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Importance of Supplier Relationship Management in Contracting for Large Weapon System Sustainment
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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
World class SRM are based on open customer-supplier communications…
The Need for Weapon System
SRM
The Tenets of 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
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
Item
Subsystem
Platform
Cross Platform
LCMC
AMC
…but few suppliers are currently managed at the Cross Platform, LCMC or
AMC level…
…with the majority of suppliers being managed at
the Subsystem or Item level
Weapon System suppliers can be managed at several points within the Army sustainment hierarchy…
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Item- or Subsystem-level management creates a complex system with numerous points of contact between the customer and the supplier
Item- or subsystem-level management leads to an inefficient, decentralized and tactical approach to managing suppliers
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
Existing weapon system acquisition… …is decentralized and tactical
Supplier A
Item Managers
Platform
Supplier B Supplier C
Suppliers
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
World class SRM is based on open customer-supplier communications…
Description
Existing SRM Practices
Open Communication
Periodic communication with suppliers to share information and identify opportunities for supply chain improvements
Information-sharing only as needed, with communication largely focused around performance appraisals
Operational and upstream supply chain data largely not shared
Best-in-ClassSRM 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…
Description
Existing SRM Practices
Pro-Active Supply Chain Management
Identify and measure factors that can transform supply chain management from a reactive to a pro-active model
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-ClassSRM 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
Description
Existing SRM Practices
Collaboration
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
Best-in-ClassSRM Practices
Focus on pursuing cost savings opportunities that benefit both the client and the suppliers
Regular meetings with supplierCreates 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
• 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)
• 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
Supplier Performance Supply Risk Relationship Value
Improved Supplier Performance
Risk Assessment & Mitigation
Increased Relationship Value
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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
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The Black Hawk helicopter is one of Army’s most important weapon platforms
• 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
Description and History
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)
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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
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The path toward SRM began with an analysis of the Black Hawk program
Help Black Hawk Program Management Office analyze Black Hawk Sustainment Sourcing for future sourcing opportunity identification
Overview
…supplied by 179 unique vendorsThe team identified 816 parts across
the seven Black Hawk systems…
System DescriptionNumber of Suppliers
Airframe 145
Turbine Engine 32
Engine 22
Alt. Turbine Engine 7
Airframe Components 12
TACSAT 2
Clearance Vehicle 4
System DescriptionNumber of
Parts
Airframe 703
Turbine Engine 65
Engine 22
Alt. Turbine Engine 1
Airframe Components 18
TACSAT 2
Clearance Vehicle 5
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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
SUPPLIER SEGMENTATION MATRIX• 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
KEY FACTS & INSIGHTS
Standard Suppliers
KeySuppliers
Commodity Suppliers
Strategic Suppliers
Spend
Sw
itch
ing
Co
sts
Little or no SRM outreach
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The selection of an SRM pilot vendor began with the segmentation of sustainment suppliers
SUPPLIER SEGMENTATION MATRIX• 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
KEY FACTS & INSIGHTS
Standard Suppliers
KeySuppliers
Commodity Suppliers
Strategic Suppliers
Spend
Sw
itch
ing
Co
sts
Hands-offPerformance Management
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The selection of an SRM pilot vendor began with the segmentation of sustainment suppliers
SUPPLIER SEGMENTATION MATRIX• 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
KEY FACTS & INSIGHTS
Standard Suppliers
KeySuppliers
Commodity Suppliers
Strategic Suppliers
Spend
Sw
itch
ing
Co
sts
CollaborativeSupplier Development
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The selection of an SRM pilot vendor began with the segmentation of sustainment suppliers
SUPPLIER SEGMENTATION MATRIX• 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
KEY FACTS & INSIGHTS
Standard Suppliers
KeySuppliers
Commodity Suppliers
Strategic Suppliers
Spend
Sw
itch
ing
Co
sts
Strategic Partnership
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The selection of an SRM pilot vendor began with the segmentation of sustainment suppliers
SUPPLIER SEGMENTATION MATRIX• 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
KEY FACTS & INSIGHTS
Standard Suppliers
KeySuppliers
Commodity Suppliers
Strategic Suppliers
Spend
Sw
itch
ing
Co
sts
Because the majority of weapon system suppliers are Key Suppliers or Strategic Suppliers, there were several viable candidates for an SRM pilot
“Vendor D” was determined to be a Key Supplier because of its medium spend and high switching costs
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…and high Sole Sourced spend indicated extensive switching costs
“Vendor D” is AMC’s fourth largest helicopter vendor…
CompetitiveSourced
18.3%
Sole Sourced81.7%
AMC HELICOPTER SPEND (2008)BY VENDOR
VENDOR D SPEND (2008)BY SOURCING TYPE
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
FY12+Expiration
3.3%
FY10/ FY11Expiration
47.8%
FY08/ FY09Expiration
48.8%
“VENDOR D” HELICOPTER SPEND (2008)BY CONTRACT EXPIRATION
• 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
KEY FACTS & INSIGHTS
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
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Supplier scorecards are typically part of performance management SRM, but they can be useful supplier development tools
Because “Vendor D" was determined to be a Key Supplier, the SRM pilot will focus on continuous improvement through supplier development
Focus on Joint performance monitoring to drive collaborative improvement
Supplier Development
• Identify, prioritize Key Performance Indicators
• Set Performance Targets
ScorecardDevelopment
• Regular assessment of performance in conjunction with supplier
ScorecardAssessment
• Continuous monitoring• Joint improvement
identification
ScorecardAssessment
Focus on assessing past performance to inform supplier selection decisions
Performance Management
• Identify, prioritize Key Performance Indicators
• Set Performance Targets
ScorecardDevelopment
• Infrequent, internal review of past performance
ScorecardAssessment
• Short-term improvement• Data for supplier
selection decisions
ScorecardAssessment
Army Goals and Performance Indicators
AMC Goals and Performance Indicators
LCMC Goals and Performance Indicators
PMO Goals and Performance Indicators
Goals and performance indicators from all stakeholders must be
captured and assessed
The supplier scorecard for “Vendor D” will be developed collaboratively
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Example Performance Scorecard
Quality
PO Requirements Met
Incoming Quality
Quality Documentation
Delivery
Delivery Timeliness
Accurate Delivery
Accurate Documentation
Cost
Competitive Pricing
Cost Reduction Actions
Cost Controls Tracking
• Stakeholders meet to prioritize, weight and tier performance indicators
• Stakeholders determine appropriate performance targets for each performance indicator
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Vendor D’s scorecard will target each of three primary SRM benefits with several Key Performance Indicators (KPIs)
Example Performance Scorecard
Quality
PO Requirements Met
Incoming Quality
Quality Documentation
Delivery
Delivery Timeliness
Accurate Delivery
Accurate Documentation
Cost
Competitive Pricing
Cost Reduction Actions
Cost Controls Tracking
Example Risk Scorecard
Finances
Market Share
Order Backlog
Profit Margins
Facilities
Adequate Capacity
Adequate Equipment
Regulatory Requirements Met
Example Relationship Scorecard
Ordering
Ordering Review Procedures
Return Procedures
Timely Ordering
Service Quality
Complaint Handling Process
Timely Communication
Customer SatisfactionWeighting 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 Just-in-Time Target
Traditional Target
% Not too Early 96.0% 90%
% Not too Late 99.5% 90%
• 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
Example Performance Scorecard
Quality
PO Requirements Met
Incoming Quality
Quality Documentation
Delivery
Delivery Timeliness
Accurate Delivery
Accurate Documentation
Cost
Competitive Pricing
Cost Reduction Actions
Cost Controls Tracking
KPI Aerospace Target
Manufacturing Target
% Defects 99.5% 95.0%
• Aerospace manufacturers have higher performance requirements than other manufacturing firms, 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
The SRM program outlined above requires a fundamental change in how supplier relationships are viewed
Open Communications
Pro-Active Management
Increase the amount of information that is shared with suppliersOpen communication is necessary for pro-active management
and collaboration
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 managementCollaborative problem solving can be more effective than
individual effortsWin-win solutions are possible
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