Air Force pushes its supplier development program forward
By Staff -- Purchasing, 5/6/1999 2:00:00 AM
Last fall, the Air Force Research Laboratory's Manufacturing Technology Division (ManTech) convened a meeting of 30 high-level purchasing officials from aerospace and defense organizations to discuss plans and initiatives for supply-base development.
The meeting, held at the Wright-Patterson Air Force Base in Ohio, was an important initial step in a major ManTech initiative (dubbed the SME Initiative) that will set a goal for prime and sub-prime Air Force contractors to foster improvements among the small- or medium-size enterprises (SMEs) within their supply bases. Underpinning the SME Initiative is research by a ManTech team indicating that up to 80% of manufacturing for most weapons systems is now performed by suppliers, many of which are small or medium-size companies.
The object of the ManTech workshop was to "gain a more complete understanding of what supplier development practices make sense in individual companies and business environments and the key elements of a business case that would compel companies to actively engage in improvement of smaller suppliers."
Executives representing the supplier management or procurement organizations from multiple industry sectors and all levels of the supply chain were briefed on ManTech research covering both methods and barriers to supplier development plus cost-sharing requirements and structure of the SME Initiative itself.
A report from the meeting says, "Participants indicated strong support for the intent of the ManTech initiative and for the structure as well." Breakout sessions were conducted to discuss ManTech research on common supplier development practices.
Prior to the workshop, the ManTech research team had investigated the supplier development practices of highly regarded commercial firms. Says the report: "Many world-class commercial companies pursue aggressive, continuing activities with their suppliers to help them improve in any and all areas of their business--management, financial, technical. Their philosophy is that stronger, more capable suppliers make the entire enterprise more competitive by lowering total cost and allowing them to be more responsive to the needs of their customers." Two common denominators identified by the ManTech team: (1) most of the commercial companies studied allow--even encourage--their suppliers to offer improved capabilities to other customers (including competitors), and (2) most tend to use long-term agreements, typically with single-source suppliers.
The ManTech team also identified a set of mechanisms typically employed for the purpose of helping suppliers improve (PUR: Sep. 1 '98; p. 26). It used this list as a point of departure for its workshop breakout sessions. "In addition to expanding the list and illuminating several variants on known good practices, the breakout sessions were used to identify the prevalence of individual practices in the defense aerospace industry," says the report. In approximate order of popularity, the report cites this refined set of mechanisms:
* Supplier training.
* Supplier rating, certification, and awards.
* Customer technical expertise available to suppliers.
* Integrated customer/supplier teams to reduce supplier process waste.
* Integrated customer/supplier teams to solve supplier problems.
* Supplier symposia and suggestion programs.
* Supplier continuous improvement programs.
* Supplier access to customer's volume discount rates.
* Organized methodology for problem solving.
* Integrated customer/supplier technology road maps.
* Customer development of a capability prior to outsourcing.
* Customer assistance to suppliers in securing additional business from other customers.
* Advance payments from customer to supplier.
* Practices supporting a demand-pull/JIT environment.
The obstacles
ManTech claims that, "The supplier development philosophy is clearly applicable to the defense industry, since most of the supplier development practices listed above are evident in defense companies in some form." However, it notes that "broad-based, aggressive supplier development programs are very rare." In supplier training, for example, the meeting report notes that "defense firms rarely offer training in more than a few topics." By contrast, it notes that commercial firms known for supplier development "offer suppliers an extremely broad range of training, including such topics as management and financial skills and how to create and manage continuous-improvement programs."
The report names four categories of barriers to widespread supplier development among defense firms:
* Defense acquisition policies and practices. In particular the report singles out pervasive disincentives for continuous cost reduction (such as cost-based profits) and overemphasis on systems performance (instead of low cost). "The strongest competition among DoD contractors occurs during product development, where the technology edge is critical. Since small suppliers often do not contribute leading-edge performance technologies (larger contractors maintain these as core competencies) few or no small suppliers are likely to be involved during product development."
During the production phase of a weapons system, the report notes that DoD emphasis shifts to schedule and price. "Any help for suppliers is focused on meeting schedule and price, and not necessarily on improving their profitability in this environment."
* Corporate culture. "Many companies inadvertently make it hard to change rules or policy merely by organizational structure and their attitude toward change," the report finds. What's more, it says, some firms may experience "engineering dominance," making it difficult for them to appreciate the value of small supplier development. Short-term "project-based thinking" is another cultural barrier to supplier development identified in the report. Other cultural issues: lack of trust, fear that supplier development could help competitors, and suppliers' own refusal to accept assistance from customers.
* DoD culture. ManTech's report also identifies a "commonly held belief that the government holds a contractual relationship with prime contractors only and that attempts to tamper with their suppliers enhances the risk of cost growth." The result is that "program office staffs are generally unaware of supplier management practices and intend to stay that way." What's more, there are serious cultural barriers associated with the "large compliance apparatus" of DoD. "Program overseers have earned their reputation for being adversarial. Acquisition reform has come far in improving this situation, but many barriers persist."
* Other factors. Two other barriers to supplier development among defense contractors are a lack of internal readiness and lack of dedicated resources. "It's difficult for a customer firm to provide assistance to suppliers in areas that are still foreign to its own work force," the report notes.
The battle plan
Taken together, ManTech says the barriers to supplier development in the defense environment can be "massive and extremely difficult to overcome even with strong top-level leadership." With this in mind, it has resolved to create a "clear and undeniable" business case for supplier development. Under the SME Initiative, ManTech will build its case by working with several firms in different sectors of the aerospace industry. The firms will identify critical small suppliers for direct development by either themselves or third-party consultants. The initiative also will identify incentives for prime contractors and subsystems producers to pursue policies of supplier development.
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