Original Date: 08/07/1995
Revision Date: 01/18/2007
Best Practice : Supplier Relations
Lockheed Martin Tactical Aircraft Systems (LMTAS) has established an aggressive and comprehensive Supplier Relations Program to develop and continuously improve a strong supplier base that provides low cost, high quality products that are delivered on time. The Supplier Relations Program is one of the five major areas of Lean Manufacturing initiatives being addressed by LMTAS. Many companies approach improving supplier performance through fragmented and isolated supplier improvement initiatives. However, the LMTAS strategy has been a centrally-coordinated effort that addresses all aspects of the supplier base improvements from objective metrics to improved communications to cost/quality/schedule to long-term relationships with best value contracts.
Challenged by the declining defense aerospace market and the increasing competition for the remaining markets, LMTAS reexamined its overall strategy on where to apply innovative management techniques and business practices to achieve the corporate objectives of low cost/high quality, on-time products. Lean manufacturing initiatives identified five major areas for improvement including the development process, customer relations, management/organization, factory operations, and supplier relations. The focus on supplier relations was influenced because purchased material is a high cost driver for LMTAS products, accounting for more than 50% of the total cost. The second challenge then was placed on the Procurement Division to develop and carry out a strategy to improve supplier relationships through “best value” in a timely manner that would be effective to the LMTAS business.
The foundation of the Supplier Relations effort is the ability to generate objective metrics. The framework of Supplier Relations consists of core programs that include Supplier Integrated Product Development (IPD), Supplier Performance Evaluation and Review (SPEAR), Statistical Process Control (SPC), Manufacturing Resource Planning and Production (MRP II), and Supplier Certification. Within this framework are the activities and programs that the Procurement Division has implemented and/or is developing to improve supplier communications; affect cost, quality, and schedule; and establish a certified supplier base. The infrastructure for communicating metrics to the supplier has been accomplished through the Supplier Rating System process, the Supplier IPD process, and the MRP II system.
A SPEAR process was developed to communicate problem recognition and corrective action with the supplier. To affect the cost/quality/schedule both internally and externally, the Procurement Division applied innovative management techniques and business practices that included specific programs such as SPC, Outsourcing, Modified Requirements Contracting, Budget Control, Lead Time Reduction, and Process Improvements. The Process Improvement efforts included programs such as Quick Reaction Procurement, Just-In-Time, On-Call, Streamlined Purchase Order Placement, and Electronic Data Interchange (EDI). These programs ranged from newly developed to the adaption of existing practices that has been key to their efficient and timely integration to establish the “STAR” suppliers.
The impact of the Supplier Relations effort has contributed to all aspects of the LMTAS business and the other four Lean Manufacturing initiatives. Per unit cost of deliverables has been reduced although total volumes are declining, and 98.0% of all schedules are being met while maintaining high levels of performance.
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