the presentation

Report
Importance of Supplier Relationship
Management in Contracting for Large
Weapon System Sustainment
Breakout Session 702
Jim Wright
Jonathan Selter
Jim McIntosh
July 21, 2010
10:00am – 11:45am
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Table of Contents
• Executive Summary
• The Need for SRM in Weapon System Sustainment
• The Tenets of Weapon System SRM
• Black Hawk SRM Case Study
• Concluding Thoughts
2
World class SRM are based on open
customer-supplier communications…
The Need for
Weapon System
SRM
 Few suppliers are currently managed at the Cross Platform,
LCMC or AMC level
 Item- or subsystem-level management leads to an inefficient,
decentralized and tactical approach to managing suppliers that
can be alleviate through SRM
The Tenets of
Weapon System
SRM
 World class SRM is based on open communication, pro-active
supply chain management and collaboration
 SRM based on these principles increases supplier performance,
reduces risk and improves the value of the supplier relationship
Black Hawk SRM
Case Study
 The key success factors of the Black Hawk SRM program are:
- Collaborative development of metrics and scorecards
- Careful weighting of scorecards KPIs
- Identification of appropriate performance targets
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Table of Contents
• Executive Summary
• The Need for SRM in Weapon System Sustainment
• The Tenets of Weapon System SRM
• Black Hawk SRM Case Study
• Concluding Thoughts
4
Weapon System suppliers can be
managed at several points within the Army
sustainment hierarchy…
AMC
…but few suppliers are
currently managed at the
Cross Platform, LCMC or
AMC level…
LCMC
Cross Platform
Platform
…with the majority of
suppliers being managed at
the Subsystem or Item level
Subsystem
Item
Item- or Subsystem-level management creates a complex system with
numerous points of contact between the customer and the supplier
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Item- or subsystem-level management
leads to an inefficient, decentralized and
tactical approach to managing suppliers
Existing weapon system acquisition…
Platform
Item
Managers
…is decentralized and tactical
 Within a single platform, multiple Item
Managers have individual relationships
with supplier POCs
 Looking across multiple platforms,
numerous Item Managers within the
sustainment enterprise have individual
relationships with supplier POCs
Suppliers
Supplier A Supplier B Supplier C
These inefficient can be alleviated through an enterprise-level Supplier
Relationship Management Program
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Table of Contents
• Executive Summary
• The Need for SRM in Weapon System Sustainment
• The Tenets of Weapon System SRM
• Black Hawk SRM Case Study
• Concluding Thoughts
7
World class SRM is based on open
customer-supplier communications…
Open Communication
Description
 Periodic communication with suppliers to share information and
identify opportunities for supply chain improvements
Existing SRM
Practices
 Information-sharing only as needed, with communication largely
focused around performance appraisals
 Operational and upstream supply chain data largely not shared
Best-in-Class
SRM Practices
 Open and honest information sharing to create value and allow
collaborative supply chain improvements
 Suppliers are considered to be supply chain partners, with a
collaborative rather than combative relationship
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…pro-active supply chain management…
Pro-Active Supply Chain Management
Description
 Identify and measure factors that can transform supply chain
management from a reactive to a pro-active model
Existing SRM
Practices
 Mainly reactive, if any, consideration of supplier indicators, such
as finances and facilities
 Often not considered a part of Supplier Relationship Management
programs
Best-in-Class
SRM Practices
 Monitor factors (operational, financial, economical, environmental
etc.) that are leading indicators of future supply chain disruptions
 Mitigate and/or solve supply chain disruptions before the occur
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…and customer-supplier collaboration
Collaboration
Description
Existing SRM
Practices
Best-in-Class
SRM Practices
 Work collaboratively with suppliers to identify ways to drive value
across the supply chain
 Share best practices and work for both customer and supplier
cost savings
 Little collaboration and minimal effort to jointly identify
improvement opportunities
 Interactions focused on price negotiations and/or performance
management
 Focus on pursuing cost savings opportunities that benefit both the
client and the suppliers
 Regular meetings with supplier
 Creates incentives for all parties to participate
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An SRM program based on these
principles can help the sustainment
enterprise capture three primary benefits
Supplier Performance
Supply Risk
• SRM programs improve
supplier performance
through
- The incorporation of
Performance Incentives
into contracts and
supplier relations
- Better communication of
customer needs, leading
to Service Quality
Optimization
• SRM programs can help
enterprises with two
dimensions of supply risk
- The risk of a supplier
becoming insolvent
(Supplier Risk)
- The risk of disruption in
the supply of a key part or
raw material (Supply
Disruption Risk)
Improved Supplier
Performance
Risk Assessment &
Mitigation
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Relationship Value
• SRM outreach fosters
greater collaboration,
knowledge sharing and
information sharing,
allowing
- Supply Chain Visibility
into the upstream supply
chain
- Joint Innovation to
collaboratively improve
performance
Increased Relationship
Value
Table of Contents
• Executive Summary
• The Need for SRM in Weapon System Sustainment
• The Tenets of Weapon System SRM
• Black Hawk SRM Case Study
-
The Road to SRM
SRM Program Design
• Concluding Thoughts
12
The Black Hawk helicopter is one of
Army’s most important weapon platforms
Key Facts
Deployed
1979
Replaces
UH-1 Huey
Speed
150 knots
Capacity
11 combat troops
Crew
4 (2 crew chiefs; 2 pilots)
Armament
2x7.62MM machine guns
Army Fleet
1,471
Navy Fleet
289 (Sea Hawk variant)
USAF Fleet
101 (Pave Hawk variant)
Description and History
• Army’s primary transport helicopter, providing dramatic improvements in troop capacity
and cargo lift capability compared to the UH-1 Series "Huey"
• Provides air assault, general support, aeromedical evacuation, command and control and
special operations support
• Black Hawks continue to serve in Afghanistan and Iraq
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Table of Contents
• Executive Summary
• The Need for SRM in Weapon System Sustainment
• The Tenets of Weapon System SRM
• Black Hawk SRM Case Study
-
The Road to SRM
SRM Program Design
• Concluding Thoughts
14
The path toward SRM began with an
analysis of the Black Hawk program
Overview
Help Black Hawk Program Management Office analyze Black Hawk
Sustainment Sourcing for future sourcing opportunity identification
The team identified 816 parts across
the seven Black Hawk systems…
Airframe
Number of
Parts
703
Turbine Engine
…supplied by 179 unique vendors
Airframe
Number of
Suppliers
145
65
Turbine Engine
32
Engine
22
Engine
22
Alt. Turbine Engine
1
Alt. Turbine Engine
7
Airframe Components
18
Airframe Components
12
TACSAT
2
TACSAT
2
Clearance Vehicle
5
Clearance Vehicle
4
System Description
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System Description
The Black Hawk analysis uncovered three
supplier management challenges
Challenge
Details
Implication
Large Number
of Parts
• 819 unique parts relate to the Black Hawk
platform
• Parts managed individually or in small numbers
by individual item managers
• Relationships within a
platform managed by
multiple item managers
Large Number
of Systems
• The Black Hawk platform includes seven unique
systems, (e.g. Airframe and Engine)
• If multiple parts are managed jointly, they tend
to be managed at the weapon system level
• Relationships across
system managed
separately by individual
systems
Large Number
of Suppliers
• The Black Hawk program includes suppliers
that provide spare part and repair services
• Across both categories the Black Hawk program
manages 179 vendors with 461 contracts
• Suppliers are managed
by several stakeholder
within the Black Hawk
program office
Spend for each Black Hawk supplier was managed by a series of silos
within the program office
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The selection of an SRM pilot vendor
began with the segmentation of
sustainment suppliers
Switching Costs
SUPPLIER SEGMENTATION MATRIX
Key
Suppliers
Strategic
Suppliers
Standard
Suppliers
Commodity
Suppliers
KEY FACTS & INSIGHTS
• Each quadrant suggests a different
supplier relationship strategy
- Standard Suppliers: suppliers of
low-cost, off-the-shelf items, with
short lead teams and multiple
sources of supply
Little or no SRM outreach
Spend
17
The selection of an SRM pilot vendor
began with the segmentation of
sustainment suppliers
Switching Costs
SUPPLIER SEGMENTATION MATRIX
Key
Suppliers
Strategic
Suppliers
Standard
Suppliers
Commodity
Suppliers
KEY FACTS & INSIGHTS
• Each quadrant suggests a different
supplier relationship strategy
- Commodity Suppliers: suppliers of
low-cost, low-complexity, with short
lead teams and multiple sources of
supply
Hands-off
Performance Management
Spend
18
The selection of an SRM pilot vendor
began with the segmentation of
sustainment suppliers
Switching Costs
SUPPLIER SEGMENTATION MATRIX
Key
Suppliers
Strategic
Suppliers
Standard
Suppliers
Commodity
Suppliers
KEY FACTS & INSIGHTS
• Each quadrant suggests a different
supplier relationship strategy
- Key Suppliers: suppliers of high or
medium-cost, high-complexity, with
long lead teams and limited sources
of supply
Collaborative
Supplier Development
Spend
19
The selection of an SRM pilot vendor
began with the segmentation of
sustainment suppliers
Switching Costs
SUPPLIER SEGMENTATION MATRIX
Key
Suppliers
Strategic
Suppliers
Standard
Suppliers
Commodity
Suppliers
KEY FACTS & INSIGHTS
• Each quadrant suggests a different
supplier relationship strategy
- Strategic Suppliers: suppliers of
high-cost, high-complexity, with long
lead teams and few, if any, alternative
sources of supply
Strategic Partnership
Spend
20
The selection of an SRM pilot vendor
began with the segmentation of
sustainment suppliers
Switching Costs
SUPPLIER SEGMENTATION MATRIX
Key
Suppliers
Strategic
Suppliers
Standard
Suppliers
Commodity
Suppliers
KEY FACTS & INSIGHTS
• A majority of weapon system suppliers
were determined to be Key Suppliers
or Strategic Supplies
- Weapon system parts are technically
complex
- Weapon system parts are high-cost
items
- Weapon system parts have long lead
times
- Weapon system parts have few
sources of supply
Spend
Because the majority of weapon system suppliers are Key Suppliers or
Strategic Suppliers, there were several viable candidates for an SRM pilot
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“Vendor D” was determined to be a Key
Supplier because of its medium spend
and high switching costs
“Vendor D” is AMC’s fourth largest
helicopter vendor…
…and high Sole Sourced spend
indicated extensive switching costs
AMC HELICOPTER SPEND (2008)
BY VENDOR
VENDOR D SPEND (2008)
BY SOURCING TYPE
Competitive
Sourced
18.3%
Sole Sourced
81.7%
Vendor A Vendor B Vendor C Vendor D Vendor E
As a Key Supplier, Vendor D’s SRM outreach was designed around
collaborative supplier development
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More than 95% of “Vendor D’s” helicopter
spend occurred on contracts that expire
before FY12
“VENDOR D” HELICOPTER SPEND (2008)
BY CONTRACT EXPIRATION
FY12+
Expiration
3.3%
FY10/FY11
Expiration
47.8%
FY08/FY09
Expiration
48.8%
KEY FACTS & INSIGHTS
• Contracts expiring in FY08 and
FY09 covered 59 NSNs, which
collectively support each of the four
helicopter platforms
• Contracts expiring in FY10 and FY11
cover 10 NSNs, which collectively
support each of the four helicopter
platforms
• Contracts expiring in FY12 or later
cover 5 NSNs, which collectively
support each of the four helicopter
platforms
The vast majority of “Vendor D’s” spend occurs on contracts that expire in
the short term, allowing new contracts to support an SRM program
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Table of Contents
• Executive Summary
• The Need for SRM in Weapon System Sustainment
• The Tenets of Weapon System SRM
• Black Hawk SRM Case Study
-
The Road to SRM
SRM Program Design
• Concluding Thoughts
24
Supplier scorecards are typically part of
performance management SRM, but they can be
useful supplier development tools
Performance Management
Scorecard
Development
Supplier Development
• Identify, prioritize Key
Performance Indicators
• Set Performance Targets
Scorecard
Development
• Identify, prioritize Key
Performance Indicators
• Set Performance Targets
Scorecard
Assessment
• Infrequent, internal
review of past
performance
Scorecard
Assessment
• Regular assessment of
performance in
conjunction with supplier
Scorecard
Assessment
• Short-term improvement
• Data for supplier
selection decisions
Scorecard
Assessment
• Continuous monitoring
• Joint improvement
identification
Focus on assessing past performance to
inform supplier selection decisions
Focus on Joint performance monitoring
to drive collaborative improvement
Because “Vendor D" was determined to be a Key Supplier, the SRM pilot
will focus on continuous improvement through supplier development
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The supplier scorecard for “Vendor D” will be
developed collaboratively
LCMC Goals and
Performance Indicators
PMO Goals and
Performance Indicators
Quality
Delivery
AMC Goals and
Performance Indicators
• Stakeholders
meet to
prioritize,
weight and tier
performance
indicators
• Stakeholders
determine
appropriate
performance
targets for each
performance
indicator
PO Requirements Met
Incoming Quality
Quality Documentation
Delivery Timeliness
Accurate Delivery
Accurate Documentation
Competitive Pricing
Cost
Army Goals and
Performance Indicators
Example Performance
Scorecard
Cost Reduction Actions
Cost Controls Tracking
Goals and performance indicators
from all stakeholders must be
captured and assessed
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Vendor D’s scorecard will target each of three
primary SRM benefits with several Key
Performance Indicators (KPIs)
PO Requirements Met
Delivery Timeliness
Order Backlog
Ordering
Quality Documentation
Example Relationship
Scorecard
Market Share
Finances
Incoming Quality
Cost Reduction Actions
Cost Controls Tracking
Return Procedures
Timely Ordering
Adequate Capacity
Complaint Handling
Process
Adequate Equipment
Regulatory
Requirements Met
Service Quality
Accurate Documentation
Ordering Review
Procedures
Profit Margins
Accurate Delivery
Competitive Pricing
Cost
Example Risk
Scorecard
Facilities
Delivery
Quality
Example Performance
Scorecard
Timely Communication
Customer Satisfaction
Weighting and tiering KPIs allows scorecards to reflect the diversity and
relative importance of stakeholders involved in a supplier relationship
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The team will also select appropriate
performance targets for each of the KPIs
on “Vendor D’s” supplier scorecard
KPI
Aerospace
Target
Manufacturing
Target
PO Requirements Met
% Defects
99.5%
95.0%
Delivery
Quality
Example Performance
Scorecard
Incoming Quality
Quality Documentation
Delivery Timeliness
KPI
Just-in-Time
Target
Traditional
Target
% Not too Early
96.0%
90%
% Not too Late
99.5%
90%
Accurate Delivery
Accurate Documentation
Competitive Pricing
Cost
• Aerospace manufacturers have higher performance
requirements than other manufacturing firms, leading
to different performance targets for the same KPI
Cost Reduction Actions
Cost Controls Tracking
• Manufacturers with a just-in-time business model will
have more stringent delivery needs than more
traditional manufacturers, leading to different
performance targets for the same KPI
The selection of KPIs is crucial to a successful SRM program, as there is
generally a trade-off among the different KPIs
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Table of Contents
• Executive Summary
• The Need for SRM in Weapon System Sustainment
• The Tenets of Weapon System SRM
• Black Hawk SRM Case Study
• Concluding Thoughts
29
The SRM program outlined above
requires a fundamental change in how
supplier relationships are viewed
Open
Communications
 Increase the amount of information that is shared with suppliers
 Open communication is necessary for pro-active management
and collaboration
Pro-Active
Management
 Use SRM tools to identify supply chain problems before they
occur
 SRM can facilitate risk management and transform supply chain
management into a pro-active, strategic function
Collaboration
 View suppliers as partners in supply chain management
 Collaborative problem solving can be more effective than
individual efforts
 Win-win solutions are possible
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Questions?
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