How Lockheed Martin Revamped Its Supply Chain

To keep up with the cost pressures of complex military contracts, Lockheed Martin is relying more on contractors and improving its internal supply chain.

Changing the supply chain it uses to deliver parts and services to the U.S. military may help Lockheed Martin win new contracts, but improving its internal supply chain and manufacturing turned out to be the only way the company could keep up with increasingly complex weapons systems like the F-35 Joint Strike Fighter.

Traditionally, when the Bethesda, Md., company won a contract for a new weapons system, it typically would create a whole new production and maintenance operation for that specific system. It would manufacture parts itself that were custom-designed for that system and stockpile replacements for ongoing sale.

As military contracts have gotten more complex, and pressure to contain costs has become more intense, however, Lockheed Martin has had to change the way it does business. Rather than custom-build parts for every system, for example, the company relies more on contractors to supply parts that often come right off the shelf or include only minimal customization.

The Department of Defense has adopted a similar approach with many of its own systems, partly to keep its computer systems up-to-date in an environment in which commercial PCs advance far more quickly than military procurement processes allow and to cut costs.

The F-35 Joint Strike Fighter, for example, is designed to save money by allowing the Navy, Air Force and Marines to each fly a version of the same jet that is customized for their needs, while sharing 70 to 90 percent of the parts involved. The cost of each aircraft will range from $45 million to $60 million.

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Lockheed Martin, which is scheduled to start producing the planes late in 2006, will contract out about 60 percent of the 40,000 parts and will use sophisticated supply chain networks to make the process more efficient. It will eventually produce almost one F-35 per day, according to Mike Jones, IS and technology specialist for material management and supply chain integration project management at Lockheed Martin Aeronautics, in Fort Worth, Texas.

"When we were building the F-16, we were building a large majority of the parts," Jones said. "Now were more of an integration shop. Were subcontracting and becoming more of a supply chain, rather than making it all ourselves."

The system allows suppliers to see how many parts or supplies Lockheed Martin has on hand so they can resupply as necessary. The process is similar to vendor-managed inventory plans that help convenience stores keep milk and Twinkies in stock.

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Rather than let suppliers ship parts at their own discretion, though, Lockheed Martin gives each supplier a minimum and a maximum number of parts it wants on hand, so Lockheeds parts supply never runs out or overloads its storage capacity, Jones said.

The system automates about 450,000 specific transactions with 350 suppliers, representing 82 percent of the divisions total supply spending, and will be able to handle an even wider range in the future. That helps Lockheed Martin manage on-site inventory much more closely and helps it update suppliers quickly enough that it can count and pay for the parts as theyre taken out of a storage bin, rather than when a whole shipment is delivered.

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