Dismantling the tower of Babel in the defense industry

WASHINGTON — Defense prime contractors are not always on the same page as their suppliers when it comes to such mundane matters as auditing the suppliers` quality, measuring their performance, or even handling the paperwork involved in purchase orders. In fact, there are divisions of the top primes that aren`t on the same page with each other, thereby causing needless confusion and excessive paperwork burdens for the suppliers.

by John Rhea

WASHINGTON — Defense prime contractors are not always on the same page as their suppliers when it comes to such mundane matters as auditing the suppliers` quality, measuring their performance, or even handling the paperwork involved in purchase orders. In fact, there are divisions of the top primes that aren`t on the same page with each other, thereby causing needless confusion and excessive paperwork burdens for the suppliers.

Using the Washington-based Aerospace Industries Association (AIA) as their focal point, some of the leading companies in the defense industry have begun taking modest steps to coordinate their procurement methods by agreeing on standard formats for the information necessary to drive the business transactions. The underlying idea is to capture the information once in a form that is readily understandable to everybody up and down the industry food chain and thus eliminate endless duplication.

Quality audits are an example of something that the companies can improve now. John Douglass, president of AIA, points out that it`s not unusual for a major supplier to undergo 20 major audits a year, each typically lasting for one or two weeks. Since these audits by the primes tend to overlap, the supplier may have a major audit under way for at least 70 percent of the year.

Why waste the time of the primes and suppliers alike on company-unique audits -- not to mention the subjective judgements that could assign different values for the same accomplishments? The whole quality management process is increasingly adopting the ISO 9000 standard of the International Standards Organization anyhow, and Douglass suggests a sensible solution would be to turn the evaluation process over to third party service companies to perform the certification. At a minimum, he adds, the primes could share their information from audits of the suppliers and create a baseline available to all before the next audit.

After a year and a half of grappling with the issue, AIA`s top management has approved what amounts to a pilot program to be launched next month by six of the major primes, including industry giants Lockheed Martin Corp. in Bethesda, Md.; Boeing Co. in Seattle; and Northrop Grumman Corp. in Los Angeles. The companies will prepare solutions, which experts will review and fine-tuned every six months for two years. Douglass says he is hoping everybody will be on the same page by then. From a practical standpoint, it doesn`t seem to matter much which page that is as long as everybody agrees to it.

This was one of three resolutions that AIA`s board of governors passed last month. The others dealt with establishing objective criteria to measure supplier performance and ways to streamline the U. S. Department of Defense (DOD)-mandated Single Process Initiative, which allows suppliers to establish single manufacturing processes for all their defense customers and which AIA officials estimate affects about 30 percent of the DOD procurement budget. The issues came out of the AIA`s Supplier Management Council, a group of about 40 suppliers and AIA member companies that is trying to improve their often adversarial relationships.

Resolutions are just what the name implies: statements of high moral purpose reaffirming virtue and castigating sin that take on a certain flag-and-motherhood flavor outside the Washington Beltway. Suppliers to the defense industry would prefer that somebody with some muscle grab the ball and run with it. In the days of the Cold War that somebody was the DOD, which could make the rules that everybody had to follow. Those days are over, Douglass says. The DOD now accounts for less than 30 percent of the aerospace industry`s output and that number continues to drop.

In this context, it`s encouraging to see the "big three" of Lockheed Martin, Boeing, and Northrop Grumman jumping on a modest, low-profile AIA-sponsored proof-of-concept project to simplify electronic purchase orders.

There already exists a well-defined standard for electronic commerce, the X12 standard of the American National Standards Institute (ANSI). This standard has steadily been upgraded to the latest version, designated 4010, which meets the compliance criteria for the year 2000 problem, explains Marcia McLure, president of McLure-Moynihan Inc. in Agoura Hills, Calif., who is spearheading the electronic data interchange (EDI) project. The "big three" and other primes are hooked in, although some of their divisions are using the earlier 3070 and other versions of X12.

The project has been in progress for little more than a year at Transtar Metals Inc. in Los Angeles. Here, McLure`s firm is assisting the company in using commercial value-added networks (VANs) and an electronic commerce software package known as Vista from Softshare Inc. in Santa Barbara, Calif., to determine how electronic commerce can get everybody on the same page again.

This is a classical case of a commercially available technology that was validated long ago by other industries, such as the railroad, chemical, graphics arts, and medical industries, adds Carrie Steele, marketing executive at Softshare. For example, buyers can issue their purchase orders electronically using an X12 format known as an 850, and there is another code, 855, for acknowledgment. The Vista package runs on Windows 95, 98, or NT, and requires only access to a VAN for a company to get started tomorrow, she says. The price per package starts at $295 for a basic one-terminal operation and goes up to $995 for the full professional, multi-user version.

Although Softshare offers its own VAN services, users can choose any of the many commercially available networks, such as those of AT&T, MCI, Sprint, etc., according to Steele. Or, if they want to save the 15 cents per transaction that they have to pay for using a VAN, and if both parties have the Internet Protocol, they can communicate directly with each other and bypass the VANs entirely.

It seems odd that the defense industry, which prides itself in being at the cutting edge of technology, should be following the lead of railroads and hospitals. Yet I suspect any solution is better than no solution at all. Assuming the trend setters in the defense industry continue to press forward, it would seem almost mandatory for any serious supplier to the industry to jump on this idea now by arranging for its own software and VAN access. The alternative is that the right thumb won`t know what the right forefinger is doing, and the left hand might as well be on the other side of the moon.

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