Original Date: 05/01/2000
Revision Date: 01/18/2007
Best Practice : Commodity Design Teams
New business growth is an enterprise goal of Northrop Grumman Defensive Systems Division (DSD). The company recognizes that the penetration and/or expansion of new markets not only require the making of significant reductions in material, assembly, and test costs, but also the understanding and managing of the entire value stream for the design-to-manufacturing transition. Essential to this process is leveraging the knowledge, technology, and resources of all team members including key suppliers. In June 1999, Northrop Grumman DSD developed and applied its Commodity Design Team process to penetrate the microwave power module (MPM) commodity market. The traveling wave tube (TWT), a main critical MPM assembly, was chosen for this effort.
The Commodity Design Team’s goal was to achieve a 30% to 60% reduction in costs through material, technical, and process change recommendations and increased volume buys. The cross-functional team first identified best practices, suppliers, products, and industry benchmarks. Next, they performed a series of analyses and evaluations of materials, components, and subassemblies with the goal of meeting predetermined cost reductions that would allow market penetration. A critical part of the Commodity Design Team process was to identify and work jointly with key suppliers that could significantly contribute to this common goal. These suppliers attended a one-day technical conference involving market overview and individual supplier breakout sessions. There, suppliers identified strengths and weaknesses in dealing with Northrop Grumman DSD. Tours of the assembly and test areas were conducted to show suppliers their product applications and the processes used to manufacture final products. The Commodity Design Team also worked with piece part drawings and assemblies to identify potential areas for improving cost and cycle time. All team members provided open and honest feedback.
The TWT Commodity Design Team achieved their goal with an overall material cost reduction of 39%. The process also produced a 200% increase in work flow velocity and a 30% reduction in inventory. Contributors to this success include reviewing and understanding the key attributes or product characteristics; conceptualizing methods that attack key cost drivers; and establishing an effective working relationship with suppliers. The Commodity Design Team process strives to create a win-win situation by driving down costs while maintaining an equivalent or higher profitability throughout the value chain. As a result, the Commodity Design Team was able to focus Northrop Grumman DSD and its key suppliers toward a common vision and set of objectives by leveraging their combined knowledge, technology, facilities, and purchasing power. With this success, the team is now formalizing this process for application to other commodity markets including the remaining areas of MPM: integrated power conditioners and solid state amplifiers.
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