APPENDIXES



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Breaking the Mold: Forging a Common Defense Manufacturing Vision APPENDIXES

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Breaking the Mold: Forging a Common Defense Manufacturing Vision This page in the original is blank.

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Breaking the Mold: Forging a Common Defense Manufacturing Vision A Review of Study Panels At the outset of the study, the committee established four study panels, each responsible for a specific aspect of defense manufacturing: national manufacturing perspective, policy, program initiatives, and the supplier base. The panels worked through the summer and fall of 1990, and delivered their reports to the full committee by January 1991. Because the panels identified many of the same problems that have plagued defense production and acquisition for decades and have been addressed by many prior studies, their reports served to convince the committee that radical change in defense manufacturing is required, as described in the body of this report. The panel memberships and overviews of their deliberations are described below. PANEL ON NATIONAL PERSPECTIVE JACQUES S. GANSLER (Chairman), Senior Vice President and Director, TASC, Arlington, Virginia RAY MARSHALL, Professor of Economics and Public Affairs, University of Texas, Austin WILLIAM C. MOORE, Director of Operations, Readiness and Mobilization (retired), U.S. Department of the Army, McLean, Virginia BRIAN H. ROWE, Senior Vice President and Group Executive, Aircraft Engine Business Group, General Electric Company, Cincinnati, Ohio ALAN WILLIAM WOLFF, Partner, Dewey, Ballantine, Bushby, Palmer & Wood, Washington, D.C.

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Breaking the Mold: Forging a Common Defense Manufacturing Vision In its report to the committee, the panel defined its view of the likely environment for defense manufacturing, based on both military and economic security trends. For instance, the panel noted: Reduction in the tensions between the United States and the Commonwealth of Independent States and significant reductions in arms on both sides will result in a shrinking U.S. defense industry. A likelihood of increasing instabilities and dangers around the world, yet great unpredictability in the types of military missions that will be required of the United States. Growing importance of technology as the key to national power—both military and economic—with full recognition of the great advances likely in Europe and Japan (which will, in many cases, be further advanced than those of the United States). Growing economic and financial power of Europe and Japan—with corresponding implications for U.S. economic security. Growing foreign dependency (and increasing vulnerability) of military weapon systems due to manufacture of critical components offshore. Foreign governments increasing their support of ''dual use'' technologies. Growing confluence of critical technologies for both military and civilian applications, e.g., electronics, software, manufacturing equipment, supercomputers, new materials, etc.—with civilian applications often more advanced. Increasing trend toward further separation of defense and civilian sectors of the U.S. economy as a result of government procurement practices. (The defense business is moving contrary to the development necessary to enhance U. S. international competitiveness needs.) Continuation of the historical trends of increasing weapon system performance, unit costs, and operation and support costs. A great shortening of new product development times in the commercial sector, yet an increased tendency for defense systems to take longer in development, be produced more slowly, and be kept in the inventory for longer periods (due to the reduced funding for new procurement). Rapidly expanding worldwide markets in the fields of telecommunications, computer work stations, new structural materials, etc. Growing U.S. national concern with the issue of "economic security" as a complement to that of "military security". Based on this assessment of the future environment for defense manufacturing, the panel called for the development of an integrated defense manufacturing strategy that would simultaneously address warfighting requirements, weapon acquisition requirements, industrial base requirements,

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Breaking the Mold: Forging a Common Defense Manufacturing Vision and national economic requirements. Elements of specific policy changes in these areas were addressed by the other three panels. PANEL ON POLICY ROBERT CATTOI (Chairman), Senior Vice President, Research and Engineering, Rockwell International, Dallas, Texas FRED H. DIETRICH, President, Dietrich Research Incorporated, Sarasota, Florida JOSEPH MARTINO, Senior Research Scientist, Research Institute of the University of Dayton, Ohio DONALD E. PROCKNOW, Vice Chairman (retired), AT&T Technologies, Inc., Saddle River, New Jersey VINCENT PURITANO, Vice President, Corporate Operations, Unisys Corporation, Blue Bell, Pennsylvania The Panel on Policy identified and discussed 10 specific DoD manufacturing policies and areas in which these policies have an impact. To illustrate this relationship, these policies and problem areas were assembled into a matrix (see page 48). The matrix conveys the panel's sense of the importance of specific policy areas to a variety of defense manufacturing goals, and therefore provides a summary of the issues discussed by the panel. PANEL ON PROGRAM INITIATIVES GEORGE P. PETERSON (Chairman), President, George Peterson Resources, Inc., Miamisburg, Ohio ROBERT H. HAYES, William Barclay Harding Professor of Management of Technology, Graduate School of Business Administration, Harvard University, Boston, Massachusetts GEORGE R. JASNY, Vice President, Technical Operations (retired), Martin Marietta Energy Systems, Inc., Oak Ridge, Tennessee BARRY C. JOHNSON, Manager, Business Development, E.I. du Pont de Nemours and Co., Wilmington, Delaware GEORGE H. KUPER, President, Industrial Technology Institute, Ann Arbor, Michigan HOWARD D. SAMUEL, President, Industrial Union Department (AFL-CIO), Washington, D.C. TIMOTHY L. STONE, Director of Corporate Intelligence, Motorola, Inc., Schaumburg, Illinois The panel studied current DoD programs related to manufacturing and acquisition, including the Manufacturing Technology Program (ManTech),

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Breaking the Mold: Forging a Common Defense Manufacturing Vision Issues Causing Problems: Proprietary Rights and Data Rights DoD Directives and Procurement Regulations Military Specifications and Standards DoD and IRS Policies regarding education expenses Tax and Depreciation Policies Research and Development, Manufacturing Resource Management Policies Congressional Authorization, Appropriation, Accounting, and Budget Process Foreign Ownership Accounting and Auditing Policies Where Problems Appear: Technology Base Procurement Efficiency Cost Quality Time to Market Defense Business Attractiveness Surge Response National Skill Base Competitiveness Technology Transfer DoD Mission

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Breaking the Mold: Forging a Common Defense Manufacturing Vision the Industrial Modernization Incentives Program (IMIP), and Title III (of the Defense Production Act), as well as relevant initiatives of the Defense Advanced Research Projects Agency (DARPA). The panel found that these existing programs do not focus sufficient attention on areas such as lower tier suppliers, quality improvement, minimizing life-cycle costs, and making maximum use of commercial components. The panel noted that a potentially effective approach to addressing problems in the defense manufacturing base through programmatic initiatives might be to focus on three objectives, each with different time horizons: Continuous improvement—Objectives such as workforce skills improvement, total quality management, and improved cycle times would be appropriate for program initiatives in this area. Technology deployment—Medium-term programs should focus on improving the state of technology used by second-and third-tier subcontractors. System improvement—Includes efforts to strengthen the entire value chain in an industry, to build industrial networks of firms with specialized skills linked together for a more effective system, to develop the information management systems needed to allow such networks, and to build the management capabilities needed to take maximum advantage of a total industrial system. PANEL ON SUPPLIERS BRIAN E. BOYER (Chairman), Vice President and Deputy Department Manager, Business Management, Northrop Aircraft Division, Hawthorne, California WALLACE P. BURAN, National Director of Manufacturing Strategy Services, Deloitte & Touche, Atlanta, Georgia JAMES F. LARDNER, Vice President (retired), Deere & Company, Davenport, Iowa DEAN M. RUWE, President and Chief Operating Officer, Copeland Corporation, Sidney, Ohio ROGER W. SCHMENNER, Professor, Indiana University School of Business, Indianapolis, Indiana JOHN M. STEWART, Director, McKinsey & Company, Inc., New York, New York This panel addressed the evolving relationships between customers and suppliers in both commercial and defense manufacturing. By focusing on the ideal customer/supplier relationship, the panel described a template for change that could yield benefits at many points throughout the defense supplier chain.1

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Breaking the Mold: Forging a Common Defense Manufacturing Vision WORLD-CLASS CUSTOMERS2 World-class customers are characterized by the following qualities or behaviors: • Intimate relationships with suppliers. World-class customers use suppliers as extensions of themselves. • Meaningful dialogue. World-class customers enter into continual and meaningful dialogue with their suppliers (1) to help define customer needs, (2) to provide suppliers with feedback and assistance with such key criteria as quality, product performance, delivery cost, and technology, and (3) to provide suppliers with forecasts and updates. • Lessened variability and increased realism. World-class customers have a clear desire to lessen the variability faced by their suppliers, including variability of all types: quantities demanded, product mix required, product specification changes, capacity needs, tooling and other processing requirements, and process planning. • Product and process development. World-class customers use the design capabilities of their suppliers both to improve their own products and to shorten their own product development lead times. • Responsiveness. World-class customers are sensitive to the impact of time on their abilities to compete, including the time to market for new products, the time to manufacture existing products, and the time to satisfy customer orders. • Benchmarking. World-class customers benchmark their competitors and the competitors of their suppliers. • Continuous improvement. World-class customers seek improvement continuously, and in diverse ways, both for themselves and their suppliers. • Strategy and vision. World-class customers have clear visions and strategies concerning their products and processes, and they work diligently to communicate those visions and strategies to their workforces and suppliers. WORLD-CLASS SUPPLIERS The world-class supplier has attributes that compliment those of the world-class customer, such as: • Stable relationships. A world-class supplier is eager to enter into long-term relationships with customers, and for the benefits of such long-term relationships, it is willing to share enterprise data with its customers, assuring them of fair value. • Meaningful dialogue. World-class suppliers are in continual, mean

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Breaking the Mold: Forging a Common Defense Manufacturing Vision ingful, and proactive dialogue with their customers about product requirements. • Stability of performance. World-class suppliers deliver what has been promised, when it has been promised, neither too early nor too late, and for reasonable value. • Product and process development. The world-class supplier offers product and process development cycles that are short, and works hard to shorten those product and process development cycles to provide its customers with that added advantage. • Responsiveness. The world-class supplier is sensitive to the impact of time on its customer's ability to compete. • Benchmarking. The world-class supplier keeps track of prevailing and prospective technologies for its products and processes. • Continuous improvement. World-class suppliers seek improvement continuously, in diverse ways, and from all quarters of the business. • Strategy and vision. World-class suppliers have clear visions and strategies concerning their products and processes, and they work diligently to communicate those visions and strategies to their workforces, suppliers, and customers. • Its own supplier base. The world-class supplier treats its own supply base the way that world-class customers treat it. Based on its description of world-class suppliers and customers, the panel identified a number of factors that impede the development of world-class customer-supplier relationships in defense acquisition. These include program instability, over-specification, inflexible regulation enforcement, and lengthy product development and procurement cycle times. Nevertheless, the panel argued that defense customers and suppliers can become world class, given effective communication and willingness to change on both sides. NOTES 1.   According to the Department of Defense, 60 percent of the manufacturing costs to manufacture weapon systems are for components and subassemblies purchased from subcontractors. Department of Defense, Report to Congress on the Development of a National Defense Manufacturing Technology Plan, March 1992, p.12. 2.   The panel defined world-class companies as those that are as good as any in the world and better than most. A variety of leading companies has shown us how the customer/supplier relationship can indeed become world class.