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Congress
funds New England group to expand defense supply base;
aid small firms
Defense Daily
November 14, 2002
Tucked away in the defense bill signed by President
Bush last month is $6 million to fund a consortium of
manufacturing centers in New England whose goal is to
help the Defense Department find companies that can
manufacture parts that are difficult to find suppliers
for and in the process expand the number of firms in
the defense supply chain.
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"I'm
delighted the MEP funds have been approved and
included in the final DoD appropriations conference
report. These substantial resources will have
a direct, beneficial impact on Maine businesses.
Because of this success in Congress, our state's
economy will be strengthened as small businesses
gain the assistance needed to increase production,
expand sales and increase employment opportunities."
-- Congressman John Baldacci
"The
Maine MEP team is working to meet the needs of
the Department of Defense for the prompt and reliable
delivery of parts and high quality equipment.
They are able to do this while saving money but
not sacrificing quality."
--
Senator Susan Collins
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Other
goals include helping small- and medium-sized defense
companies adopt lean business practices, meet demands
for surge production and aid local economies through
entry into new markets, according to a white paper outlining
the consortium's goals.
The
consortium consists of the Manufacturing Extension Partnerships
(MEP) in the six New England states and is run by a
management company that oversees three centers in those
states. The idea for the consortium was hatched by Rodney
Rodrigue, president of MEP Management Services. The
effort to secure congressional funding was led by the
senators and representatives from New England.
Finding
a way to help the Pentagon find parts suppliers would
also keep more defense equipment up and running instead
of being cannibalized for parts.
"There
is a fair number of defense material that is laid up
or on the ground because of a shortage of spare parts,"
said Kevin Carr, who coordinates a national network
of MEPs from his office in the National Institute of
Standards and Technology, an arm of the Commerce Department.
"Sometimes they can't find the supplier or a supplier
that can produce in the volumes they need," he said
in an interview.
The
Senate's version of the FY '03 Defense Appropriations
Bill contained about $13 million for the pilot project,
but that amount was whittled in conference with the
House. The FY '03 Defense Appropriations Act identifies
the Defense Logistics Agency as the owner of the $6
million research and development program.
Essentially
the program consists of two phases, collecting data
on various small manufacturers and defining the procurement
needs of DoD and the prime contractors, according to
Terry Shehata, vice president for strategic planning
at MEP MSI.
Key
data to be collected in the first phase includes the
production capability and capacity of manufacturers
in addition to typical information used in profiling
such as company name, location, products and small business
category, Shehata told Defense Daily in an interview
last month.
"It's
the data on production capability and capacity that
would set the consortium's database apart from others,"
he said. "That is key information that you need to be
in a better position to help the Defense Department
or the prime get the right kind of parts or equipment
that they need."
Shehata
figures the database the group compiles would include
at least half the small manufacturers in the six states.
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How
MEP works with small defense manufacturers
D.G.
O'Brien, a 150-employee manufacturer in Seabrook,
NH, manufactures electrical and optical connectors,
communications systems, and sonar arrays for ocean
environments. The company has become a leading
supplier to the U.S. Navy through the Electric
Boat Company, a submarine builder.
The
New Hampshire MEP brought the company into the
Pathways for Continuous Improvement program and
directed the company toward a lean enterprise
transformation. It also worked to implement the
Office of Naval Research's Pathways pilot program,
which helps develop New England manufacturers
as potential suppliers to Bath Iron Works.
The
end result of the MEP assistance was that the
company experienced a 15 percent space utilization
reduction and a 30 percent gain in output per
employee.
About
MEP
The
MEP is a network of over 60 centers with 400 locations
across the country and in Puerto Rico, providing
technical assistance and business support services
to America's small manufacturing firms. Together,
these centers employ more than 2,000 professionals
who work with manufacturers to ensure that they
are adopting and using the latest and most efficient
technologies, processes and business practices.
MEP services help manufacturers to be more productive,
competitive, and profitable. This means more jobs;
more tax revenues at the local, state and national
levels; more export and trade activity; and a
more secure supply chain for consumer and defense
goods.
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Phase
two would consist of defining the procurement requirements
of the prime contractors and DoD and then identifying
the companies that could help build these hard to find
parts, Shehata said. "We would help them to develop
the contract, submit the contract and if a bid is accepted,
then the training would come in."
Many
if not most of the small companies the consortium hopes
to bring into the supply chain are probably not qualified
as DoD contractors, a process that can be difficult
for these firms to undertake. But the consortium isn't
concerned with that because it plans to take advantage
of a provision within the Federal Acquisition Regulations
permitting teaming arrangements whereby only the lead
member of a team must be a certified DoD contractor,
Shehata said.
Teaming
arrangements aren't usually taken advantage of, he said.
"It is too difficult for a manufacturer, let alone someone
who is properly certified by DoD, to really become involved
in teaming arrangements, Shehata said. "It's quite complex
and laborious."
The
goal of the consortium would be to bring together two
or more companies that have the capability to build
different components of a part considered to be on a
"Red Flag" list, that is, a part that may only have
one or no known makers in the U.S. and may be difficult
to acquire.
Through
the network of MEPs in New England, and if necessary
throughout the country, the consortium "would identify
other manufacturers that collectively have the capacity
to manufacture that Red Flag item," he said. "We would
get them together with another company that's already
been certified and they would establish a teaming arrangement"
with the help of the consortium, he said.
For
some prime contractors it's an ongoing battle to maintain
suppliers for certain parts, such as aircraft carriers,
which only get built every five or six years and could
remain in service for 50 years.
"We
run into that a lot on overhaul contracts" for aircraft
carriers, John Jordan, director of sourcing for Newport
News Shipbuilding, a division of Northrop Grumman [NOC],
said in an interview. "There are some components where
the supplier has gone out of business or been bought
by someone else, so you come up with somewhat unique
requirements that we need to figure out how to fill."
Newport
News Shipbuilding is the only producer of aircraft carriers
in the United States and one of two companies that makes
nuclear-powered submarines.
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Report
finds MEP critical to supply chain
Is
the nation's small- and medium-sized manufacturing
base prepared to meet the needs of national defense?
A
recent paper from the National Coalition for Advanced
Manufacturing (NCAM) examines that question.
The
evidence suggests that the base of SME suppliers
remains an important feature of the defense industry
but that these firms face significant challenges.
Key
findings include:
- Small
businesses are a critical element of the production
and knowledge base supporting the defense industrial
base. In nine leading defense manufacturing
sectors, firms employing less than 500 people
represent 90% of firms.
- The
defense industry is spread throughout the U.S.,
but is concentrated in a handful of states.
Ten states received 63% of all FY 2001 DOD prime
contracts and the top-ten states secured 68%
of all defense subcontracts in 2000.
- Acquisition
practices treat small manufacturers unfairly,
especially new entrants.
- Aging
workforce at key junctures in the supply base
that threatens to exacerbate existing challenges
through the loss of skilled personnel and tacit
knowledge. A copy of the full
report can be found at the Modforum Web
site.
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The
company's replenishment strategies include relying on
Navy stocks for spares, and sometimes engineering its
own solutions, Jordan said.
In
addition to expanding the defense supply chain, the
new MEP initiative would help the lead contractor on
a team to expand their business by producing a product
they weren't making before, Shehata said.
Growing
the defense supply chain runs counter to trends within
the industry, which as a whole has been consolidating
for a decade or more, and to the policies of prime contractors
who have been contracting their supply chains to increase
efficiencies and cut costs while still maintaining competition.
Lockheed
Martin [LMT], for example, has taken "several thousand"
suppliers out of its chain supporting the F/A-22 fighter
program over the years, Dennis Pieczonka, the company's
supply chief on the program, told Defense Daily last
month.
The
company has dropped suppliers that don't perform on
criteria such as schedule and cost. "So just to be more
efficient, we have shrunk the supply base just to focus
our buying into the companies that truly are the most
efficient, the most affordable for us," Pieczonka said.
Newport
News Shipbuilding believes that at least in some cases,
it doesn't need to have relationships with every potential
supplier.
"Historically,
we may have had 10 commodity suppliers whereas four
would have been more than sufficient," Veasey Wilson,
executive director of supply chain management for Newport
News Shipbuilding, said in an interview last month.
"In our model, we're taking into consideration what
our demand is, looking out on the time horizon and based
on that demand, how many qualified suppliers do we thing
we need to support that demand. And included in that
demand is our business interest."
But
there are consequences when competitors are pushed out,
according to Shehata. When only one supplier is left,
prices rise. And when the prime contractors need to
seek out new suppliers, they have trouble finding them,
he said, which is why the consortium wants to redress
the issue of the dwindling defense supply base.
"As
you shrink your supply base without thinking about long-term
implications, you're going to be in a position where
you are right now," Shehata warned. "You have parts
that are obsolescent and very difficult to purchase."
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