Lockheed Martin brings method to metrics madness
By Anne M Porter -- Purchasing, 1/15/1998
Many firms continue to struggle with the creation of supplier rating and measurement systems that actually result in end-product quality and customer satisfaction (See feature report on pages 51-67). But a few sourcing operations such as Lockheed Martin's Aeronautics Material Management Center (ammc) in Fort Worth, Tex., demonstrate that such goals as elimination of inspection and inventory and documented quality improvements are attainable. What's needed is a proper method and sufficient time devoted to the creation and refinement of comprehensive supplier measurement systems.Despite significant upheaval in its industry--a rash of mega-mergers among prime government contractors and a shrinking of the aeronautics supply base--ammc has, for nearly a decade, pursued with success a broad and ambitious strategy to improve the quality performance of its supply base.
Creating a system
Methodical is a good word to describe lm-ammc's approach to supplier quality improvement. The outfit began its process in the early '90s with a flat requirement that all production suppliers become certified users of statistical process control (SPC). Suppliers were given 90 days to submit a plan for approval and additional time to become certified. Says Bob Matthews, director of procurement quality, "This quickly drove out a lot of suppliers who didn't want to get involved. It left us with a proactive supplier base." This initial step took about one year to implement, Mat-thews notes.
Second step was to expand the process of prevention of nonconformance versus performance of inspection to detect nonconformances. As an interim step, ammc has deployed engineers to inspect parts and subassemblies before they leave suppliers' shipping docks. Over time the organization has shifted the focus of these engineers from inspection to what it calls source surveillance. (In 1991, the Fort Worth site employed 80 receiving inspectors. Today, the company employs 65 field engineers and only three receiving inspectors.)
"Today," says Matthews, "we have field people assigned to suppliers. These people spend days, sometimes months inside suppliers' facilities. They become very familiar with such things as scheduling and materials receipt issues. They act like industrial engineers, helping suppliers to manufacture parts better."
The foundation that supports all of ammc's supplier quality tracking and improvement initiatives is called the Source Control Network (SCN). Matthews describes SCN as "an automated activity-based system" that allows for two-way communication between ammc sites and their field people.
For example, ammc's field people will receive and communicate engineering issues or changes. Alternatively, if a change is desired on LM's side, source surveillance personnel can remit "squawks" on behalf of suppliers. Paul Mahar, manager of procurement quality, explains: "Quite often, a PO goes out with supplemental instructions detailing technical requirements or manufacturing in-structions. A squawk will often relate to these instructions, possibly re-questing a clarification or change from the suppliers' point of view."
SCN also harbors a single data system that tracks all "source control activity," Mahar notes. "This is a database that can be accessed by all of our people in the field and all people--with appropriate clearance--at our plants or sites. Field people use laptops to input all of their site activities and to describe what parts of a suppliers' process they have reviewed. They also record information about quality system approvals and special system approvals. Furtheromore, all hardware items that formerly had been accepted or inspected (vis-a-vis purchase orders)."
Third step in the evolution of lm-ammc's comprehensive supplier quality measurement system has been implementation of its STAR supplier certification program. Says Matthews, "STAR sets forth a series of stringent performance requirements for quality, schedule performance, and cost. If a supplier meets those requirements, we will perform no oversight and no inspection. Its parts will move right from our dock into stock or directly into an airplane." Current number of STAR suppliers is 131, Matthews notes. "Our goal is to reach 180 in 1998."
Supporting ammc's STAR program is a company-wide common continuous rating system for supplier quality performance. As ammc represents four distinct business units (formerly parts of different corporations), Matthews says there was some work in standardizing performance criteria. "There were vast differences in the way our units defined performance to delivery schedule and to quality specifications," Matthews says. But having performed the legwork to standardize both performance criteria and data collection techniques, ammc is left with a system that allows users to evaluate a supplier's performance by delivery location and for the company as a whole.
Matthews says ammc's common supplier rating system captures data from three points in the supply chain: the SCN network (info about rejections at supplier's site), rejections in receiving, and rejections that occur on the assembly line. In terms of data integrity, procurement manager Reno Marcotuli says situations do occasionally arise where a supplier's rating may become unfairly skewed. Still, he says, "Our procurement personnel work on a sourcing team. They normalize data informally by understanding the specific details of a situation. If something seems odd, they might look at drawings, or look at supplier capacity in order to make sense of the ratings."
Deploying the data
All supplier performance data is compiled in a universal database. The database carries performance ratings for each site to which a supplier delivers, and also an aggregate number tracking overall performance to all sites. "We have established thresholds that trigger various actions," Mahar explains.
One action is to nominate suppliers for STAR status. After the system identifies a STAR candidate, the decision goes to a steering committee comprising buyers and DCMC procurement quality engineers for evaluation according to a list of standard criteria. This list, Mahar notes, includes such intangibles as responsiveness to RFPs, how much or how little assistance the supplier has needed, and decreasing price trends.
While top-performing suppliers become STAR candidates, ammc's common rating system may earmark others for its SPEAR--Supplier Performance Evaluation and Response--program. Says Richard Hill, manager of procurement quality, "This program was implemented in 1990-1991 as a cooperative program to improve supplier performance." Average duration of a SPEAR initiative: 6-9 months, Hill estimates. "We have extremes on both ends," he says. "Some improvement projects extend from 18 months to two years."
The results
So far, Matthews says, ammc's combined supplier quality initiatives have yielded tangible improvements. "Total product yield," is ammc's primary metric for tracking the success of its systems. That is, ammc tracks a grand total of nonconforming pieces per 1000 received. "Every year," Mahar says, "we try to improve this number by 10%." For 1996, the number was approximately 1.6, for 1997 it was 1.4. "In 1996," Matthews says, "we had a goal to improve by 10%. Our actual improvement was 23%. In 1997, we achieved a 62% improvement."
These results are magnified, Mahar notes, when you consider that the firm has been steadily increasing its outsourcing. In 1991, he notes, the firm's Fort Worth site outsourced 9000 part numbers on the F16. In 1997, it outsourced 46,300. "Our assembly line rejections are down even though part numbers quadrupled."
Looking forward, Matthews says, the group has plans for implementing what it calls the LEP system (for lowest evaluated price). This system will allow ammc to assign costs to incidents of poor supplier performance and to use this information in its bidding processes to more accurately represent the cost of doing business with various suppliers. If it's a STAR supplier, Matthews says, "We recognize that the cost of doing business with them is probably lower than their prices state." The LEP system will be implemented, Matthews says "When we move next year to a common purchasing system."
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