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We live in a volatile world

We live in a volatile world. Chuck Gray. Vice President & COO ChuckG@fescorp.com. 691. 621. DoD Operating & Support Costs vs. Investment . Lowest investment share since the Korean War. 1950 – 2010 Average: 36%. Tension between O&S and investment will reach historic proportions.

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We live in a volatile world

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  1. We live in a volatile world Chuck Gray Vice President & COO ChuckG@fescorp.com

  2. 691 621

  3. DoD Operating & Support Costs vs. Investment Lowest investment share since the Korean War 1950 – 2010 Average: 36% Tension between O&S and investment will reach historic proportions O&S (MILPERS plus O&M) % of DoD BA (Includes OCO) Investment (RDT&E plus Procurement)

  4. BALANCING QUALITY, SAFETY, RISK AND COST IN Volatile SPACE AND DEFENSE MARKETS

  5. Program risks associated with an “up & down” business scenario

  6. Hurry up, you are behind schedule • DESIGN PROGRAMS • Shortcut requirements analysis: DESIGN RE-SPINS • Compromise reliability / maintainability / availability analysis: REDUCED SUPPORTABILITY • Reduce scope & content of Systems / Hardware / Software Peer Reviews: MORE RE-SPINS • Shortest lead time becomes principal parts selection criteria: INCREASED OBSOLESCENCE & COUNTERFEIT PARTS RISKS • Hardware – Software trade-off studies scope reduced: PRODUCT DESIGN COMPROMISED • Reduced emphasis on Design for Manufacturing & Test: PRODUCTION/TEST REWORK • PRODUCTION PROGRAMS • Shortcut work instruction preparation time: INCREASED “DO OVERS” • Compromise production training: INCREASED SCRAP & REWORK • Reduce rigor of first article / first build reviews: JEOPARDIZE PRODUCT INTEGRITY/SCRAP/REWORK • Focus on delivery VS first time quality: MISSION FAILURE, INCREASED CUSTOMER REJECTIONS ACROSS THE BOARD RISK TO SYNERGY “CORNERS”

  7. SLOW DOWN --- THE PROGRAM IS SLIPPING • Design a ROLEX VS the TIMEX that the customer ordered: costs, lead times, producibility impacted • Utilize science experiments to solve a problem requiring simple analysis • Retain people on the program where ROI is low • Introduce production changes that actually reduce producibility & testability ANOTHER DAY ON THE PROGRAM IS ANOTHER DAY OF COST!

  8. Subcontractors caught in the middle • Subcontract reduction/terminations/extension • Delayed customer awards = Compressed Subcontractor Cycle Time • Extended material/parts lead time • Increased parts materials/cost: Building to ORDERVS Building to STOCK “SUBCONTRACTOR”

  9. QUALITY SAFETY DELIVERY COST CULTURE, ROBUST PROCESSES, LEADERSHIP

  10. A SMALL BUSINESS PERSPECTIVE 29 Years of Customer-Focused Excellence in Electronics Engineering Design and Manufacturing Stillwater 86,500 Sq FT Facility Brenda Rolls High Reliability Manufacturing A Native American, Woman-Owned Small Business President & CEO

  11. CUSTOMER, PEOPLE & performance Our Customers Our People FY10 Revenue: $27.8M D&B Rating: 4A1 Total Team Strength: 154 REVENUE employees

  12. Business Programs Space and Missile Programs Aircraft Programs Radar Switchboards SB-4229 SB-4229A(V)/SP UAS Programs Maritime Programs

  13. Certifications Awards & Recognition • Lean Manufacturing • MIL-I-45208 • MIL-Q-9858 • ISO 9001-2000 • AS9100 • JSTD-001 • NASA 8739.1 - .4 • Boeing GoldSupplier • Northrop Grumman Gold Supplier With 3 World Class Team Awards • Boeing Supplier of the Year 2001, 2005, 2009 • Lockheed Martin Star Supplier

  14. Enabling infrastructure -AS9100- FES Corporate Quality Plan FES-QP-1 FES Quality Systems Manual FES-QSM-1 Quality Management Systems Section 4.0 Management Responsibilities Section 5.0 Resource Management Section 6.0 Product Realization Section 7.0 Measurement, Analysis and Improvement Section 8.0 Control of Documents FES-QSP 4.2-2 Management Review Input FES-QSP 5.6-1 Training Assessment Delivery and Evaluation FES-QSP 6.2 Product Quality Planning FES-QSP 7.1-1 Purchasing FES-QSP 7.4 Return Authorization Procedure FES-QSP 5-2-1 Measurement, Analysis and Improvement FES-QSP 8.1-1 Non-conforming Material/Service Reporting FES-QSP 8.3-3 Proof of the Pudding • 3rd Party Certified by NQA • Last Audit March 2011 • Score 1000 out of 1000 First Article Product Validation & Verification

  15. Integrated Enterprise Processes Sub-Tier Supplier Management TechnicalDocumentation Product Realization -Manufacturing -Test QualityPolicy Corporate Vision Budget / Schedule Program Management Guidelines Repair/Support Plan Quality Plan GFE/CFE Control Software Development Goals , ISO Management Responsibilities Process 5.6-1 Hardware Development Configuration Mgt Plan Proposal Preparation Process 7.2-1-2 Pre Bid Risk Assessment & Bid/No-Bid Decision Customer Contract Requirements • Program Plan

  16. Monthly Program Performance reviews with Executive Management Earned Value and Risk Assessment Technical, Delivery, Schedule, and Cost Performance In-Depth Performance Reviews Program Team Performance Measurement Business Area Performance Assessment & Resource Analysis Supplier Performance Financial Performance Quality Performance PM Updates Program Schedule, Estimates to Complete, & Earned Value Program Performance Review with Executive Management Weekly Customer Telecons Program Performance/Risk Contracts Performance Program Team Meetings / Performance Review Daily Program Task Status Continuous Customer Interface Weekly Monthly

  17. Product Assurance Network • FES-QSP- • FES-QSM-1 • FES Quality Manual 8.1-2 8.5-2-1 • FES-QP-1 • FES Quality Plan 8.3-2 • FES-QSP -7.2-2 7.2-1 • FES-QSP- 8.1-5 • FES-QSP- 8.5-2-1 5.6-1 5.6-1 7.1-1 7.4-1 5.6-1 5.6-1 8.5-1 7.2-2 5.6-7 7.1-1 8.5-2-1 7.2-1 • 7.1-1 8.5-2-1 • FES-QSM-1 • FES Quality Manual • 7.4-1 8.2-1 8.2-1 7.4-3

  18. CORE PROCESSES • Design • Material Acquisition • Manufacturing • Product Support

  19. design Subsystems/Product/Systems Engineering Yesterday • Systems analysis • Design Rigor • Peer Reviews • Systems testing, Validation, Verification • Configuration Management and Documentation • Technology innovation and product enhancement Today Tomorrow Producibility Integration Contract Award Preliminary Hardware Design Peer Reviews Preliminary Design Review Kickoff Meeting System Requirements Review H/W & S/W Requirement Analysis Analysis: Reliability, Producability, Maintainability, Availability Parts and Equipment Selection Preliminary Software Design Drawing Release Prototype/ Hardware MFG Part Procurement (Production) Transition to Production Planning Hardware and Software Integration Informal Functional Verification Testing Design Qualification Testing Lessons Learned Capture/ Application Peer Reviews Critical Design Review Production Release Drawings/ ATP Software Code and Test MFG Readiness Review Test Readiness Review First Article Build/ Qualification Integrate Lessons Learned into MFG Processes Equipment MFG (Production) Acceptance Testing Physical Config. Audit Functional Config. Audit Packaging and Shipment

  20. Turn-key material acquisition process Customer Approval Parts Obsolete Identify Alternate Parts YES NO NO YES CONFIG MGR MATERIALS ENGINEER PROJ ENGR QUALITY ENGINEER PROGRAM MGR CUSTOMER REQUIREMENTS NO Start • Develop Bill of Materials • Traceability / • Sources • GIDEP • Screen/Test • Generate Purchase Request • Supplier Performance • Certified • Qual-Deliv • Special Certs • Source Inspec PR • RequirementsAnalysis YES PURCHASING TEAM PURCHASING TEAM PGM/PURCHASING TEAM PGM/PURCHASING TEAM MATERIAL MGT PROGRAMTEAM • Vendor Selection • Approved Vendor List • Past Performance • Process capability • Customer directed Request for Quotes Best Value Award • Issue Purchase Order • Monitor Vendor Performance • Receive • Inspect/Test • Prohibited Materials • Counterfeit parts • Stock Product Integration / Documentation YES NO Acceptable quotes

  21. Manufacturing process flow Heller 1809 KM3 My Data My12 DEK Horizon 03L AQUEOUS Tech Trident III Process 2: Automated Placement Process 3: Reflow Process 4: Cleaning Process 1: Stencil Print Mirtek MV-3LP AOI Process 5:AOI Process 6: Touch-Up Process 7: Lead Forming (as required) Process 8: Install Thru-Hole Components AQUEOUS Tech Trident III Selective Soldering Machine Process 10: Cleaning Process 12: Break Panel, &inspect individual boards Process 9: Solder Connectors(and Thru-hole Components)

  22. Processes without organizational champions & cultural buy-in are a house of cards ready to Fall

  23. Developing a corporate culture of commitment & process optimization • Leadership Integrity and Organizational / Employee Commitment Beyond Reproach • Foster Transparent Communication & Mutual Respect in Both Directions Throughout the Company • Welcome New Ideas • Specific Goals and Accountability Established Annually • Resources Allocated to Achieve Quality Goals in Company Operating Plan • Clear, Timely and Accurate Performance Feedback • Fruits of Success Shared with All Who “Make it Happen” on a Fair & Equitable Basis • Lessons Learned are Captured & Re-deployed

  24. Customer Focused Program management • Integrated Product Team Approach • Team includes CUSTOMER, Program Engineering, Quality Test, Manufacturing, Configuration Mgt, Sub-tier suppliers • Open Communication, Proven Process Deployment, Risk Mitigation, Metrics Based Performance Assessments • Nimble and Responsive to changing customer requirements • Monthly Program Performance reviews with Executive Management • Delivery, schedule, and cost performance & • Lessons Learned • CUSTOMER BENEFITS • NO Surprises • Performance to Plan • Reduced customer oversight costs

  25. Key Quality Metrics • Line of Balance • Customer Satisfaction • On-Time Customer Deliveries • Customer Quality Acceptance Rate • Warranty Returns • Nonconformance Requests by Area • Customer Complaints • Supplier Corrective Actions • Scrap • Rework and Repair Labor • Supplier Performance • Risk

  26. CLIN7 Production PCU Line of Balance

  27. FY 2010 Customer Satisfaction Score (Company Wide) • Customer Satisfaction Weighted Formula • .810 + .988 - .002 x 100 = 89.90 % • 2 • Proposals Won = 86 • Proposals Lost = 20 • Total Proposals = 106 • Wins ÷ Total Proposals Submitted • = Proposal Win Rate Proposal Win Rate: 81.0 % • Delivery Rate: 98.8 % • Warranty Returns = 4 • Units Shipped = 2035 • Warranty Returns ÷ Units Shipped • X 100 4 ÷ 2035 X 100 = 0.002% Proposal Win Rate + Delivery Rate 2 Warranty Returns Units Shipped = Satisfaction Score X 100

  28. Boeing updated the B.E.S.T. for 02/15/2011 Huntington Beach: Quality: 15 each received with no rejects                                                                  Quality: Gold Delivery: 15 each delivered on time                                     Delivery: Gold Huntsville: Quality: 122 each received with no rejects                                           Quality: Gold Delivery: 122 each delivered on time Delivery: Gold St. Louis: Quality: With Complexity Factor:    99.99%                                                              Quality: Silver Delivery: 1013 each delivered on time                                                                   Delivery: Gold Wichita: Quality: With Complexity Factor: 100%                                                                    Quality: Gold Delivery: 86 each delivered on time                                                                      Delivery: Gold Composite & BDS Rating Quality Rating: Alternate Quality Rating  100%                                                       Quality: Gold Delivery: 1236 each delivered on time Delivery: Gold Northrop Grumman Oasis Rating Quality: Gold Delivery: Gold DLA Ratings Updated on 2/22/11

  29. Supplier performance

  30. Enclosure Delivery Quality 12 Month Avg = 15% No Failures

  31. Supplier Ratings

  32. Program Risk Assessment ITEMIZED MEDIUM LOW HIGH

  33. A journey of continuous improvement Northrop Grumman World Class Team Awards DoD Nunn-Perry Awards Boeing Supplier of Year Awards NGST Gold USN BMP Audit ERP MILQ 9858 Lean Journey Begins AS9100 Supply Chain Mgt System MILI 45208 ISO 9001-1994 ISO 9001-2000 1989 1994 1999 2000 2001 2005 2006 2008 2009

  34. challenge • Forced re-design of the F-18 E/F Engine Fuel Display due to LCD supplier Bankruptcy • Hardware / Software • No break in production • Required 75% reduction in re-design time • Focus on 1st Time Quality to Reduce Production Cost

  35. approach • Formed integrated FES – Subcontractor – Customer Re-design team • Opportunity to Integrate Lessons Learned • Design • Producibility • Integrate EFD production team into Design for Manufacturability (DFM) and Design for Test (DFT) • Formed a Joint FES – Customer – Subcontractor accelerated improvement team • First Time Quality • Reduce Contract Award Delivery Cycle Time

  36. Reduce Order to First Delivery Cycle Time Supply Chain LEAN Deployment FES Critical Path All material received FES 25 wks All material received Sub 30 wks PO Award to Sub 8 wks Sub 1st Delivery 56 wks FES 1st Delivery 76 wks Boeing PO Award Initial State 18 wks 20 wks 41 wks 48 wks 4 wks CurrentState 12wks 18wks 34 wks 38wks 2 wks FutureState Sub Critical Path FES & Sub Critical Path

  37. Result New Engine Fuel Display New Multi-Purpose Color Display F/A-18E/F Engine Fuel Display Redesign (Tech Refresh) New Up-Front Control/Display Customer Recognition: Boeing’s Avionics Supplier of the Year 2001 Achievements: Design Time Cut -75% MTBF Improved +33% Price Reduced-48%

  38. FY09 (FRP-10) PRICE (MYP-2, 5th Yr) • Price established during negotiation of MYP-2 pricing Previous CRI Actions (Unfunded) • LEAN Quality Initiative • Reduced • ESS Req’t • Eliminated PRAT • FES took • Over glass • Ruggedization • from GE • STE Upgrade • Improved sub • Test process Follow-on EFD cost optimization Initial Negotiated MYP-3 Price 13.8% MYP-3 Reprice, 10% Incentive (No CRI) • FES internal process enhancement initiatives drove additional cost reductions 20% Final MYP-3 Negotiated Price (With CRI) • Boeing committed to participation in the FES CRI resulting in reduced testing & inspection 27.3%

  39. challenge • Transition of Production for SM-3 guidance unit circuit cards from Boeing to FES without a break in production • Subsequent to Production / Test Readiness Certification, transfer of High-Reliability material responsibility to FES

  40. approach • Full FES process verification with both Production & Test Readiness Reviews requiring Government Prime and Boeing approval prior to FES start • Integrated FES / Boeing Customer & Subcontractor Product Team formed to optimize production transitions

  41. ABMD Production Transition To FES GP Module Ready for CSI / Shipping GP Components Kit Inspected Guidance Processor (GP) Components Kitting PAL Programming Assemble per Drawing: Install Press Fit Connector Clean & Vacuum Bake PWB Component Lead Form & Tin Stencil Print Automated Placement Automated Optical Inspection Mass Reflow Solder & Clean Solder J7 Connector Install & Solder Individual Components to Board Install Connectors & Spacers Using Fasteners & Kapton Tape under J1 Thermal Bond GP Assembly Assembly Inspection AOI Mechanical Bond Components Final Cleaning Cleanliness Test Vacuum Bake GP Module Conformal Coating GP CCA Functional Testing Color Coding: Customer Production Line Certification GP Module Inspection GP Module ESS Thermal Stress Screening GP Module Functional Testing FES Value Added

  42. FES Production Facility Upgrade Program

  43. Assembly PCB

  44. Solder Separation Fishbone Solder wave height People Processes Equipment Solder Pattern Application Speed Equipment Setup Soldering Selective Solder Machine Assembly Technicians Pre-tinning Solder Temperature Temp Sensors Flux Application Pre heating Machine Operators Mechanical Clearance Solder touch-up Heating Rate Batch Cleaner Cleaning Cooling Rate Cross sectioning Solder purity in nozzle Solder Separation PWB X-ray Inspection Humidity Functional Test Calibration Solder Lighting Connector Flux Specification Requirements Air quality Work Instructions Temperature Indicates that this has been eliminated as a cause of the problem Safety Precautions Indicates that is under current scrutiny Material Measurements Environment Methods/Procedures

  45. Counterfeit Parts Mitigation Process Flow

  46. Roadblocks to watch for Diverging goals and objectives Poor Communication Inadequate Training Backsliding Tackling Too Much too early Dirty fingernail gang looses clout No Incentive No Link to Company Objectives Leadership Buy-In

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