As we take flight and push the bounds of gravity and physics, we remain grounded in the needs of our customers and the millions of people we serve. Today, more than ever, this means meeting our customer's affordability needs without losing the innovative edge that is Lockheed Martin. In a world with declining programs and shrinking budgets, it is critical to continually seek opportunities to drive down costs. For this reason and many more, Innovation and Affordability have become a core and constant theme to our supply chain organization.
In this ever changing environment, our customers have made it clear that flat cost projections are not acceptable. There is more pressure than ever before to steadily increase delivered value while aggressively decreasing product costs. Internally, Lockheed Martin has made enormous strides in taking waste, redundancy, and inefficiencies out of our processes. This takes substantial investment of both time and resources. A great example lies within our Aeronautics Business Area. In 2016, Lockheed Martin Aeronautics kicked off a project to transform the C-130 line. This has included outside the box thinking about our processes, extending our digital capabilities, implementing lean systems, and re-engineering our product to reduce hours per unit and process variation.
While labor intensive, the results yielded reduced operating costs to produce these planes, which will secure forecasted orders and create a positive return for our company and the war fighter. Between 50% to 70% of any given program’s direct product costs are materials and systems that we procure from suppliers, hence we cannot achieve program commitments solely through internal improvements. Achieving affordability targets demanded by our customers require that this investment in time, energy, engineering, and innovation be systemic throughout our supply base. It’s only when our suppliers are able to remove cost, and pass those savings on to us, that we can meet our customer’s expectations. Without this mutually beneficial relationship, Lockheed Martin will not be able to continue to offer advanced products and services that allow us to keep partnering on future business.
Investing in innovation isn’t limited just to doing new things with new technology/processes or huge investment. It also means creative ways of doing the same things we’ve always done, but with less variation and less defects in the process. Defects and escapes drive up our cost of doing business and require us to invest in additional inventory and oversight while degrading customer confidence. Poor quality carries significant costs hidden beneath the surface of our business operations. Investment in innovation to achieve reduced cost, isn’t just good for business. It is at the very core of our relationship with our customers, suppliers and employees.
Lockheed Martin is committed to seeking out suppliers who leverage innovation and investment to meet our affordability needs. Similarly we are committed to taking cost of poor quality and costs of poor performance completely out of our operating numbers. We do this by recognizing excellence in innovation, performance, and improvement, as well as recognition of poor performance and lack of attention or focus. Over the lifecycles of our portfolio of programs, we plan to establish long term relationships with suppliers that recognize their role in enabling us to meet performance and affordability objectives at a low risk level of execution.
We encourage you to communicate openly with your Lockheed Martin procurement representative about the innovations and improvements you’ve accomplished in order to achieve affordability goals. As we pursue strategic relationships with our top suppliers in the years to come, this will be a powerful discriminator for both our companies. Lockheed Martin is committed to meeting our customers’ needs for innovation and cutting edge solutions, at a lower costs.
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