content

Strategic supplier partnerships with selected suppliers Trust-based relationships long-term mutual commitment Close communications knowledge-sharing Multiple functional interfaces

Early supplier integration into design Early and major supplier role in design Up-front design-process integration Leveraging supplier technology base for innovative solutions

Self-enforcing agreements for continuous improvement Target costing Sharing of cost savings

LeanEnterprise

Value

Chrysler Supplier PartnershipsSpeed Development

Length of Product Development Cycle

234 Weeks 232 Weeks

183 Weeks180 Weeks

184 Weeks

160 Weeks

K-Car (81) Minivan (84) Shadow (87)

Dakota Truck (87)

LH Cars (93) Neon (94) JA Cirrus Stratus (95)

LH Cars (98E)

Source Dyer (1998)Estimated

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Lean Supply Chain Management Differs Sharply from Conventional Practices

ILLUSTRATIVE

CHARACTERISTICS

CONVENTIONAL MODEL LEAN MODEL

Number amp structure Many vertical Fewer clustered

Procurement personnel Large Limited

Outsourcing Cost-based Strategic

Nature of interactions Adversarial zero-sum Cooperative positive-sum

Relationship focus Transaction-focused Mutually-beneficial

Selection length Lowest price Perfomance

Contract length Short-term Long-term

Pricing practices Competitive bids Target costing

Price changes Upward Downward

Quality Inspection-intensive Designed-in

Delivery Large quantities Smaller quantities (JIT)

Inventory buffers Large Minimized eliminated

Communication Limited task-related Extensive multi-level

Information flow Directive one-way Collaborative two-way

Role in development Limited build-to-print Substantial

Production flexibility Low High

Technology sharing Very limited nonexistent Extensive

Dedicated investments Minimal-to-some Substantial

Mutual commitment Very limited nonexistent High

Govemance Market-driven Self-governing

Future expectations No Quarantee Considerable

LeanEnterprise

Value

Lean Supply Chain Management Principles Derive from Basic Lean Principles

Focus on the supplier network value stream Eliminate waste Synchronize flow Minimize both transaction and production costs Establish collaborative relationships while balancing co

operation and competition Ensure visibility and transparency Develop quick response capability Manage uncertainty and risk Align core competencies and complementary capabilitie

s Foster innovation and knowledge-sharing

LeanEnterprise

Value

A Set of Mutually-Reinforcing Lean Practices Translate these Principles into Action

This lecture highlights key enablers amp practices by focusing on bull Synchronized production and deliverybull Partnerships and strategic alliancesbull Early supplier integration into design and development IPTs

Design supplier network architecture Design of supplier network driven by strategic thrust Fewer suppliers ldquoclustered controlrdquo Supplier selection based on performance

Develop complementary supplier capabilities Ensured process capability (certification) Targeted supplier development (SPC Kaizen) Greater responsibilities delegated to suppliers

Create flow and pull throughout supplier network Linked business processes ITIS infrastructure Two-way information exchange amp visibility Synchronized production and delivery (JIT)

Establish cooperative relationships amp effective coordination mechanisms

Joint problem-solving mutual assistance Partnerships amp strategic alliances Open and timely communications Increased interdependence amp ldquoshared destinyrdquo

Maximize flexibility amp responsiveness Seamless information flow Flexible contracting Rapid response capability

Optimize product development through early supplier integration

Integrate suppliers early into design amp development IPTs Collaborative design architectural innovation Open communications and information sharing Target costing design-to-cost

Integrate knowledge and foster innovation Knowledge-sharing technology transfer Aligned technology roadmaps

LeanEnterprise

Value

Synchronized Production and Delivery Throughout the Supplier Network is a Central

Lean Concept

Integrated supplier lead times and delivery schedules Flows from suppliers pulled by customer demand (using

takt time load leveling line balancing single piece flow) Minimized inventory through all tiers of the supply chain On-time supplier delivery to point of use Minimal source or incoming inspection Effective two-way communication links to coordinate pro

duction amp delivery schedules Striving for zero quality defects essential to success Greater efficiency and profitability throughout the supplie

r network

LeanEnterprise

Value

Aerospace Firms Have Faced an UphillChallenge in Synchronizing Flow with Suppliers

PERCENT OF SUPPLIER SHIPMENTS TO STOCKROOMFACTOWO INCOMING OR PRIOR INSPECTIONS

DefenseCommercial Morethan 75 of sales to defer

or commercial markets

Defense (25) Commercial (9)

(Year 1993 N= Number of responding business unitsc

LeanEnterprise

Value

Supplier Certification has been an Important Early Enabler of Achieving Synchronized

Flow in Aerospace

PERCENT OF DIRECT PRODUCTION SUPPLIERS OF A TYPICAL AEROSPACE ENTERPRISE THAT ARE CERTIFIED (1991 1993 1995)

Industry (48) Airframe (13) Electronics (20) Engines and Other (15)

(N=Number of respondents answering this question for all three years)

LeanEnterprise

Value

Closer Communication Links with Suppliers Paved the Way for Synchronizing Flow

TYPES OF INFORMATION PROVIDED TO RESPONDING BUSINESS UNITS BY THEIR MOST IMPORTANT SUPPLIERS ON A FORMAL BASIS 1989 vs 1993

1989 (381432151614) 1993 (556569554154)(N=78Total number of responding business units)

LeanEnterprise

Value

Concrete Example Engine Parts CastingSupplier Worked with Customer Company to

Achieve Synchronized Flow

LeanEnterprise

Value

Mastering amp Integrating Lean Basics with Prime was Necessary for Achieving

Synchronized Flow

6S -- Visual factory Total productive maintenance Quality control Process certification Mistake proofing Setup reduction Standard work Kaizen

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Ensure Substantial Performance

Improvements

Long-term relationships and mutual commitments Intensive and regular sharing of technical and cost infor

mation Mutual assistance and joint problem-solving Customized (relationship-specific) investments Risk-sharing cost-sharing benefit-sharing arrangement

s Trust-building practices -- ldquoone teamrdquo mindset collocati

on of technical staff ldquoopen kimonordquo Progressively increasing mutual dependence -- shared f

ate discouraging opportunistic behavior Self-enforcing contracting driving continuous improvem

ent

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Bring Important Mutual Benefits

Reduced transaction costs (cost of information gathering negotiation contracting billing)

Improved resource planning amp investment decisions Greater production predictability amp efficiency Improved deployment of complementary capabilities Greater knowledge integration and RampD effectiveness Incentives for increased innovation (through cost- shari

ng risk-sharing knowledge-sharing) Increased mutual commitment to improving joint long- t

erm competitive performance

LeanEnterprise

Value Major Lean Lessons for Aerospace Industry

Supply chain design linked to corporate strategic thrust Fewer first-tier suppliers Greater supplier share of product content

Strategic supplier partnerships with selected suppliers Trust-based relationships long-term mutual commitment Close communications knowledge-sharing Multiple functional interfaces

Early supplier integration into design Early and major supplier role in design Up-front design-process integration Leveraging supplier technology base for innovative solutions

Self-enforcing agreements for continuous improvement Target costing Sharing of cost savings

LeanEnterprise

Value

Chrysler Supplier PartnershipsSpeed Development

Length of Product Development Cycle

234 Weeks 232 Weeks

183 Weeks180 Weeks

184 Weeks

160 Weeks

K-Car (81) Minivan (84) Shadow (87)

Dakota Truck (87)

LH Cars (93) Neon (94) JA Cirrus Stratus (95)

LH Cars (98E)

Source Dyer (1998)Estimated

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Lean Supply Chain Management Principles Derive from Basic Lean Principles

Focus on the supplier network value stream Eliminate waste Synchronize flow Minimize both transaction and production costs Establish collaborative relationships while balancing co

operation and competition Ensure visibility and transparency Develop quick response capability Manage uncertainty and risk Align core competencies and complementary capabilitie

s Foster innovation and knowledge-sharing

LeanEnterprise

Value

A Set of Mutually-Reinforcing Lean Practices Translate these Principles into Action

This lecture highlights key enablers amp practices by focusing on bull Synchronized production and deliverybull Partnerships and strategic alliancesbull Early supplier integration into design and development IPTs

Design supplier network architecture Design of supplier network driven by strategic thrust Fewer suppliers ldquoclustered controlrdquo Supplier selection based on performance

Develop complementary supplier capabilities Ensured process capability (certification) Targeted supplier development (SPC Kaizen) Greater responsibilities delegated to suppliers

Create flow and pull throughout supplier network Linked business processes ITIS infrastructure Two-way information exchange amp visibility Synchronized production and delivery (JIT)

Establish cooperative relationships amp effective coordination mechanisms

Joint problem-solving mutual assistance Partnerships amp strategic alliances Open and timely communications Increased interdependence amp ldquoshared destinyrdquo

Maximize flexibility amp responsiveness Seamless information flow Flexible contracting Rapid response capability

Optimize product development through early supplier integration

Integrate suppliers early into design amp development IPTs Collaborative design architectural innovation Open communications and information sharing Target costing design-to-cost

Integrate knowledge and foster innovation Knowledge-sharing technology transfer Aligned technology roadmaps

LeanEnterprise

Value

Synchronized Production and Delivery Throughout the Supplier Network is a Central

Lean Concept

Integrated supplier lead times and delivery schedules Flows from suppliers pulled by customer demand (using

takt time load leveling line balancing single piece flow) Minimized inventory through all tiers of the supply chain On-time supplier delivery to point of use Minimal source or incoming inspection Effective two-way communication links to coordinate pro

duction amp delivery schedules Striving for zero quality defects essential to success Greater efficiency and profitability throughout the supplie

r network

LeanEnterprise

Value

Aerospace Firms Have Faced an UphillChallenge in Synchronizing Flow with Suppliers

PERCENT OF SUPPLIER SHIPMENTS TO STOCKROOMFACTOWO INCOMING OR PRIOR INSPECTIONS

DefenseCommercial Morethan 75 of sales to defer

or commercial markets

Defense (25) Commercial (9)

(Year 1993 N= Number of responding business unitsc

LeanEnterprise

Value

Supplier Certification has been an Important Early Enabler of Achieving Synchronized

Flow in Aerospace

PERCENT OF DIRECT PRODUCTION SUPPLIERS OF A TYPICAL AEROSPACE ENTERPRISE THAT ARE CERTIFIED (1991 1993 1995)

Industry (48) Airframe (13) Electronics (20) Engines and Other (15)

(N=Number of respondents answering this question for all three years)

LeanEnterprise

Value

Closer Communication Links with Suppliers Paved the Way for Synchronizing Flow

TYPES OF INFORMATION PROVIDED TO RESPONDING BUSINESS UNITS BY THEIR MOST IMPORTANT SUPPLIERS ON A FORMAL BASIS 1989 vs 1993

1989 (381432151614) 1993 (556569554154)(N=78Total number of responding business units)

LeanEnterprise

Value

Concrete Example Engine Parts CastingSupplier Worked with Customer Company to

Achieve Synchronized Flow

LeanEnterprise

Value

Mastering amp Integrating Lean Basics with Prime was Necessary for Achieving

Synchronized Flow

6S -- Visual factory Total productive maintenance Quality control Process certification Mistake proofing Setup reduction Standard work Kaizen

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Ensure Substantial Performance

Improvements

Long-term relationships and mutual commitments Intensive and regular sharing of technical and cost infor

mation Mutual assistance and joint problem-solving Customized (relationship-specific) investments Risk-sharing cost-sharing benefit-sharing arrangement

s Trust-building practices -- ldquoone teamrdquo mindset collocati

on of technical staff ldquoopen kimonordquo Progressively increasing mutual dependence -- shared f

ate discouraging opportunistic behavior Self-enforcing contracting driving continuous improvem

ent

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Bring Important Mutual Benefits

Reduced transaction costs (cost of information gathering negotiation contracting billing)

Improved resource planning amp investment decisions Greater production predictability amp efficiency Improved deployment of complementary capabilities Greater knowledge integration and RampD effectiveness Incentives for increased innovation (through cost- shari

ng risk-sharing knowledge-sharing) Increased mutual commitment to improving joint long- t

erm competitive performance

LeanEnterprise

Value Major Lean Lessons for Aerospace Industry

Supply chain design linked to corporate strategic thrust Fewer first-tier suppliers Greater supplier share of product content

Strategic supplier partnerships with selected suppliers Trust-based relationships long-term mutual commitment Close communications knowledge-sharing Multiple functional interfaces

Early supplier integration into design Early and major supplier role in design Up-front design-process integration Leveraging supplier technology base for innovative solutions

Self-enforcing agreements for continuous improvement Target costing Sharing of cost savings

LeanEnterprise

Value

Chrysler Supplier PartnershipsSpeed Development

Length of Product Development Cycle

234 Weeks 232 Weeks

183 Weeks180 Weeks

184 Weeks

160 Weeks

K-Car (81) Minivan (84) Shadow (87)

Dakota Truck (87)

LH Cars (93) Neon (94) JA Cirrus Stratus (95)

LH Cars (98E)

Source Dyer (1998)Estimated

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

A Set of Mutually-Reinforcing Lean Practices Translate these Principles into Action

This lecture highlights key enablers amp practices by focusing on bull Synchronized production and deliverybull Partnerships and strategic alliancesbull Early supplier integration into design and development IPTs

Design supplier network architecture Design of supplier network driven by strategic thrust Fewer suppliers ldquoclustered controlrdquo Supplier selection based on performance

Develop complementary supplier capabilities Ensured process capability (certification) Targeted supplier development (SPC Kaizen) Greater responsibilities delegated to suppliers

Create flow and pull throughout supplier network Linked business processes ITIS infrastructure Two-way information exchange amp visibility Synchronized production and delivery (JIT)

Establish cooperative relationships amp effective coordination mechanisms

Joint problem-solving mutual assistance Partnerships amp strategic alliances Open and timely communications Increased interdependence amp ldquoshared destinyrdquo

Maximize flexibility amp responsiveness Seamless information flow Flexible contracting Rapid response capability

Optimize product development through early supplier integration

Integrate suppliers early into design amp development IPTs Collaborative design architectural innovation Open communications and information sharing Target costing design-to-cost

Integrate knowledge and foster innovation Knowledge-sharing technology transfer Aligned technology roadmaps

LeanEnterprise

Value

Synchronized Production and Delivery Throughout the Supplier Network is a Central

Lean Concept

Integrated supplier lead times and delivery schedules Flows from suppliers pulled by customer demand (using

takt time load leveling line balancing single piece flow) Minimized inventory through all tiers of the supply chain On-time supplier delivery to point of use Minimal source or incoming inspection Effective two-way communication links to coordinate pro

duction amp delivery schedules Striving for zero quality defects essential to success Greater efficiency and profitability throughout the supplie

r network

LeanEnterprise

Value

Aerospace Firms Have Faced an UphillChallenge in Synchronizing Flow with Suppliers

PERCENT OF SUPPLIER SHIPMENTS TO STOCKROOMFACTOWO INCOMING OR PRIOR INSPECTIONS

DefenseCommercial Morethan 75 of sales to defer

or commercial markets

Defense (25) Commercial (9)

(Year 1993 N= Number of responding business unitsc

LeanEnterprise

Value

Supplier Certification has been an Important Early Enabler of Achieving Synchronized

Flow in Aerospace

PERCENT OF DIRECT PRODUCTION SUPPLIERS OF A TYPICAL AEROSPACE ENTERPRISE THAT ARE CERTIFIED (1991 1993 1995)

Industry (48) Airframe (13) Electronics (20) Engines and Other (15)

(N=Number of respondents answering this question for all three years)

LeanEnterprise

Value

Closer Communication Links with Suppliers Paved the Way for Synchronizing Flow

TYPES OF INFORMATION PROVIDED TO RESPONDING BUSINESS UNITS BY THEIR MOST IMPORTANT SUPPLIERS ON A FORMAL BASIS 1989 vs 1993

1989 (381432151614) 1993 (556569554154)(N=78Total number of responding business units)

LeanEnterprise

Value

Concrete Example Engine Parts CastingSupplier Worked with Customer Company to

Achieve Synchronized Flow

LeanEnterprise

Value

Mastering amp Integrating Lean Basics with Prime was Necessary for Achieving

Synchronized Flow

6S -- Visual factory Total productive maintenance Quality control Process certification Mistake proofing Setup reduction Standard work Kaizen

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Ensure Substantial Performance

Improvements

Long-term relationships and mutual commitments Intensive and regular sharing of technical and cost infor

mation Mutual assistance and joint problem-solving Customized (relationship-specific) investments Risk-sharing cost-sharing benefit-sharing arrangement

s Trust-building practices -- ldquoone teamrdquo mindset collocati

on of technical staff ldquoopen kimonordquo Progressively increasing mutual dependence -- shared f

ate discouraging opportunistic behavior Self-enforcing contracting driving continuous improvem

ent

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Bring Important Mutual Benefits

Reduced transaction costs (cost of information gathering negotiation contracting billing)

Improved resource planning amp investment decisions Greater production predictability amp efficiency Improved deployment of complementary capabilities Greater knowledge integration and RampD effectiveness Incentives for increased innovation (through cost- shari

ng risk-sharing knowledge-sharing) Increased mutual commitment to improving joint long- t

erm competitive performance

LeanEnterprise

Value Major Lean Lessons for Aerospace Industry

Supply chain design linked to corporate strategic thrust Fewer first-tier suppliers Greater supplier share of product content

Strategic supplier partnerships with selected suppliers Trust-based relationships long-term mutual commitment Close communications knowledge-sharing Multiple functional interfaces

Early supplier integration into design Early and major supplier role in design Up-front design-process integration Leveraging supplier technology base for innovative solutions

Self-enforcing agreements for continuous improvement Target costing Sharing of cost savings

LeanEnterprise

Value

Chrysler Supplier PartnershipsSpeed Development

Length of Product Development Cycle

234 Weeks 232 Weeks

183 Weeks180 Weeks

184 Weeks

160 Weeks

K-Car (81) Minivan (84) Shadow (87)

Dakota Truck (87)

LH Cars (93) Neon (94) JA Cirrus Stratus (95)

LH Cars (98E)

Source Dyer (1998)Estimated

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Synchronized Production and Delivery Throughout the Supplier Network is a Central

Lean Concept

Integrated supplier lead times and delivery schedules Flows from suppliers pulled by customer demand (using

takt time load leveling line balancing single piece flow) Minimized inventory through all tiers of the supply chain On-time supplier delivery to point of use Minimal source or incoming inspection Effective two-way communication links to coordinate pro

duction amp delivery schedules Striving for zero quality defects essential to success Greater efficiency and profitability throughout the supplie

r network

LeanEnterprise

Value

Aerospace Firms Have Faced an UphillChallenge in Synchronizing Flow with Suppliers

PERCENT OF SUPPLIER SHIPMENTS TO STOCKROOMFACTOWO INCOMING OR PRIOR INSPECTIONS

DefenseCommercial Morethan 75 of sales to defer

or commercial markets

Defense (25) Commercial (9)

(Year 1993 N= Number of responding business unitsc

LeanEnterprise

Value

Supplier Certification has been an Important Early Enabler of Achieving Synchronized

Flow in Aerospace

PERCENT OF DIRECT PRODUCTION SUPPLIERS OF A TYPICAL AEROSPACE ENTERPRISE THAT ARE CERTIFIED (1991 1993 1995)

Industry (48) Airframe (13) Electronics (20) Engines and Other (15)

(N=Number of respondents answering this question for all three years)

LeanEnterprise

Value

Closer Communication Links with Suppliers Paved the Way for Synchronizing Flow

TYPES OF INFORMATION PROVIDED TO RESPONDING BUSINESS UNITS BY THEIR MOST IMPORTANT SUPPLIERS ON A FORMAL BASIS 1989 vs 1993

1989 (381432151614) 1993 (556569554154)(N=78Total number of responding business units)

LeanEnterprise

Value

Concrete Example Engine Parts CastingSupplier Worked with Customer Company to

Achieve Synchronized Flow

LeanEnterprise

Value

Mastering amp Integrating Lean Basics with Prime was Necessary for Achieving

Synchronized Flow

6S -- Visual factory Total productive maintenance Quality control Process certification Mistake proofing Setup reduction Standard work Kaizen

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Ensure Substantial Performance

Improvements

Long-term relationships and mutual commitments Intensive and regular sharing of technical and cost infor

mation Mutual assistance and joint problem-solving Customized (relationship-specific) investments Risk-sharing cost-sharing benefit-sharing arrangement

s Trust-building practices -- ldquoone teamrdquo mindset collocati

on of technical staff ldquoopen kimonordquo Progressively increasing mutual dependence -- shared f

ate discouraging opportunistic behavior Self-enforcing contracting driving continuous improvem

ent

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Bring Important Mutual Benefits

Reduced transaction costs (cost of information gathering negotiation contracting billing)

Improved resource planning amp investment decisions Greater production predictability amp efficiency Improved deployment of complementary capabilities Greater knowledge integration and RampD effectiveness Incentives for increased innovation (through cost- shari

ng risk-sharing knowledge-sharing) Increased mutual commitment to improving joint long- t

erm competitive performance

LeanEnterprise

Value Major Lean Lessons for Aerospace Industry

Supply chain design linked to corporate strategic thrust Fewer first-tier suppliers Greater supplier share of product content

Strategic supplier partnerships with selected suppliers Trust-based relationships long-term mutual commitment Close communications knowledge-sharing Multiple functional interfaces

Early supplier integration into design Early and major supplier role in design Up-front design-process integration Leveraging supplier technology base for innovative solutions

Self-enforcing agreements for continuous improvement Target costing Sharing of cost savings

LeanEnterprise

Value

Chrysler Supplier PartnershipsSpeed Development

Length of Product Development Cycle

234 Weeks 232 Weeks

183 Weeks180 Weeks

184 Weeks

160 Weeks

K-Car (81) Minivan (84) Shadow (87)

Dakota Truck (87)

LH Cars (93) Neon (94) JA Cirrus Stratus (95)

LH Cars (98E)

Source Dyer (1998)Estimated

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Aerospace Firms Have Faced an UphillChallenge in Synchronizing Flow with Suppliers

PERCENT OF SUPPLIER SHIPMENTS TO STOCKROOMFACTOWO INCOMING OR PRIOR INSPECTIONS

DefenseCommercial Morethan 75 of sales to defer

or commercial markets

Defense (25) Commercial (9)

(Year 1993 N= Number of responding business unitsc

LeanEnterprise

Value

Supplier Certification has been an Important Early Enabler of Achieving Synchronized

Flow in Aerospace

PERCENT OF DIRECT PRODUCTION SUPPLIERS OF A TYPICAL AEROSPACE ENTERPRISE THAT ARE CERTIFIED (1991 1993 1995)

Industry (48) Airframe (13) Electronics (20) Engines and Other (15)

(N=Number of respondents answering this question for all three years)

LeanEnterprise

Value

Closer Communication Links with Suppliers Paved the Way for Synchronizing Flow

TYPES OF INFORMATION PROVIDED TO RESPONDING BUSINESS UNITS BY THEIR MOST IMPORTANT SUPPLIERS ON A FORMAL BASIS 1989 vs 1993

1989 (381432151614) 1993 (556569554154)(N=78Total number of responding business units)

LeanEnterprise

Value

Concrete Example Engine Parts CastingSupplier Worked with Customer Company to

Achieve Synchronized Flow

LeanEnterprise

Value

Mastering amp Integrating Lean Basics with Prime was Necessary for Achieving

Synchronized Flow

6S -- Visual factory Total productive maintenance Quality control Process certification Mistake proofing Setup reduction Standard work Kaizen

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Ensure Substantial Performance

Improvements

Long-term relationships and mutual commitments Intensive and regular sharing of technical and cost infor

mation Mutual assistance and joint problem-solving Customized (relationship-specific) investments Risk-sharing cost-sharing benefit-sharing arrangement

s Trust-building practices -- ldquoone teamrdquo mindset collocati

on of technical staff ldquoopen kimonordquo Progressively increasing mutual dependence -- shared f

ate discouraging opportunistic behavior Self-enforcing contracting driving continuous improvem

ent

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Bring Important Mutual Benefits

Reduced transaction costs (cost of information gathering negotiation contracting billing)

Improved resource planning amp investment decisions Greater production predictability amp efficiency Improved deployment of complementary capabilities Greater knowledge integration and RampD effectiveness Incentives for increased innovation (through cost- shari

ng risk-sharing knowledge-sharing) Increased mutual commitment to improving joint long- t

erm competitive performance

LeanEnterprise

Value Major Lean Lessons for Aerospace Industry

Supply chain design linked to corporate strategic thrust Fewer first-tier suppliers Greater supplier share of product content

Strategic supplier partnerships with selected suppliers Trust-based relationships long-term mutual commitment Close communications knowledge-sharing Multiple functional interfaces

Early supplier integration into design Early and major supplier role in design Up-front design-process integration Leveraging supplier technology base for innovative solutions

Self-enforcing agreements for continuous improvement Target costing Sharing of cost savings

LeanEnterprise

Value

Chrysler Supplier PartnershipsSpeed Development

Length of Product Development Cycle

234 Weeks 232 Weeks

183 Weeks180 Weeks

184 Weeks

160 Weeks

K-Car (81) Minivan (84) Shadow (87)

Dakota Truck (87)

LH Cars (93) Neon (94) JA Cirrus Stratus (95)

LH Cars (98E)

Source Dyer (1998)Estimated

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Supplier Certification has been an Important Early Enabler of Achieving Synchronized

Flow in Aerospace

PERCENT OF DIRECT PRODUCTION SUPPLIERS OF A TYPICAL AEROSPACE ENTERPRISE THAT ARE CERTIFIED (1991 1993 1995)

Industry (48) Airframe (13) Electronics (20) Engines and Other (15)

(N=Number of respondents answering this question for all three years)

LeanEnterprise

Value

Closer Communication Links with Suppliers Paved the Way for Synchronizing Flow

TYPES OF INFORMATION PROVIDED TO RESPONDING BUSINESS UNITS BY THEIR MOST IMPORTANT SUPPLIERS ON A FORMAL BASIS 1989 vs 1993

1989 (381432151614) 1993 (556569554154)(N=78Total number of responding business units)

LeanEnterprise

Value

Concrete Example Engine Parts CastingSupplier Worked with Customer Company to

Achieve Synchronized Flow

LeanEnterprise

Value

Mastering amp Integrating Lean Basics with Prime was Necessary for Achieving

Synchronized Flow

6S -- Visual factory Total productive maintenance Quality control Process certification Mistake proofing Setup reduction Standard work Kaizen

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Ensure Substantial Performance

Improvements

Long-term relationships and mutual commitments Intensive and regular sharing of technical and cost infor

mation Mutual assistance and joint problem-solving Customized (relationship-specific) investments Risk-sharing cost-sharing benefit-sharing arrangement

s Trust-building practices -- ldquoone teamrdquo mindset collocati

on of technical staff ldquoopen kimonordquo Progressively increasing mutual dependence -- shared f

ate discouraging opportunistic behavior Self-enforcing contracting driving continuous improvem

ent

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Bring Important Mutual Benefits

Reduced transaction costs (cost of information gathering negotiation contracting billing)

Improved resource planning amp investment decisions Greater production predictability amp efficiency Improved deployment of complementary capabilities Greater knowledge integration and RampD effectiveness Incentives for increased innovation (through cost- shari

ng risk-sharing knowledge-sharing) Increased mutual commitment to improving joint long- t

erm competitive performance

LeanEnterprise

Value Major Lean Lessons for Aerospace Industry

Supply chain design linked to corporate strategic thrust Fewer first-tier suppliers Greater supplier share of product content

Strategic supplier partnerships with selected suppliers Trust-based relationships long-term mutual commitment Close communications knowledge-sharing Multiple functional interfaces

Early supplier integration into design Early and major supplier role in design Up-front design-process integration Leveraging supplier technology base for innovative solutions

Self-enforcing agreements for continuous improvement Target costing Sharing of cost savings

LeanEnterprise

Value

Chrysler Supplier PartnershipsSpeed Development

Length of Product Development Cycle

234 Weeks 232 Weeks

183 Weeks180 Weeks

184 Weeks

160 Weeks

K-Car (81) Minivan (84) Shadow (87)

Dakota Truck (87)

LH Cars (93) Neon (94) JA Cirrus Stratus (95)

LH Cars (98E)

Source Dyer (1998)Estimated

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Closer Communication Links with Suppliers Paved the Way for Synchronizing Flow

TYPES OF INFORMATION PROVIDED TO RESPONDING BUSINESS UNITS BY THEIR MOST IMPORTANT SUPPLIERS ON A FORMAL BASIS 1989 vs 1993

1989 (381432151614) 1993 (556569554154)(N=78Total number of responding business units)

LeanEnterprise

Value

Concrete Example Engine Parts CastingSupplier Worked with Customer Company to

Achieve Synchronized Flow

LeanEnterprise

Value

Mastering amp Integrating Lean Basics with Prime was Necessary for Achieving

Synchronized Flow

6S -- Visual factory Total productive maintenance Quality control Process certification Mistake proofing Setup reduction Standard work Kaizen

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Ensure Substantial Performance

Improvements

Long-term relationships and mutual commitments Intensive and regular sharing of technical and cost infor

mation Mutual assistance and joint problem-solving Customized (relationship-specific) investments Risk-sharing cost-sharing benefit-sharing arrangement

s Trust-building practices -- ldquoone teamrdquo mindset collocati

on of technical staff ldquoopen kimonordquo Progressively increasing mutual dependence -- shared f

ate discouraging opportunistic behavior Self-enforcing contracting driving continuous improvem

ent

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Bring Important Mutual Benefits

Reduced transaction costs (cost of information gathering negotiation contracting billing)

Improved resource planning amp investment decisions Greater production predictability amp efficiency Improved deployment of complementary capabilities Greater knowledge integration and RampD effectiveness Incentives for increased innovation (through cost- shari

ng risk-sharing knowledge-sharing) Increased mutual commitment to improving joint long- t

erm competitive performance

LeanEnterprise

Value Major Lean Lessons for Aerospace Industry

Supply chain design linked to corporate strategic thrust Fewer first-tier suppliers Greater supplier share of product content

Strategic supplier partnerships with selected suppliers Trust-based relationships long-term mutual commitment Close communications knowledge-sharing Multiple functional interfaces

Early supplier integration into design Early and major supplier role in design Up-front design-process integration Leveraging supplier technology base for innovative solutions

Self-enforcing agreements for continuous improvement Target costing Sharing of cost savings

LeanEnterprise

Value

Chrysler Supplier PartnershipsSpeed Development

Length of Product Development Cycle

234 Weeks 232 Weeks

183 Weeks180 Weeks

184 Weeks

160 Weeks

K-Car (81) Minivan (84) Shadow (87)

Dakota Truck (87)

LH Cars (93) Neon (94) JA Cirrus Stratus (95)

LH Cars (98E)

Source Dyer (1998)Estimated

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Concrete Example Engine Parts CastingSupplier Worked with Customer Company to

Achieve Synchronized Flow

LeanEnterprise

Value

Mastering amp Integrating Lean Basics with Prime was Necessary for Achieving

Synchronized Flow

6S -- Visual factory Total productive maintenance Quality control Process certification Mistake proofing Setup reduction Standard work Kaizen

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Ensure Substantial Performance

Improvements

Long-term relationships and mutual commitments Intensive and regular sharing of technical and cost infor

mation Mutual assistance and joint problem-solving Customized (relationship-specific) investments Risk-sharing cost-sharing benefit-sharing arrangement

s Trust-building practices -- ldquoone teamrdquo mindset collocati

on of technical staff ldquoopen kimonordquo Progressively increasing mutual dependence -- shared f

ate discouraging opportunistic behavior Self-enforcing contracting driving continuous improvem

ent

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Bring Important Mutual Benefits

Reduced transaction costs (cost of information gathering negotiation contracting billing)

Improved resource planning amp investment decisions Greater production predictability amp efficiency Improved deployment of complementary capabilities Greater knowledge integration and RampD effectiveness Incentives for increased innovation (through cost- shari

ng risk-sharing knowledge-sharing) Increased mutual commitment to improving joint long- t

erm competitive performance

LeanEnterprise

Value Major Lean Lessons for Aerospace Industry

Supply chain design linked to corporate strategic thrust Fewer first-tier suppliers Greater supplier share of product content

Strategic supplier partnerships with selected suppliers Trust-based relationships long-term mutual commitment Close communications knowledge-sharing Multiple functional interfaces

Early supplier integration into design Early and major supplier role in design Up-front design-process integration Leveraging supplier technology base for innovative solutions

Self-enforcing agreements for continuous improvement Target costing Sharing of cost savings

LeanEnterprise

Value

Chrysler Supplier PartnershipsSpeed Development

Length of Product Development Cycle

234 Weeks 232 Weeks

183 Weeks180 Weeks

184 Weeks

160 Weeks

K-Car (81) Minivan (84) Shadow (87)

Dakota Truck (87)

LH Cars (93) Neon (94) JA Cirrus Stratus (95)

LH Cars (98E)

Source Dyer (1998)Estimated

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Mastering amp Integrating Lean Basics with Prime was Necessary for Achieving

Synchronized Flow

6S -- Visual factory Total productive maintenance Quality control Process certification Mistake proofing Setup reduction Standard work Kaizen

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Ensure Substantial Performance

Improvements

Long-term relationships and mutual commitments Intensive and regular sharing of technical and cost infor

mation Mutual assistance and joint problem-solving Customized (relationship-specific) investments Risk-sharing cost-sharing benefit-sharing arrangement

s Trust-building practices -- ldquoone teamrdquo mindset collocati

on of technical staff ldquoopen kimonordquo Progressively increasing mutual dependence -- shared f

ate discouraging opportunistic behavior Self-enforcing contracting driving continuous improvem

ent

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Bring Important Mutual Benefits

Reduced transaction costs (cost of information gathering negotiation contracting billing)

Improved resource planning amp investment decisions Greater production predictability amp efficiency Improved deployment of complementary capabilities Greater knowledge integration and RampD effectiveness Incentives for increased innovation (through cost- shari

ng risk-sharing knowledge-sharing) Increased mutual commitment to improving joint long- t

erm competitive performance

LeanEnterprise

Value Major Lean Lessons for Aerospace Industry

Supply chain design linked to corporate strategic thrust Fewer first-tier suppliers Greater supplier share of product content

Strategic supplier partnerships with selected suppliers Trust-based relationships long-term mutual commitment Close communications knowledge-sharing Multiple functional interfaces

Early supplier integration into design Early and major supplier role in design Up-front design-process integration Leveraging supplier technology base for innovative solutions

Self-enforcing agreements for continuous improvement Target costing Sharing of cost savings

LeanEnterprise

Value

Chrysler Supplier PartnershipsSpeed Development

Length of Product Development Cycle

234 Weeks 232 Weeks

183 Weeks180 Weeks

184 Weeks

160 Weeks

K-Car (81) Minivan (84) Shadow (87)

Dakota Truck (87)

LH Cars (93) Neon (94) JA Cirrus Stratus (95)

LH Cars (98E)

Source Dyer (1998)Estimated

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Ensure Substantial Performance

Improvements

Long-term relationships and mutual commitments Intensive and regular sharing of technical and cost infor

mation Mutual assistance and joint problem-solving Customized (relationship-specific) investments Risk-sharing cost-sharing benefit-sharing arrangement

s Trust-building practices -- ldquoone teamrdquo mindset collocati

on of technical staff ldquoopen kimonordquo Progressively increasing mutual dependence -- shared f

ate discouraging opportunistic behavior Self-enforcing contracting driving continuous improvem

ent

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Bring Important Mutual Benefits

Reduced transaction costs (cost of information gathering negotiation contracting billing)

Improved resource planning amp investment decisions Greater production predictability amp efficiency Improved deployment of complementary capabilities Greater knowledge integration and RampD effectiveness Incentives for increased innovation (through cost- shari

ng risk-sharing knowledge-sharing) Increased mutual commitment to improving joint long- t

erm competitive performance

LeanEnterprise

Value Major Lean Lessons for Aerospace Industry

Supply chain design linked to corporate strategic thrust Fewer first-tier suppliers Greater supplier share of product content

Strategic supplier partnerships with selected suppliers Trust-based relationships long-term mutual commitment Close communications knowledge-sharing Multiple functional interfaces

Early supplier integration into design Early and major supplier role in design Up-front design-process integration Leveraging supplier technology base for innovative solutions

Self-enforcing agreements for continuous improvement Target costing Sharing of cost savings

LeanEnterprise

Value

Chrysler Supplier PartnershipsSpeed Development

Length of Product Development Cycle

234 Weeks 232 Weeks

183 Weeks180 Weeks

184 Weeks

160 Weeks

K-Car (81) Minivan (84) Shadow (87)

Dakota Truck (87)

LH Cars (93) Neon (94) JA Cirrus Stratus (95)

LH Cars (98E)

Source Dyer (1998)Estimated

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Supplier Partnerships amp Strategic Alliances Bring Important Mutual Benefits

Reduced transaction costs (cost of information gathering negotiation contracting billing)

Improved resource planning amp investment decisions Greater production predictability amp efficiency Improved deployment of complementary capabilities Greater knowledge integration and RampD effectiveness Incentives for increased innovation (through cost- shari

ng risk-sharing knowledge-sharing) Increased mutual commitment to improving joint long- t

erm competitive performance

LeanEnterprise

Value Major Lean Lessons for Aerospace Industry

Supply chain design linked to corporate strategic thrust Fewer first-tier suppliers Greater supplier share of product content

Strategic supplier partnerships with selected suppliers Trust-based relationships long-term mutual commitment Close communications knowledge-sharing Multiple functional interfaces

Early supplier integration into design Early and major supplier role in design Up-front design-process integration Leveraging supplier technology base for innovative solutions

Self-enforcing agreements for continuous improvement Target costing Sharing of cost savings

LeanEnterprise

Value

Chrysler Supplier PartnershipsSpeed Development

Length of Product Development Cycle

234 Weeks 232 Weeks

183 Weeks180 Weeks

184 Weeks

160 Weeks

K-Car (81) Minivan (84) Shadow (87)

Dakota Truck (87)

LH Cars (93) Neon (94) JA Cirrus Stratus (95)

LH Cars (98E)

Source Dyer (1998)Estimated

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value Major Lean Lessons for Aerospace Industry

Supply chain design linked to corporate strategic thrust Fewer first-tier suppliers Greater supplier share of product content

Strategic supplier partnerships with selected suppliers Trust-based relationships long-term mutual commitment Close communications knowledge-sharing Multiple functional interfaces

Early supplier integration into design Early and major supplier role in design Up-front design-process integration Leveraging supplier technology base for innovative solutions

Self-enforcing agreements for continuous improvement Target costing Sharing of cost savings

LeanEnterprise

Value

Chrysler Supplier PartnershipsSpeed Development

Length of Product Development Cycle

234 Weeks 232 Weeks

183 Weeks180 Weeks

184 Weeks

160 Weeks

K-Car (81) Minivan (84) Shadow (87)

Dakota Truck (87)

LH Cars (93) Neon (94) JA Cirrus Stratus (95)

LH Cars (98E)

Source Dyer (1998)Estimated

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Chrysler Supplier PartnershipsSpeed Development

Length of Product Development Cycle

234 Weeks 232 Weeks

183 Weeks180 Weeks

184 Weeks

160 Weeks

K-Car (81) Minivan (84) Shadow (87)

Dakota Truck (87)

LH Cars (93) Neon (94) JA Cirrus Stratus (95)

LH Cars (98E)

Source Dyer (1998)Estimated

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Aerospace Early Supplier Involvement in IPTs Impacts Producibility and Cost

EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARYAEROSPACE PRODUCT GDEVELOPMENT PRO RAMS IMPACTS

ON PRODUCIBILITY AND COST

Firms facing producibility and cost problems

of responding firms in Group A(420)

of responding firms in Group B(79)

WITH With early supplier involvement in IPTsWITHOUT Without early supplier involvement in IPTs

EARLY Before Milestone

Group A (With) Group B (Without)

Numerator(s) N=47 Number of affirmative responses to this question (ie faced producibility and cost problem) in each group (ie Group Aand Group B)Denominator(s)R=209 Total number of respondents to this question in each groupSample Size S=29 Maximum possible number of respondents to any question in the survey (Group A20 Group B9)SOURCE Lean Aerospace Initiative Product Development Survey (1994)

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Early Supplier Involvement Key Success Factors

FIRMS WITH EARLY SUPPLIER INVOLVEMENT IN IPTS IN US MILITARY AEROSPACE PRODUCT DEVELOPMENT PROGRAMS KEY

SUCCESS FACTORS

Per

cent

of r

espo

ndin

g bu

sine

ss u

nits

in e

ach

grou

p

EARLY SUPPLIER INVOLVEMENT IN IPTS

Established co-located IPTsincluding suppliers

Used commercial parts

Numerator(s) N=118 (Group A) 12 ( Group B) Number of affirmative responses to this question in each group bycategory of practiceimplementation ( ie co-located IPTs use of commercial parts) Denominator(s) R=209 Total number of respondents to this question in each groupSample SizeS=29 Maximum possible mumber of respondents to any question in the survey (Group A20 Group B9)

NOTESEarly Before Milestone 1With Without Early supplier involvement in IPTs (before Milestone 1)

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Evolution of Early Supplier Integrationin the Aerospace Industry

ARCHITECTURAL INNOVATION Major modification of how components in a systemproduct are linked together

bullSignificant improvement in systemproduct architecture through changes in formstructure functional interfaces or system configuration bullKnowledge integration over the supplier network (value stream perspective prime-key suppliers-subtiers tapping supplier technology base)

ldquoOldrdquo Approach ldquoCurrentrdquo Lean

ldquoEmergingrdquo Lean

Armrsquos length interfaces totally defined and controlled

Collaborative but constrained by prior workshare arrangements

Collaborative and seamlessly integrated enabling architectural innovation

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Summary Architectural Innovation YieldsSignificant Benefits

Key Characteristics

Case Study A

(SMART MUNITION

SYSTEM)

Case Study B

(ENGINE NOZZLE)

MAKE-BUY DESIGN

RESPONSIBILITY

Early supplier integration

into IPT Teaming with key

suppliers to optimize

design

New joint design and

engineering approach

based on make-buy Prime retains design control

SUPPLIER ROLE Collaborative Suppliers given design

responsibility and

configuration control

Part of joint design team Component design

responsibility Joint configuration control

SUPPLIER

SELECTION

AGREEMENT

Competitive pre-sourcing Commercial pricing Long-term commitments Long-term warranty

Supplier down select after

joint preliminary design

period CPFF Not-to- compete

agreements

PROCESS

RELATIONSHIPS

Collocated teams Open communications knowledge-sharing WorksharingElectronic linkages Govrsquot part of team

Collocated teams Concurrent engineering Knowledge-sharing Electronic linkages Government involvement

MAJOR DRIVERS Cost Performance

ARCHITECTURAL

INNOVATION

Guidance control unit

redesigned from modular to

Integrated system

architecture

Riveting rather than welding

resulted in redesign of

interfaces and how components

are linked together

MAJOR BENEFITS Over 60 reduction in unit cost Cycle time 64 mo Down

to 48 mo (down by 25) Win-win for value stream

Five-fold reduction in unit cost Cycle time reduction ont as important Substantial risk reduction Win-win for value stream

Case studies

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Summary of Key Practices Enabling Architectural Innovation

Pre-sourcing long-term commitment Early supplier integration into IPTs IPPD co-location joint desi

gn amp configuration control Leveraging technology base of suppliers (key suppliers tooling

suppliers subtiers) Workshare arrangements optimizing supplier core competencie

s Retaining flexibility in defining system configuration Open communications informal links knowledge-sharing Target costing design to cost Supplier-capability-enhancing investments Incentive mechanisms (not to compete agreements long-term

warranty) maintaining trade secrets Government part of the team relief from military standards and

specifications

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Electronic Integration of Supplier Network Early Results

Important success factors include Clear business vision amp strategy Early stakeholder participation (eg top management support internal process owners supp

liers joint configuration control) Migrationintegration of specific functionality benefits of legacy systems into evo

lving new ITIS infrastructure Great care and thought in scaling-up experimental ITIS projects into fully-functi

onal operational systems Electronic integration of suppliers requires a process of positiv

e reinforcement -- greater mutual information exchange helps build increased trust which in turn enables a closer collaborative relationship and longer-term strategic partnership

Close communication links with overseas suppliers pose a serious security risk and complex policy challenge

Challenge Electronic integration of supplier networks for technical data exchange as well as for synchronization of business processes

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Fostering Innovation across Supplier Networks Ensures Continuous Delivery of Value to all Stakeholders

Research Case studies on F-22 Raptor avionics subsystems -- what incentives practices amp tools foster innovation across suppliers

Major finding Innovation by suppliers is hampered by many factors This seriously undermines weapon system affordability

Excessive performance and testing requirements that do not add value One-way communication flows concern for secrecy ldquokeyholerdquo visibility by suppli

ers into product system architecture Little incentive to invest in process improvements due to program uncertainty lim

ited internal supplier resources often narrow business case Major subcontractors switching rather than developing subtier suppliers Yearly contract renegotiations wasteful amp impede longer-term solutions

Recommendations Use multiyear incentive contracting amp sharing of cost savings Improve communications with suppliers share technology roadmaps Make shared investments in selected opportunity areas to reduce costs Provide government funding for technology transfer to subtiers

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value Quick Review of Aerospace Progress

Aerospace industry has made important strides in supplier integration but this is only the beginning of the road

Production Supplier certification and long-term supplier partnerships -- process control amp parts synchronization

Development Early supplier integration into product development critical

Strategic supply chain design is a meta core competency Implementation efforts have required new approaches

Re-examination of basic assumptions (eg make-buy) New roles and responsibilities between primes and suppliers Communication and trust fundamental to implementation

Aerospace community faces new challenges and opportunities Imperative to take ldquovalue streamrdquo view of supplier networks Focus on delivering best lifecycle value to customer Need to evolve information-technology-mediated new organizationa

l structures for managing extended enterprises in a globalized market environment

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Lean Supplier Networks Offer SignificantCompetitive Advantages

Exhibit superior performance system-wide -- greater efficiency lower cycle time higher quality

Not an accident of history but result of a dynamic evolutionary process

Not culture dependent but are transportable worldwide

Can be built through a proactive well-defined process of change in supply chain management

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Key Questions for Aerospace Enterprise Management

Does the size structure and composition of the supplier network reflect your enterprisersquos strategic vision

Has your enterprise created partnerships and strategic alliances with key suppliers to strengthen its long-term competitive advantage

Are major suppliers as well as lower-tier suppliers integrated into your enterprisersquos product process and business development efforts

Has your enterprise established mutually-beneficial arrangements with suppliers to ensure flexibility and responsiveness to unforeseen external shifts

Does your enterprise have in place formal processes and metrics for achieving continuous improvement throughout the extended enterprise

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Emergence of Strategic Supplier Partnerships has been aCentral Feature of Aerospace Industryrsquos Transformation

in the 1990s

Survey 85 of firms established production-focused supplier partnerships involving long-term agreements (LTAs) with key suppliers

Major reasons Reduce costs 97 Minimize future price uncertainty 85 Mutual performance improvement 85 Chief characteristics One or more products 3+ years 97 Multi-year designbuild 49 On-going (evergreen) 24

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Case Study Results Show Significant PerformanceImprovements by Building Integrated Supplier Networks

through Supplier Partnerships

Case study Major producer of complex airframe structures

REDUCED CYCLE TIME (Main Product

Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

REDUCED CYCLE TIME (Main Product Order-to-Shipment months)

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Supplier Partnerships Driven by Strategic Corporate Thrust to Develop Integrated Supplier Networks

KEY PRACTICES BEFORE AFTER

Reduced and streamlined supplier base Number of direct production suppliers 542 162

Improved procurement dfficiency Procurement personnel as of total employment () Subcontracting cycle time (days)

49

13

19

7

Improved supplier quality and schedule Procurement (dollars) from certified suppliers ()Supplier on-time performance ( of all shipments)

0

764

75

830

Established strategic supplier partnerships ldquoBest valuerdquo subcontracts as all awards 0

500

95

1000

BEFORE 1989 AFTER 1997 Refers to 1991

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value Focus on Early Supplier Integration

Nearly 80 of life cycle cost committed in early design phase Design and development of complex aerospace systems calls on core

capabilities of numerous suppliers providing as much as 60-70 of end product value

Supplier network represents an enormous beehive of distributed technological knowledge amp source of cost savings

What are better ways of leveraging this capability for more efficient product development in aerospace sector

Worldwide auto industry experience provides critical lessons

Historic opportunity for achieving BEST LIFECYCLE VALUE in aerospace weapon system acquisition through early supplier

integration into design and development process

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value Lean Difference Auto Industry

Lean Difference Significantly lower development cost and shorter cycle time

Average engineering hours per new car (millions of hours)

Average development cycle time per new car

(months)

Prototype lead time

(months to first engineering protoy

pe)

Source Clark Ellison Fujimoto and Hyun (1995) data refer to 1985-89

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995

LeanEnterprise

Value

Lean Difference Auto Industry Supplier Role in Design

Lean difference starts with significant supplier role in design and development

Supplier Proprietary Parts Assembler DesignedDetail-Controlled Parts

Supplier DesignedldquoBlack Boxrdquo Parts

Percent of total cost of parts purchased from suppliers

Source Clark Ellison Fujimoto and Hyun (1995