Strategic sourcing in the defense marketplace

Lockheed Martin Tactical Systems (LMTS) in Eagan, MN, recently defined a new process to establish a common systematic approach to identifying and managing supplier/partner relationships required to support the needs of the business. Strategic sourcing applies strategic decision-making at the front end of the supply chain to identify the key technologies to be procured for future programs. These technologies become the focus for intensive marketplace analysis to identify the key suppliers with whom we should develop strategic relationships. These strategic relationships can range from preferred pricing and information sharing to collaborative R&D investments and shared product lines. The fundamental activities of strategic sourcing discussed in this paper occur early in the business cycle in order to position LMTS to win programs. Strategic sourcing activities parallel the R&D planning activities which most businesses use for this purpose, but they occur on the "buy" side of the equation rather than the "make" side. They are based on the US defense contracting business model, which is a little different from that of a commercial company. We believe that this approach will provide value to both models. These front-end strategic sourcing process activities include: identification of key enterprise level technologies based on data developed through the strategic planning process; funding of internal cross-functional enterprise teams to perform marketplace analysis and identify key suppliers within each technology area; assignment of responsibility for relationship development at the appropriate level, from executives to implementers, depending on the size and type of supplier; initiating and tracking relationship development activities and making adjustments as required; initiation of other activities (e.g. collaborative R&D) where appropriate; plus promotion and tracking of technology adoption by programs (a potential success metric). This paper provides an overview of our approach and current status in implementing the front-end activities in the LMTS Strategic Sourcing process. We share lessons learned in the development and implementation of the process and an evaluation of its utility to date.