Turning suppliers into partners

Turning suppliers into partners

Northrup Grumman's Lean supply chain program has succeeded, both for the defense contractor and its suppliers

Defense contractor
Defense contractor Northrup Grumman tries to establish a partnership with its supply base, offering guidance and assessments to improve the production process to help contractors reduce lead times and reduce costs.

Darrell Grow was first approached nearly a decade ago by defense contractor Northrup Grumman about making his company’s processes run more efficiently. Grow, the chief operating officer at Ammcon, a manufacturer of pipe fittings and flanges, freely admits that he bristled at the suggestion. No company wants another meddling in their work.

Ammcon was already one of Northrup Grumman’s largest suppliers by volume. But, around that time, the U.S. Navy had begun pushing to lower its supplier program costs, and Northrup Grumman, after establishing a thorough Lean campaign across its facilities, soon shifted attention to its supply chain with offers of funding for assessments and guidance.

Today, many contractors have established supplier programs meant to reduce waste and raise productivity. But what’s unusual about Northrup Grumman’s program is the upfront sense of partnership: that what helps a supplier will ultimately benefit the contractor reduce lead times and reduce costs.

“They want their suppliers to be healthy,” says Grow. “I think what’s unique is the way they’ve tried to nurture their supply chain. The suppliers are critical to making what they have to manufacture. If the suppliers aren’t healthy, Northrup Grumman won’t be healthy.”

Chris Goush, Northrup Grumman’s manager for sourcing, and Kevin Dudley, a Northrup Grumman supply chain planning analyst, explained that the company is helped by the Manufacturing Extension Partnership in various states.

“What we do is, we’ll talk to a supplier, one who we think would benefit from this program, and if the supplier agrees to it, we’ll have some folks come in and do an initial assessment of their facilities,” says Goush. “We pay about $2,500 for the assessment. If it comes back that there are things that need to be addressed, then the MEPs will come in and provide guidance on how to review their processes from a Lean perspective. We’ll share the costs in funding on that remaining work.”

According to Dudley, Northrup Grumman invests on average $10,000 with each individual supplier to “Lean” their processes. They have funded programs with 52 suppliers since 2002.

Northrup Grumman’s shipbuilding facility in Newport News, Va., has close to 2,700 suppliers in its active database. Of that number, only to 500 to 600 will be used in any given year, says Goush.

Most of the suppliers that have been targeted so far have been those that produce higher volumes of components or supplies, not necessarily those with whom Northrup Grumman spends the most money. “Any supplier that has more than

5 to 10% of their total capacity supplied to us has a vested interest at least to dip their toe in the water,” says Dudley.

Seeing Results
In 1999, Ammcon was emerging as a critical supplier to the defense contractor and had already established plans to expand its Hillsboro, Ore. facility. Northrup Grumman asked Ammcon to wait.

“They said, ‘Hold up for just a little bit and let us give you some training,’” recalls Grow.

Though Ammcon’s business was growing rapidly, its delivery performance was uneven. More troubling, when Goush visited, he noticed the facility was running inefficiently, everywhere. New equipment wasn’t being maximized, and thousands of part numbers created a dizzying organizational structure.

Grow admits he was reluctant. “We were honestly afraid that Northrup Grumman would come in and say, ‘Hey, we see you’ve saved 20% and now we want all that money,’” says Grow.

The Oregon MEP came in that fall and began training Ammcon’s employees to maximize their performances. The MEP advisors also suggested different ways in which to lay out the equipment, establish more efficient set up times, create operating cells, and group tens of thousands of parts into eight more manageable families.

“We started doing that in 2002,” says Grow. “After about a year, we basically doubled our sales without increasing employment. It definitely worked. When we put the equipment in cells, we were able to lower our production time on each of the parts from an average of 32 minutes down to 12 minutes.”

As a result, when the time came for Northrup Grumman to set a new contract for square stainless flanges, Ammcon was able to lower its cost by over 67%.

Searching for more innovative approaches to efficiency, Ammcon forged ahead with an even more ambitious project. Government requirements dictate that products used to build Navy nuclear submarines must be inspected at the manufacturer’s facility. Northrup Grumman was flying to Oregon 38 weeks a year, racking up exhorbitant traveling costs, while also tying up scheduling and material, and pressuring Ammcon’s cash flow.

Grow wanted to move the product closer to Northrup Grumman for inspection. Making an outright move to Virginia would have been too expensive. Grow then proposed a slight twist: teaming with Ammcon’s primary competitor, NuFlo, and building a facility in Northrup Grumman’s backyard.

NuFlo, based in Jacksonville, Fla., also produces fittings and flanges for Northrup Grumman and faced similar logistical challenges. The two competitors agreed to build a facility only a half-mile from Northrup Grumman’s shipyard, allowing inspectors to view the material every day.

“It lowered lead times by, on average, eight weeks,” says Grow. “But it also got us into new markets. By teaming with our largest competitor, together, we’re finding ways to manufacture smarter.”

Ammcon and NuFlo often weigh which company’s facility is better equipped to produce specific products. Instead of both companies submitting time-intensive applications to the Navy and Northrup Grumman, one will make its case while the other seeks business in a different area.

“There’s enough work out there in the Navy programs to keep both of us busy,” says Grow.

Oftentimes, Grow says, smaller suppliers can take on a mentality of survival at any cost — hunkering down as an individual, sometimes to their detriment.

“It can’t be World War III on everything,” says Grow. “You’ve got to look for opportunities that make sense. Sometimes it might seem like it’s sleeping with the enemy. But you can’t stand out there alone and fight the world. You have to recognize when partnering is in your best longterm interests.”

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