Slide 1: 2014 Virtual Supplier Conference
2014 Virtual Supplier Conference September 17, 2014 Patrick Sunderlin Chairman, Supply Chain Council ©2014 Lockheed Martin Corporation
Slide 2: Welcome
Welcome A New Campaign Video from Lockheed Martin: Helping the Future Arrive
Slide 3: Welcome
Welcome A Leadership Message from: Marillyn Hewson, Chairman, President and Chief Executive Officer
Slide 4: Conference Program
Conference Program • Lockheed Martin Supply Chain Overview • Washington Environment - Sequestration & Regulatory Compliance • Ethics and Sustainability • Supply Chain’s Critical Role • Affordability • Supplier Performance • Cyber Security • Counterfeit Parts • Conflict Minerals • Q&A
Slide 5: Lockheed Martin business areas
Information Missiles & Mission Space Aeronautics Systems & Fire Control Systems & Systems Global Solutions Training
Slide 6: Supply Chain Council
Supply Chain Council Supply Chain Council Vice President Support Staff Materials Missiles & Fire Control Finance Human Resources Pat Sunderlin Legal Counsel Chair Vice President Acting Vice President Vice President Vice President Supply Chain Mgmt Subcontract Program Global Supply Chain Supply Chain
Slide 7: Supply Chain Council Charter
Supply Chain Council Charter • Establish strategic agenda for cross-Business Area (BA) coordination and joint initiatives • Understand and discuss BA supply chain strategies and approaches to ensure maximum value at enterprise level • Charter cross-BA action teams • Approve and govern cross-BA suppl
Slide 8: Key Themes
Key Themes • We share the same values and actively promote ethics and integrity • Sustainable business practices are good for our business, our customers and our world • We all play a role in securing the supply chain • We must adhere to all flow downs, laws and requirements • You are key to our suc
Slide 9: Washington Update
Washington Update Wayne Hermandorfer Vice President, Washington Operations Sustainment ©2014 Lockheed Martin Corporation
Slide 10: FY 15 Budgetary Updates
FY 15 Budgetary Updates • OMB FY 2016 fiscal guidance • Two percent reduction below FY 2016 estimate in PB 15 • Estimated submission of $524B topline ($25B above BCA) • “Sequestration in 2016 is very likely” – Frank Kendall • Advising programmers to craft “Budget Off-Ramps” • Hopes for one or two-ye
Slide 11: DoD's Budget Battle
DoD’s Budget Battle • Budget Control Act of 2011 • Reduced DoD funding by $487 billion over ten years • March 2013 Enacted Sequestration • Reduced case budget by an additional $32 billion • Bipartisan Budget Act of 2014 • Restored $28 billion in FY 2014-2015 • Halted the nominal decline of the defen
Slide 12: DoD Budget Scenarios
DoD Budget Scenarios (Function 051) DoD Discretionary Caps OGS Initiative Pre-BBA Sequestration President’s Budget Submitted Above Sequester But Below BCA
Slide 13: Budgetary Considerations
Budgetary Considerations • Environment evolving to revisit budget debate • International events – China, Russia, Ukraine, Gaza, Iraq, Syria… • Improving near-term fiscal picture • Potential new leadership with coming election • Potential options to arrest real decline in defense • Compromise positio
Slide 14: Legislative Schedule
Legislative Schedule FY 2015 AUG SEPT OCT NOV DEC FY15 Budget March 4 PBR Submitted / April 2 House Budget Committee Passed FY15 Submission Budget / No Senate FY15 Budget per the 2013 Ryan/Murray Deal FY15 Defense NDAA Conference Authorization Act *NDAA Passed in House 5/22 Short-Term CR FY15 Approp
Slide 15: Acquisition Innovation
Acquisition Innovation Better Buying Power 3.0 Will focus on innovation • Expand use of prototyping • Great use modular and open system architecture • Provide industry with draft RFPs earlier • Remove obstacles to procurement commercial items • Improving technology search and outreach in global mark
Slide 16: Ethics and Sustainability
Ethics and Sustainability Leo MacKay Vice President Ethics and Sustainability ©2014 Lockheed Martin Corporation
Slide 17: Continuing Focus on Entire Value Chain
Continuing Focus on Entire Value Chain Trends & Ethics & Sustainability Requirements Impact • Foreign Corrupt Practices Act • Shared commitments to highest ethical standards • UK Bribery Act • Manage complexity across • FAR reporting/flow down supply chain • California Transparency Act • Compete fai
Slide 18: Sustainable Partnership: Supplier Mentoring
Sustainable Partnership: Supplier Mentoring • New participants every six months • Program features – Voluntary participation – Joint program assessment and recommendations – Support and guidance – Access to Lockheed Martin resources – Closing review session Interested in participating? Visit the Eth
Slide 19: Supplier Code of Conduct
Supplier Code of Conduct • Written to address supplier concerns • Replaces “Setting the Standard” flow down on purchase orders • Leverages sector standards Major Topics • Anti-Corruption • Significantly shorter in • Environment length • Human Rights • Labor Practices • Management Systems Available o
Slide 20: Defense Industry Initiative (DII) Supplier Resources
Defense Industry Initiative (DII) Supplier Resources • Non-profit, nonpartisan organization of top U.S. defense and security companies • Promotes and advances a culture of ethical conduct in contractors and their suppliers • DII Supplier Toolkit – Guide for DoD suppliers in implementing ethics and b
Slide 21: Partnering for Sustainability
Partnering for Sustainability • 2013 Sustainability Report – Access the report: lockheedmartin.com/sustainability • Supplier Sustainability Survey – Piloted questions on environmental, social and governance practices • Sustainability Supplier Summit – Extending the dialogue to the supply chain – Sha
Slide 22: Supply Chain's Critical Role
Supply Chain’s Critical Role Patrick Sunderlin Chairman, Supply Chain Council Vice President, Materials, MFC ©2014 Lockheed Martin Corporation
Slide 23: Lockheed Martin Supply Chain: A Global, Complex Network
Lockheed Martin Supply Chain: A Global, Complex Network More than 300 Partnerships Over 24,000 Suppliers in 70 Countries Over 220 Products Serving Represents over 65% of DoD, Federal, State, Local Lockheed Martin Total Costs Agencies and International Customers Our Supply Chain is a Critical Driver
Slide 24: Our Supply Chain: Strategy and Framework
Our Supply Chain: Strategy and Framework Optimizing Securing the Supply Chain Supply Chain Operations Driving Enabling Sustainability Program within the Affordability SUPPLY CHAIN Supply Chain STRATEGY THAT DELIVERS CUSTOMER VALUE Managing and Resolving Issues
Slide 25: The Pillars of Supply Chain
The Pillars of Supply Chain • Ethics, Integrity, Compliance • The Right Talent • Supply Chain Strategy – Early Pursuit/Capture – Affordable Solutions That Meet Customer Requirements • Supplier Risk Management • Procurement Execution • Efficient Systems & Processes
Slide 26: Affordability
Affordability Tom Simmons Vice President Supply Chain Management, Aeronautics ©2014 Lockheed Martin Corporation
Slide 27: Affordability Landscape
Affordability Landscape • Challenging federal budgets • Increased competition • Improved quality • Cheaper commercial items • Tighter government regulations
Slide 28: Supplier Performance
Supplier Performance Tom Podolski Acting Vice President Subcontract Program Management, SSC ©2014 Lockheed Martin Corporation
Slide 29: Supplier Performance Management
Supplier Performance Management Supply Chain Management Strategy Goal: Risk-based supplier management to more effectively leverage smaller workforce Challenge: Several thousand suppliers providing mission-critical hardware - Low $ to $B+ – It’s not affordable/rational to manage all suppliers at the
Slide 30: Supplier Performance Management
Supplier Performance Management Procurement Critical Supplier Algorithm • Based on P2P quality/delivery ratings • Added fidelity by incorporating buy-history, supplier financial statements, acquisition data, sole source/special process requirements, etc. • Collaborative engagement strategy w/ SCM te
Slide 31: Supplier Performance Management
Supplier Performance Management • Initial findings from case study indicate Lockheed Martin shares responsibility for supplier performance: – Late and changing technical requirements are driving cost and schedule impacts – Inability to forecast requirements drives unfavorable supplier pricing and sc
Slide 32: Cyber Security
Cyber Security Lee Sorenson Vice President Supply Chain, IS&GS ©2014 Lockheed Martin Corporation
Slide 33: Cyber Threat Landscape
Cyber Threat Landscape Impact to Bottom Line and Business Increasing Viability Potential Impact Confidentiality Availability Integrity Data theft Denial of Service Destructive A&D Suppliers Actively Targeted by Increasingly Adversaries Unstable Threats apt cyber criminals insider hacktivists rogue a
Slide 34: Cyber Focus Areas
Cyber Focus Areas Cyber Capability Questionnaire Cyber Risk • Exostar member alignment and adoption Management • Content updates (alignment with best practices) apt Cyber Best Practice Guide cyber criminals insider hacktivists rogue actors • Developed as part of DoD/DIB collaboration • DFARS mapping
Slide 35: Counterfeit Parts
Counterfeit Parts Phil Goslin Vice President Global Supply Chain, MST ©2014 Lockheed Martin Corporation
Slide 36: Counterfeit Parts
Counterfeit Parts • Our customers count on our products to meet requirements and support our warfighters each and every time • Preventing counterfeit parts from entering our products is a critical element of mission success for Lockheed Martin, our customers AND relies heavily on our suppliers We Ap
Slide 37: Strategies for Eliminating Counterfeits
Strategies for Eliminating Counterfeits Avoidance - Detection - Mitigation - Disposition … and Communication AVOIDANCE DETECTION MITIGATION DISPOSITION in acquiring these of these items of issues due to of these issues and items before use counterfeits items COMMUNICATION organizational and supply c
Slide 38: Preventing Counterfeits
Preventing Counterfeits Lockheed Martin increased its focus on preventing counterfeit parts in our supply chain. This past year, you may have noticed: • Distribution of an awareness letter and training materials to all suppliers • Increased surveillance, questionnaires and audits • Emphasis on the e
Slide 39: DFARS 252.246-7007 Requirements
DFARS 252.246-7007 Requirements • When invoked on contracts from the U.S. Government, compliance to DFARS 252.246-7007 requires suppliers, including commercial item suppliers, to establish and maintain a Counterfeit Electronic Part Detection and Avoidance System • Must address 12 requirements: 1. Th
Slide 40: DFARS 252.246-7007 Requirements (con't)
DFARS 252.246-7007 Requirements (con’t) 7. Methodologies to identify suspect counterfeit parts and to rapidly determine if a suspect counterfeit part is, in fact, counterfeit 8. Design, operation, and maintenance of systems to detect and avoid counterfeit electronic parts… 9. Flow down of counterfei
Slide 41: Further Information
Further Information • DFARS 252.246-7007 requirements will be included on Lockheed Martin purchase orders to suppliers as they are incorporated into DoD contract awards • We strongly encourage our suppliers to take proactive steps now to implement compliant processes to DFARS 252.246-7007 – Will pre
Slide 42: Conflict Minerals
Conflict Minerals Kurt Ravenfeld Director Strategy, Category Management and Subcontract Excellence ©2014 Lockheed Martin Corporation
Slide 43: Conflict Minerals Highlights
Conflict Minerals Highlights Background • Dodd-Frank Act introduced into law 2010, implemented by SEC in 2012 • Content and origins of Tantalum, Tin, Tungsten and Gold (3TG) • Requires Annual Filing due May 31 2013 Results • Lockheed Martin determined 3TG contained in virtually all our products • Fo
Slide 44: Conflict Minerals Highlights
Conflict Minerals Highlights 2014 Enhancements • Expand supplier survey group • Include LM affiliates and subsidiaries in survey population • Increase to >1,000 • Utilize web-based survey tool • Pilot product decomposition for 3TG content assessment including country of origin of raw materials • Enc
Slide 45: External Web Page
External Web Page lockheedmartin.com/us/who-we-are/ethics/conflict- minerals.html
Slide 46: Questions & Answers
Questions & Answers
Slide 47: Key Takeaways
Key Takeaways • A healthy, diverse supply chain is critical to our success and the success of our customers • In today’s environment, we must maintain an unwavering focus on delivering outstanding products and services • We must advance responsible sourcing practices and improve transparency • As we
Slide 48: Thank You
Thank You
Slide 49: Slide 49