Lean Aerospace Initiative
Plenary Workshop
Reaching Out to Commercial Suppliers
March 31- April 1, 1998
Presented By:
Eric Rebentisch
MIT
Research Sponsored By LAI
Lean Aerospace
Initiative
Overview
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Background
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Survey Description
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Analysis and Findings
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Summary and Implications
PE Rebentisch 040198-2 ©1998 Massachusetts Institute of Technology
Lean Aerospace
Initiative
l
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Recent Evolution in Emphasis
on Commercial Practices
Dr. Gansler—USD(A&T)—has long track record of
pushing for commercialization and dual use
Recent (2 Feb 1998) priority statement (one of five):
– need to increase civil/military industrial integration in all
aspects of weapon system acquisition (from R&D through
support)
PE Rebentisch 040198-3 ©1998 Massachusetts Institute of Technology
Lean Aerospace
Initiative
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Policy Focus Team Commercial
Practices Research Activities
Survey of 23 government acquisition programs
leading in the use of commercial practices
– use of commercial practices in acquisition resulted in
cost and cycle time savings
– implementation insights still largely gained “by doing”
– findings published in March-April Program Manager
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Survey of 152 electronics sector suppliers on
views of engaging in military business
– to be discussed today
– findings to be published in July-August Program
Manager
PE Rebentisch 040198-4 ©1998 Massachusetts Institute of Technology
Lean Aerospace
Initiative
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Research to Assess Potential for
Commercial/Military Integration
Objective:
– survey commercial firms to assess their willingness to engage
in or expand military business
– assess whether acquisition reforms have diffused to the
supplier base
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Target population:
– electronics manufacturing services (EMS) and contract
assemblers
– services include sales of components & PWBs, assembly,
design, test, rework & repair, and other
– $14.5B domestic industry—projected to double by 2000, $59B
worldwide (1996 sales)
– OEMs account for ~80%, but many highly-capable smaller
EMS firms create a competitive market
– 2.2% of domestic sales (1996) to government/ military
customers
PE Rebentisch 040198-5 ©1998 Massachusetts Institute of Technology
Lean Aerospace
Initiative
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EMS Survey Research Methodology
Survey jointly developed by team effort:
– Kimberly Sterling—IPC (Institute for Interconnecting and Packaging
Electronic Circuits)
– Mike Heberling—Anteon Corp.
– Ron McDonald & Mike Nanzer—TRW
– Eric Rebentisch—MIT
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Surveys sent to 1340 firms
– distributed by IPC to member firms
– electronics manufacturing services (EMS) firms
– bare printed wiring board (PWB) manufacturers
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152 surveys returned (11% response rate)
–
–
–
–
66 EMS firms
64 PWB manufacturers
4 EOMs
18 others (incl. 14 which did not specify)
PE Rebentisch 040198-6 ©1998 Massachusetts Institute of Technology
Lean Aerospace
Initiative
Sample Demographics
% of Sample
60%
% 1996 Sales in Each Market
80%
57%
40%
21%
20%
13%
9%
0%
0—$10M
N=152
$10M—
$25M
$25M—
$100M
> $100M
Firm's 1996 Annual Sales
Recent military/defense contract
No recent military/defense contract
40%
60%
N=152
100%
80%
60%
40%
20%
3%
1%
1%
Military
Commercial
aerospace
Goverment
(nonmilitary)
0%
N=142
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95%
Commercial
nonaerospace
Sample contains a diverse array of
firms:
– generally smaller, single facility entities
with a few large firms
– primary sales in commercial sector
– mostly commercial, with some
experience with military sales
– demographics similar to previous IPC
industry surveys with more response
from smaller firms (<$25M sales)
PE Rebentisch 040198-7 ©1998 Massachusetts Institute of Technology
Which Firms Are Interested in
Military Sales?
Lean Aerospace
Initiative
% 1996 Sales in Commercial Markets
% 1996 Sales in Military Markets
100.0%
50.0%
80.0%
40.0%
60.0%
30.0%
40.0%
20.0%
20.0%
10.0%
0.0%
0.0%
1
Vital
2
3
Neutral
4
5
No Interest
View of Military Sales
N=142
1
Vital
4
5
No Interest
% 1996 Sales in Non-Military
Government Markets
20.0%
15.0%
15.0%
10.0%
10.0%
5.0%
5.0%
0.0%
0.0%
1
Vital
N=142
3
Neutral
View of Military Sales
N=142
% 1996 Sales in Comm'l
Aerospace Markets
20.0%
2
2
3
Neutral
4
5
No Interest
View of Military Sales
1
Vital
N=142
2
3
Neutral
4
5
No Interest
View of Military Sales
Firms that primarily serve the commercial sector tend
to view military sales with less interest
PE Rebentisch 040198-8 ©1998 Massachusetts Institute of Technology
Potential for Military Sales by
Commercial Suppliers
Lean Aerospace
Initiative
Vital
5
l
4
View of
Military 3
Sales
2
No
Interest 1
Hi MIX
N=118
Med/Lo
MIX
N=141
50
Responses
Hi/Med
VOL
Lo
VOL
40
30
20
10
0
Vital
Neutral
View of
Military Sales
No
Interest
Yes
No Interested in Learning
More About Acquisition
Reform and Associated
Business Opportunities?
Indications are positive for
leveraging the commercial
supplier base:
– Firms specializing in low
volume production are
relatively more interested in
military business
– good fit with smaller
military lot sizes
– More firms than not (in all
categories) expressed
interest in expanding
business through military
sales
– “show me” attitude
PE Rebentisch 040198-9 ©1998 Massachusetts Institute of Technology
Sources of Knowledge of New
Business Opportunities
Lean Aerospace
Initiative
Direct Sales
Direct Sales
91%
Trade Shows
Trade Shows
43%
Advertising
Advertising
Other
0%
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27%
Other
Commerce Business
Commerce
BusinessDaily
Daily
N=152
30%
8%
20%
40%
60%
80%
100%
Frequency of Use
Traditional media channel for government business
announcements not typically consulted by EMS firms
– No difference in sources used by firms with varying levels of
interest in military sales
PE Rebentisch 040198-10 ©1998 Massachusetts Institute of Technology
Knowledge of Acquisition
Reforms
Lean Aerospace
Initiative
Cancellation of MIL
Cancellation
Specs and
Stds
of MIL Specs
Federal Acquisition
Federal
Reform ActAcquisition
(FARA)
Federal
Federal Acquisition
Streamlining
Act
Acquisition
(FASA)
65%
11%
6%
Commercial
Commercial
Item
5%
Description Item
Changes (DFAR
252.212)
0%
20%
N=149
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40%
60%
80%
100%
% of Firms Indicating They Have a
Working Knowledge of the Reform
Knowledge of reforms that are key to the accomplishment of
civil/military integration is still lacking
– only 14.5% of firms indicated they had a working knowledge of
reforms—primarily firms that have higher levels of military sales
– little knowledge of commercial item description changes evident
PE Rebentisch 040198-11 ©1998 Massachusetts Institute of Technology
Sources of Acquisition Reform
Knowledge
Lean Aerospace
Initiative
Self-taught from
public
Self-taught
from
sources
public sources
46
Contracting
Contracting experience
experience
17
Multiple sources
16
Multiple sources
Other
3
Other
Private
Private consultants
consultants
2
Gov't employees
Gov't employees
N=101
l
1
0
10
20
30
40
50
60
Frequency
Sources mirror findings of previous SPO research:
– reform knowledge comes primarily from self-education
and learning-by-doing
PE Rebentisch 040198-12 ©1998 Massachusetts Institute of Technology
Prevailing Quality or
Workmanship Standards
Lean Aerospace
Initiative
ISO-Q9002
ISO-Q9002
38%
Mil-I-45208
Mil-I-45208
37%
ISO-Q9001
ISO-Q9001
Mil-Q-9858
Mil-Q-9858
QS-9001
(Auto)
QS-9001
(Auto)
IPC-610
11%
5%
IPC-610
65%
Mil-Std-2000A
Mil-Std-2000A
17%
ANSI/J-001
ANSI/J-001
17%
Workmanship
Standards
55%
Underwriter's
Underwriter's Lab
Lab
IPC-D-275
IPC-D-275
26%
Mil-P-55110
Mil-P-55110
25%
IPC-RD-276
IPC-RD-276
N=150
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Quality
Standards
18%
Product
Standards
23%
0%
20%
40%
60%
80%
100%
Percentage of Firms Maintaining the Standard
EMS firms maintain a diverse array of standards
– some have previously been declared obsolete
– Single Process Initiative available to relieve them from existing contracts
PE Rebentisch 040198-13 ©1998 Massachusetts Institute of Technology
Military Sales Still Means More
Unique Standards?
Lean Aerospace
Initiative
Mean Number of
Quality/Workmanship
Stds Maintained
6
MIL Stds
Non-Mil
5
4
3
2
1
0
1
Vital
N=148
l
2
3
4
5
No Interest
View of Military Sales
Firms that rated military sales as more important were also more
likely to maintain the following standards:
– Quality: Mil-Q-9858, Mil-I-45208
– Workmanship: Mil-Std-2000A
– Product: Mil-P-55110, IPC-D-275, & IPC-RD-276
– Mil-Q-9858, Mil-Std-2000A, & Mil-P-55110 all appear frequently in SPI process
change proposals
PE Rebentisch 040198-14 ©1998 Massachusetts Institute of Technology
Related Single Process
Initiative (SPI) Activities
Lean Aerospace
Initiative
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SPI results (from Nov 1997 SPI database)
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-
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1163 proposals Ô 685 process changes implemented Ô 258
changes with cost savings to government customer
Of 685 SPI changes implemented:
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Mil-Q-9858A occurred in 112 cases (16%)
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Mil-I-45208 occurred in 73 cases (11%)
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Mil-Std-2000A occurred in 27 cases—16 additional cases involving Mil-Std-2000 (6%)
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Mil-P-55110 occurred in 10 cases (1.5%)
Cost avoidance by selected process groupings:
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printed wiring board (PWB) manufacturing—$1.9M
-
-
quality assurance (QA) system—$13.8M
-
-
5 firms changed from Mil-P-55110 to commercial standards
12 firms changed from Mil-Q-9858A to commercial standards
soldering—$9.4M
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10 firms changed from Mil-Std-2000 or Mil-Std-454 to commercial standards
PE Rebentisch 040198-15 ©1998 Massachusetts Institute of Technology
“Contractual” Inhibitors to
Possible Military Sales
Lean Aerospace
Initiative
Profitability
restrictions
Government cost
accounting
Government audits
of accounting,
Cost and pricing
data
Socioeconomic
provisions
Government
reporting
Data/intellectual
property rights
Defense market
volatility
Restrictions to offshore fabricators
Government unique
specs and stds
Contract terms and
conditions
Unacceptable
Cost-adding
0
l
20
40
60
Number of Responses
80
100
120
Based on Responses
from 152 Surveys
Commercial EMS firms find manipulations of the normal
functioning of the marketplace unacceptable
PE Rebentisch 040198-16 ©1998 Massachusetts Institute of Technology
“Technical” Inhibitors to
Possible Military Sales
Lean Aerospace
Initiative
Special operational
test rqmts
In-process source
inspection
Unacceptable
Physical
configuration
Cost-adding
Flow down of
requirements to
Reliability or
qualification test
Final acceptance
customer source
Functional
configuration
Quality
requirements/stds
First article
inspection
Small lot quantities
0
20
40
Number of Responses
l
l
60
80
100
120
Based on Responses
from 152 Surveys
EMS firms used to meeting customer needs (for a price)
Technical inhibitors much lower magnitude than
contractual inhibitors
PE Rebentisch 040198-17 ©1998 Massachusetts Institute of Technology
Lean Aerospace
Initiative
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Summary
Many commercial EMS firms appear to be a good fit
with current acquisition reform goals
– interested in expanding business
– are experienced with low volume/high mix production
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But, barriers remain to be overcome
– those firms availing themselves of the benefits of
acquisition reforms are largely self-taught
– existing communications channels for government contract
announcements are infrequently consulted by EMS firms
– firms interested/engaged in military sales still maintain more
quality/workmanship standards than fully commercial
counterparts
– commercial EMS firms have low tolerance for “unreformed”
practices associates with military contracting
PE Rebentisch 040198-18 ©1998 Massachusetts Institute of Technology
Lean Aerospace
Initiative
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Implications
Communication and use of acquisition reforms
– is there a government role to communicate and
encourage use of reforms to lower tiers of supply web?
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The role of standards
– are “commercial” standards sufficiently detailed to
replace Mil specs and stds in all cases?
– has the cancellation of many Mil specs and stds had a
positive, neutral, or negative effect on the diversity of
standards at lower tiers in the value chain?
– i.e., do downstream industrial customers always observe
predominant supplier sector standards?
– who in the value chain develops and maintains
standards with the government exiting that role?
PE Rebentisch 040198-19 ©1998 Massachusetts Institute of Technology