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LEAN AIRCRAFT INITIATIVE ANNUAL REPORT

REFERENCE: F33615-93-2-4316 Title: “Lean Aircraft Initiative: Detailed Assessment of the Defense Aircraft Industry” Reporting Period: October 1, 1994 – September 30, 1995

TABLE OF CONTENTS

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 SUMMARY OF SIGNIFICANT ACCOMPLISHMENTS AND PROGRESS. . . . . . . . . . . . . . . . . . . . . . . .4 LEAN ENTERPRISE MODEL ...............................................................................................................4 FACTORY OPERATIONS FOCUS GROUP............................................................................................ 7 SUPPLIER SYSTEMS AND RELATIONSHIPS FOCUS GROUP............................................................. 10 PRODUCT DEVELOPMENT FOCUS GROUP ...................................................................................... 14 ORGANIZATION AND HUMAN RESOURCES FOCUS GROUP............................................................. 17 POLICY AND EXTERNAL ENVIRONMENT FOCUS GROUP................................................................ 19 PARTICIPATING PROFESSIONALS AND KEY EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1

Attachments: 1) Lean Aircraft Initiative Research Plans (Created for 12/6/94 Working Group Meeting) 2) Lean Aircraft Initiative Revised Research Plans (As modified for 4/18/95 Executive Board) 3) Lean Defense Aircraft Model Framework 12/7/94 4) Preliminary LAI Factory Operations: Lean Practices, Enablers, and Metrics in the Defense Aircraft Industry 5) Preliminary LAI Support Systems and Relationships: Lean Practices and Metrics Toward a Definition of a Lean Enterprise Model for the Defense Aircraft Industry 4/14/95 6) Product Development Module for LEM 7) Preliminary Organization and Human Resources: Lean Enterprise Model Characteristics 8) MIT LAI Program Organization and Management Chart

Executive Summary
Following the September 1994 Executive Forum, the Lean Aircraft Initiative (LAI) at MIT began a rebaselining effort. This effort included a polling of the sponsor members as to their expectations from the Lean Aircraft Initiative. MIT researchers then modified their research plans to reflect the expectations of the sponsors. The resulting research plans, which map LAI research over the last year, are provided as Attachment (1). These research plans were updated for the April 1995 Executive Board meeting and are provided as Attachment (2). Since the creation of these research plans the Lean Aircraft Initiative (LAI) research has continued to progress addressing these expectations and research objectives. Included within this annual report are the significant accomplishments of the Lean Enterprise Model (LEM) Integrated Product Team and the five focus groups of the LAI.

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Summary of Significant Accomplishments and Progress October 1, 1994 - September 30, 1995

LEAN ENTERPRISE MODEL

Description of Research Process and Results Background: The Lean Enterprise Model (LEM) concept has been developed over the course of this year’s effort on the Lean Aircraft Initiative. The first efforts of the LEM were proposed in the December 7, 1994 Plenary Workshop, with the introduction of the Lean Defense Aircraft Model Framework. This document is provided for reference as Attachment (3). By April 1995, when the Executive Board meeting was held, the LEM idea had matured. Overview: The Lean Enterprise Model (LEM) is the term given to a product of the Lean Aircraft Initiative which will integrate the principles, practices, enabling processes, and metrics, chartering “world class” performance in the defense aircraft industry. The LEM will contain the results of MIT research, conducted for the Initiative and derived from the International Motor Vehicle Program (IMVP) which initiated the concepts addressed, as well as benchmarked evidence from aircraft and related industries. It will be incrementally populated with data, as these are developed, and updated on a continuing basis with new evidence. Content: While criteria established for the LEM emphasize its roots in the IMVP, a recognition of significant differences as well as commonalities between aircraft and motor vehicles must be understood. The complex character of military aircraft products, processes used to develop them, and the diversity of the relevant company organizations involved, suggest that the LEM’s research data might best be organized using a database management system format. Formulation of this architecture, and the database itself, will be developed by a team involving industry, government, universities, and labor. 4

The Lean Enterprise Model will be an organized compilation of lean principles, practices, enablers, barriers, and metrics, applicable to all phases of the product cycle for defense aircraft, and also to the various sectors which make up the development and supply aspects of business and government activities. It will provide a framework for evaluating lean practices with the basis for determining an organization’s relationship to best practices, as well as those strategies and processes which could potentially enable implementation to reach desirable goals. To be successful the LEM must satisfy a number of requirements and should: 1. Serve as a tool for assessing an organization’s “degree of lean;” 2. Provide definitions and terminology that will help users implement the Model and effect changes; 3. Include best commercial practices, where applicable, and access to such data if possible; 4. Be applicable to all sectors and usable by all organizations at any level of understanding; 5. Be adaptable to incrementally incorporate new research, user experiences, and changes in emphasis. Since research into best practices has been generally directed toward the separate phases of the product cycle, attention must be given to certain holistic considerations. First, there are basic principles that pervade the enterprise across the spectrum encompassing procurement and concept development, design development, manufacturing, and operations and support. These can be summarized as: waste minimization, continuous information and material flow, building of long-term relationships, and continuous improvement. Second, no single practice should be applied without consideration of its impact upon and influence by other practices or processes in all of the phases. To satisfy the requirements noted above, and account for complex activity, interfaces can only be addressed by considering the lean enterprise as a system. Format: The LEM architecture will permit ready usage by organizations for assessment of their state of “lean-ness.” It will also provide insights into the means by which they can achieve lean performance. Arrays of relate-able data will be organized in spreadsheet fashion with look-up capability to relate, not only enablers and metrics to practices, but also the interactions of practices across the process flow. Individual practice elements will have a work breakdown structure character. Schedule:

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A strawman version of the LEM was developed by May 30, 1995. Focus group leads reviewed this model prior to its presentation to the June 29 Plenary Workshop. An updated version was populated with current data and made available for review by the Working Group prior to distribution at the November 1995 Executive Board meeting.

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FACTORY OPERATIONS FOCUS GROUP

Description of Research Process and Results Background: The Factory Operations focus group pursued as its major research effort a series of comparative case studies. During the year, five mini-case studies were performed in areas in which a recognized lean transition had occurred. Although it was recognized that there is no “Toyota” in the defense aircraft industry, it was understood that significant information could be gathered about companies that had made a lean transition of some sort. Accordingly, lean transitions were identified for investigation and these mini-case studies were completed over this year of the Lean Aircraft Initiative. In four out of five MIT Factory Operations case studies on transitions to leaner operations, the largest benefits came from process flow improvements. Process flow optimization is a strategy to foster contiguous flow of the product from the time of introduction into the factory operation until it is completed. Process flow optimization can be accomplished through incremental process improvements and/or manufacturing system restructuring. Case study observations documented improvements in process flow in terms of work in process reductions of 85 percent, flow time (cycle time) reductions of 80 percent, and touch labor hour reductions of 50 percent were achieved. Some of these results were achieved while increasing part diversity by 150 percent. By focusing on optimizing the flow process in factory operations, improvements of at least 50 percent are achievable. Definitions of flow time, process improvement, restructuring, and process flow are helpful. Flow time is the time it takes to produce a product from its introduction into the Factory Operation until its completion. Process improvement is the elimination of non-value added elements within a single or small group of steps that produce a product. Restructuring is the improvement of an entire factory operation by changing the process method and/or sequence or changing from functional to product focus. Process Flow is the path by which a part or group of parts moves through the factory operation. Process improvement can be thought of as a steady, continuous improvement process. Restructuring is a step function improvement process. The optimal situation then is combining both improvement processes. In our studies, we had three different examples of process flow optimization. In each of these examples, the contributions to the benefits were isolated. In the first example, the improvements were achieved primarily from process improvements. In this case, the enablers were the establishment of work teams and quality 7

improvement teams which focused on work center and process inefficiencies. In the second example, improvements were achieved through restructuring. This time, the enablers were product/process grouping, management structure change, and simulation scheduling. The third example combined both restructuring and process improvement. This example featured work teams, changing the process layout, and quality improvement teams. Lean changes were enabled by giving employees control over the production process, improving the flow of products through the operation with improvements in both procedure and layouts. Many of these case studies would not have been successful without strong organizational and human relations changes that facilitated worker involvement. From our studies, the following organizational and human relations factors supported these lean transitions: • • Strong management support for worker teams. Work teams with authority over production, quality, and cost improvements were critical to accomplishing process improvements. To foster this situation, the teams needed the big picture information and the sense of the pressures that program managers and factory managers were facing. A well planned approach or strategy. Resources applied– although not all involved capital outlay for restructuring or improvements, each showed commitment through support of change agents and the training of their employees. Although there was not a threat of job loss in every case, there was at least a perception that the business was going to reduce or go away if something were not done.

• • •

There are barriers to optimizing process flow. Some of the common barriers observed during our case studies are described below: • • The availability of relevant data at the operating level. Whenever major perturbations are necessary to restructure the factory operation, there is risk to schedule. In all the cases studied, production had to continue while restructuring. Therefore, emphasis on strategy and planning is essential. There is significant cost to equipment relocation and employee training. It is difficult to quantify benefits of changes. This inability to characterize cost benefits serves as a powerful barrier to implementing change. In many of the cases, workers were incentivized for better performance. A preferred method rewarded the entire production team for achieving increasingly improved results on production metrics. The issue was how to do gainsharing in a manner that is perceived as beneficial by the workers and palatable to the employer. This is complicated by issues of multiple products

• •

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going through factory operations from different contracts and perhaps different contract types. Familiar issues associated with culture change had to be overcome.

It is well recognized that the elimination of waste is a major lean principle. Within the capabilities of a given factory operation, a way to eliminate waste is to strive to develop as contiguous a flow as possible through that factory operation. There are several ways this can be done, each with benefits. We have shown improvements were realized through focus on process improvement alone and restructuring alone, but the major benefit comes from combining the two in a plan, do, check, act cycle of continuous improvement. If the objective is to develop within a given factory operation the most contiguous flow possible, then one method to make this happen is to reduce the number of flow paths through the factory operation. This optimization (reduction of flow paths to facilitate contiguous flow through the factory) of process flows, if accomplished, can have significant impact on the bottom line: reduced flow times, reduced work in process inventories, reduced non-touch labor, and increased factory operation flexibility. But this is not a panacea. As in other areas, change cannot occur on a continuing basis unless the cultural issues are addressed. The question has often been asked, “How does the aircraft industry compare to the automobile industry?” The automobile industry is in an environment in which there are relatively few process flow paths and high volume where single piece flow can be achieved. One must remember that single piece flow is not always achieved in the automobile industry either. In the aircraft industry, the predominant method of fabrication is the job shop or discontinuous flow. This is characterized by many different process flow paths and a small volume. Our case studies indicate some important changes occurring in the aircraft industry. In one case study, we have a factory operation that managed to group products to reduce the number of process flow paths through the factory operation. This reduction in flow paths aided by a finite capacity flow scheduling system allowed this company to achieve a more contiguous flow through the factory operation at the same volume. In another case study, we have a factory that reduced the number of flow paths through its factory operation even further so that, with the aid of a Kanban system, it was able to achieve a near-pull contiguous flow through the factory operation at the same output volume. This changes the whole way to think about the manufacturing process in the aircraft industry. Although a JIT (just-in-time) production system may not be appropriate, the reduction of the number of process flow paths through a factory operation can help achieve more contiguous flow through the factory operation and serve to dramatically reduce waste in the factory operation. Throughout the year, the Factory Operations focus group defined the lean practices and metrics toward a definition of a Lean Enterprise Model. The summary of these efforts is provided as Attachment (4). 9

SUPPLIER SYSTEMS AND RELATIONSHIPS FOCUS GROUP

Description of Research Process and Results Fundamental change in supplier base management: A fundamental change in supplier base management has been under way in the defense aircraft industry in recent years. Since 1991, the supplier base has been reduced significantly (by 50% or more) across all sectors of the industry. Many firms have taken proactive steps to consolidate and restructure their supplier networks in order to reduce cost, improve quality, and strengthen their competitiveness. A major change has been the delegation of greater responsibilities to key suppliers, such as the production of major parts and components, laboratory and inspection functions, and management of lower tier suppliers. This development has no doubt been triggered by an overall reduction in business volume due to defense cutbacks, as well as a general slowdown in the commercial aircraft industry. Changes in business mix appear to have played a relatively smaller role. The reduction in the supplier base is not confined to the upper-tiers but appears to have permeated all tiers in the industry. Firms have re-organized, streamlined, and integrated across business units their internal operations pertaining to supply chain management. A hybrid set of organizational structures for supply chain management have emerged. Many of the firms have achieved greater internal efficiency in procurement and material management. A key effort has been to reduce subcontracting cycle time. Some have adopted electronic data interchange (EDI) methods to expedite purchasing operations. Others have started to place greater emphasis on “best-value” subcontracting, within the constraints of existing acquisition regulations. The widening of procurement operations into a more strategic level encompassing an integrated view of supply chain management practices is becoming more evident. The industry is moving toward lean practices, although it is still at a relatively early stage, and much can be gained from appropriate transfer of best lean commercial practices. Re-evaluation of “make-buy” decisions: Many firms have been engaged in a serious reevaluation of what they “make” or “buy,” as they have attempted to redefine their core competencies as part of their longer-term strategic thrust. Although a majority of firms have started to outsource parts and components that they had earlier designed and built in-house, others appear to have brought back work from their suppliers. A combination of these developments may help explain why there appears to be a lack of a consistent trend or pattern in the proportion of end-product value that is outsourced. A strong move 10

toward lean practices would have suggested a definite increase in the outsourcing ratio. Lower cost and strategic realignment of production are given as the most important reasons for increased outsourcing. Growing emphasis on supplier quality: A majority of firms in the industry have adopted formal supplier rating, certification, and selection systems as an integral part of their supplier base reduction, consolidation, and restructuring process. Often, cross-functional teams from across the company are engaged in implementation. Supplier rating systems place particular emphasis on supplier performance in terms of both schedule and quality. Supplier certification has increased dramatically since 1991 as a key method for improving supplier quality, identifying potential partners for longer-term relationships, and targeting specific firms for early involvement in design and development. In 1993, roughly a third of total dollar value of direct production outsourcing was obtained from certified suppliers. Most important supplier characteristics quantified in certification systems include the suppliers’ defect rate, performance to schedule, implementation of statistical process control (SPC), and commitment to on-going process improvement. Proactive implementation of certification has stressed supplier process integrity and improvement. Initiatives are currently under way, particularly in the electronics sector, to develop joint supplier certification systems. Considerable cost savings can be realized through such joint certification efforts. An important outcome of this growing emphasis on supplier quality has been the emergence of inspection-lean customer-supplier networks. The defense sector still lags behind the benchmark commercial companies, however, and can benefit from the experiences of these leading-edge companies. Realignment of the government oversight process affecting supply chain management practices would enable stronger future progress in the defense sector. Closer communications: broad enabler for collaborative relationships: Two-way communication between primes and their most important suppliers has increased substantially since 1989, serving as a platform for wider collaborative relationships. Information now regularly provided by major suppliers to their customers include data on production costs, statistical process control, actions taken to improve production processes, longer-term business plans, proprietary financial information, and feedback to customer companies on how they can improve their purchasing and material management functions. On their part, customer companies regularly provide to their most important suppliers information on their planned production schedules and requirements, cost targets, plans for supplier base restructuring, long-term business strategies, and quality of incoming parts. Closer 11

interactions also include: technical assistance to suppliers to improve their quality; joint diagnosis and resolution of manufacturing problems; joint diagnosis and reduction of inventory and scheduling problems; and joint new product design, development, and demonstration.

Changing roles and responsibilities: As evidenced by case studies, company site visits, and interviews, significant changes are under way in prime-first tier relationships, as primes are increasingly delegating to their top suppliers not only certain laboratory and inspection functions but also the design and production of major parts and subsystems. These changes have involved a realignment in the market position and specialization of top-tier suppliers. Greater specialization has enabled them to exploit wider business opportunities in the market for different customer firms. They have also been increasingly expected to manage suppliers that were earlier directly supplying the prime. This has required them not only to expand their procurement operations, but also to coordinate and provide oversight to new suppliers. The result has been the emergence of a more pronounced tiered supplier structure in the industry. Also, major suppliers have entered into more cooperative teaming or partnering arrangements with their primes. Further, they have started to deal with quite different sets of expectations and requirements on the part of different customer firms. In at least one case, the prime has explicitly asked a major supplier to develop international sources for certain parts, even though these new sources could emerge as international competitors to the supplier some time in the future. Increasing globalization of the defense aircraft industry is likely to raise important policy questions, pitting the viability of the domestic aircraft supplier base against the need of primes to exploit both foreign markets and international industrial capabilities. Supplier partnerships: key method for building lean customer-supplier networks: Supplier partnerships, encompassing a variety of evolving cooperative arrangements between customer companies and their major suppliers for mutual long-term benefit, are emerging as a key strategic means of building lean customersupplier networks. Two main types of supplier partnerships should be highlighted: development-focused partnerships aimed primarily at new product, process, or technology development, in the form of strategic supplier alliances, and productionfocused partnerships, typically involving long-term supplier agreements in support of on-going production operations and created mainly for mutual performance improvement. Both types of supplier partnerships are quite pervasive in the defense aircraft industry. 12

Most firms also believe strategic supplier alliances, supporting development-focused supplier partnerships, are critical to their long-term competitiveness. Strategic alliances tap the technological capabilities of suppliers in design and development, offering significant benefits. Major benefits include reduced costs, shorter cycle time, and improved quality. Longer-term dynamic benefits include inter-organizational learning and enhanced technological innovation. Production-focused supplier partnerships often serve as the precursor for development-focused partnerships. Most firms which have production-focused partnerships have also established development-focused partnerships. Although roughly 22% of the firms obtain more than half the total dollar value of their direct production material under long-term supplier agreements, company site visits and interviews underscore their growing importance as a means of developing mutually beneficial relationships between primes and their major suppliers, with attendant substantial bottom-line benefits for both. The promise of ensured longer-term production provides suppliers with a powerful incentive to engage in such joint efforts, justifying additional investment as well as risk-taking by them. Both forms of supplier partnerships are based on structuring stable “win-win” cooperative relationships, which represent a relatively new and important development in the defense aircraft industry. The potential of these new forms of cooperative arrangements in the industry can be more fully realized by focusing on and introducing appropriate changes in the government’s oversight of prime-subcontractor relationships. Throughout the year, the Supplier Systems and Relationships focus group defined the lean practices and metrics toward a definition of a Lean Enterprise Model for the defense aircraft industry. The summary of these efforts is provided in Attachment (5).

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PRODUCT DEVELOPMENT FOCUS GROUP

Description of Research Process and Results Overview: Research in product development in 1995 involved six areas of effort. One investigation , done jointly with the Organization and Human Resources Focus Group (O&HR), involved case studies and follow up interviews documenting increases in the quality of airframe product development processes. Case studies in a second joint effort with O&HR identified mechanisms by which groups of integrated product teams (IPT) can be organized for productivity in the development of complex systems. In a third effort a highly automated approach to software development was identified and productivity and quality gains documented. A fourth effort utilized a survey to study contractor/customer relationships. Also completed during the past year were two projects begun in the previous year of LAI research. All of these efforts contributed to the LEM. Content: Product development can be usefully viewed and analyzed as a process. The output of the process is a product design in the form of documentation, data bases, and possibly an operating prototype. If completed satisfactorily the output of the product development process will enable expeditious production of the product. An extremely important factor in this process is quality of the output. If the output is of high quality then the product is producable and meets expectations and requirements. If, on the other hand, the product does not meet expectations or cannot be produced efficiently then the design must be modified by design changes. Thus, the number of design changes that are required after the product development process is completed is a measure of product development process quality. Conversely, quality in product development serves to reduce the total number of design changes required and to identify them early in the process as well. Since design changes typically have a direct impact on schedule, process quality is important for reducing cycle time. Furthermore, the costs of design changes grow exponentially with the phases of a program so reducing the number of design changes and identifying and implementing them early in the product life cycle can have significant leverage on costs. Hence product development quality is important for reducing both cycle time and cost. Our case studies have documented significant reductions in design changes as new product development methods have been introduced over the past decade. These studies included comparisons between seven major development programs at three airframe manufacturers. Three of the programs were executed before the introduction of major new product development methods and tools. Specifically, these three programs preceded 14

the introduction of IPTs, computer aided design and engineering (CAD/CAE), and associated training of personnel. Four other projects in the study were executed after the implementation of these methods. Comparing the before and after performances of the three organizations indicated that reductions in numbers of design changes of 60% to 80% were achieved. Continuing research in this area is attempting to quantify the relative benefits of IPTs, CAD/CAE and training on design change reduction. The second research effort, to study integrative mechanisms for organizing groups of IPTs working together on complex system developments, originated from recent advances in automobile product development. Efficient organization and coordination of IPTs requires intricate sequencing of tasks to assure that the flow of information is properly ordered. In particular if Task B requires information from Task A, then A must precede B. Understanding precedence relationships and interdependencies between tasks is crucial in order to plan and execute an efficient and orderly development process. In a complex development program, involving hundreds or even thousands of tasks performed by numerous IPTs, it is extremely difficult to comprehend all relevant dependencies and necessary sequential orderings. Furthermore, an inappropriate organization of IPTs can cause difficulty in satisfying all necessary precedence relationships. A representation of product development tasks and their ordering, called the design structure matrix (DSM), has been used in the automobile industry to address these problems. The DSM provides a visual means of representing the organization of a project and the important interactions and precedence relationships. It's application in the automobile industry has proven to be highly effective and this experience stimulated an investigation of its usefulness for aircraft product development. A case study was initiated to apply the DSM to an airframe development project. The research is currently in process and some initial preliminary results have been obtained. Most significant has been evidence of inconsistencies between team members on different IPTs as to the levels of interaction and interdependencies between the IPTs. Since information flow is crucial to the orderly progress of product development it is important that members of cooperating IPTs mutually understand and agree on both the content and scheduling of information which must pass between them. The inconsistencies identified between cooperating teams thus indicates the usefulness of the DSM as an effective tool for identifying potential communication problems. The DSM has also highlighted inconsistencies between the ordering of tasks in the development plan and the precedence relationships necessary to assure availability of required information. For example, a product development task schedule may be laid out such that an IPT will not receive some of the information it needs to do its work because the IPT charged with creating that information is not scheduled to complete its work early enough to satisfy the need. As a result the receiving IPT must make assumptions about, or approximations to, the information it needs in order to proceed. If these assumptions or estimates are inaccurate then the IPT's results are likely to be erroneous and subsequent corrections will be necessary, representing design changes and rework. Such a situation is quite obvious when studying a properly constructed DSM. Hence the DSM shows promise 15

as a tool for identifying that a project plan may itself create the necessity for design changes and rework. A third research effort has been studying productivity of software development processes. Software is of increasing importance in military systems as evidenced by the costs for producing and maintaining onboard software for DOD platforms, currently approaching $40 B/yr. in 1995 and growing at the rate of about 10% /yr. A commercial practice has been identified which shows great promise for increasing productivity in development of onboard software for military aircraft. This method, termed the "Software Factory Process", makes extensive use of automated tools which are analogous to the CAD tools used for design of mechanical systems and electronic hardware. Of particular importance is the highly effective manner in which this process enables reuse of software modules both for new developments and for maintenance and modification of existing software. Commercial organizations using the Software Factory process have achieved productivity gains in the range of 40% and error rate reductions of 80%. Our case studies and follow up interviews of a few military suppliers using this method indicate productivity and error rate reductions of similar magnitude. However, the aircraft applications to date are largely limited to flight and engine control functions and do not include the much broader range of software applications typical of aircraft avionics. Current LAI research effort in this area is devoted to determining the extent to which the methods are applicable to the development of avionics software. The fourth and least mature effort involves an extensive survey of about twenty military programs. Its purpose is to gather data to aid in understanding effective relationships between contractors and their customers and to determine the most important factors affecting contractor/customer relationships. Survey forms have been distributed to both industry and government project organizations and a portion of the completed surveys have been returned, with more completed surveys anticipated in the near future. The available data is currently under analysis but no definitive results have been gleaned as yet Two research efforts initiated in 1994, to investigate metrics for making design decisions and to study the utility of design/cost database integration, were completed in 1995. The metrics effort studied four case histories of both new design efforts and modification projects. One conclusion was that better availability of the history of design decisions would have significantly aided some of the modification projects studied. The other completed effort, on design/cost integration, highlighted the importance of database commonality and results from this research were a catalyst for a sizable Air Force/industry research project, established separately from LAI, targeted to enabling cost effective development of the new joint attack aircraft. Also, during the year the Product Development Focus Group worked to ensure that the results of this research will properly support development of the LEM. The group identified a module of lean practices for the LEM which is provided as Attachment (6).

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ORGANIZATION AND HUMAN RESOURCES FOCUS GROUP

Description of Research Process and Results Overview: Most of the existing research on Integrated Product Reams (IPTs) has been conducted in the automobile industry, where the preponderance of new product introductions are enhancements or derivatives from a common platform. In such an environment, “heavy weight” product development teams, where IPT leaders have primary influence over team decisions and evaluation of team member activities, help to bridge cultural barriers between functions and encourage team members to work toward achieving goals of reduced costs and cycle times. The LAI sample, however, indicates that a large percentage of IPTs in the defense aircraft industry are developing new products or processes that are “pushing the envelope” beyond that typically associated with enhancement or modifications to existing technology. The LAI IPT effectiveness analysis suggests that in these high risk projects, where technical feasibility issues exist, there is a need for balance between a program-based and functional-based focus. Content: As stated at the October 1994 Executive Forum, the purpose of the IPT survey was to determine whether factors that lead to IPT effectiveness, especially those identified in the IMVP study, are applicable to the defense aerospace industry. In the April 1995 Executive Forum, the Organization and Human Resources (OH&R) focus group summarized the findings of the survey analysis. Since 65% of the IPTs in the sample are at the Engineering and Manufacturing Development stage, the analysis addressed the product development phase. The April 1995 Executive Forum presentation compared the LAI sample of 23 IPTs to an IPT sample from two commercial companies and an Army depot which participated in a parallel study at Pennsylvania State University (PSU). The same survey instrument was administered to team members in both samples. The LAI sample was comprised of predominantly “high technical risk” projects, while the PSU sample was evenly split between “high” and “low risk” projects. A comparison of the IPTs based on project risk revealed significant differences in priorities given to various project objectives, i.e., performance, unit cost, etc. Furthermore, the effectiveness analysis supported the IMVP research relative to “low risk” teams but indicated that “high risk” projects are most effective when there is a 50/50 balance between functional and project influence over project goals and team member performance evaluation. 17

Results: The implication of the IPT survey analysis is that generalizations to IPTs in other industries should be made carefully due to differences in the products being developed. Program managers must appreciate when a functional manager’s input is critical to program success and learn how to use this input without relinquishing the countervailing authority that has been gained through the use of IPTs and “regressing” to the traditional function-based structure. The defense aircraft industry is in a process of implementing IPT’s. There has been success with Product Development Teams (IPT) in the commercial aircraft industry. Military and commercial business practices can be assessed to develop IPT success factors in the military business environment. Engineering Changes and IPTs: One of the key areas in design development is the reduction in engineering changes. Some enablers to engineering change reductions are cross-functional design build teams/IPTs, concurrent engineering and digital pre-assembly, and fit check capability of design tools. There is an apparent reduction in costs associated with reduced engineering change activity. In the government defense procurement system, contract work breakdown structures, meshed with functional organizational structure,s gives cost accounting its structure. In this environment, it is difficult to establish cost budgets for crossfunctional teams. If commercial industry is compared to the defense industry, it is seen that there are many more steps in the decision process to seek and implement budget authority for an engineering change. Therefore, it is difficult to achieve team empowerment on complex products like defense aircraft because of the many interdependencies involved. Allocating budgets to teams may not be worth the expense. Yet, the goal is to achieve increased team authority and the management of “changes” seems to make sense. A way to do that is to give teams working on defense products a “engineering change” budget rather than a cost budget. Throughout the year, the Organization and Human Resources focus group defined the lean practices and metrics toward a definition of a Lean Enterprise Model. The summary of these efforts is provided as Attachment (7).

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POLICY AND EXTERNAL ENVIRONMENT FOCUS GROUP

Description of Research Process and Results Overview: A principal objective of the Policy and External Environment focus group is to examine policy-level issues that may constitute a barrier to the implementation of the lean practices derived from the other Lean Aircraft Initiative focus groups’ research. Once these potential barriers have been identified, research will address specific strategies for overcoming or mitigating their negative impact on the lean enterprise. Background: Following the dissolution of the original Policy and External Environment focus group, Dr. Albert J. Kelley joined the Lean Aircraft Initiative effort in September 1994 to provide new direction for the focus group. The mission of the Policy group was redefined following an evaluation of previous efforts, sponsor expectations, resources available, and parallel acquisition reform efforts, during the last Quarter of 1994. For health reasons, Dr. Kelley stepped down as MIT Policy and External Environment focus group lead, and was replaced by Prof. Earll Murman in May 1995. Content: Two criteria were used to define the research agenda of the Policy focus group: 1. What lean Aircraft Initiative research results have the potential for significant impact on defense acquisition policies or practices? 2. What current and projected government policies and practices can influence the insertion of lean practices? Several issues were identified through meetings with MIT researchers, government and industry representatives; plant tours; and meetings with senior corporate officers. In identifying areas for further research focus, the group considered the broad impact on the aerospace industry, the proximity to resolution, the needs of collaboration between groups, legal constraints, and the existence of critical mass implementation. The focus group then pared the list to six primary issues which cross cut all areas of the Lean Aircraft Initiative and have significant effects on policy issues at various levels. They were: 19

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Economic incentives for LAI cost reductions Use of commercial practices Long-term sub-contractor relationships Sub-contractor specification flow down Program instability strategies Single quality system implementation

At the June 1995 LAI plenary workshop, two research topics were selected, Economic Incentives in Procurement, and Managing With/Under Program Instability. Work on these two research topics began immediately and is currently underway. The Policy and External Environment focus group met in September 1995 to discuss and provide support for the two research strategies. An investigation of extant research on economic incentives in defense procurement found that little systematic research had been conducted previously. Research is proceeding involving interviews of experts in government, industry, and academia to identify the most salient factors in economic incentives and gainsharing strategies. Work on program instabilities has also included interviews with experts in government and industry, and a survey was developed and sent to government program managers. Preliminary results from both projects is expected to be presented at the April 1996 LAI Executive Board.

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PARTICIPATING PROFESSIONALS AND KEY EVENTS
Participating professionals supporting the Lean Aircraft Initiative are depicted in attachment (8). October 1, 1994 – September 30, 1995 Key Events • • • • • • • • • • • • • • September 26-27, 1994 – LAI Executive Forum/Advisory Board Meeting at MIT October 26, 1994 – Working Group meeting, held in Dayton, OH November 10, 1994 – LAI participated in ASC Presidents’ Day, held in Dayton, OH November 30, 1994 – LAI participated in the Defense Manufacturing Conference, held in Phoenix, AZ December 1-2, 1994 – Supplier Systems and Relationships focus group miniworkshop at MIT December 6, 1994 – Working Group meeting at MIT December 7-8, 1994 – Plenary Workshop at MIT January 9, 1995 – the first Integration Team meeting, held at Lockheed Marietta in Marietta, GA January 23, 1995 – LAI gave a status briefing to GAO representatives at MIT January 24-26, 1995 – Supplier Systems and Relationships focus group miniworkshop, held at Hughes in California January 25-26, 1995 – Organization and Human Resources focus group miniworkshop, held in Orlando, FL January 17-18, 1995 – Product Development focus group mini-workshop, held in Orlando, FL February 7-8, 1995 – Product Development focus group mini-workshop, held in Dayton, OH; with a review meeting held on February 16 February 14-15, 1995 – Factory Operations focus group mini-workshop, held in Orlando, FL 21

• • • • • • • • • • • • • • • • •

February 15-16 – Supplier Systems and Relationships focus group miniworkshop at MIT February 17, 1995 – Integration Team meeting, held at GEAE in Cincinnati, OH March 22, 1995 – Integration Team meeting at MIT March 23, 1995 – Product Development focus group mini-workshop at MIT March 29, 1995 – Working Group meeting, held in St. Louis April 4-5, 1995 – Supplier Systems and Relationships focus group miniworkshop at MIT April 18-19, 1995 – Executive Forum/Advisory Board meeting, held in Cambridge, Massachusetts May 2, 1995 – Integration Team meeting, held in Dayton, Ohio May 18, 1995 – Policy and External Environment focus group mini-workshop, held in Dayton, OH May 18, 1995 – Policy and External Environment focus group mini-workshop, held in Dayton, Ohio May 22-26, 1995 – LAI participated in NAECON in Dayton, Ohio June 1, 1995 – Organization and Human Resources focus group miniworkshop, held at Northrop Grumman in Dallas, Texas June 6, 1995 – Factory Operations focus group mini-workshop at MIT June 20, 1995 – Integration Team meeting at MIT June 29-30, 1995 – Lean Aircraft Initiative Plenary Workshop, held in Cambridge, Massachusetts July 6, 1995 – LAI hosted a visit by Mr. Dennis Williams, Executive Board CoChair, to MIT July 14, 1995 – the Lean Enterprise Model (LEM) IPT held its first meeting at MIT

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July 25, 1995 – Product Development focus group mini-workshop, held in Dayton, Ohio August 1-2, 1995 – Integration Team meeting, held at the Hughes Aircraft Company in Los Angeles, California August 7-8, 1995 – LEM IPT meeting at MIT August 10-11, 1995 – Factory Operations focus group mini-workshop, held in St. Louis. August 16-17, 1995 – Supplier Systems and Relationships focus group miniworkshop at MIT August 21-24, 1995 – LAI participated in Round II of the Lean Aircraft Initiative Site Visits to sponsoring member companies August 28, 1995 – LEM IPT meeting at MIT September 13-14, 1995 – LEM IPT meeting at MIT September 20, 1995 – LAI hosted a meeting of eleven industry attendees at MIT to review enterprise level metrics September 20-21, 1995 – LAI participated in the continuation of Round II of the Lean Aircraft Initiative Site Visits to sponsoring member companies September 20-21, 1995 – LAI participated in the continuation of Round II of the Lean Aircraft Initiative Site Visits to sponsoring member companies September 22, 1995 – Policy and External Environment focus group miniworkshop at MIT September 26, 1995 – Product Development focus group mini-workshop held at MIT September 28-29, 1995 – Integration Team meeting at MIT

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