Enabling Profitable PBL Fulfillment Through Supply Chain Integration In A&D

1. Enabling Profitable PBL Fulfillment Through Supply Chain Integration In A&D 4 April 2005 Alex Safavi, Ph.D Mark Bouknecht

2. Agenda • Integrating Performance Based Logistics (PBL) in Aerospace and Defense • Overview • PBL’s – Yesterday vs Today • Boeing’s role; challenges • Supplier Collaboration • Successfully implementing a PBL to achieve profitability • Contractual Requirements • Planning and Organizing Support • Fulfillment through Strategic Plan • Measuring Success through Forecasting and Planning

3. Integrating Performance Based Logistics in Aerospace and Defense

4. Fleet Readiness Achieved through Large Inventory Today’s Support Chain Design/Logistics Planning Operations/Planning Maintenance Supply Retail Supply Wholesale Aircraft: Location Usage Status Aircraft: Repair Info. (WUC) Part: Config. Production Design Criticality Part: Part Issue Part Back-order Invent. Loc. Part: Suppliers Repairs Orders Characteristics • Minimal Use of Available Information • Local vs Global Optimization • Sequential Material Planning Efforts • Organizational Boundary Constraints Results • Parts visibility often lost • Lengthy Material ordering and procurement cycle • Piece parts not available for repair of Asset (67% fill rate) • Long Repair Pipeline (90+ days)

5. The Transition to PBL Synchronized Supply Chain Traditional Supply Chain Requirement Requirement Requirement Requirement Requirement JWSMT PWSG Oversight Boeing Base Supply Raw Material Customer Supplier Factory DLA/ ICP Depot or Maintenance planning Retail inventory Wholesale inventory Inventory ALT lead time Production lead time Acquisition lead time • Contract/System Metrics Industrial Base “Buffer” “Buffer” “Buffer” “Buffer” • Situational awareness • Visibility of inventory • Distribution & transportation planning • Optimized resources • Warehousing Maintenance Emergent events Forecast Schedule TCTOs Mods ABs “Buffer” Customer • Depot maintenance schedule • Wholesale inventory • Depot part demand • Planning activity X X X X • Flight operations • Customer part demand • Retail inventory • O & I maintenance activity Constraint planning filter Constraint planning filter Constraint planning filter Constraint Manufacturing / Repair Agents Supplier Base • Capacity planning • Work flow • Delivery schedule • Repair status • Supplier inventory • Delivery schedule • Capacity planning • Characteristics of Traditional Supply Chain • Sequential material planning efforts • Not budget optimized by platform • Repairables/consumables plan not synchronized • Execution slow to react to maintenance and operational dynamics • Poor visibility across supply chain • Piece parts not available for repair of assets (67% fill rate) • Long repair pipeline • Large inventory Investment • Transactional relationship with suppliers • Lengthy material ordering and procurement cycle • “Just in Case” material • Characteristics of Synchronized Supply Chain • Material planning efforts integrated across supply chain • Improved forecasting accuracy • Closed loop system responsive to change • Continual refinement of material plan • More timely corrective action • Higher piece part availability shortens repair pipeline and improves maintenance efficiency • Reduced inventory investment • Best use of funding focused on A/C availability • Stable supplier base shortens pipeline

6. Industry Team Customer’s Vision Total Visibility and Execution of the Support Value Chain Industry ISS/SCM Objectives Continuous Global Visibility • 100% fulfillment of orders • Significant reduction in the acquisition cycle times • Improving product quality • Reducing total cost • Maintaining optimum inventory • Improving technical support • Eliminating process concerns • Ensure responsive supplier base • Spares computations allocations • Initiate spares procurement • Manage repair/spares assets • Deficiency resolutions • Resolve technical issues Government Agencies Common consumable spares Improve design Monitoring: Performance Velocity Accountability Highest return on cost TBIM/RBL Milstrip DLA Unique consumable spares ROR Operational Units Base Depot partnerships Distribution points Deployments Improved service to the warfighter 5

7. Integrated Support System Develop and Implement an Agile, Flexible, Efficient Support Solution to Provide Improved Support for Military Aircraft. Operations/Planning Maintenance Supply Retail Supply Wholesale Design/Logistics Planning Part: Part Issue Part Back-order Invent. Loc. Part: Config. Production Design Criticality Aircraft: Location Usage Status Aircraft: Repair Info. (WUC) Part: Suppliers Repairs Orders Parts Order Status Part /Repair Order Inventory Status Parts Order Status Part/ Repair Order Systems Interface with Customer Systems & Manage Boeing transactions Decision Support Tools Characteristics • Enable use of Available Data • Visibility provided to all Decision Makers • Global Optimization Results • Total Asset Visibility • Shorter Procurement Cycle • Shorter Repair Pipeline • Efficient use of Assets Increased Fleet Readiness at Lower Cost

8. Integrated Information Systems • Single integrated systems architecture • Provide tools to facilitate and manage: Government Industry Mgt insight Logistic MIS Commercial transportation Distribution depots Asset visibility Analysis tools • Total asset visibility • Obsolescence • Reliability improvement • Technology insertion • Transportation • Logistics system performance Transportation network Maintenance depots Retail logistics Government / Industry integration

9. The Challenges • This is about Business Transformation • Environment • Culture Incompatibility • Long “gestation period ” to establish relationships • Resistance to change • Competing Priorities • Long Term Vision vs Day to day demands

10. Good Integration = 50% Science + 50% Art • 20% Political • Status/ Control • Social Contract • Secession • Job/Fit/ Roles • Turf • 40% Emotional • Loyalty • Trust • Comfort • Community • Security • Benefits • 40% Rational • Growth Targets • Tasks/Jobs • Offerings • Structure • Measures Address employee drama and trauma first......before initiating operational change

11. Collaboration - Mutually Benefiting Relationship Value Generation is the payoff Relationship Scale Description Value Generation Partnering Relationship A relationship of mutual dependency, where the exchange is so strong that it is needed for each party to conduct their business. Strategic Relation- ship Personal Relationship A relationship where the parties know each other and begin to adjust the product and service exchange to each others specific requirements. Transactional Relationship A relationship where the parties interact with each other during discreet exchanges of products or services. Most Relation- ships New Relationship A relationship that has just started; one that has not yet been “proven.” No Relationship A relationship that is unknown, or one that is still only prospective, or one that is undesirable.

12. Successfully implementing a PBL to achieve profitability

13. PBL: Key Success Factors • Customer View • Best Reliability and Cost for the Service • Integrator Challenges • Reliable Prediction • Scientific upfront analysis of operations and risk • Requires small margin of analysis, forecast and execution error • Better Measurement and Control • Rigorous performance monitoring and tuning Marry science with SCM best practices

14. Identify Customer Requirements • Performance Goals • Budget and Support Infrastructure • Performance Metrics • Operational Scenarios Prioritize, Prioritize, Prioritize

15. Diagnose As-Is Operations • Supply and Fulfillment Networks • Stocking Locations • Repair Locations and Levels of Repair • Supply Alternatives • Operations Management Processes/Policies • Cost and Service Level Baseline • Risk Identify Bottlenecks & Opportunities

16. Logistics Data Collection • Identify Data Systems Architecture • Link to Data Systems and Collect Data • Assess Data Integrity and Risk • Establish/Execute Cleansing Procedures Data Collection is a Continuous Process

17. To-Be Supply Chain Analysis • Compare Different Supply and Fulfillment Roles and Policies • Identify Key Service Performance Drivers and Quantify Attainable Service • Identify Key Cost Drivers and Quantify Cost • Quantify Risk • Tradeoff Performance, Cost and Risk Scope is the Entire Supply Chain

18. Customer Presentation: Alternative Service Options • Description of the supply chain • Projected Performance measured by customer Metrics • Periodic Cost including breakdown by major Activity • Description and Quantification of Risk – identify who takes it Don’t forget the Transition Plan

19. Implementation and Delivery • Detailed description of new and transitional processes – every step must be measurable • Availability of planning and execution systems enabling the processes • Continuous tracking of the performance using customer required and internal Metrics Readiness checklist for each major Activity

20. Lessons Learned • Follow a disciplined process, avoid shortcuts and conduct regular reviews • Team effort involving engineering, spares, supplier relationship management, and contract and pricing • Integrator finds the most appropriate provider of each service as opposed to claiming to be it • Involve the customer in every stage of analysis • Data is always a problem