Supplier Management Module Research for ACQ-315

1. Jeran Binning

2.  (Lesson 5) Given a company contract award
scenario and corporate goals, students will
identify and assess a company’s
management challenges in optimizing
prime contractor relationships and
decisions in shaping and managing its
supply chain.

3.  Lesson 5: Supplier Management (Tuesday Afternoon 1500-1630)

 Learning Outcomes: Given a company contract award scenario and corporate
goals, students will identify and assess a company’s management challenges in
optimizing prime contractor relationships and decisions in shaping and managing
its supply chain.

 Explain industry strategies to support system sustainability.
 Describe prime contractor methods used for task and risk flow down.
 Explain supplier management impact on company margins.
 Identify company resources needed for subcontractor management.
 Identify risks and financial considerations for various make-buy decisions to
include company motivation to outsource scope.
 Describe prime contractor financial gains and reduced risks from managing
“pass-through” to a subcontractor/supplier.
 Explain company management of critical supply chain priorities across the
several programs.
 Describe agreements on data rights and licensing in protecting a company’s
intellectual property

4.  The instructor briefs the Supplier Management concepts in the
Thursday morning session.
 Use of segments of LOG 340 will be included but adjusted for an
industry perspective.
 Industry motivations to engage in product support activities will
address impacts on market opportunity and company margins.
 An overall supplier management process will emphasize issues
related to supporting both a manufacturing production line as
well as sustaining an aging, legacy system.
 The legacy system may be experiencing rising sustainment
costs, declining availability, obsolescence issues, and the need for
modifications/upgrades/new capabilities.

5.  Activities: The instructor will introduce a short
Case Study to demonstrate financial gains and
risks for managing supply chain subcontractors
on a program to include business acumen
considerations through subcontractors.
 Table teams will be split up representing a
prime, sub (large company), and sub (small
company). Instructor will note facilitated
student offered business challenges and risks for
their companies.

6.  Content available is 20% principally using
LOG-340 framework. References include
LOG-340 Student Guide, commercial supply
chain whitepapers provided on
K:LCICBusiness AcumenACQ 3158 Supplier
Management.

7.  8.1 Explain industry strategies to support system sustainability.
 8.2 Describe prime contractor methods used for task and risk flow down.
 8.3 Explain supplier management impact on company margins.
 8.4 Identify company resources needed for subcontractor management.
 8.5 Identify risks and financial considerations for various make-buy decisions to include company
motivation to outsource scope.
 8.6 Describe prime contractor financial gains and reduced risks from managing “pass-through” to a
subcontractor/supplier.
 8.7 Explain company management of critical supply chain priorities across the several programs.
 8.8 Describe agreements on data rights and licensing in protecting a company’s intellectual property.

8. Skill Set is Complex! contact Nick Little at MSU.
8

9.  Conclusion
 International business supply chains provide the structure for the new
world of globalized business. Much of U.S. international trade is
conducted by globalized supply chains.
 For public policy, supply chains affect the magnitude of impact for fiscal
stimulus packages and also the incidence of trade policy.
 Supply chains also are affected by the range of policies that have an
impact on the competitiveness of U.S. business.
 Whether taxes, environmental regulations, labor policy, or shipping
security, business supply chains are directly affected by changes in the
business environment, whether in the domestic or foreign markets.
 In the world of globalized supply chains, a policy aimed at imports, may
actually hit U.S. parented supply chains as well as foreign companies and
countries.

10.  Public policy affects businesses in two distinct ways. The
first is in the environment for business or the
economic, political, and social crucible in which it
operates.
 This includes a wide range of factors including basic
institutions of private property, commercial law and
rights, market access, rights of establishment, national
treatment, border barriers, exchange rate
policy, protection of intellectual
property, infrastructure, education and training of
workers, energy policy, the climate for innovation, political
governance, and the panoply of policies aimed at the
general climate for business that all companies face.

11.  The second way that public policy affects business is in
actions that affect the internal operations of companies.
 These are actions that directly affect costs of production
and profitability, and may include tax policy, specific
customs duties, wage and employment
policies, accounting and reporting rules, health and safety
requirements, specific environmental requirements, and
product safety.
 Some policies affecting the general business
environment, such as energy costs and subsidies for
research and development, also affect internal costs.

12.  The development of global supply chains adds another dimension to the impact
of public policy.
 This appears in the incidence (who is affected) by policy. Since manufacturing
processes now have become fractured, the incidence of policy likewise has
become fractured.
 A supply chain consists of a domestic parent, domestic suppliers, foreign
suppliers, and a community of supporting functions that include logistics, supply
chain management, and quality assurance.
 Public policy may provide incentives or disincentives for supply chain parent
companies to establish and retain their headquarters in the U.S. market. This
applies both to historically American companies and to foreign companies that
may locate regional headquarters in the United States.
 Public policies favorable to business in the United States also may induce both
American and foreign-owned supply chains to locate more segments of their
supply chains in the United States (and vice versa).

13.  One example of how public policy may enter into business
decision making to determine where to manufacture product is an
analytical tool reportedly used by Dow Chemical.
 Dow has manufacturing capacity in several countries and can
move production from location to location on short notice.
 The company has used a linear programming model25 that takes
account of international differences in exchange rates, tax
rates, and transportation and labor costs to determine the best
mix of production by location for each planning period.26
 The company is able to respond quickly to government policies
that may affect exchange rates, taxes, or other cost factors.

16.  Taxation
 Trade and Investment Policy
 Labor and Health Care Costs
 Environmental Regulation
 Currencies and Exchange Rates
 Infrastructure and Transportation
 Product and Food Safety
 Education and Training
 Protection of Intellectual Property
 Risks
 Fiscal, Monetary, and Industrial Policies

17.  Numerous other tax provisions affect U.S.
businesses and their manufacturing decisions.
 The taxation of income by Americans working
abroad, the rate of taxation of
corporations, various tax incentives or rebates
aimed at promoting specific desired activities
(such as technological change), the taxation of
corporate dividends, and other tax-related
issues are being debated widely.
 These are beyond the purview of this report.

18.  Global supply trains could not exist without international
trade.
 Traditionally, trade and investment policy deals with
border barriers.
 These include customs duties, import quotas, the
freedom to move capital across borders, and the right to
establish businesses (including taking over an existing
company) in a given country.
 The development of globalized supply networks does not
alter the role of traditional trade and investment policies.

19.  Labor Costs
 Labor costs are one of the most controversial aspects of globalized
manufacturing chains.43 The argument is that U.S. companies are
“shipping jobs overseas” or “outsourcing jobs” in search of cheap
labor to reduce costs of production.44
 In 2007, for example, hourly compensation costs for production
workers were
 $37.66 in Germany
 $24.59 in the United States,
 $28.91 in Canada,
 $16.02 in Korea
 $2.92 in Mexico,
 $0.81 in China (2006 data)

20.  In the United States, much of health care is provided
by employers, so health care costs have become an
integral part of labor costs.
 The costs for health care in the United States are the
highest in the world.
 The Congressional Budget Office (CBO) estimates that
spending on health care and related activities will
account for about 17% of gross domestic product in
2009 ($2.6 trillion or $8,300 per capita) and under
current law CBO projected that share to reach nearly
20% ($13,000 per capita) by 2017.57

21.  As with labor issues, environmental regulation both as
applied to businesses in the United States and as
contained in various international trade and other
agreements tends to be quite controversial.
 The issue for governments is how to find a balance
between three potentially conflicting objectives:
 security of supply,
 industrial competitiveness, and
 environmental sustainability.

23.  One part of infrastructure and transportation that is critical to
global supply chains seems to be oceanic shipping and air freight.
 The oceans are no longer a barrier that isolates and protects
countries.
 Instead, modern communications and transportation have
brought markets of the world onto each other’s doorsteps.
 The oceans and skies have become avenues of interaction rather
than barriers of separation.
 Shipping, however, raises certain issues for public policy. These
revolve around risks in the supply chain, particularly costs, security
risks and delays in shipping.

24.  In 2007, the Global Supply Chain Council in Shanghai conducted a
survey of international companies there dealing with secure
logistics. The respondents indicated that security in logistics had
become an important element in their strategy and operations.
Many of the companies surveyed had reorganized their
international supply chains to comply with new international
regulations, such as the Container Security Initiative.
 In addition, many technological initiatives had been launched that
were aimed at improving the security of the supply chain. These
included the use of radio frequency identification, E-seals (physical
locking mechanisms with technology to detect and report
tampering), satellite supported tracking of containers, electronic
locks, image recognition devices, and biometric identification.

25.  Chinese counterfeits include many products, such as
pharmaceuticals, electronics, batteries, auto
parts, industrial equipment, toys, and many other
products, that may be exported and could pose a direct
threat to the health and safety of consumers in the United
States.
 Inadequate IPR enforcement is a key factor contributing to
these shortcomings. China has high criminal thresholds for
prosecution of IPR violations as well as difficulties in
initiating cases.
 This arguably results in limited deterrence. Civil damages
are also low.

26. Deutsche Bank
A Wall St Perspective on the
Defense Industry November 2010
Myles Walton, PhD, CFA
Myles.Walton@db.com
617.217.6259
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via
Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with
companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this
report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS
ARE LOCATED IN APPENDIX 1. MICA(P) 007/05/2010

27. Incentives Give You A Clue to Actions
27

28. Dealing with the Downside of a Budget Cycle:
Follow the Customer or the Technology?
• Strong Balance Sheets And Declining Addressable Markets Will Test
Discipline
• Adjacencies Are Likely to Be Better Forged Through Customer Than
Technology Know-How
• The Bad News: Sharp Drops Will Be Felt the Hardest Down the Chain
• The Good News: Sellers and Buyers Will Be Motivated to Consolidate
“
Their death rays, they say, will treat cancer. Their electric rail guns will loft commercial payloads into space and enrich
earthling entrepreneurs. Their nuclear reactors, originally meant for war in space, will instead hurl astronauts toward
the moon and Mars.”
NYT, April 8, 1990 on the Military Industrial Base Repositioning
28

29. Valuation
P/E Trends
S&P and Large-cap Defense
Defense Historical P/E Analysis Current 5 yr 10 yr
CY12E Historical Historical Defense Average P/E
25
GAAP P/ E S&P 500 P/E
General Dynamics 8.8 13.3 10.6
Lockheed Martin 8.6 15.0 13.0
Northrop Grumman 8.4 13.4 10.0
Raytheon 8.5 15.2 10.6 15
Average GAAP P/ E 8. 6 14. 2 11. 1
Source: Capital IQ
5
1997 1999 2001 2003 2005 2007 2009
Source: Capital IQ.
Multiples very reasonable Post 9/11, the group began to
reflecting budget uncertainty move in line with the market
Defense multiples beginning to diverge again
29

35.  The head of Boeing’s commercial-airliner
division, Jim Albaugh, admits that with hindsight
too much of the Dreamliner programme was
contracted out to other firms.
 Some work has been brought back in-house so
that it can be more closely supervised.
 The plane maker has also set up a “war room”
that constantly monitors the world’s supply of
aircraft parts and raw materials.

36.  It has signed a long-term deal with a
Russian metals firm to ensure a
steady supply of crucial components
made from titanium.

38.  And it has hired hundreds of “examiners” to
visit suppliers, to check that they are building
up production to meet Boeing’s increasing
needs and chivvy them along if not.

39.  It has about 1,200 “tier-
one” suppliers, which
provide parts directly to the
plane maker from 5,400
factories in 40 countries.
These in turn are fed by
thousands more “tier-two”
suppliers, which
themselves receive parts
from countless others.

40.  Beverly Wyse, who oversees production of
the 737, admits that it has sometimes been a
job to persuade all these suppliers to invest
enough to meet future demand. To do
so, Boeing has had to learn to be more open
with them about its production plans, and a
bit less paranoid about whether such
information might reach the ears of its
competitors.

41.  At Boeing’s Everett factory to the north of Seattle and another
plant in South Carolina, plans are afoot to churn out more of the
company’s bigger jets, including the 787. But the 40-odd
unfinished Dreamliners scattered around the Everett campus and
elsewhere are a reminder of how such attempts to ramp up
production can go wrong.
 Having first suffered from a worldwide shortage of the fasteners
that hold bits of the plane together, the 787 was then held back
further by other mishaps, including faulty horizontal stabilisers
sent by an Italian supplier.
 Boeing is struggling to correct the problems on the unfinished
planes even as it strives to get its production lines turning out ten
fault-free 787s a month by the end of next year.

42.  More delays followed as production problems mounted. In
2008, the company blamed another delay on a 58-day strike by
Boeing assembly workers over contract terms.
 The next year, Boeing bought portions of business units of two of
its suppliers to help regain control of its Dreamliner production.
 It paid $580 million for the South Carolina operations of Vought
Aircraft Industries, the company that worked on the 787 aft
fuselage section.
 Boeing later purchased Alenia North America’s half of Global
Aeronautica LLC, the South Carolina fuselage subassembly facility
for the 787. Boeing did not disclose financial terms of that deal.
“By taking Alenia out of the ownership equation, this tidies up the
situation in Charleston,” Boeing said in a statement at the time.

44.  JORGE NIOSI & MAJLINDA ZHEGU
 School of Management Science, Universite Que bec a` Montre , Montreal, Canada
 ABSTRACT: The literature about regional innovation systems, clusters and industrial districts
insists on the importance of local knowledge spillovers.
 Nevertheless, more recently a few authors have put in question the importance of local
knowledge spillovers. This paper provides an analysis of some of the most dynamic aerospace
clusters in the world, located in Montreal, Seattle, Toulouse and Toronto.
 We start by discussing theories of clustering, then provide research questions as well as empirical
evidence on the international nature of knowledge spillovers.
 Local knowledge spillovers are less significant, of a different nature, and they may make a scanty
contribution to explain the geographical agglomeration of firms.
 Conversely, international spillovers help to explain the relative dispersion of industry across
nations.
 Resilient geographical clustering is related to the anchor tenant effects as creators of labour
pools and owners of very large manufacturing plants creating regional inertia.
 We thus reject the local knowledge spillover explanation of aerospace clusters in favour of
another one based on anchor firms and their effects on the local labour pool.

45.  Making aircraft
 Full throttle
 Boeing and Airbus enjoy huge demand for
their planes. Can they keep up?
 Nov 26th 2011 | from the print edition

46.  May 12th 2011, 15:53 by J.F. |
MOBILE, ALABAMA

47. 5.1 Explain industry
strategies to support
system sustainability

48. Redefining Supportability
• New Design Related Metrics
• Integrated with Producibility
48

49. Our Supportability Approach Emphasizes Support Event
Characterization Beyond Traditional Operational Availability (AO)
TRADITIONAL APPROACH NGC Approach
?
AO = SUPPORTABILITY (S)
Answer: Ao = 1.0 OT + ST
BUT NOT TO THE SQUADRON BUT • GIVEN: AO =
(?) + OT + ST + TCM + TPM + A/LDT
COMMANDER!!
MISSING EVENTS
OT + ST
AO =
OT + ST + TCM + TPM + A/LDT - SERVICING - COMBAT OPERATIONS
- RECONFIGURING - LAUNCH ACTIVITIES
-GROUND/CARRIER HANDLING - MISSION VARIATIONS
WHERE: OT = TOTAL OPERATING TIME DURING -SET UP AND TEAR DOWN - OTHER NON R&M ACTIONS
A SPECIFIC INTERVAL
• THEREFORE: AO ≤
S
ST = TOTAL STANDBY DURING A
SPECIFIED INTERVAL • BECAUSE: S IS NOT ADDITIVE BUT CONSISTS OF FINITE,
SIMULTANEOUS SUPPORT EVENTS FROM
= TOTAL CORRECTIVE MAINTENANCE ALIGN TO WINTERIZE (500+ EVENTS DEFINED)
TCM
TIME DURING THE SAME SPECIFIED • AND: S = {OPERATIONAL SUITABILITY, READINESS,
INTERVAL SUSTAINABILITY, SURVIVABILITY, MOBILITY,
LIFE CYCLE COSTS, AO} Events
TPM = TOTAL PREVENTIVE MAINTENANCE
TIME DURING THE SAME SPECIFIED
INTERVAL • WHERE: S = F (f, d, c) IS A CHARACTERISTIC OF DESIGN
f = SUPPORT EVENT FREQUENCY
A/LDT = TOTAL ADMINISTRATIVE AND
LOGISTICS DOWNTIME DURING THE d = SUPPORT EVENT DURATION
SPECIFIED INTERVAL c = SUPPORT EVENT COST
• HENCE, AO ADDRESSES R&M ONLY • HENCE, SUPPORTABILITY REQUIREMENTS ADDRESS ALL EVENTS
DESIGN FOR S BASELINE (WARTIME OPERATIONS)
SUPPORT PLANNING BASELINE
(PEACETIME OPERATIONS)
49
12/16/

50. Integrated Producibility and Supportability Requirements
Development is Pivotal to Systems Engineering
DESIGN Design Integration Solution – Producibility and Supportability
INTEGRATION DILEMA
DESIGNER DESIGNERS SYSTEM DESIGNERS
ENGINEERS
FORMAL
INFORMAL
Producibility Supportability
Other S Sustainment Logistics
P
FIELD
PRODUCIBILITY SUPPORT
ENGINEER • HUMAN SUPPORTABILITY
FACTORS ENGINEER
POWER SOURCES PRODUCTION
ELECTRO- PLANNING AND • SAFETY ILS DISCIPLINES/ELEMENTS
MECHANICAL • PDTR* CONTROL • SDTR INTEGRATION** • MAINTENANCE PLANNING
& HARNESS OPTIMIZATION RELIABILITY • SUPPORTABILITY • MANPOWER AND PERSONNEL
• TECHNOLOGIES TECHNOLOGIES • SUPPLY SUPPORT
INSERTION FABRICATION & • TRADE STUDIES • TRAINING
ASSEMBLY • TRADE STUDIES PRECISION • INDEPENDENT • TECHNICAL DATA
AND TEST • INDEPENDENT MECHANICAL MAINTAINABILITY RESEARCH & • COMPUTER RESOURCES SUPT
RESEARCH ASSEMBLY DEVELOPMENT • PKG, HANDLING AND STORAGE
& DEVELOPMENT (IRAD) • TRANSPORTATION
(IRAD) LOGISTICS • FACILITIES
MACHINE SHOP INTEGRATION SUPPORT • STANDARDIZATION AND
AND PLATING AND TEST ANALYSIS INTEROPERABILITY
**Supportability DESIGN
HYBRID * Producibility Design-To-Requirements • SUPPORT EQUIPMENT
MANUFACTURING Design-To-Requirements (SDTRs) • TRAINING DEVICES
(PDTRs)

51. Future Organizational Relationships
LOGISTICS ENGINEERING
SUSTAINMENT PRODUCT
ENGINEERING SUPPORT
Design for Design for
SUPPORTABILITY PRODUCIBILITY INFRASTRUCTURE FOOTPRINT
• Supportability Design -To • Producibility Design-to • Supply Support • Facilities
Requirements (SDTR) Requirements (PDTR)
•Provisioning • Fielding
•Maintenance Planning •Spares Acquisition
• Spares • Deployment
Integrated with Production
• Failure related
•Technical Data •Size
•Ease of Equipment
• Non-failure related
Installation • Training and Training •Weight
• Support and Test Equipment Support
• Design for ease of access •Personnel
• Manpower and Personnel • Type Classification
• Modularity • PHS&T
• Design for Availability • Material Release
• Fasteners
• Reduction in TOC • Demil
• Tooling
• Reduction in TOC

52. Comprehensive Supportability Design-To Requirements (SDTRs)
Reduce Support Event Frequency, Duration and Cost for AM
S = F(f, d, c) SELECTED SET OF
Operational Availability (Ao)
SDTRs
RELIABILITY & • SUPPORTABILITY (S) ELEMENTS
MAINTAINABILITY
- MAINTENANCE - OPERATIONAL SUITABILITY
• PREVENTIVE - READINESS Materiel
• CORRECTIVE - INFLIGHT SUSTAINABILITY
Availability
- SUPPLY DELAY - OPERATIONAL SUSTAINABILITY
- ADMIN DELAY - MOBILITY/TRANSPORTABILITY (AM) Design
(128 PARAMETERS - LOGISTICS LIFE CYCLE COST
FROM - AVAILABILITY (A0)
MIL-STD-721C) - RELIABILITY
- MAINTAINABILITY DESIGNER
- EQUIPMENT DISPLACEMENT (TEAR-DOWN)
SUPPORT EVENTS
• 500+ PARAMETERS
- NAVY OPERATIONS (OCEAN, SUB-SEA)
- EQUIPMENT EMPLACEMENT (SET-UP)
• DESIGN TO ALGORITHMS
- AUSTERE FIELD (3rd WORLD)
- SPECIAL OPERATIONS
- TRAINING MISSIONS
TAILORED SDTRs
- COMBAT MISSIONS
- FERRY MISSIONS
- REACTION TIME
OPERATIONS
- ALERT TIME
- FLEXIBILITY
SYSTEM SPEC
GENERAL
OPERATIONS SUPPORT
•
ACTIONS
Supportability Design-to Framework 52
12/16/

53. The Supportability Degrader Algorithm differentiates between Mission,
Design and Infrastructure Issues - NAVY or AIR FORCE Data Bases
Design f AD
d AD
r
mh
c AD
o
f AD
d AD
r mh
c AD
AVDLR AD
i
AD
DS Mission NMC s
NMC m
PMC s
PMC m
C
na
Eq
Infrastructure
f AI
d AI
r mh
c AI
o
f AI
d AI
rmh
c AI
AVDLR AI
i
AI Eq
SUPPORTABILITY DEGRADER ALGORITHM (DS)
PURPOSE: The purpose of the Supportability Degrader Algorithm is to provide focused
characterization and assessment of cause and effect relationships within a
selected range of supportability degraders. A secondary purpose is to
enhance developing supportability design-to requirements (SDTRs) for
inclusion in Technical Data Packages or LECPs.
SCOPE: Implementing the Supportability Degrader Algorithm will allow managers to
determine if the degrader is design, mission, or infrastructure driven as
defined by the individual equations above. The algorithm will generate
rankings across the entire range of NALDA reported systems with respect to
Total Ownership Cost. TERMS AND DEFINITIONS ARE AVAILABLE.
12/16/2009 53

54.  Prepared by Science Applications International
Corporation
 Under Contract DASW01-95-D-0076, Delivery
Order 45
 For the Deputy Assistant Secretary of the Army
(Procurement)

55. Susceptibility to disruptions in
funding, schedule, requirements, and political and
other support.
 While the government and the contractor will view
basic program stability more or less in the same
light, the contractor may also view stability in
additional ways, including:
 • The ability to project forward with certainty
 • The stability to develop an efficient supply chain
 • The ability to recover front-loaded costs

56.  Requirement
 Acquisition Phase
 Primary Incentive Areas
 Size
 Contract Type
 Program Stability
 Program/Contract Flexibility
 Competitive Environment Entry Barriers
 Performance History
 Future Effort
 Corporate Strategy
 Inherent Risk
 Industry Dynamic

58.  Several incentives viewed as having the highest impact were also voted the
most difficult to implement.
 However, there were also contractual incentives that were considered to have
high impact and relative ease of implementation. These included:
 • Award-term contracting—the idea that contract length can be shortened
or extended, based on attaining or surpassing specified results
metrics, and;
 • Output Contracting—defining deliverables as outputs (for example, copies
rather than copiers).
 The cross section of contractual incentives from the Phase I study, the Phase
II group efforts, and additional research are reflected in a Compendium of
Contractual Incentives (Appendix B), intended as a baseline guide for the
contracting and acquisition community in the development and crafting of
more effective business relationships.

59. 5.2 Describe prime
contractor methods used
for task and risk flow
down.

60. 5.3 Explain supplier
management impact on
company margins.

61. 5.4 Identify company
resources needed for
subcontractor
management.

62. Raytheon Supplier Diversity - Connect With Us
RTN Supplier Diversity Website
http://www.Raytheon.com/connections/supplier/diversity
8/8/2012 Page 62

63.  5.5 Identify risks and financial
considerations for various
make-buy decisions to include
company motivation to
outsource scope.

65.  5.6 Describe prime contractor
financial gains and reduced
risks from managing “pass-
through” to a
subcontractor/supplier.

66. 5.7 Explain company
management of critical
supply chain priorities
across the several
programs.

67. 5.8 Describe agreements
on data rights and
licensing in protecting a
company’s intellectual
property.

70. ACQ-315

72.  Two costs typically drive an organization’s “make-or-buy” decisions:
production costs and transaction costs. Conventional economic analysis
focuses on production costs (economies of scale and scope, learning
curves, etc.).
 The “buy” (or outsourcing) option is routinely prescribed whenever
external production costs are substantially lower than internal
production costs.
 Although recognizing the importance of production cost savings in the
decision to outsource, there is another key factor, transaction costs (e.g.
search and information costs; bargaining, decision and contracting costs;
and monitoring and enforcement costs).
 As Oliver Williamson rhetorically queries:“What...does zero transaction costs mean? All
of the relevant information is freely available and can be costlessly processed by the participants?
Comprehensive contracting is feasible? Actions can be costlessly monitored? Decisions will always be
made in a benign way?” [1999 p.316]

73. What Drives Make vs Buy Decisions?

74. Rand 1992

75. Overhead Allocation and
Incentives

76. Semiconductors Capital Asset High Shipbuilding
Intensity Large Vessels
Goal = Capacity Loading Goal Varies
Inventory Intensity
Low High
Goal = More Sales Volume Goal = Faster Payment Cycles
Low Large Scale
Commercial
Software Consulting

77. Nominal High
Must pull work back Capital Must Push
into the Prime Intensity Capacity Out
Loading
Low High
Nominal condition
Few examples in
For low intensity model
This quadrant
Low

78.  Interface Control Documentation (ICD)
 Interface Control Documentation includes Interface
Control Drawings, Interface Requirements
Specifications, and other documentation that depicts
physical and functional interfaces of related or co-
functioning systems or components.
 ICD is the product of ICWGs or comparable integrated
teams, and their purpose is to establish and maintain
compatibility between interfacing systems or
components.

79.  4.4. Systems Engineering Design Considerations
 Subordinate sections to 4.4 cover the following topics:
 4.4.1. Accessibility
 4.4.2. Commercial Off-the-Shelf (COTS)
 4.4.3. Corrosion Prevention and Control
 4.4.4. Critical Safety Items (CSIs)
 4.4.5. Disposal and Demilitarization
 4.4.6. Diminishing Manufacturing Sources and Material Shortages (DMSMS)
 4.4.7. Environment, Safety, and Occupational Health (ESOH)
 4.4.8. Human Systems Integration (HSI)
 4.4.9. Insensitive Munitions (IM)
 4.4.10. Interoperability
 4.4.11. Open Systems Design
 4.4.12. Parts Management
 4.4.13. Program Protection &System Assurance
 4.4.14. Quality and Producibility
 4.4.15. Reliability, Availability, and Maintainability
 4.4.16. Software
 4.4.17. Spectrum Management
 4.4.18. Standardization
 4.4.19. Supportability
 4.4.20. Survivability and Susceptibility
 4.4.21. Unique Identification of Items

80.  Pentagon’s industrial policy chief says he worries that the U.S. aerospace
industry could follow in the footsteps of the domestic automobile industry by
cutting corners in manufacturing, churning out inferior products and
eventually losing market share to superior foreign competitors.“What
happened to the auto industry could happen to aerospace,” Brett Lambert
tells Aviation Week. Shortsighted financial decisions, such as using cheaper
parts, drove customers to “stop having confidence in cars, companies to start
losing profit, [and the large companies] put that burden onto the supplier,”
he says. U.S. automakers “weren’t competitive with the market” as a
result, he says.
 As the defense budget declines and the Pentagon continues to demand
management efficiencies, Lambert says this burden should not be
disproportionately transferred from the prime contractors to the third- and
fourth-tier suppliers.
 Diminished access to capital for small suppliers is one of the preliminary
findings of his sweeping Sector-by-Sector, Tier-by-Tier (S2T2) industrial base
study under way now.

81.  OUTSOURCE IN HASTE, REPENT AT LEISURE By Stefan Stern
 So now we know. BP did not have “the tools you would want in your toolkit”, in the candid words
of its chief executive, Tony Hayward. While the unexpected will, by definition, always
happen, when disaster struck on April 20 in the Gulf of Mexico the company lacked the necessary
expertise and capacity to deal with a deepwater oil leak. The PhD geologist boss did not have
enough specialist engineers to turn to.
 One unattractive aspect of the Deepwater Horizon catastrophe was the sight of executives from
BP, rig operator Transocean and maintenance provider Halliburton, all seeking to play down their
responsibility for the accident. “Mistakes were made, but not by us,” seemed to be the attitude.
Responsibility for the accident was shared, but no one could agree by whom exactly, and in what
proportion. In effect, the sort of discussions that should have taken place before contracts were
signed ended up being played out on Capitol Hill, in front of the television cameras.
 This article can be found at:http://www.ft.com/cms/s/0/15f7acf6-727e-11df-9f82-
00144feabdc0,_i_email=y.html"FT" and "Financial Times" are trademarks of The Financial
Times.Copyright The Financial Times Ltd 2011

85. 12/16/2009 85

86. Recursive and Iterative
Systems Engineering Vee Model
Stakeholders
Stakeholder Validate System to
Requirements
Requirements, CONOPS, Definition Validation Transition Stakeholder
Validation Planning Requirements and
Definition CONOPS
Requirements
Analysis Validation
System Performance Integrate System and
Specification and
Verification Verify to System
Verification Planning Specification
Architecture
Validation
Design
Configuration Item Assemble Configuration
Performance Verification Items and Verify to CI
Specification and Performance
Verification Planning Implementation Integration Specification
These are
Configuration Item
Detail Specification and
Verification Inspect and test to critical in a
Detail Specification
Verification Procedures Buy situaton
Technical Requirements Configuration Interface
Planning Management Management Management
Fabricate, code, buy,
or reuse
Decision Risk Data Technical
Analysis Management Management Assessment
86

87. Interface Management

88.  Another aspect of configuration
identification to be considered during
development is interface
management, also referred to as interface
control.

89.  Interfaces are the functional and physical
characteristics which exist at a common
boundary with co-functioning items and
allow systems, equipment, software, and
data to be compatible.

90.  During development, part of the contractor’s
design effort is to arrive at and document
external interface agreements, as well as to
identify, define, control and integrate all
lower-level (i.e., detailed design) interfaces.

91.  To understand how a particular interface should
be defined and managed, it is necessary to
categorize the interface in a number of ways:
 Contractual relationship
 Customer relationship (Acquisition activity(ies)
 Hierarchical relationship
 Developmental status

92.  Each interface must be defined and
documented; the documentation varies from
performance or detailed specifications to
item, assembly, or installation drawings, to
interface control documents/drawings.

94.  Whether formal or informal interface management is employed, it is
necessary that there be a legal responsibility on the part of the
interfacing parties, since even the best intentioned technical agreements
can break down in the face of fiscal pressure.
 If there is a contractual relationship, including a teaming
arrangement, between two or more parties to an interface, there is
already a vehicle for definition and control.
 However, where there is no contractual relationship, a separate interface
agreement may be necessary to define the interface process and provide
protection of proprietary information.
 When the agreement involves two or more contractors, it is referred to
as an associate contractor agreement; when two or more Government
activities are the parties to the agreement, a Memorandum of
Understanding (MOU) is generally used.

95.  Within an organization, and often with
subcontractors, integrated product teams may
be used to establish interfaces. Some interfaces
must be defined through a formal interface
management process involving interface control
working groups (ICWGs). An ICWG is a
specialized integrated product team comprised of
appropriate technical representatives from the
interfacing activities. Its sole purpose is to solve
interface issues that surface and cannot be
resolved through simple engineer-to-engineer
interaction.

96.  Once interfaces have been agreed-to by the parties
concerned, they must be detailed at the appropriate
level to constrain the design of each item and baseline
the configuration documentation so that the normal
configuration control process will maintain the
integrity of the interface. Then it may be necessary to
convene an ICWG or other mechanism on rare
occasions to resolve change issues in a satisfactory
manner. The Government is the arbitrator of issues
that cannot be resolved by an ICWG or IPT, such as
those issues which involve contractual issues requiring
contract changes and agreement between different
acquisition activities.

98.  Interface Control Documentation (ICD)
 Interface Control Documentation includes
Interface Control Drawings, Interface
Requirements Specifications, and other
documentation that depicts physical and
functional interfaces of related or co-functioning
systems or components. ICD is the product of
ICWGs or comparable integrated teams, and
their purpose is to establish and maintain
compatibility between interfacing systems or
components.

101.  “DoD operates 17 major depot activities, employing
more than 77,000 personnel and expending more
than 98 million direct labor hours (DLHs) annually…
The property, plant, and equipment of DoD’s depots
are valued at more than $48 billion.
 That infrastructure comprises more than 5,600
buildings and structures, with 166 million square
feet used for depot maintenance.”
 - Logistics Management Institute Depot
Maintenance Report, 2011

117. The Business of
Aerospace and Defense
September 2010
Robert H. Trice
Senior Vice President
Corporate Strategy and
Business Development
117

118. Goal
Foster Informed Discussion
of the Business Aspects
of the Aerospace and Defense Industry
118

119. Agenda
• Business Principles
• A&D Evolution
• A&D Contributions
• A&D Unique Characteristics
• Defense Contracting Considerations
• Summary
119

120. Business Principles
120

121. What All Businesses
Have in Common
• Capacity to Produce
– Employees and Facilities
• Opportunity to Sell
– Customers and Markets
• Access to Capital
– Lending Institutions and Shareholders
Stakeholders’ Values Drive Business
121

122. What All Successful Businesses
Have in Common
• Effective Business Rhythms
– Strategy for Success and Determination to Execute It
• Strong Cash Flow
– Processes Enabling Financing, Sales, Execution, and
Collection
• Prudent Risk Management
• Reasonable Shareholder Returns
Returns Enable Success
122

123. Financial Flow
Sales
Minus Cost of Sales
Order
Development, Operating
Production & Delivery Profit
Minus Interest and Taxes
Backlog
Net
Earnings
Divide by # of Shares
Earnings Per
Share
123

124. A&D Evolution
124

125. Defense Industry Evolution
Government Industrial Specialized “Pure” A & D
Arsenal Mobilization Components Industry
40%
35% Defense Cuban Desert Storm
Spending WWII Missile
30% Crisis
as % of
25% GDP Vietnam
Korea
20%
Berlin Wall
WWI
15%
12/07/41 9/11/01
10%
5%
Cold War
0
1910 1930 1950 1970 1990 2010
Chart Source:
Lexington Defense Industry was Formed from Threats to National
Institute
Security and Needs for Technological Investments 125

126. A&D Industry Consolidation
Lockheed
GD Ft. Worth
LOCKHEED MARTIN
Martin Marietta
GE Aerospace
GD Space
Loral
LTV Missiles
IBM Federal
Comsat
ACS
SAVI
PAE
Acculight
Unitech
Northrop
Grumman
Westinghouse NORTHROP GRUMMAN
Logicon
Litton
Newport News
TRW
Essex
3001 Int’l
Raytheon
BAe Corporate Jets
E-Systems RAYTHEON
GM-Hughes
GD Missiles
Texas Instruments
Boeing Australia
Flight Options
Sarcos Research
SI Govt
Boeing
Rockwell
McDonnell Douglas
BOEING
Hughes S&C
Aviall
Insitu
General Dynamics
United Defense
GulfStream GENERAL DYNAMICS
Motorola IISG
GM Defense
Veridian
Anteon & FCBS
SNC
Jet Aviation Group
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2007 2008
Reduced Demand and Market Forces Reshaped the Primes
126

127. Defense Systems Procured
Aircraft Procurement Ship Procurement
531
497 33
337 31
188 11
138 108 8
6 5
1980 1985 1990 2000 2005 2009 1980 1985 1990 2000 2005 2009
Missile Procurement Helicopter Procurement
353
87,113
65,107 243 248
124
18,466 7,581 14,661 66
5,702 28
1980 1985 1990 2000 2005 2009 1980 1985 1990 2000 2005 2009
Source: DoD Procurement Programs P-1
127

128. A&D Primes’ Portfolios (2009 Sales)
Lockheed Martin - $45B Boeing - $68B Northrop Grumman - $34B
Space Military
Systems Shipbuilding
Aeronautics Aircraft Aerospace
Commercial Systems
Aircraft Network
Information Information
& Space Systems &
Systems &
Electronic Systems Technical
Global Global Electronic
Services Systems Services & Services Systems
Support
Raytheon - $25B General Dynamics - $32B
Integrated
Marine Aerospace
Intel, Info, & Defense
Systems
Net Centric Systems
Systems &
Technical Missile Information Combat
Services Systems Systems & Systems
Space & Technology
Airborne
Systems
Primes are Adapting to Changing Market Demands
128

129. A&D Industry Supports Global Security
Global Peer Warfare
Conventional Regional Conflicts
Defense of Allied Nations
Major Combat War on Terrorism
Counter Insurgency
Coping with a Faltering or
Irregular Conflict Collapsed Government
Nation Building
Peace Keeping
Disaster Response
Humanitarian Maintaining Social Order
Assistance & Secure Commerce
Managing Resources
& The Environment
Exploration of Space
Solutions for the Entire Spectrum of Engagement Providing for Society Effective Government
129

130. Three-Tiered Global A&D Industry
A&D Global Primes
Sub-Primes &
Systems Partners
Lower-Tier
• 30,000+ Subsystems and materials suppliers
Suppliers • Includes small, minority-owned and
disadvantaged businesses (20,000+)
• Includes commercial companies
• Network of use extends to additional suppliers
60 to 75% of Work Subcontracted 130

131. A&D Contributions
131

132. A&D Workforce Contributions
(Aviation Week 2009
Workforce Age Distribution
Workforce Study)
23% Under 35
38% 35-49
39% Over 50
Aerospace Workers (thousands)
1200
Hundreds of Thousands of Jobs 30%
1000 Workforce Eligible to Retire by 2013
Eligible to Retire
25%
800 20%
15%
600
10%
400 5%
0%
200 Engineering Research & Manufacturing Program
Development Labor Management
0
91 94 97 00 03 06 09
132

133. Over 40K A&D Jobs Lost Since 2009
WA = 6578 Notes: Since First Quarter 2009, Actual and Announced
= 100 Jobs
Cut
NY = 2682
CA = 4458
Plus: Layoff of 560 A&D workers in San
FL = 10,108
Diego who cannot find work in the region
within one year could result in the loss of
760 supplier jobs and 400 jobs related to
spending cutbacks by those laid off. This
could mean a total nation-wide loss of
~120,000 A&D-connected jobs since 2009. LA = 6771
(Source: Institute for Policy Research)
133

134. Competitive Compensation
(2009)
All Employee Annual Earning
Production Workers Hourly Wage Comparisons
$33 $84,400
$78,904
$31 $74,403 $73,000
$23 $56,243
$22
$21
$20 $47,174
$19
$18
$16
$27,206
$11
Sources: Bureau of Labor & Statistics, U.S. Census,
(Average U.S. Salary: $38,000 per year )
Aerospace Industries Association, TechAmerica
134

135. Aerospace: A Leader in Net Exports
$ Millions
2008 2007
60,000
50,000
40,000
30,000
20,000
10,000
0
-10,000
-20,000
-30,000
-40,000
-50,000
-60,000
Source: Bureau of the Census (seasonally adjusted), Foreign Trade Division
135

136. A&D Technology Contributions
R&D Investment as a Proportion of Net Sales
2.9%
13.3%
All Industry Aerospace
Non-Company Funded Company Funded
(AIA, Bureau of Labor Statistics,
National Science Foundation)
136

137. A&D Technology Contributions
Nuclear Power
EZ Pass
Jeep
Hydraulic Brakes Traffic Cameras Air Traffic Control
Airbags Pagers
Smoke Internet
Detectors
Satellite Jet Engines
Communications
Cordless
Power
GPS Computers Tools
Climate Monitoring
Legacy of Innovation and Public Benefit
137

138. Superior Systems for Warfighters
138

139. A&D Unique
Characteristics
139

140. A&D Industry Market Value
Aerospace & Defense
Market Cap as % of S&P
4.2%
3.8%
2.4%
1.8% 1.7%
0.9%
1960 1970 1980 1990 2000 2009*
* A&D as sum of LMT, BA, NOC, RTN, GD
Sources: Company Reports, Morgan Stanley, Yahoo! Finance (Includes Commercial Aircraft) 140

141. Industry Comparisons
Market Cap / Sales ($B)
Publicly Traded Companies on NYSE or AMEX
Market Cap
Sources: CNN Money, Yahoo! Finance 2009 Sales $251
$243
$221 $219
$184 $180
$164
$115
$107
$96
$77
$71
$58
$43
Cigarette Industry Beer Brewers Microsoft Apple IBM HP A&D
Aerospace and Defense: Lockheed Martin, Boeing, Northrop Grumman, General Dynamics, Raytheon, L3, and Honeywell Corporation
Cigarette Industry: Lorillard, Reynolds American, Vector Group, Star Scientific, Altria Group, Philip Morris International, and British American Tobacco Industries
Beer Brewers: Anheuser-Busch InBev, Fomento Economico Mexicano, Companhia de Bebidas das Americas, Molson Coors Brewing Co, Compania Cervecerias
Unidas, Boston Beer, and China New Borun Corporation
141

142. Gross Earnings Sector Comparisons
EBITDA Margin from 2007 – 20091
Telecommunications
Energy
IT
Healthcare
Utilities
Materials
Consumer Staples
Consumer Discretionary
Industrials
A&D
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%
2007 2008 2009
Source: CapitalIQ Note: (1) Analysis includes publicly-traded, US-based companies with revenues >$1B in CY2008
Aerospace and Defense Margins Lag Other Industries 142

143. Net Earnings as % of Revenue
Company Comparisons from Various Industries
A&D Sector Other Industries
Yr 2009 Yr 2009
47
30
28
17
14
12
7.8 7.5 6.7 7
5.0
1.9
Merck G'Sachs M'Soft Cisco IBM Intel HP
RTN GD LMT NOC BA
Sources: Company Reports, Fortune, Yahoo Finance (Includes Commercial Aircraft) Note: Recent S&P Average is 7-8% 143

144. Aerospace & Defense Elements
Commercial Defense
Military Aircraft
Military Space & Missiles
Commercial Aircraft
Sustainment, IT & Services
Commercial and Defense Sectors Share Technical Skills,
But Require Segmented Business Systems
144

145. Commercial vs. Gov’t Contractors
Commercial Business Government Business
• Open Markets • Monopsony
• Multiple Customers With • Single Customer Comprised
Individual Transactions of Multiple Constituencies
• Anti-trust Limits • Industrial Base Policy Limits
• Price-based Business Model • Cost-based Business Model
• Closed Books • Truth In Negotiations Act
(TINA)
• Maximize Sales
• Maximize Sales
• Upside/Downside Unlimited
• Upside/Downside Capped
• R&D Investments Recouped
in Production Price • R&D Investments Funded or
Reimbursed by Government
145

146. Commercial vs. Gov’t Contractors
Commercial Business Government Business
• Limited Government Oversight • Significant Government
Oversight
• Subject To Federal Acquisition
• Not Subject To Federal
Regs
Acquisition Regs
• Export Licenses Required to Sell
• Limited Export Control Overseas
• Multi Year Projections; • Annual Funding; Government
Consumer Driven Policy Driven
146

147. Defense Program Reductions
F-22 Fighter
Programmed: 750 Being Built: 187
B-2 Bomber
Programmed: 132 Built: 21
Expeditionary Fighting Vehicle
Programmed: 1025 Being Built: 593
DDG-1000
Programmed: 32 Being Built: 3
V-22 Tiltrotor
Programmed: 913 Being Built: 458
147

148. Terminations for Convenience
TSAT/TMOS
RAH-66 Comanche $10 Billion Spent
$9 Billion Spent
VH-71 Presidential Helicopter
$5 Billion Spent
Airborne Laser
$7 Billion Spent
Future Combat System
$24 Billion Spent XM2001 Crusader
$2 Billion Spent
148

149. Why Invest in the A&D Industry
• Reasonable Returns on Investment
• Strong Cash Flows
• Consistent Dividend Returns
• Longer Term Business Outlook
• Sustainable Revenue Streams
• Government Indemnification from Catastrophic Risk
• Counter Cyclic to the Market
149

150. Five Year Stock Performance
(through December 31, 2009)
115%
100%
85%
70%
55%
40% Lockheed Martin 36%
Raytheon 33%
General Dynamics 30%
25%
S&P A&D 24%
10%
Boeing 5%
NASDAQ 4%
-5% Northrop Grumman 3%
Dow Jones -3%
S&P 500 -8%
-20%
-35%
-50%
150

151. Defense Contracting
Considerations
151

152. 152

153. Government vs. Industry View of Profit
Government Perspective Industry Perspective
Total Allowable Cost $9,000,000
Profit/Fee @ 12% $1,080,000
Price $10,080,000 Sales $10,080,000
Return on Sales 10.7% Total Allowable Cost ($9,000,000)
Unallowable Cost @ 3% of Sales ($310,500)
Earnings Before Taxes 769,500
Income Taxes @ 35% ($269,325)
Net Income $500,175
Net Income as % of Sales 4.96%
How 12% Yields 4.96%
153

154. Revenue Distribution
Net Lockheed Martin 2009 Sales $45.2B
$3B
$1.2B
Cost of Sales
Interest and Taxes
Net Earnings
$41B
Cost of Sales Includes:
• Subcontracts
• Direct Labor and Travel
• Materials and Distribution
• Amortized Property, Plant & Equipment
• IRAD
• Bid and Proposal
• Unallowable Compensation
• Charitable Contributions
154

155. Cash Deployment
Internal Investment:
Capital Expenditures (Property, Plant & Equipment)
Working Capital (Inventory, Accounts Receivable / Payable)
Dividends: Pensions
Return to Shareholders
Internal
Dividends Investment
Acquisitions:
Increase Capabilities
Acquisitions/ and Capacities
Share Ventures
Repurchase
Share Repurchase:
Return to Shareholders Debt
Retirement
Debt Retirement:
Return to Creditors
Supports All Stakeholders 155

156. Summary
156

157. A&D Industry’s Unique Role
SECURITY & SERVICES
GOVERNMENT PRIVATE
TAXES SECTOR
AEROSPACE
AND DEFENSE
INDUSTRY
Translating Private Sector Resources into Public Sector Solutions
157

158. A Healthy Defense Industrial Base
• Supports Investment
–Research and Development
–Facilities and Infrastructure
• Creates and Protects American Jobs
• Is a Major Exporter
• Attracts and Retains Top-Tier Talent
• Promotes American Technology Preeminence
• Enables a Stable Partner for a Long Cycle of
Business
• Enhances Allied Political, Military and Industrial
Partnerships
Stability Supports an Industrial Base that Can Respond to
Tomorrow’s Challenges
158

162. Supply Chain Complexity in a
Changing Environment
November 17, 2011
Michael Forbes, CPSM
Corporate Director, Supply Chain
Northrop Grumman Corporation
UNCLASSIFIED

163. Supply Chain Complexity: Today‘s Topics
• Northrop Grumman Introduction
• Do You Have the Right Talent?
• Responding to Customer, Legislative & Regulatory Changes
• Material Authenticity
• Risk Management
163

164. Northrop Grumman Today
• $34.8 billion sales in 2010*
• $64 billion total backlog (as of December 31, 2010)
• 75,000 people, 50 states, 25 countries
• Leading capabilities in:
– C4ISR and battle management
– Cybersecurity
– Defense electronics
– Homeland Security
– Information technology and networks
– Logistics
– Space and missile defense
– Systems integration
– Unmanned Systems
*2010 sales included sales from Northrop Grumman Shipbuilding, a business that was spun-off in the first quarter of 2011.
Focus on Performance
164

165. Four Operating Sectors at a Glance
Aerospace Systems Electronic Systems Information Systems Technical Services
Large Scale Systems Radar Sensors & Systems Command & Control Defense and Government
Integration Systems Services
RF/IR Countermeasures
C4ISR Ground Vehicle
Communications
Unmanned Systems EO/IR Targeting & Reconstitution
Surveillance
Intelligence, Surveillance &
Airborne Ground Nuclear Security Services
Navigation & Positioning Reconnaissance Systems
Surveillance / C2
Systems Training Solutions
Naval BMC2 Enterprise Systems
Space Sensors and Security Technical and
Global / Theater Strike Operational Training Support
Systems C4ISR Networked Systems IT/Network Outsourcing
Electronic Combat Live, Virtual and Constructive
Operations Marine & Undersea Systems Intelligence Domains
ISR Satellite Systems Propulsion & Power Integrated Logistics and
Federal, State/Local
Generation Modernization
Missile Defense Satellite & Commercial
Systems Air Defense Systems Irregular Warfare/Quick
Homeland Security Reaction Capability
MILSATCOM Systems
Environmental & Space Health IT Aircraft System/Platform
Science Satellite Systems Sustainment & Modernization
Cybersecurity
Directed Energy Systems Aircraft
Subsystem/Component
Strategic Space Systems Sustainment & Modernization
165

166. Last Decade‘s Environment
I’ll take 300 widgets for delivery
next Friday… Payment terms
are net 30… Thank you for being
a preferred supplier.
166

167. Today‘s Environment
167

168. Key Questions To Determine Approach
Key questions
• What are our relative strengths and
weaknesses in supply chain management?
Internal assessment • How significant are the capability
gaps/shortfalls?
• What are the relevant best practices and
trends in Supply Chain?
External assessment • What are the most likely future scenarios?
• What are the best opportunities for us to
differentiate itself?
Evaluation and • What criteria should be used to prioritize
strategic options?
prioritization of
• How can we build, buy, or ally to obtain
strategic options critical capabilities?
• What key investments are required and what
Implementation are the expected savings/returns?
plan & approach • What governance/structural issues need to
be addressed to ensure success?
16