Lockheed Martin Revs Up Supply Chain Ahead of F-35 Fighter

The U.S. military, which spends more than $90 billion per year on logistics and resupply, is modernizing and outsourcing much of that work to save time and money—and raise its level of preparedness.

And Lockheed Martin Aeronautics, one of the militarys principal contractors, is not only restructuring many of its own services but also building a whole new business to support that effort.

Joe Grosson, who serves as a kind of cross-divisional logistics evangelist and rainmaker at Lockheed Martin, has been working to consolidate the companys splintered systems maintenance businesses into a more efficient whole.

In the process, Grosson has discovered that logistics and sustainment not only could be incredibly lucrative for Lockheed Martin but also could give the Department of Defense lower costs and weapons systems that are more reliable on the battlefield.

"We recognized that the corporation was not organized to understand the size of the logistics base there was out there to get," said Grosson in Gaithersburg, Md.

The DODs logistics modernization is the kind of top-down strategic restructuring of a supply chain that shows dramatic benefit from business-school process analyses but is rarely seen in the real world.

Unfortunately, the centralization of that effort is more a theory than a reality, and the benefits of outsourcing parts of DOD logistics and maintenance responsibilities are far from clear.

Despite campaigns by high-ranking DOD officials and military officers, the logistics restructuring is more an ad hoc process than a strategic one.

One big problem is that the military procurement, logistics and maintenance business is divided not only into components run by the Air Force, Army, Marines, Navy and Coast Guard but also by various commands within each service and by weapons systems within each command.

Despite the similarities between them, for example, even mundane and replicable parts for the Air Forces F-22 fighter plane and the multiservice F-35 Joint Strike Fighter—due to hit full production in September —were designed separately, and they will be supplied to the military under contracts that cover only each weapons system, with little regard for shared logistics or maintenance processes.

Since as early as 1996, DOD officials have been debating how to make the process more efficient.

Read more here about how Lockheed revamped its supply chain.

Sustainment contracts—covering the resupply, repair and general maintenance of a specific weapons system—usually require a contractor to build and supply parts to one of a number of supply depots owned and run by individual services.

That system—which was operating at only about 55 percent capacity, according to a 1997 General Accounting Office report—has been radically downsized.

The number of depots has dropped from 38 to 19 as part of a base-closure and military restructuring following the end of the Cold War.

The number of personnel involved in the process has dropped by almost two-thirds, and much of the sustainment work has been shifted to private-sector companies under individual contracts, according to the Government Accountability Office.

Its a business so disjointed that Lockheed Martins Grosson found his company was operating a $4 billion logistics and maintenance business without really recognizing either logistics or maintenance as a separate business.

The companys various divisions produce diverse military weapons, and detection and control systems and are often awarded ongoing maintenance and resupply contracts simply because they manufacture the product needing support.

That approach to logistics and resupply has kept Lockheed Martin from consolidating its maintenance operations to make them more efficient, from designing its products to be more easily maintainable and from tapping further into the $90 billion the DOD spends on maintenance every year.

Grosson holds a series of business-card-crowding titles, including managing director of Lockheed Martins Enterprise Logistics Technology Office, and concurrently serves on the staff of the companys Chief Technology Officers as corporate director of logistics.

Eight years ago, Grosson was acting as a logistics consultant in Lockheed Martins military undersea-systems business when he completed an analysis that showed the company was bringing in a huge amount of revenue from disconnected logistics contracts and that it didnt understand how deeply it was already into the logistics business.

Like the DOD, Lockheed Martin is divided into largely autonomous units, each of which negotiates its own business deals with little consultation or process coordination with the others.

Grosson and a team of logistics specialists from various Lockheed Martin departments analyzed the militarys budget to nail down just how much money there was to be had in ongoing sustainment rather than just the manufacture of weapons systems.

The amount was so large that Grosson took his analysis to the office of the deputy undersecretary of defense for logistic programs and projects.

"We asked them to define whether it was actually the right picture on sustainment," Grosson said. "They did. And the Logistics Management Institute came out with about the same estimate, which was that there was about $80 billion that was accessible to Lockheed.

"The number was so staggering I didnt want people to hear it because they would think I was nuts," Grosson said.

Next Page: Changes inside Lockheed.