Executive Briefings

In an Outsourced Supply Chain, Lockheed Keeps the Raw Materials Flowing

There's no margin of error in the tightly scheduled Joint Strike Fighter project, despite the involvement of four principal partners and thousands of suppliers.

You would be hard-pressed to come up with a bigger supply chain challenge than the one created by Lockheed Martin Aeronautics Co., when it took on the role of prime contractor for construction of the F-35 Joint Strike Fighter (JSF). Lockheed wanted a timely and accurate forecast of all its raw-materials needs, for a production network involving two other principal partners, nine countries, 40,000 individual parts and several thousand suppliers.

There were other complications. Large portions of the JSF are being outsourced to manufacturing partners around the world, with Lockheed performing final assembly. Mike Jones, who oversees information systems and technology for Lockheed, describes the contractor's role as "a weapons systems integrator at the top of the food chain." Below that are multiple tiers of independent suppliers, all the way down to small machine shops.

Many of those entities have little or no direct contact with one another, let alone the ability to convey forecasting or demand data on a real-time basis. Yet the JSF production line, when fully up and running, will have precious little tolerance for error. Lockheed intends to turn out planes at the rate of one per day. Current plans call for a total of 2,593 aircraft for the armed forces of the U.S. and United Kingdom.

A sophisticated aircraft like the JSF requires a wide variety of raw materials, many of which are presently in short supply. Aluminum, titanium and certain composite materials, to name a few, are in high demand and often require long lead times for ordering. Geopolitical issues also have an impact on availability. (A large portion of the world's titanium, for example, comes out of Russia. And the current lead time for titanium forgings from approved sources is 26 weeks.) Yet Lockheed can't afford to be caught without enough materials at any point in the production process.

Getting stuck with excess supply, which is expensive and often not usable elsewhere, is almost as bad. Some of the composite materials used in the construction of modern-day fighter planes are extremely time- and temperature-sensitive. "You can have a tremendous amount of waste if there's too much material," Jones says.

To gain an accurate picture of its needs, Lockheed joined with its two partners in the JSF program, Northrop Grumman and BAE Systems, in the creation of a uniform, long-range forecasting tool which can be used by all participants. Called FoRM, for Forecasted Raw Material, the portal-based application gathers data from multiple sources, including engineered bill of material (EBOM) information for all components. Crucial details include material type, grade and thickness.

The FoRM tool takes that information and figures out the exact parts and materials required for each individual aircraft. It separates the items by trading partner, geographic location and aircraft type. The system also accounts for the three models of the JSF that are part of the program: conventional takeoff and landing, short takeoff and vertical landing, and an aircraft carrier version. Each is being incorporated within an integrated master schedule. As a result, Lockheed knows exactly when a particular type of material is due to enter the supply chain.

The forecast ranges over a period of years, with short-term parts requirements divided into monthly buckets. The levels can be adjusted as the program matures and the rate of production fluctuates, due to engineering changes and other unforeseen factors.

Many aircraft programs suffer from what Jones calls "EBOM degradation," as the list of required materials becomes less defined over the life of the production cycle. FoRM avoids that problem by establishing a "baseline" aircraft, defined as the most current plane that is scheduled to be built but has yet to be delivered. In this way, the system ensures that the latest design of the plane is always being used for generating the forecast. Eventually, the forecast numbers can be locked down, although the system will continue to allow for changes in trading partners, allocation of work and build schedules.

The key, says Jones, is to create an accurate EBOM before the JSF reaches full production. "Engineering errors can be extremely costly when found late in the engineering lifecycle."

Additional benefits from the program will be significant and wide-ranging, Jones says. Builders reduce their operating costs by minimizing excess inventory, and maximizing the availability of what is needed at any given time. They can synchronize the supply chain in line with the realities of procuring scarce raw materials. And they can do a better job of competing for limited supplies of titanium and other materials with producers of consumer goods such as cell phones and golf clubs.

As the JSF program ramps up, Lockheed expects the demand for raw material to exceed the current capacity of producers. Once again, FoRM steps in to help. The multi-year forecast tells suppliers when they will need to boost manufacturing capacity at a particular plant, or source in another location. If a single supplier is deemed unable to meet the need for material over the long term, then alternative sources can be found or developed ahead of time.

Lockheed favors long-term contracts with suppliers wherever possible. The company can secure more favorable pricing by limiting its supplier base and directing the majority of purchases to specific partners. Any builder of parts for the JSF is given the right to purchase raw material at Lockheed's negotiated prices.

The savings can be substantial. In one long-term agreement that it recently concluded with a raw-material provider, Lockheed was required to supply the kind of detailed forecast made possible by FoRM. That capability helped the company to achieve a $30m reduction in pricing with the supplier in question.

"There's a volume opportunity to leverage savings even though we're not going to be the consumers of those parts," Jones says. Such an arrangement wouldn't be possible without the level of forecast accuracy that FoRM provides, he adds.

FoRM also improves EBOM accuracy. Raw-material commodity managers have direct access to parts data stored within the product data management system. They can more easily spot anomalies in the parts list and further improve the accuracy of material forecasts. EBOM issues can be identified and addressed with the appropriate trading partners long before they have an impact on the plant floor.

With a program as complicated as that of the JSF, the new forecasting system can't be implemented overnight. Jones says Lockheed won't reach the full production rate of one plane a day until 2013. The flow of raw material from all suppliers must be in place two years prior to that.

In the meantime, the partners are bringing up the system in phases. The first year, 2006, was devoted to formation of an overall strategy, prototype and requirements for building the portal application. Year two involved the development of code and initial deployment of the FoRM tool.

That portion of the project was, in turn, divided into three phases. The first delivered basic data captured from various sources, and allowed users to match parts with certain commodity materials. The second added forecast calculations and scheduling linked to the JSF build plan. The third provided administrative "portlets" which allow planners to adjust forecast properties as the JSF program matures. The idea, says Jones, "is to get the tool into the hands of users as quickly as possible."

One big benefit of the system is its uniformity. All participants in the JSF supply chain draw on the same material forecast, engineering data and design modeling tool. The shared technology makes possible a level of cooperation and harmonization that is unprecedented in the aerospace and defense industry, particularly where several nominal competitors are involved. Potential users of the FoRM tool include raw material commodity managers from all three of the JSF trading partners, along with individuals in production, purchasing, finance, facilities, shipping and strategic planning throughout the supply chain.

That brand of collaboration is essential to forging a supply chain consisting of partners who know exactly what they need, and when. In the end, though, FoRM's true legacy might be its impact on the very notion of raw-material forecasting-that notoriously uncertain practice, in Jones's words, of "trying to determine where you're going, when all the information you have is where you've been."

RESOURCE LINK:
Lockheed, www.lockheed.com

You would be hard-pressed to come up with a bigger supply chain challenge than the one created by Lockheed Martin Aeronautics Co., when it took on the role of prime contractor for construction of the F-35 Joint Strike Fighter (JSF). Lockheed wanted a timely and accurate forecast of all its raw-materials needs, for a production network involving two other principal partners, nine countries, 40,000 individual parts and several thousand suppliers.

There were other complications. Large portions of the JSF are being outsourced to manufacturing partners around the world, with Lockheed performing final assembly. Mike Jones, who oversees information systems and technology for Lockheed, describes the contractor's role as "a weapons systems integrator at the top of the food chain." Below that are multiple tiers of independent suppliers, all the way down to small machine shops.

Many of those entities have little or no direct contact with one another, let alone the ability to convey forecasting or demand data on a real-time basis. Yet the JSF production line, when fully up and running, will have precious little tolerance for error. Lockheed intends to turn out planes at the rate of one per day. Current plans call for a total of 2,593 aircraft for the armed forces of the U.S. and United Kingdom.

A sophisticated aircraft like the JSF requires a wide variety of raw materials, many of which are presently in short supply. Aluminum, titanium and certain composite materials, to name a few, are in high demand and often require long lead times for ordering. Geopolitical issues also have an impact on availability. (A large portion of the world's titanium, for example, comes out of Russia. And the current lead time for titanium forgings from approved sources is 26 weeks.) Yet Lockheed can't afford to be caught without enough materials at any point in the production process.

Getting stuck with excess supply, which is expensive and often not usable elsewhere, is almost as bad. Some of the composite materials used in the construction of modern-day fighter planes are extremely time- and temperature-sensitive. "You can have a tremendous amount of waste if there's too much material," Jones says.

To gain an accurate picture of its needs, Lockheed joined with its two partners in the JSF program, Northrop Grumman and BAE Systems, in the creation of a uniform, long-range forecasting tool which can be used by all participants. Called FoRM, for Forecasted Raw Material, the portal-based application gathers data from multiple sources, including engineered bill of material (EBOM) information for all components. Crucial details include material type, grade and thickness.

The FoRM tool takes that information and figures out the exact parts and materials required for each individual aircraft. It separates the items by trading partner, geographic location and aircraft type. The system also accounts for the three models of the JSF that are part of the program: conventional takeoff and landing, short takeoff and vertical landing, and an aircraft carrier version. Each is being incorporated within an integrated master schedule. As a result, Lockheed knows exactly when a particular type of material is due to enter the supply chain.

The forecast ranges over a period of years, with short-term parts requirements divided into monthly buckets. The levels can be adjusted as the program matures and the rate of production fluctuates, due to engineering changes and other unforeseen factors.

Many aircraft programs suffer from what Jones calls "EBOM degradation," as the list of required materials becomes less defined over the life of the production cycle. FoRM avoids that problem by establishing a "baseline" aircraft, defined as the most current plane that is scheduled to be built but has yet to be delivered. In this way, the system ensures that the latest design of the plane is always being used for generating the forecast. Eventually, the forecast numbers can be locked down, although the system will continue to allow for changes in trading partners, allocation of work and build schedules.

The key, says Jones, is to create an accurate EBOM before the JSF reaches full production. "Engineering errors can be extremely costly when found late in the engineering lifecycle."

Additional benefits from the program will be significant and wide-ranging, Jones says. Builders reduce their operating costs by minimizing excess inventory, and maximizing the availability of what is needed at any given time. They can synchronize the supply chain in line with the realities of procuring scarce raw materials. And they can do a better job of competing for limited supplies of titanium and other materials with producers of consumer goods such as cell phones and golf clubs.

As the JSF program ramps up, Lockheed expects the demand for raw material to exceed the current capacity of producers. Once again, FoRM steps in to help. The multi-year forecast tells suppliers when they will need to boost manufacturing capacity at a particular plant, or source in another location. If a single supplier is deemed unable to meet the need for material over the long term, then alternative sources can be found or developed ahead of time.

Lockheed favors long-term contracts with suppliers wherever possible. The company can secure more favorable pricing by limiting its supplier base and directing the majority of purchases to specific partners. Any builder of parts for the JSF is given the right to purchase raw material at Lockheed's negotiated prices.

The savings can be substantial. In one long-term agreement that it recently concluded with a raw-material provider, Lockheed was required to supply the kind of detailed forecast made possible by FoRM. That capability helped the company to achieve a $30m reduction in pricing with the supplier in question.

"There's a volume opportunity to leverage savings even though we're not going to be the consumers of those parts," Jones says. Such an arrangement wouldn't be possible without the level of forecast accuracy that FoRM provides, he adds.

FoRM also improves EBOM accuracy. Raw-material commodity managers have direct access to parts data stored within the product data management system. They can more easily spot anomalies in the parts list and further improve the accuracy of material forecasts. EBOM issues can be identified and addressed with the appropriate trading partners long before they have an impact on the plant floor.

With a program as complicated as that of the JSF, the new forecasting system can't be implemented overnight. Jones says Lockheed won't reach the full production rate of one plane a day until 2013. The flow of raw material from all suppliers must be in place two years prior to that.

In the meantime, the partners are bringing up the system in phases. The first year, 2006, was devoted to formation of an overall strategy, prototype and requirements for building the portal application. Year two involved the development of code and initial deployment of the FoRM tool.

That portion of the project was, in turn, divided into three phases. The first delivered basic data captured from various sources, and allowed users to match parts with certain commodity materials. The second added forecast calculations and scheduling linked to the JSF build plan. The third provided administrative "portlets" which allow planners to adjust forecast properties as the JSF program matures. The idea, says Jones, "is to get the tool into the hands of users as quickly as possible."

One big benefit of the system is its uniformity. All participants in the JSF supply chain draw on the same material forecast, engineering data and design modeling tool. The shared technology makes possible a level of cooperation and harmonization that is unprecedented in the aerospace and defense industry, particularly where several nominal competitors are involved. Potential users of the FoRM tool include raw material commodity managers from all three of the JSF trading partners, along with individuals in production, purchasing, finance, facilities, shipping and strategic planning throughout the supply chain.

That brand of collaboration is essential to forging a supply chain consisting of partners who know exactly what they need, and when. In the end, though, FoRM's true legacy might be its impact on the very notion of raw-material forecasting-that notoriously uncertain practice, in Jones's words, of "trying to determine where you're going, when all the information you have is where you've been."

RESOURCE LINK:
Lockheed, www.lockheed.com