Not a single day goes by that Rick McCreary isn't talking to someone in the U.S. Navy about product support. "Navy personnel are not reluctant to complain when something's wrong," says McCreary, senior supply chain manager for the Navy at Boeing Co.'s Integrated Defense Systems (St. Louis, MO). "What the Navy wants is to fly jets and keep them flying. It's our job to fix problems before they become big issues." McCreary's responsibilities include oversight of Boeing's F/A-18E/F Integrated Readiness Support Training (FIRST), which supplies components and parts for the latest generation of F/A-18 Hornets, the Navy's carrier-based fighter jets. Like most of the major defense and aerospace contractors, Boeing initiated a major overhaul of its business processes, including supply chain management, in the mid-1990s when the Department of Defense made substantive changes in the way it did business with its contractors. Seeking to cut costs, accelerate delivery times and leverage maturing electronic commerce technology, the Pentagon gave more control over the supply chain to its suppliers. Previously, the Defense Department had all but micromanaged the process, issuing edicts and parameters pertaining to manufacturing, part specifications and internal quality control that extended deep into the prime contractor's own network of suppliers and their suppliers' suppliers. The sea change in defense procurement came when the department lifted its stringent policies, thus giving contractors the opportunity to implement and benchmark their own processes and establish performance-based logistics (PBLs) throughout the supply chain. PBL systems are designed to track and identify faults and failure rates to drive out costs, improve product quality and lifecycles as well as upgrade parts on the fly. Done right, a PBL streamlines supply chain activity on one end and the satisfaction of customer requirements on the other. As a supply chain process, PBLs have been broadly defined by the DoD, but are refined within each contractor and implemented through a combination of internally engineered processes combined with customized and off-the-shelf software. Boeing's FIRST is one such example where new PBL-based SCM processes are in play. Other contractors, such as Lockheed Martin Corp., have similar programs that back up customer support with performance-based logistics. "The new programs give bidders cost control," says Mark Hatter, director and deputy to the vice president of materials and acquisition at Lockheed Martin Missiles and Fire Control (Orlando, FL). The unit manufactures sensors and electro-optical systems that engage and guide weapons systems such as the Joint Air-to-Surface Missile (JASM) and the Army Tactical Missile System (ATACMS). At both Boeing and Lockheed Martin a common corporate IT operation is involved in systems integration as part of a larger corporate-driven SCM strategy. Most of the day-to-day management of these processes, however, falls to individual business units within the corporation, under the purview of managers such as Hatter or Boeing's McCreary. Navy Supplies Under the FIRST program, launched in 2001, Boeing provides parts, warehousing, transportation and repair forecasting services primarily to the three Naval Aviation Depots in the U.S. Its contract specifies 48-hour delivery to any U.S. location as well as off-shore naval bases, repair facilities and ships at sea. To meet contract requirements, Boeing depends on an integrated supply chain management process it calls Total Asset Visibility, or TAV. TAV is a proprietary Boeing-built system that integrates various modeling, accounting and warehousing software, most of it commercial off-the-shelf from vendors such as MCA Solutions, but customized internally. The system, engineered by Boeing's IT operations, collects and processes Navy requisition data. A Boeing asset manager in the FIRST program can use TAV to find information on any particular part, be it general data such as average lifecycle and failure rates, or specific information like shipment dates. From a strategic standpoint, Boeing's automated supply chain management system drives out lifecycle cost, improves product quality and enables part upgrades on the fly. For the F/A-18s, for instance, Boeing has been able to reduce total lifecycle costs of components and parts from $400 million to $20 million. "Ultimately the Navy, as well as taxpayers, benefit from that," McCreary says. Lifecycle cost reduction comes from the ability to standardize parts and components that previously had to be custom-built. There are also substantial reductions in the time needed to have product improvements and upgrades approved by the Navy and the Defense Department. An example is the way Boeing now handles Engineering Change Proposals, or ECPs -- documents that must be submitted prior to implementing any product change. In the course of product development, Boeing or one of its subcontractors may discover a way to make a particular component better, although doing so might require a change in the original design or specification. Alternately, Boeing might find a second source that could produce a part or sub-system with the same or better functionality at lower cost, creating a slight difference in the specifications of the original work statement. In either case, an ECP is required to implement any change. In the past, ECPs had to be routed through the military procurement apparatus and could take two years or longer to win approval. Under the new rules, many ECPs no longer require approval, simply notification from the vendor. Now, with the help of Boeing's PBL, the average time to implement an ECP has shrunk to 30 days, says McCreary. "We have the authority to make changes as long as they don't affect the supply chain. We don't need approval, we just provide notification." McCreary recalls two specific instances of this new efficiency. The first involved canopies for F/A-18s, which tended to be individually specified for each plane. "There's an impression that these planes come off an assembly line," says McCreary. "In truth, every plane is custom hand-built." Working with its subcontractor using data mined from its SCM system, Boeing was able to standardize a canopy design that could fit any F/A-18 E/F used in the fleet. This meant Boeing could reduce manufacturing and warehousing costs, stock just one part number, and, when a replacement was needed, have a much better chance at getting it to the desired location within the 48-hour window. The second case involved display screens used in F/A-18 cockpits. "These are heavy, expensive and take a long time to build," says McCreary. "We found a second source that we could tap for considerably less than the earlier displays." The ECP process, combined with the cost and lifecycle data TAV could process and track, allowed Boeing to integrate the new subcontractor into the fold much more quickly than it would have in the past. The SCM system, McCreary adds, affords the control and logistics that streamlines the process and ensures quality control. "We're extremely particular about what the product is," says McCreary. "It's got to work exactly right. There's too much money at stake." Six Sigma SCM At Lockheed Martin, SCM leverages the corporation's size on commodities purchasing, while still giving individual units control over the supply chain for parts with complex build-to-performance specifications. At Missiles and Fire Control, these include parts such as wings and control activation systems. Like many large organizations, however, Lockheed Martin encountered IT obstacles stemming from consolidation. Missiles and Fire Control actually brought together operations Lockheed had acquired from Martin Marietta (Orlando, FL) and Loral Corp. (Dallas, TX). That meant the integration of two different SCM systems: the aerospace planning execution control system (APECS), a material requirements planning (MRP) process assembled largely by Martin Marietta, and a SAP MRP system used by Loral. "SAP had advantages we didn't have with APECS. APECS had advantages we didn't have with SAP," says Hatter of Missiles and Fire Control. The company did some of its own customization to retain the utility it wanted while also streamlining the IT process. Now, Lockheed Martin's unified SCM system supports its Six Sigma supplier rating system, a certified, data-driven approach methodology used in many industrial sectors for eliminating defects. The system can drill down into product and supply data on any number of parameters such as correlating quality and fulfillment with supplier yield. Hatter notes that although suppliers may be meeting the company's quality demands, yield may be down. "While previously we might have been receiving 1,000 units per month, suddenly we may find that yield has dropped to 900 units. Yield problems may be a sign that there may be soon be a quality problem down the line. Now, we have an early warning." B2B Strategy While Lockheed looks for subcontractors to integrate into its SCM systems, it doesn't attempt to specify equipment or software, says Hatter. The company may ask that specific requirements be in place to allow for supply chain visibility, but it doesn't dictate IT system requirements. Indeed, Lockheed Martin is one of four co-owners of Exostar LLC, a business-to-business exchange for defense and aerospace procurement, collaboration and servicing. "Exostar helps companies with legacy systems squeeze through the process," says Hatter. "It helps a supplier execute a contract regardless of the [IT] environment it's coming from" (see "From Exchange to SCM," p. 60). Meanwhile, as a company, Lockheed Martin tries to take the SCM best practices from its individual business units and apply them across the company when it can. "Lockheed Martin is looking at logistics as a very big project," says Patricia Holmes, senior manager, lifetime support at Lockheed Martin Maritime Systems and Sensors, itself a major part of the supply chain for the Aegis weapons system used by the U.S. and other naval forces worldwide. "Within the last year, we've created the Focus Logistics Enterprise Group, which is pulling a lot together now in terms of best practices, legacy systems, new technology and commercial off-the-shelf products." The group applies lessons learned company-wide to distinct PBL programs. One PBL implementation at Maritime Systems and Sensors (Moorestown, N.J.), has raised fill rate from 85 percent to 97 percent, improved response time from 22 days to 3.4 days and saved more than $28.4 million, Holmes says. Lockheed Martin tries to use commercial software when it can. For instance, the company is working with Xelus Inc., (which was acquired by demand forecasting software vendor, Click Commerce Inc. in May). "We use demand forecasting to keep products in the supply chain while keeping inventory low," Holmes says. And COTS keeps internal development costs low. Ultimately, both Lockheed Martin and Boeing talk about streamlining the SCM process to the point where contracts and statements of work can be handled through a single electronic template. It all plays into the network-centric goals the Pentagon and its suppliers are working toward. "Looking into the future -- eight to ten years -- we see corporate PBLs as part of contracts with suppliers," says Holmes. "We see one vehicle -- one statement of work -- that will govern as many systems as possible." McCreary at Boeing says that ultimately problems will be reported and requisitions handled automatically through an interconnected network. "A component on a plane will fail, the plane itself will report the problem, the report will spur a part order, and the part will be waiting when the plane lands," he says. "The process will be as seamless as possible."