Lean, but not mean, Rockwell Collins excels
Following a Lean philosophy and pushing strategic sourcing, the material and supply organization surpasses operational goals—and wins our Medal of Excellence
By Susan Avery -- Purchasing, 9/1/2005 2:00:00 AM
Spend time with Clay Jones, chairman, president and CEO of Rockwell Collins and the conversation soon turns toward winning or, to be more precise, what it takes to win. He'll talk about the company's objectives of material availability, competitive total cost of ownership and asset management outlined in the Rockwell Collins annual strategic and financial plan. And, he'll talk about how employees work together to meet them. The objectives flow from Jones through the operation to the supply chain.
It's clear that sourcing and supply chain management are high on his agenda. "It is one of the things that can keep me awake at night—ensuring that we have a source of supply at the right cost to be competitive and to meet the commitments of our customers," he says.
Jones' bouts of insomnia date back to the late 1990s, when Rockwell Collins was part of Rockwell International. It was a time of strong economic growth, but he saw that the company's internal processes and supplier relationships were not robust enough to ensure that its factories were operating efficiently. Not wanting "to live like that again," he took steps to put in place a material and supply operation that focuses on strategic sourcing and supply chain management, including implementing Lean Electronics and installing an SAP ERP system. Then, in July 2001, Rockwell International spun off its Rockwell Collins business.
Based in Cedar Rapids, Iowa, Rockwell Collins designs, produces and supports communications and avionics systems for government and commercial customers worldwide. At the time of the spinoff, about 60% of its sales were to commercial customers; the other 40% were to the government. After the tragic events of Sept. 11, commercial customers canceled orders. "So we did a lot of things a company does when business turns down," recalls Jones. In other words, the company cut expenses.
Still he remained committed to strategic sourcing and supply chain management, eventually extending the Lean philosophy to the material and supply operation. Early in 2004, he named Roger Weiss vice president, material and supply. A veteran of the organization since the Rockwell International days, Weiss had been serving as senior director of enterprise sourcing.
Today, material and supply has what it takes to win, surpassing its goals which align with corporate objectives of material availability, TCO and asset management. Material and supply has reduced leadtime from 46 days in 2002 to 30 days, delivered total cost reductions from 4.5% in 2002 to 6% and improved on-time delivery from 83.8% in 2002 to 96.5%. All told, Weiss and his team have cut costs by $20 million in 2004 on a $1 billion annual spend.
They developed an e-strategy to integrate the sourcing and procurement processes—from requirement identification to supplier payment, including an online tool called Impact that provides engineers a catalog of parts offered by preferred suppliers. Through a supplier portal based on the SAP platform, suppliers have access to engineering designs and forecasts; they can download scorecards that monitor their performance and send invoices to and receive payment from Rockwell Collins. This strategy has helped move supply professionals from tactical to strategic activities such as involvement in product development.
Perhaps more important, Weiss and his team have a clearly defined corporate supply chain strategy from product development through service and support. He's responsible for managing the entire supply chain: application engineering, sourcing and subcontracts, logistics, and procure-to-pay all report to him, as does the Lean Supply organization, which is responsible for supplier development and business systems. A steering team guides the direction of cross functional commodity and strategic sourcing teams. The commodity teams meet frequently with top suppliers to share technology roadmaps. Suppliers serve on a Supplier Alliance Advisory Council, providing valuable feedback to material and supply.
Today Rockwell Collins is a $3.5 billion company and is growing at a steady pace, by about 20% in the third quarter of its fiscal year, according to financial results released by the company on July 28. Its business has shifted somewhat over the years; sales are now more evenly divided between government and commercial customers. Its government services contracts include oversight of a cockpit upgrade called the Global Air Traffic Management System on a fleet of more than 500 U.S. Air Force KC-135 aircraft.
"We have not had a single supply chain issue," says Col. Ken Moran of the U.S. Air Force in Oklahoma City, Okla., of his branch of the military's relationship with Rockwell Collins. "We have put 75 planes in the field since the program went operational 18 months ago. This is extremely important since the upgrade provides additional capability that we now use in Operation Iraqi Freedom."
On the commercial services side, Rockwell Collins recently beat out much larger rivals to win $3.5 billion worth of business on the new Boeing 787 Dreamliner, including the pilot controls; display, communication and surveillance systems, and core network cabinet. A partner in the program, Rockwell Collins is "a world-class provider of aviation and information technology," says Rick Roff, communications spokesperson, Boeing Commercial Airplanes Global Partners.
JSA Research's Paul Nesbit, an analyst in Newport, R.I. who watches the aerospace industry, says that Rockwell Collins appears to be "offering better ideas" to the aerospace giant than its competition. "It's a very well run company," he says. "They are very good at what they do."
And, as Jones sees it, Weiss and the material and supply operation also are very good at what they do, exceeding his expectations. Valuing their contribution to Rockwell Collins to meet its commitments to customers, Jones characterizes their recent performance as exceptional. The editors at PURCHASING agree, awarding the Medal of Professional Excellence for 2005 to the material and supply operation at Rockwell Collins.
PURCHASING has presented its prestigious industry award to best-in-class supply operations every year since 1984. Most recent recipients include Hewlett-Packard, Cessna Aircraft and Lucent Technologies.
Cessna, which received the Medal of Excellence in 2003, recently recognized Rockwell Collins for outstanding supplier performance with its STARS award at its 2005 supplier symposium. Rockwell Collins supplies Cessna with avionics for its Citation CJ1, CJ2 and CJ3 aircraft.
Like several suppliers to Cessna, Rockwell Collins is on-site at the company's production facility in Wichita. Cessna provides suppliers with a two-year manufacturing forecast. When it's ready for the parts, its manufacturing line signals the suppliers. On cue, Rockwell Collins delivers a kit of equipment to the wing of an aircraft, where Cessna takes delivery. Michelle Wolford, commodity manager, avionics and electrical systems, says the arrangement with Rockwell Collins is one of the more successful. "It has a huge impact on our ability to glean our operation and improve quality," she says.
The organization
Management put in place foundational elements for the material and supply operation in 1996-1998, recalls Kent Statler, senior vice president operations, Rockwell Collins. Then, the company's two businesses—government systems and commercial systems—were run as separate entities. Management brought the two businesses together and consolidated their material and supply operations. Recently, the company has started to organize around technologies as a way to further eliminate waste and improve processes. It's also introduced an enterprise life cycle value-stream management initiative to re-evaluate its cost structure. "We believe this model bodes extremely well for us," says Statler.
The material and supply operation is a corporate shared service; Weiss reports to Statler. When Weiss assumed his current post, he restructured the department so it has more of an enterprise focus.
Rockwell Collins has 13 manufacturing sites in the U.S. Supply chain managers at small facilities (less than $50 million) report (directly) to Statler and (dotted-line) to Weiss. Together they form a supply chain council that meets regularly to share best practices.
"We can look a supplier in the eye and say we are one company," says Weiss, who has standardized sourcing and supply chain processes throughout his organization. Take involvement in product development, for example. Material and supply becomes involved early on through an online tool it developed called Impact that steers product designers to preferred or "Maximize" suppliers. Engineers who choose to use parts provided by other suppliers must get additional approvals and develop a risk-management plan.
Application-engineering (AE) specialists who serve on cross-functional commodity teams are material and supply's direct link to Rockwell Collins product design teams. AE specialists also are deployed throughout the company to work with engineers on products with unique requirements. And, a senior operations leader serves on major new development teams (such as equipment for the Boeing 787); this individual has ties back to material and supply and works to minimize risk associated with making the move from engineering to manufacturing.
Scorecards
As vice president of material and supply, Weiss has a scorecard that aligns with the operations and corporate scorecards. His scorecard measures his team's performance at meeting the same what-it-takes-to-win objectives of material availability, asset management and total cost of ownership. "Looking at the scorecards and the way the metrics are aligned, I know that when the company does well, I personally contributed," he says.
The material and supply scorecard tracks tactical elements that drive strategic direction for Rockwell Collins, Weiss says. "For us, key to material availability is supplier performance—delivery, quality and production shortages." Looking specifically at production shortages, three years ago material and supply was measured using raw numbers. Since then, the team has consistently driven down the figures so that it's now measured using a new metric called the shortage severity index. The metric tracks the time it takes to resolve a production shortage.
Material and supply's scorecard objectives, which align with operation and corporate objectives of asset management, consist of metrics that track payables, production stock and work-in-process (WIP); the latter two Weiss shares with the manufacturing organization.
Objectives that align with total-cost-of-ownership metrics encompass cost of acquisition and purchase-price variation. To meet cost-of-acquisition objectives in 2005, material and supply is consolidating some areas of indirect purchasing, and expects to cut costs by $10 million on a $60 million annual spend. For some indirect buys such as travel and freight, Rockwell Collins purchases these services through a consortium that includes former parent Rockwell International.
Weiss also has objectives relating to the company's compliance with small business and supplier diversity goals.
Each of the individuals reporting directly to Weiss has a scorecard that aligns with his. For example, Scott Wagner, director, application engineering, is responsible for ensuring that the company's engineers purchase components from "Maximize" suppliers, those which commodity teams have determined are qualified to win new business from Rockwell Collins. His performance is measured using this metric.
The performance of individuals who report to Wagner and the other directors is measured using the Rockwell Collins Performance Review and Development Plan.
Cross-functional commodity teams made up of representatives of application engineering, de-sign engineering, supply quality assurance and procurement are accountable for supplier performance. These teams set sourcing strategy and contribute continuous improvement ideas to Rockwell Collins through life cycle value stream management activities.
The supplier scorecard tracks performance at all 13 manufacturing sites using quality and delivery metrics as well as a subjective measure that consists of such elements as technology, responsiveness and integrity.
Weiss and his team created the scorecard with the help of the Supplier Alliance Advisory Council (SAAC). Suppliers receive monthly performance updates via e-mail and may access the scorecards through www.supplycollins.com.The SAAC is made up of top suppliers who serve three-year terms. The SAAC meets three times a year and is a forum for information sharing and education.
Mike McCourt, president, Ellsworth Adhesives, Germantown, Wis., has served on the SAAC for five years. "Roger Weiss and his team are sincere in wanting to be a top customer to their supplier base and that's what sets them apart," says McCourt, who has served on similar boards. "They've taken the concept of a supplier council to a new level of communication."
At the last meeting, SAAC members brought up the topic of what it means to be a trusted partner. Since many Rockwell Collins systems stay in the field sometimes for up to 30 years, the company needs to do business with suppliers long-term. As Weiss sees it, part of the definition of a trusted partner is "a supplier willing to invest in its performance to support Rockwell Collins in its goals and take the company to the next level," he says. "It's a big part of our strategy moving forward."
And, as befits a Medal of Excellence winner, that's the way Rockwell Collins views its own role as a supplier in a fast-moving market.
Now Playing: 