Supply Chain Management Strategic Perspectives in Supply Chain

Supply Chain Management Strategic Perspectives in Supply Chain Management – October 28, 2008 Craig Sando 1

Supply Chain Management Agenda: • Moog’s Role in Space • Key Supply Chain Challenges • Changes in Approach & Strategy – Supply Chain Mission Success – Virtual Factory 2

Supply Chain Management Moog’s Support of NASA Space Programs 3 100% Mission Success

Supply Chain Management Moog Technologies & Products - Precision Motion Control Actuation Hydraulic TVC System & Components Electromechanical TVC System & Components Solar Array Drive Antenna Pointing Propulsion Controls Thruster and Latch Valves Vibration Controls Avionics Subsystems Soft. Ride Passive Vibration Suppression Hydrazine Propulsion Systems Reaction Mass Actuator Active Vibration Suppression Electronic Control Units for Electromagnetic Actuators Command Data Interface Unit for Ares I Upper Stage 4

Moog is Committed to the Long Term Support of NASA Supply Chain Space Management Programs 5

Supply Chain Management Space Related Supply Chain Challenges • • Growing Product Offerings Growing Dependence on External Suppliers Growing Sub-contract Content Growing Needs In Sub-tier Management – Delivery Performance, Risk Management, Capacity management – Process control & change control • Growing Cost Challenges • Continuing Challenges in: • • • Small quantities Education of critical nature of hardware and end application Qualified small businesses for critical hardware Maintain supply chain over life of program Specialty metals 6

Supply Chain Strategy - Key Initiatives: Supply Chain Management • Transition the organization – From Purchasing…to Procurement…to Supply Chain Management • Business Process Integration – Becoming an integrated part of Operating Group value stream – Program team member • Global Supply Chain Development – Develop new low cost Supply Chains – Strategy for moving centers of LCC sourcing • Category/Commodity Management – Teams focused on major categories of spend – “Virtual Factory” approach • Focus on Strategic Sourcing – Product Line Supply Chain Strategy – Alignment of business conditions, customer flow down – Re-qualification Strategy • Excellence in Operational Purchasing – Execution - Meeting the needs of our factories (QDSC) – Supply Chain Mission Success 7

Supply Chain Strategy - Key Initiatives: Supply Chain Management • Transition the organization – From Purchasing…to Procurement…to Supply Chain Management • Business Process Integration – Becoming an integrated part of Operating Group value stream – Program team member • Global Supply Chain Development – Develop new low cost Supply Chains – Strategy for moving centers of LCC sourcing • Category/Commodity Management – Teams focused on major categories of spend – “Virtual Factory” approach • Focus on Strategic Sourcing – Product Line Supply Chain Strategy – Alignment of business conditions, customer flow down – Re-qualification Strategy • Excellence in Operational Purchasing – Execution - Meeting the needs of our factories (QDSC) – Supply Chain Mission Success 8

Supply Chain Management Supply Chain Mission Success 9

Supply Chain Management Why The Increased Focus on Supplier Performance & Risk Management in the SC? Business Drivers: • Increasing Purchase Content • Move to Systems Provider • Increasing Major Sub-Contract Activity • Increasing expectations for risk management in the supply chain 10

Supply Chain Management Supply Chain Mission Success – Managing Risk in the Supply Chain Three key components: 1. Supplier Performance • Delivery and quality performance • Raised expectations • RCCA’s to meet these expectations 2. Risk Management • Identify the risks • Plan for high risk, high impact events • Eliminate, mitigate or have a response plan 3. Production Readiness • Confirming we are ready 11

Supply Chain Management Supplier Segmentation - Mission Success - Engagement Criteria Risk Factors Inc rea sin g. R isk Strategic Key Commodity Suppliers Expendable Suppliers • • Single or Sole Source Technology Leader High Switching Costs High Capacity Utilization/Lead-times • High NRE or program content • New suppliers • High Switching costs • Require Quality Approval • Ability to meet functional specs • Multiple Sources & Distribution • Safety Stock & VMI Current Performance, Risk Management, Production Readiness Segmenting Suppliers for Prioritization and Focus 12

Supply Chain Management Supplier Mission Success Engagement Approach Depends on Type of Supplier: Supplier Type Risk Factors Moog Engagement Supplier Engagement Strategic Partners • Single or Sole Source • Technology Leader • High Switching Costs • High Capacity Utilization/Leadtimes • Senior Mgt • Senior SC Mgt • Strategic Sourcing • Mission Success • Senior Mgt Team • Mission Success Key Partners • High NRE or program content • New suppliers • High Switching costs • Senior SC Mgt • Strategic Sourcing • Mission Success • Senior Mgt Team Member • Operations Mgr • Quality Mgr Commodity Suppliers • Require Quality Approval • Ability to meet functional specs • Buyer • SQA • Senior Mgt Team Member • Operations Mgr • Quality Mgr Expendable Suppliers • Multiple Sources & Distribution • Safety Stock & VMI • Buyer • SQA • Sales 13

Supply Chain Management SC Mission Success – Supplier Performance - RCCA • Suppliers are being encouraged to have a structured approach to the RCCA process and are assessed on their Corrective Action performance Corrective Action Metrics • • G Problem Identified > Root Causes Identified > Effective Solutions > Verifiable Dates Y Problem Identified > Root Causes Identified > Effective Solutions not clear and/or verifiable R Root Causes not identified > No Effective Solutions We are focusing on event based problem solving methodologies to correct Delivery and Quality deficiencies – Event based problem solving uses the cause and effect principle during analysis It is more than Root Cause we are after, it is Effective Solutions 14

Supply Chain Management SC Mission Success – Risk Management • Risk Management – Starts during the design phase and continues into early production – A cooperative effort between Moog and our suppliers – Allows us to manage the sub-tier process in production by managing the risks • Risk Categories: 1. 2. 3. 4. 5. • Contractual/Regulatory Program Management Purchased parts/assemblies Design Special Process 6. 7. 8. 9. 10. Materials Manufacturing Assembly & Test Shipping Installation The Metrics – Risk Management G Risk Identification complete, no moderate or high risk items Y Risk Identification complete, moderate to high risk items identified, risk owner and response plan in place R Risk Identification not complete or high risk item identified and risk owner/risk mitigation plan or response plan is not in place or behind plan 15

Supply Chain Management SC Mission Success – Risk Management Example Category Comments Dev Qual Production Contractual/Regulatory G G G Program Management R Y G Design R R G Special Processes TBD TBD Not fully assessed. XXXX to provide list of special processes and suppliers Purchased Parts/Assemblies TBD TBD Not fully assessed. XXXX to provide list of purchased parts, assemblies and suppliers Materials TBD TBD Not fully assessed. XXXX to provide list of materials and suppliers Manufacturing G G R New design driving new mfg processes. High probability of low production yield. Assembly & Test G G R Additional secondary operations may drive low production yield. Shipping G G G No identified risks Field Service G G G No identified risks Contractual requirements not in place. Low probability of schedule impact as contracts get put in place New requirements putting risk on ITV/Qual schedule Design instability putting schedule at risk 16

Supply Chain Management SC Mission Success – Production Readiness • • • Production Readiness – Are processes in place and are they effective? – The Production Readiness process is designed to assure they are ready – Uses the Boeing Production Readiness tool as a guide Production Readiness Categories – Facilities – Production Planning – Raw Material – Sub-tier Management – People – Manufacturing Tools and Processes The Metrics – Production Readiness G Mature, effective processes in place delivering positive results Y Processes in place, marginal results, needs attention R Processes are not in place, no plan to improve or at risk of making plan The challenge is recognizing processes that are not effective 17

Supply Chain Management SC Mission Success – Production Readiness Example 18

Supply Chain Management SC Mission Success Metrics - Summary Metric Definitions Current Performance Delivery Quality Corrective Action Risk Management Production Readiness G Equal to or greater than 97% Y 85% to 96. 9% R Less than 85% G Equal to or greater than 99. 9% Y 96. 5% to 99. 8% R Less than 96. 5% G Problem Identified > Root Causes Identified > Effective Solutions > Verifiable Dates Y Problem Identified > Root Causes Identified > Effective Solutions not clear and/or verifiable R Root Causes not identified > No Effective Solutions G Risk Identification complete, no moderate to high risk items Y Risk Identification complete, moderate to high risk items identified, risk owner and response plan in place R Risk Identification not complete or high risk item identified and risk owner/risk mitigation plan or response plan is not in place or behind plan G Mature, effective processes in place delivering positive results Y Processes in place, marginal results, needs attention R Processes not in place, no plan to improve or at risk of making plan 19

Supply Chain Management Supply Chain Mission Success What Does It Take To Accomplish This? • Specialized Supply Chain Management Resources • Focused Training • Co-location With Program Teams • Different Skill Set On the Team • Increased Supplier Collaboration 20

Supply Chain Management Virtual Factory Develop Select Suppliers to Be Strategic Partners – Leverage our Customer Intimacy value proposition – Build long term relationships based on the Moog Culture – Sharing of Moog resources Supplier Intimacy 21

Supply Chain Management Virtual Factory - Objective “Develop a new way of doing business with key suppliers” ü Long-term relationship ü Moog to support as “extension of our factory” • Mfg Eng, Lean, Materials Mgmt, QA & QE ü Create a cell dedicated to Moog parts in Supplier’s factory ü Focus on each other’s core competency 22

Supply Chain Management Strategic Perspectives in Supply Chain Management Take Away’s • The World Of Supply Chain Management Is Changing To Meet NASA’s Future Requirements • Supply Chain Management Is Key To Moog’s Success In Supporting NASA • Successful Management Of The Supply Chain Requires Changing Roles And The Engagement Of Multiple Functions • It’s About Managing Change … 23

The Probability of Success Improves … … When Seven Critical Elements Of Change Are Aligned And Executed Against Compelling Case? Clear Vision? Well Defined Plan? Adequate Resources? Capabilities? Sufficient Motivation? Effective Communication? Supply Chain Management = Successful Change = Inertia = Confusion = Diffusion = Frustration = Fatigue = Crawl = Doubt Source unknown 24