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

By Kevin Fogarty  |  Posted 2006-05-29

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.

Changes Inside Lockheed

Changes Inside Lockheed

Grosson wasnt nuts, but enormous sustainment contracts werent going to be that easy to land, either.

Lockheed Martin, like the military, wasnt set up to share logistics and maintenance arrangements among various groups.

To bridge those gaps, Grosson helped create an Enterprise Logistics Business Office, or ELBO, whose responsibility was to create a de facto horizontal--logistics capability coordinating activity between each of the business groups.

In addition to Grosson and a series of corporate-level strategic planners, the group includes a dozen representatives from various business units.

"What makes it operate is that it is a collaboration among a few people who are corporate-funded and business reps from areas who can take the plans we dream up and drive them into their plans," Grosson said.

ELBO put together databases that centralized requirements of different DOD contracts to identify patterns of work and potential new-business opportunities.

A new Enterprise Logistics Technology Office, or ELTO, assists the effort by developing new processes, recruiting and training logistics specialists, and developing IT tools such as product-usage-predicting algorithms, sensors that can report impending failures in existing weapons systems and other support-automation technology.

Most important for growth in the logistics business is the consolidation of training and recruiting of new talent.

"If we are going to double our business in three or four years, and we have 15,000-or-so logistics specialists already, what will we need in three years?" Grosson said.

Grossons team surveyed company training programs and found there were between 80 and 90 logistics training courses, with little or no coordination among them.

"We also surveyed all the colleges and institutions that have programs that support logistics," Grosson said.

"We are coordinating with them and are aggressively trying to put in our own Logistics Educational Institute so we can identify where [future logistics specialists] need to go.

"Were also working on an engineering process improvement center, a best-practices place, as well as a logistics sustainment council and a facility where were building training guides for a lot of people," Grosson said.

Next Page: Sensors and submarines.

Sensors and Submarines

Sensors and Submarines

The right IT systems are vital to making a logistics and sustainment business work, especially when the plan is to sell reliability and increased uptime as primary benefits.

But its not reasonable or politically possible to make five major company divisions or dozens of individual product groups use a set of applications that might not satisfy any of their needs completely.

So, Grosson said, Lockheed Martin is developing a set of data storage and reporting frameworks that can keep track of products in the field and get service or supplies to the military as needed.

"We figured what we needed to do was architect a service-oriented architecture for a generic PBL [performance-based logistics service plan]," Grosson said.

"So we basically funded different lines of business and staff to identify and bring into the development center those core strategies so we could demo the best and the core solutions."

The resulting architectures will use standard protocols and systems that are as open as possible to one another, though equipped with the required level of encryption and security.

"We are lighting the way, without being directive. If a program has a contract, they have a customer; they have plans that are different; they can do what they want to do," Grosson said. "But we can keep them from starting from ground zero and spending tens of millions of dollars to start up."

Next Page: Changing the military?

Changing the Military


Changing the Military?

Thats not to say everyone is as enthusiastic about having Lockheed Martin or any other contractor take over responsibility for a large part of the supply and maintenance of systems on which the lives of American servicemen and servicewomen depend.

While slightly less than half of all DOD sustainment operations involve some form of contractor/military integration, formal PBL arrangements are still made on a product-by-product basis.

There has been no widespread acceptance of contractors as equal partners in the sustainment of war-fighting systems, according to Jim Beggs, PBL analyst at Booz Allen Hamilton, in McLean, Va.

The GAO also has been skeptical about the cost efficiency of military/contractor shared sustainment contracts since at least 1997, when it issued a report saying cost savings could not be proved.

The agencys most recent shot at the arrangements, which revolve around PBL metrics, was a September 2005 report unambiguously titled "DoD Needs to Demonstrate That Performance-Based Logistics Contracts Are Achieving Expected Benefits."

"Theres no substantiation that any change in the DOD, in anything theyve done or for however long, has resulted in an efficiency gain," Beggs said.

Its hard to make an apples-to-apples comparison among programs because each sustainment contract is so different, according to Dave Pauling, assistant deputy secretary of defense for maintenance and depot policy at the DOD, in Washington.

Measures of effectiveness also range widely, and cost may not be the most meaningful.

According to a report from supply chain specialist Lexington Institute, PBL-based arrangements increased availability of air-based, close-in weapons systems in Iraq from 80 to 89 percent; increased the availability of F-14 targeting systems from 73 to 90 percent; and increased engine uptime for the F-404 to 90 percent while cutting maintenance time by more than half.

Similar arrangements cut depot-based maintenance time—which requires a helicopter to be taken not only out of service but also often out of the country in which its operating—from 261 days to 76 days and reduced the wait for F-18 supplies from 47 days to seven days, according to a 2005 presentation from the office of the assistant undersecretary of defense for logistics.

There is little specific research within the DOD to support the idea, but sharing common systems such as pump mechanisms or wiring among several classes of Navy ships could save 30 to 40 percent on parts and maintenance.

But it isnt done because designers start from scratch rather than using an inventory of parts that have already been designed and building on top of them, Grosson said.

That kind of "innovation" is a prime example of how shared sustainment contracts can benefit the military, he said.

"The money well save in IT implementation is incredible. The money well save in other implementations is considerable as well," Grosson said.

"If the DOD is spending $100 billion a year on sustainment, and we can take out 10 percent, think about what you can do with that in a war-fighting infrastructure."

Performance-Based Logistics

Since 2000, the Department of Defense has been trying to add PBL arrangements to its supply contracts, with limited success. The goal is to save money and increase the uptime of weapons systems by getting the systems vendors to make cost and delivery of support more efficient.

Incentives to Integrate Supply Chains

Traditional contracts

  • Government manages design changes and continual upgrades and engineering support

  • Government pays logistics support providers to make changes to static supply plans

  • Support providers goals are limited to delivery of X number of parts by X date, not by the quality of the parts or the need for them at the time and place of delivery

  • Support providers responsibility stops when parts are delivered

  • Support provider has no incentive to make chain of supply and service more efficient

PBL Agreements

  • Support provider manages design changes and engineering upgrades

  • Support provider gets additional revenue to increase system uptime or reduce costs

  • Support providers payments depend on meeting performance requirements for the system, not delivery requirements for the parts

  • Support provider becomes responsible for the ultimate performance of the system; the more efficient the supply chain, the more money the support provider makes

DOD: PBL provides a more flexible model for weapon-system support and maintenance that may save money and deliver greater uptime by outsourcing support to product manufacturers, whose contracts include strong incentives toward speed and adaptability.

Lockheed Martin Aeronautics position: Love it, love it, love it.

PBL gives producers of complex systems the opportunity to build revenue by moving more heavily into support and maintenance contracts that last the life of a product. PBL also builds in incentives for the vendor to make its products more reliable (and therefore cheaper to support) and its service more effective (and cheaper to deploy).

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