Identifying Materials Management Improvements for Lockheed Martin ALCs

1. Identifying Materials Management Improvements for Lockheed Martin ALCs Principal Investigator: Kevin M. Taaffe Graduate Assistant: Matt Miller CELDi IAB Meeting – October 20, 2010 – Dallas, TX

2. Overview • Define background, relevant processes • Data & methods • Findings from residual inventory analysis • Recommendations and analysis of other materials management issues

3. Company Under Study • Lockheed Martin Aeronautics Company • Aircraft Maintenance, Repair, and Overhaul (MRO) • Routine maintenance • Repair damaged/corroded parts • Upgrade technology • Military aircraft (e.g. P-3 Orion/SMIP, C-130 Hercules) • Highly variable / intermittent demand for P/Ns • Current materials management policies result in much leftover (residual) inventory

4. Process Under Study RESIDUAL MATERIAL • Notification of Aircraft Arrival • Aircraft Arrives • Standard Work Issued • O&A Work Discovered (ongoing) • Part Acquisition • MRP • Make/Buy/Transfer decisions • Quality • Std vs. O&A • System Inefficiencies: • Wrong part/qty • Complex transfers due to Gov’t policy • Minimum buys • O&A Policies A/C Arrives Planned Work A/C Departs O&A Work Notification Parts Procurement

5. Data Analysis • Obtained site-wide inventory transaction data from 2007 through 2010 • Documents material purchases, usages, inspections, and transfers • Contains transaction dates & types, material numbers, quantities, identifying information • For many aircraft, work began before 2007 or was still continuing in May 2010. • Identified 11 aircraft for detailed analysis

6. Capturing Materials Management Costs • Purchase Cost of Residuals • Holding/Opportunity/Warehouse Cost of Residuals • Holding/Opportunity/Warehouse Cost of Inventory • Labor Cost of Transactions • Labor Cost of Parts Research (Transfers) Save money by reducing residual material Save money by using MRP more effectively Save money by reducing transactions & touch time ASSUMPTIONS: Monthly Costs (% of inventory) - Holding, Opportunity, & Warehouse Labor - Entering Transactions, Parts Research, Transferring Parts

7. Materials Management (MM) Costs • Purchase Cost of Residuals() • Holding/Opportunity/Warehouse Costs() • Labor Cost of Manual Transactions() • Labor Cost of Parts Research() - average unit cost of material i - number of residual units of material i on a/c j - average unit cost of residual material on a/c j - combined hold/opp/wrhserate per month (%) - on hand inv. for a/c j in month t - hourly cost of labor - average time to enter transactions - number of manual transactions - hourly cost of labor - average time for parts research - number of parts researched

8. Financial Impact of MM MM Cost Breakdown of the Average Aircraft based on data analyzed from 11 aircraft serviced between 2007-2010 Residual: 65% Other: 35%

9. What if residual is reduced? Cost Reduced 33% Cost Reduced 50% Cost Reduced 67% Annual Residual Units Per A/C Total Annual Residual Cost Comparison of Residual Reduction Levels

10. Reducing Residual Material • How can we achieve the potential savings from reducing residual material? • Improve visibility of residual material • Disassociate residuals from tail #’s after aircraft depart • Allow aircraft-level visibility • Put residuals in a general storage location (“bucket”) that is visible and easily accessible to other aircraft • Implement measures to reduce residual accumulation