1. Lockheed Martin RAISING THE BAR: ACHIEVING SUBCONTRACT EXCELLENCE
March 2008
Gary Bartmann, Vice President
Subcontract Management & Procurement

2. Lockheed Martin is “Raising the Bar”
Agenda
Lockheed Martin Space Systems Company Supply Chain Landscape
Lockheed Martin Space Systems Company Product Assurance/Mission Success Landscape
What is Big “Q”?
Remedy underlying causes of mishaps, near misses, escapements, process errors, etc., across the enterprise
Product Assurance/Supply Chain Partnership
Summary
Lockheed Martin is “Raising the Bar”

3. Supply Chain Landscape
Lockheed Martin
Space Systems Company
Supply Chain Landscape

4. Subcontract Impact Typically 50-60% of Revenue
Brings technology and expertise to the team
Suppliers bring innovation, speed and agility to the table
Source of Competitive Advantage
“Supply Chain as strong as the Weakest Link”
Supply Chain is a “Valued Asset”
Strong supply chain critical to success
Supplier Performance is Lockheed Martin Performance

5. Diverse Portfolio of Supplier Participation
Spend Profile
40%
Commodities
Supplier Agreements
e-Business Enabled
Standardization IT
Indirect
60%
Direct Commodities
Custom Products
Subcontracts
Program Driven
Early Involvement Key
Internal & external suppliers
Supply Chain strategies
Diverse Portfolio of Supplier Participation

6. Procurement Process Rigorous Acquisition Process Buyers Governance
Government
Acquisition
Policies
Corporate
Policy
Statements
LM Acquisition Procedures
Business Unit Command Media
Buyers
Federal State Laws
Checklist
Documentation
Compliant Procurement Systems
Sound Procurement Practices
Corporate Officer
LMAP Council
LM Internal Audits
Peer Review Mgmt
Approvals
Program Audits
Compliance Training
Ethics Training
Governance
Compliance
LM Internal Audits
DCMA Review
CPSRs
Rigorous Acquisition Process

7. Supply Execution & Risk Management
LMSSC
(Prime Contractor)
Supplier
(1st Tier)
(2nd Tier)
(3rd Tier)
The Warfighter
Production Process Baseline (PPB):
Audits to baseline standards conducted
Command media procedures established
Validation of contract and technical requirements
Compliance and sub-tier flow down / verification
Production, test, and inspection instruction
Personnel training
Configuration control methods
Quality Management System effectiveness
Sub-tier supplier management controls
First article and source inspection

8. Product Assurance/Mission Success Landscape
Lockheed Martin
Space Systems Company
Product Assurance/Mission Success Landscape

9. In Aerospace & Defense Quality Failure Could Mean:
2nd / 3rd quality escapes discovered by our Prime customer at Integration Test
Launch failure
On-orbit failure
Missile fails to arm
Intelligence information not conveyed
War fighter in harm’s way
We don’t get a second chance

10. The Quality Journey
1940s s s s s s Beyond
Decade
Mil-I-45208
Mil-Q-9858
Mil-Std-1520
ISO 9000
AS 9100
Acquisition
Reform
TQM
Faster, Better, Cheaper
Driving Force
Concurrent
Engineering
Sample Inspection
Operational
Excellence
Lean
Manufacturing
Process Control
Tools
Error-Free
Environment
100% Inspection
6 Sigma
Peer Reviews
High-Performance
Work Teams
Statistical Process
Methods
Big “Q”
100% Mission Success
Focus
Baldrige
Award
Deming
Juran
Ishikawa
Taguchi
Increasing System Complexity
Continued Evolution From Little “q” to Big “Q”

11. Forcing Retirement of Future Potential Problems
What is Big “Q”?
A recognition that the quality of our procedures and products depends on the up-front (early life cycle) design processes being error-free
Achieving Big “Q” requires a holistic systems approach by each program and functional group to seek out problems, analyze causes and take effective corrective and preventive actions throughout the entire contract life cycle
Forcing Retirement of Future Potential Problems
in the Present

12. Creating a Big “Q” Environment
Past State
Bringing the past to the present
100% mission success
Mil-Q-9858A
Inspect to find defects
Sort good from the bad
Future State
Bringing the future to the present
Big “Q” focused
100% mission success
Operational excellence
Process-centric
Error-free environment
Today
Moving forward
We cannot forget our past while we build the future

13. Big “Q” Spectrum of Opportunities
Diagnosing cross-phase and multi-functional misalignment
for quality Improvements
Research
IR&D
Concept
Refinement
Systems
Development
& Demo
Engineering
Design &
Release
Production,
Integration
& Test
System/
Mission
Deployment
Quality improvements throughout life cycle
Beyond the plant, a cross-phase and functional view
All functions participate continuously
Force “Up-Stream” Improvements
Converge on Big “Q” improvements via design team
Technology evolution and increased complexity demand
Big “Q” improvements

14. Impetus for Raising the Bar
The driving needs for Operational Excellence?
Increasing need for an integrated, end-to-end set of improved processes for development and recurring work
Space Systems Company defect rate
76% of mission failures attributed to engineering defects and escapements
SSC enterprise experience on recent programs
Latent engineering defects have significant negative impact on technical, schedule and cost performance
Being proactive to sustain 100% Mission Success
Increasing system complexity
and technology evolution requires change

15. Error Prevention
For Each Mishap / Near Miss Multiple Things Go Wrong At The Same Time
Multiple Defenses (Plates) Fail:
Cert Product Eng (CPE), Resp Area Super (RAS)
Supply Chain
Product Assurance
Test Discipline
Infrastructure
System Safety
Supervision
Employee
Process / Equipment
Etc.
Risk
Intended
Deflection
Incident

16. Operational Excellence
Today's environment leaves little room for error…
Lockheed Martin’s Operational Excellence Program provides:
Roadmap, principles & tools to cut costs
Eliminates waste & enhance customer satisfaction
Operational Excellence Program Objectives:
Drive process capability
Delivers on customer value
Provides common focus for productivity
End State Goal…
Lean processes with Six Sigma capability throughout
the enterprise and supply chain

17. Key Elements of Operational Excellence
Creating an error-free environment
Big “Q” focus
Peer reviews
Every process, product and paper is perfect
Zero defects throughout product life cycle
One Company enterprise-wide processes
CMMI at all SSC locations
Partnerships: customer to prime and prime to supply chain
Communications
Relationships
Transparency
Forecasting cost, schedule and evolving technology
Program management
Operational Excellence is an imperative toward
ensuring 100% Mission Success

18. Operations Excellence &
Big “Q”
76% Escapes are due to…
Engineering
Product reuse
End-to-end systems effec.
Peer Reviews
SME/Fellows program
Software/systems integration
Production
Manufacturing & Supply Chain Excellence
Common subcontract flowdown
Talent Management
MFG
ATLO
I&T
Supplier
PA&SS
Operational mishaps
Supplier councils/summits
N/C reduction initiatives
Linked CAB
Error prevention
Program Execution
100%
Mission
Success
Human Resources
Skill certifications
Knowledge management & transfer
Future labor force
Little “q”
Inspection of hardware
Sorting
Acceptance
Test
Finance & Operations
LM21 excellence
Suspended loads analysis
Big “Q”
Engineering processes
Requirement definition
Functional and LOB partnerships
Process discipline, adequacy, integrity
Operations Excellence:
Error-Free Environment Throughout Program Life Cycle

19. Product Assurance/Supply Chain Partnership
Lockheed Martin
Space Systems Company
Product Assurance/Supply Chain Partnership

20. LMSSC Supplier Expectations
Supply Base Expectations
Commitments
Quality
Delivery
Cost
Meet them all
100% in everything you do
On time, every time
Meet targets, deliver value
Our customers expect and the war fighter relies on
100% mission success of “our” products and services 12

21. ‘Functional Silo’ Syndrome
Sourcing is a “Team Sport”
CONTRACTS
DESIGN /
Engineering
MATERIALS
PURCHASING
QUALITY
MANUFACT-
URING
Operational silos or “Over the transom” is no longer acceptable
Build Effective Relationships
‘Functional Silo’ Syndrome

22. Risk Management – Subcontracts
Every Program has risk. Identification and management facilitates success. Failure to manage or predict ensures failure.
Requirements
Best Practices
Monitor
Corporate & Site Policies
Early Involvement
Identifying
Planning
Assessing
Handling (Mitigate, Transfer, Avoid, Assume)
Personnel Training
Risk “Waterfall”
Lean LM21 Operating Excellence
Supplier Assessment
Customer Partnering
Metrics
Reviews
Audits
Process Assessments
Proactive, Collaborative Engagement is Key

23. Risk Management - Subcontracts
Risk Based Subcontractor Assessment Tool
Excel based, point and click, results tallied and summarized

24. Subcontracts Operational Risk
Predicting trends & performance
Supplier “comparison” using configurable measurements
CTPAT effort manifested gaps international transportation/freight, and ex-process…action items being tracked and worked with benefits beyond C-TPAT
Supply Chain Security Council has formed committees targeted to reviewing current compliance training modules, incorporating self-policing into existing audit programs and investigating benefit of periodic background checks. Committee work nearly complete
Suppliers current information in online databases

25. Requirements Analysis
Subcontractor
“What could go wrong? … possible failure modes? … severity, P(o), P(c)?”
Performance Based Specification
Manage Risk
KPP:
“Spacecraft transmit/receive time”
KPP:
“Mux shall have <2dB insertion loss”
KPP:
“Filter shall have <1.5 dB insertion loss”
KPP:
“Waveguide shall have <0.5 dB insertion loss”
Surface Risk
- Prioritize
- VOC
Register Risk
Lockheed Martin Supplier Risk Management 

26. Trend Analysis Process
Materials Risk Management
Trend Analysis Process
SSC Lines Of
Business
Programs
G, Y, R Ratings
May 2005
118 2
Programs
LOB 1 4 1 13
LOB 2
Programs
Supplier Occurrences
Trend States
LOB 3
Programs
Active
Suppliers • •
LOB N
Programs
Generate Causals

27. A Fishbone Approach to Big “Q”
Production
Engineering
Mission Success
Peer Review
Senior Management
Review Team
Corrective
Action Board
Mission
Success
Bulletins
Process Control Board
Internal
Operations
Review
Internal
Operations
Review
Integrated Process Group
Rapid
Notification
Mission
Success
IOR
Corrective
Action Board
Failure
Review
Boards
Responsible
Area Supervisor
LOB Reviews
Program
Management
Lessons Learned
Common Integrated
Process System (CIPS)
Approved
Supplier
Processes
Insight/
Oversight
Process
Doc Rockit
Early Warning
Metrics
Anomaly Engineering
Review Board (AERB)
Internal
Audit
Certified Principal
Engineer
GIDEP
Big “Q” Drives
Disciplined Innovation
&
Operational Excellence
Certified Test Conductor
Continuous Process
Improvement
PA&SS Corrective
Action Board
Corrective
Action
Board
SSC Corrective
Action Board
Finance &
Business
Operations
ERP FICO
Capital Equipment
Operations Product
Assurance Review
Mentoring
Stock Sweep
LM21 Integration
& Transformation
Financial
Reviews
Joint Insight
Working Group
Employee Skills
Verification &
Assessment
Internal
Operations
Review
Training
Certification
Board
Error Prevention
Council
Internal
Operations
Review
Certifications
Foreign
Object
Elimination
Suspended
Loads
Knowledge
Transfer
Qualifications
Flash Notices
Environmental
Safety & Health
Return To Green
Meetings
Future Work Force
Management
Council
Operational Mishaps
Full Spectrum Leadership
Operations
PA&SS
Finance
Human Resources
Functional cause & effects analysis performed

28. Supplier Quality Corporate Supply Quality Council established
LMSSC Supplier Quality Councils established
LMSSC Supplier Assessment/Rating System
Working with AIA / DCMA / Industry groups on lower-tier quality escapes
Critical performance and alert system established
Line-of-Business & Program quality program and focus

29. Product Assurance & System Safety Responsibilities Across the Product Life Cycle
Quality Engineering
System Safety
Procurement Quality
Operations Quality
Software Quality
Develop & Acquire New Business
Design & Development
Acquisition
Produce System
Deploy & Operate System
Assess Customer Requirements
Participate in IPT’s & other design teams
Assess Supplier Capability - Use LM Corporate System
Review Production Plans for Product Assurance & System Safety Requirements
Verify System Ready for Deployment/ Shipment
Verify Post Deployment Activities in Compliance with Requirements
Use PA Proposal Focused Training Module
Assess Design, Validation & Verification Inputs for Product Assurance/ System Safety Requirements
Determine Quality Flowdown Requirements
Develop Product Assurance & System Safety Proposal Inputs
Perform Process Assessments
Assess Supplier Performance Using Vendor Rating
Accept Supplier Products/Services
Perform Inspections & Tests
Accept Product
Develop Budget Estimates
Identify Risks
Coordinate Range Safety Requirements
Apply Error Prevention Techniques
Assess Hazard Analysis Requirements
The Product Assurance & System Safety function involved in the entire product life cycle from proposal to final acceptance and delivery.
There are tasks in each phase of the life cycle designed to ensure quality requirements are met and Mission Success is achieved.
Track Corrective Actions
Control Nonconforming Material
Apply Error Prevention Techniques
Test Like You Fly Validation
Mistake Proofing
Product Assurance & System Safety Applies Preventive Measures, Oversight, System Safety, Control of
Nonconformities, Error Prevention, and Corrective/Preventive Action Throughout the Product Life Cycle

30. Supplier Network
Successful Program Execution requires an integrated supply network with all suppliers focused on:
Quality Products & Services, on-time
Cost Reduction and Continuous Improvement
Service and Customer Satisfaction
Innovation & Creativity
Anticipating our Needs
Using e-technology
Actively using lean processes
We expect a lot from our suppliers just as we do from ourselves
In our business, we often do not get a second chance
Looking to deliver cost effective solutions and operations excellence
Lot of suppliers in the world – ones who do these things are truly “special”
Communication is key

31. Contractor Environment
Program Pressure
Flawless Execution
Cost Pressure
Real cost reduction & continuous improvement
Complex Systems Integration
Interdependent system elements
Cross-discipline execution
Greater reliance on Subcontract performance

32. Subcontract Excellence
More responsibility for technical development
Collaboration with LM
Early involvement
Risk management
EVM and schedule
Predictive Risk and Performance modeling
Our role as a systems integrator increases subcontractor’s role and criticality
Now let me give you some tips on what will differentiate you as a supplier
And what Lockheed Martin is looking for…
We manage our subcontractors as an extension of our business

33. … Raising the Bar Optimize Core Process & Efficiency
Share Knowledge Rapidly and Freely
Early involvement
Provide world-class tools to manage Suppliers
Enhance personnel skills and understanding
Speed and agility
Defining full life-cycle supply chains
Innovation
End Game: Optimized Supply Chain Skilled Teams Armed with Information to Manage

34. Enterprise Big “Q” Focus Areas
Peer reviews
Subcontract management
Error prevention – near miss and mishap reporting
Non-conformance reduction initiatives
Manufacturing, engineering and suppliers
Product reuse analysis
End-to-end specialty engineering
Software and systems integration
Enhanced applications and procurement of EEE parts
Certified test conductor briefings

35. Supplier Expectations
Supply Base Expectations
Commitments
Quality
Delivery
Cost
Meet them all
100% in everything you do
On time, every time
Meet targets, deliver value
Our customers expect - and the war fighter relies on -
100% mission success of “our“ products and services
LMSIS West-Hatch-15Dec05 12

36. Proactive plan to improve our performance!
Summary
An SSC enterprise-wide plan; all sites, all programs
Strategic and systematic approach toward continuous improvement
Focus priority of all LOBs, programs and functional groups
Operational Excellence/Big “Q” improvements will eliminate:
Latent hardware anomalies and non-conformances
Latent process escapes, near misses and mishaps
Unacceptable schedule and cost performance
Will raise the bar with 100% Mission Success!
Proactive plan to improve our performance!

37. What Can You Do? Adopt “Big Q” Thinking Continue on the “Journey”
Continuous improvement in quality & cost
Flow the same principles and expectations to your supply base
Manage the ‘multi-tier’
Take time to strategically plan to achieve competitive advantage in your supply chain
Adopt “Big Q” Thinking