William LeandowskiWilliam LeandowskiV.P. Suppier ManagementV.P. Suppier Management
July 18, 2001July 18, 2001
AgendaAgenda
• State of the IndustryState of the Industry
• AIA IssuesAIA Issues
• What Suppliers FaceWhat Suppliers Face
• AIA Response/SupportAIA Response/Support
• Quality IssuesQuality Issues
U.S. Aerospace Industry SalesU.S. Aerospace Industry Sales
NASA/OtherNASA/OtherGov’tGov’t8%8%
OtherOther15%15%
ExportsExports
27%27%
DoDDoD 50%50%
NASA/OtherNASA/OtherGov’tGov’t7%7%
OtherOther23%23%
ExportsExports
42%42%
DoDDoD 28%28%
19198899 ($121B)($121B)
19199999pp
($155B)($155B)
MilitaryMilitary
5%5%MilitaryMilitary
8%8%
2000p ($144B)
Exports41.0%
Defense Dept31.6%
NASAetc
9.0%
OtherOther18.4%18.4%
1990 ($134B)
NASAetc
8.3%
OtherOther17.6%17.6%
Exports29.1%
Defense Dept45.0%
U.S. Aerospace Industry Sales
Trade Balance by Industry, 1998Trade Balance by Industry, 1998
Transportation Equipment Excl. AerospaceTransportation Equipment Excl. AerospaceElectronic Equipment Except ComputersElectronic Equipment Except ComputersApparel and Related ProductsApparel and Related Products
Agriculture, Forestry and FishingAgriculture, Forestry and FishingChemicals and Allied ProductsChemicals and Allied ProductsAerospaceAerospace
-75-75 -65-65-55-55-45-45 -35-35-25-25 -15-15 -5-5 55 1515 2525 3535 4545Billions of DollarsBillions of Dollars
Miscellaneous Manufacturing IndustriesMiscellaneous Manufacturing IndustriesMiningMining
Food and Kindred ProductsFood and Kindred ProductsInstruments et alInstruments et alTobacco ProductsTobacco Products
Aerospace Exports and Trade Surplus
0
10
20
30
40
50
60
70
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
PB
illio
ns
of
Do
llars
Exports Trade Surplus
U.S. Aerospace Industry SalesU.S. Aerospace Industry Sales
$8.0 $7.6 $8.0 $8.7
$30.8 $32.3 $31.1 $32.6
$33.4 $34.1 $35.8 $37.5
$21.9 $24.7 $25.9 $24.9
$37.4$37.4
$49.8$49.8 $54.5$54.5 $45.7$45.7
0
10
20
3040
50
6070
80
90
100
110120
130
140150
160170
1997 1998 1999p 2000e
Bil
lion
s O
f D
olla
rs
Civil AircraftRelated ProductsMilitary AircraftSpaceMissiles
$149$155
$148
$132
Aerospace Sales by Customer
0
20
40
60
80
100
120
140
160
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
P
20
01
EB
illio
ns
of
Do
llars
DoD NASA Other Related Products
Change In Business BaseChange In Business Base
PrimesPrimes SuppliersSuppliers
Pre-Cold War/Cold War Pre-Cold War/Cold War Integrator/Leader = DoDIntegrator/Leader = DoD
Post-Cold WarPost-Cold WarIntegrator/Leader = AIAIntegrator/Leader = AIA
Aerospace Industry SalesAerospace Industry Sales
1919999 9 1919889 9
Aerospace Industry SalesAerospace Industry Sales
Commercial Commercial SpaceSpace
4.6%4.6% CivilCivil AircraftAircraft
35.1%35.1%
Civil Civil AircraftAircraft
18.2%18.2%
Commercial Commercial SpaceSpace
1.3%1.3%
0%0%
5%5%
10%10%
15%15%
20%20%
25%25%
19771977
19801980
19841984
19881988
19921992
19961996
$83 Billion
$56 Billion
Aero%, Total Funding
Aerospace Share Of National R&D FundingAerospace Share Of National R&D Funding
Today’s Trends in Aerospace IndustryToday’s Trends in Aerospace Industry Increasing civil/military integrationIncreasing civil/military integration
Consolidation of companies at multiple levels driven byConsolidation of companies at multiple levels driven by market, world economic situation, need to compete withmarket, world economic situation, need to compete with American giantsAmerican giants
Emergence of competing sectors for capitalEmergence of competing sectors for capital
Strong erosion of government-sponsored researchStrong erosion of government-sponsored research
Misconception regarding the government’s ability Misconception regarding the government’s ability to implement reformto implement reform
Primes become systems designers, integrators, finalPrimes become systems designers, integrators, final assemblers and after-market supportersassemblers and after-market supporters
AgendaAgenda
• State of the IndustryState of the Industry
• AIA IssuesAIA Issues
• What Suppliers FaceWhat Suppliers Face
• AIA Response/SupportAIA Response/Support
• Support the Presidential Commission on the Future of the U.S. Aerospace Industry
• Support Global Implementation of Commercial Aviation Safety Team Recommendations
• Establish International Consensus to Reduce Airplane Noise and Emissions Through ICAO
• Continue Reform of Export Laws, Regulations, & Their Administration
• Adequately Fund Aerospace Procurement and R&D
• Continue Reform of Government/Industry Business Practices
• Facilitate an Integrated E-Business Environment Among Suppliers, Customers, and Business Partners
• Examine Multilateral Actions to Reduce Offsets
• Develop a National Plan to Support the Commercial Space Industry
• Reduce United States/European Union Aerospace Trade Tensions
AIA 2001 Top Ten Issues AIA 2001 Top Ten Issues
SMC Input Into the Process
• Acquisition Reform for Suppliers
• Electronic Commerce
• Engineering/Tech Talent Attraction & Retention
Commission
Purpose: Make recommendations to help
maintain a “Robust” aerospace industry• R&D funding• general acquisition process• government pay policy for contracts• trade regulation & export controls• tax laws on international competitiveness• national space launch infrastructure• loss of technical talent in science & engineering
AgendaAgenda
• State of the IndustryState of the Industry
• AIA IssuesAIA Issues
• What Suppliers FaceWhat Suppliers Face
• AIA Response/SupportAIA Response/Support
SupplierSupplier
Certified SupplierCertified Supplier
Preferred SupplierPreferred Supplier
Long Term SupplierLong Term Supplier
Key SupplierKey Supplier
Strategic PartnerStrategic Partner
Joint VentureJoint Venture
AmountAmount
ofofSubcontractSubcontract
WorkWork
100 100 %%
00
Supplier Preferred Joint Venture
Acquisition ReformAcquisition Reform
• Performance BasedPerformance Based
Design TeamDesign Team
• Sustained PerformanceSustained Performance
• Lean/SigmaLean/Sigma
• Reduced Cost ProjectionsReduced Cost Projections
• Share Risk/RewardShare Risk/RewardTechnology/CapitalTechnology/Capital
ProfitProfit
100100
Quality, Cost, Delivery, Quality, Cost, Delivery, ResponsivenessResponsiveness
Every prime and major subcontractor is reducing the supply base
Electronic Data Interchange…new technology, new business practicesElectronic Data Interchange…new technology, new business practices
Electronic CommerceElectronic CommerceChanging the Way We Do BusinessChanging the Way We Do Business
Reverse Auction
Extensible Markup Language
Exostar.com Raytheon
BoeingBAE
Lockheed Martin
MyAircraft.comUTC
HoneywellBEGoodrich
IndependentAvolo
PartsbaseAeroMatchTradeAirRotableILSmartAerospan
B2B Sites & Marketplace
Portals for Procurement
Challenge…More Work OutsourcedChallenge…More Work Outsourced
100-100- 75-75-50-50- ** ** ** **
**(50%)(50%)
(60%)(60%) (65%)(65%)(70%)(70%) (80%)(80%)
* Percent Outsourced* Percent Outsourced
Prime/OEMPrime/OEMLarge & SmallLarge & Small
Systems Integration, Systems Integration, ManufacturingManufacturing
1970’s - 1990’s1970’s - 1990’s
SubcontractorsSubcontractorsSystems,Systems,
Manufacturing,Manufacturing,ComponentsComponents
SuppliersSuppliersSubcomponentsSubcomponents
PartsParts
Large Systems IntegrationsLarge Systems Integrations
Small Systems IntegrationSmall Systems IntegrationManufacturingManufacturing
SystemsSystems
Components, ManufacturingComponents, Manufacturing
Subcomponents, PartsSubcomponents, Parts
1990’s - 2010’s1990’s - 2010’s
SuppliersSuppliers
Move upMove up
SupplySupply
ChainChain
Suppliers NeedSuppliers Need
• Add capabilityAdd capability• Be acquiredBe acquired• Go out of businessGo out of business1970s 1980s 1990s 2000s 2010s
AgendaAgenda
• State of the IndustryState of the Industry
• AIA IssuesAIA Issues
• What Suppliers FaceWhat Suppliers Face
• AIA Response/SupportAIA Response/Support
Challenges of AIA’s Challenges of AIA’s Supplier Management CouncilSupplier Management Council
Continue to be a...Continue to be a...
• Robust, effective industry forum for improving relationshipsRobust, effective industry forum for improving relationships between suppliers and customersbetween suppliers and customers
• Stronger voice for national consensus because…Stronger voice for national consensus because…
• Suppliers’ views must be heard in venues asSuppliers’ views must be heard in venues as important part of industryimportant part of industry
• Suppliers are most vulnerable to global competitionSuppliers are most vulnerable to global competition
• Suppliers need access to research dollarsSuppliers need access to research dollars
When change occurs, suppliers are the most vulnerable!When change occurs, suppliers are the most vulnerable!
AIA GoalAIA GoalSupplier Access to Global MarketplaceSupplier Access to Global Marketplace
• Foreign Airshow SupportForeign Airshow Support
• FarnboroughFarnborough• ParisParis
• Participation in AIA issuesParticipation in AIA issues
• White House meeting on export control processWhite House meeting on export control process
• Telecon Lecture SeriesTelecon Lecture Series
• Export licensingExport licensing
• Individual Member SupportIndividual Member Support
• AIA action on specific issuesAIA action on specific issues
Supplier - Customer RelationshipSupplier - Customer Relationship
CUSTOMERCUSTOMER
DESIGN/ SUPPLIER PLAN CONTRACTS DELIVERMAKE
• IPT’S/ IPT’S/ DESIGN DESIGN TEAMSTEAMS
•FLOW DOWN FLOW DOWN CLAUSESCLAUSES
•EDI/ECEDI/EC•LONG TERM LONG TERM RELATIONSHIPSRELATIONSHIPS
•ERPERP•6 6 (sigma)(sigma)
•LEANLEAN
•SUPPLIER SUPPLIER SPISPI
•MEASURING MEASURING SUPPLIER SUPPLIER PERFORMANCEPERFORMANCE
• Streamlined Relationship
• Lower Cost• Globally
Competitive
•GREEN GREEN MFGMFG
•CERTIFICATION CERTIFICATION PROGRAMSPROGRAMS
•QMSQMS
SMC ResolutionsWorking Hard For You
Reduce number & length of time for supplier quality management surveys.
Resolve to...
Allow supplier baseto benefit from DoD acquisition reform through single process initiatives.
Resolve to...
Ensure fairness & accuracy of supplier measurement systems. Reduce administrative burden.
Resolve to...
Implement one EDI system industry wide.
Resolve to...
Making Sense of Making Sense of Electronic CommerceElectronic Commerce
IndustryB2B Exchanges
AIAAIA
SMC EC Working Group
DoDIntegrated Digital
Environment
UnderstandingUnderstanding
KnowledgeKnowledge
IDE Working Group
Aerospace SuppliersAerospace SuppliersTypical ProfileTypical Profile
Long TermLong Term
• CooperativeCooperative• DelegatesDelegates• BenchmarksBenchmarks• External awarenessExternal awareness• Strategic thinkerStrategic thinker• Expands business & capabilityExpands business & capability• Leverages resources/informationLeverages resources/information• Acts quickly when external awareness,Acts quickly when external awareness, benchmarking, cooperation, strategic benchmarking, cooperation, strategic thinking dictatethinking dictate
TypicalTypical
• EntrepreneurialEntrepreneurial• Hard to delegateHard to delegate• Not invented hereNot invented here• Internal focusInternal focus• Tactical thinkerTactical thinker• Quid Pro QuoQuid Pro Quo• Resource limitedResource limited• CautiousCautious
Advanced Quality
• ISO 9001:2000• DOD• NASA• Customer Companies• Process Audits• NADCAP• Survey-Reduction of QMS• ISO vs AS• AAQG & IAQG Ties & Cooperation