Success Story #1 Lockheed Martin Creating a New Legacy

Lockheed Martin was formed by the merger of Lockheed and Martin-Marietta (part of a long series of consolidations) in 1995, so on paper it is about seven years old. But ask the people who work there and they’ll tell you it feels even younger because, until about two years ago, most people were more strongly aligned with their parent organization; Lockheed Martin was more an amalgam of 18 different corporations than one cohesive unit.

What changed two years ago was the advent of “LM21 Operational Excellence,” Lockheed Martin’s initiative built around Lean Six Sigma. According to Mike Joyce, the Vice President of LM21, Lean Six Sigma is the enabler that’s given them a common thread to unite employees in working together to achieve shared business goals. Here’s how they’ve made it happen.

The Burning Platform

Lockheed Martin’s success is strictly dependent on invention, breakthroughs, and execution. This helps explain why such a large portion of its improvement work has been done in the service support areas: design, purchasing, engineering, lifetime support, hiring people, billing customers, legal, etc. Procurement is an example of a service application that has come to the fore, as approximately 50–60% of the cost of each product is purchased or subcontracted.

As Joyce says, “It would be absolutely ludicrous for us to think that we’re going to use a 1975 radar in a new fighter, yet we found it perfectly acceptable to use 1975 processes for operating our supply chain. We need to not only engineer the new radar, we need to engineer exactly how the business process is going to function as that radar comes together.”

Lockheed Martin describes its government contract work as the “programmatic invention business”—developing customized solutions for highly specific customer needs. As they describe it, “breakthrough technology is part of our daily routine.” To that end, about 50,000 of LM’s 125,000 employees are scientists and engineers.

The issue of legacies is a major factor at Lockheed Martin. The progenitors of Lockheed Martin include divisions from a wide range of premier companies—among them General Dynamics, GE, IBM, Goodyear, Westinghouse, Loral, and Ford—each with their own strong heritages. Bringing together 18 different companies meant there were at least 18 different computer systems, 18 different part numbering systems, 18 different ways of purchasing, 18 different ways of developing specifications, of hiring, of paying the bills.

Furthermore, all of these progenitors had a history with one or more of the incarnations of quality improvement: Quality circles, SPC, continuous-flow manufacturing, Six Sigma, TQM, Lean manufacturing. A major factor behind Lockheed Martin’s improvement strategies has therefore been the need to allow people to carry forward the pride in their corporate heritage, but still come together as one team.

Insights into Lockheed Martin’s use of Lean Six Sigma have come from Mike Joyce, Vice President of LM21 (Lockheed Martin’s operational excellence program), Manny Zulueta, Vice President of the SIBA Material Acquisition Center–Mid-Atlantic Region (MAC-MAR), James Isaac, the Director of Procurement Excellence, George Sanders, the Director of Sourcing (Northern Material Acquisition Center), and Myles Burke, a Certified Black Belt and Manager of Supply Chain Excellence.

Lockheed Martin has about 125,000 employees divided into four major business areas worldwide: aeronautical systems, space systems, systems integration, and technology services.

Progress towards this goal began in 1998, when Lockheed Martin’s management realized that there were pockets of excellence throughout this new enterprise. They created an initiative called “LM21 Best Practices” as a way to capitalize on that knowledge by spreading it throughout the company.

“LM21 encompasses all the enterprise functions. It permeates throughout the business, providing productivity targets and performance improvements.”

—Manny Zulueta, VP, Material Acquisition Center

Though sharing best practices was a good start, it had some limitations:

• What does “best” mean? In today’s business environment, the pace of change is accelerating. So a focus on only best practices ignored waste and opportunities in much of the business.
• People could get complacent. Lockheed Martin wants every employee to feel the pressure of continuous improvement and never feel that they already have “the best.” Best is only a moment in time.
• There was too much flexibility in the Best Practices system. Originally, it was up to the various plants and divisions to decide which Best Practices they wanted to adopt. “But when the Lockheed Martin star goes on a product, it’s got to mean something in terms of a standard of excellence,” says Joyce. “We can’t let any of our sites opt out of improving quality by saying, for example, that they want to go after best practices in business development. Quality and speed cannot be optional.”

Therefore, two years into LM21, its focus was changed from Best Practices to Operating Excellence, with an overarching goal of Lean processes operating at Six Sigma capability.

“This encompasses Lockheed Martin’s entire operating system,” says Joyce, “everything that we do, from how we bill a customer or buy inventory, to how we design a product and hire people.” The new LM21 approach is based explicitly on the principles of Lean Six Sigma: taking a hard look at all work that is done, categorizing it as value-enhancing or as waste, eliminating the waste, and improving what remains. Most importantly, LM21 is not positioned as something extra or above the work of the organization. “It is a strategy for helping managers achieve ambitious annual goals and targets and putting in place processes that assure we can sustain business results over the long term,” says Joyce. “Getting the job done and improving how the job gets done is everybody’s task.”

Preparation and Rollout

The rollout of LM21 at Lockheed Martin embodies the essential elements of a Six Sigma infrastructure. For example:

1) There is highly visible top management involvement and support

Lockheed Martin’s CEO, Vance Coffman, has explicitly stated his commitment to LM21.

2) Top management has been trained in Lean Six Sigma concepts and application

Coffman and his executive committee all received four-and-a-half days of training (two-and-a-half in the classroom and two days of practice fixing a process), which covered…

• Lockheed Martin’s 5 Principles of Excellence (see sidebar)
• A half-day on defining value from the customer’s perspective, including a panel discussion with customers who talked about what it’s like doing business with Lockheed Martin
• Exploration about value streams and process flow, including a simulation training on work system designs
• Activities around structured problem solving

Lockheed Martin’s 5 Principles of Excellence*

Mike Joyce says it was important for Lockheed Martin to define principles of excellence up front because they are essential criteria for deciding how work gets done. Elements of both Lean and Six Sigma are incorporated in these principles:

1. Understanding value from the customer’s perspective. Customer’s value you not only on what you give them but what it was like doing business with you. Everyone needs to understand how their customers define value. Getting this right is the first step because they can use that understanding to categorize all work as either value-enhancing or waste. If you get this wrong, then by definition all that follows is waste!
2. Understanding the value streams. Managers need to have deep knowledge of where product and service value are created in the organization. No guessing allowed: you have to have it written down, documented, and be able to answer questions like, “When was the last time we observed it? Where is the data on the observation?”
3. Understanding work flow. Engineers always refer to what’s at the “top of the requirement pyramid,” the overriding need that must be met for a product or service, the thing that has to come before anything else. To achieve Operating Excellence, the top of the requirement pyramid is designing systems of work that optimize the flow of data, and the flow of molecules. If you don’t optimize for flow, you won’t get to optimal performance.
4. Focusing on cycle time and pull. The goal is to shrink the time it takes to do everything to its absolute minimum so that you can approach an instantaneous response to a changing customer need.
5. Striving for Perfection. For Lockheed Martin, that means achieving Six Sigma levels of quality at Lean speed.

   *Based on work done by James Womack, author of such books as The Machine that Changed the World and Lean Thinking.

There are two other important aspects of this leadership training:

• At first, many members of Vance Coffman’s executive team were less than enthusiastic about trying to find four-and-a-half days on their calendar for this training. At one meeting, Mike Joyce challenged them: “How many of you have been formally trained in this way of thinking?” Out of the 20 people in the room, only 2 raised their hands (one had had exposure to Six Sigma, the other to Lean). Joyce then pointed out that if this team was going to lead the corporation implementing Lean Six Sigma, they should know what it means. After the training, every one of the executive team said it was probably the best training they had ever had in their careers. As Joyce puts it, “The goal wasn’t to turn them into Black Belts, nor even improve a process dramatically in two days. But we hoped it would embolden them to lead in this direction and support LM21 efforts.”
• Second, the executive team at Lockheed Martin received their LM21 and Lean Six Sigma training within their divisions, not as a separate team. Why? As Joyce told them, “Eventually LM21 needs to reach out to everyone in the company. So rather than training all you guys together, I want each of you to go through training with your staff at the operating company, so that they can see leadership commitment to making this happen.”

3) The basic training has reached all levels of management

Once the executive team was trained, Lockheed Martin made the requirement that anybody who has incentive compensation has to go through the basic class, which in their organization meant anyone with the title of director or above. They ran these five-day Lean Leadership training sessions at the sites, in groups of 50, until they got through all 5000 managers. (Now the program has expanded to include customers and supplier executives for quick-hit projects.)

4) Implementation began with value stream mapping

The starting point strategically for Lockheed Martin is doing a value stream map at the program level because the optimization of flow across functions has to occur at that level (a program is a set of processes used to provide one or more products or services to a specific customer). A value stream map captures the current reality, what is going on right now in the workplace. Value stream maps provide a way to start evaluating operations against the principles of excellence: Are you providing value as the customer defines it? What are your gaps? What can you do to close those gaps?

5) They continue to develop a strong infrastructure

All employees are reached by involving them in improvement projects and providing just-in-time training. Projects run under the LM21 banner depend on an internal cadre of Black Belts, Green Belts, sponsors, and what Lockheed Martin calls “subject matter experts” (SMEs).

• The primary responsibility for identifying and selecting projects resides with line management (such as departmental managers), who in turn often serve as project sponsors. They are usually the process owners as well, the people responsible for seeing that processes are maintained and improved.
• Subject matter experts (SMEs) are a core group of 20 seasoned professionals who report directly to Mike Joyce at the corporate level. In that sense they are similar to Six Sigma Champions in other organizations, but at Lockheed Martin they play a much broader role. These 20 SMEs represent different functional disciplines: business operations, cash management, supply chain management, operations, engineering, human resources, customer relations, logistic management, software, and so on. Their purpose in life is to get an accelerated learning of what LM21 is about and help deploy it at every site, within every function. Their purpose is to serve as catalysts at Lockheed Martin’s 36 sites to make sure that what the sites are doing is consistent with corporate methodology and standards.
• Lockheed Martin has a goal of training 1% of its population as certified Black Belts (“certified” means that they’ve gone through the multiweek training program, completed a series of different types of projects, and mentored Green Belts to the satisfaction of their sponsor and the LM21 office).
• Anybody who wants to can take the 40-hour Green Belt training. The only requirements are that they have to run a project team afterwards that has its financial savings certified. For example, to date, 43 of the 160 people in the Systems Integration group at the Material Acquisition Center have taken the training, and 32 are certified.

6) Their methods meld Lean and Six Sigma

LM’s training curriculum and improvement methods combine all the basic tools and principles of both Lean and Six Sigma, such as the DMAIC process, identifying the seven forms of waste (a Lean concept), mapping processes, working towards shorter cycle times, and so on.

7) As soon as was feasible, they began reaching out to suppliers

“Like most manufacturers, we used to do a lot of inspection to make sure incoming materials met our specifications and engineering drawings,” says Manny Zulueta, the VP of Lockheed Martin’s Material Acquisition Center. “Then we started five or six different initiatives where we work with our critical suppliers in incorporating Lean and Six Sigma at their plants, which makes them better suppliers… and we get near-perfect material coming in. Now, when we receive material, we just do a count to make sure the quantity is right and a quick check of condition, then put it into our stockroom.”

The supplier partnerships have ranged from having Lockheed Martin staff train and coach suppliers’ employees on Lean Six Sigma, to hosting symposia where suppliers can learn from each other.

There is a practical limitation, however. With thousands of suppliers, Lockheed Martin simply can’t work with all of them. “So we basically did a process where we set out factors that would indicate whether a supplier was important or not, weighted them, scored them,” explains Zulueta. “The factors included things like how well they’re doing compared to our requirements, whether they have critical technology, their potential to impact production, and so on. Now we’ve got a list of about 200 key suppliers that we all agree are the ones we want to work with.”

The secret to supplier partnerships, says Zulueta, is connecting with the suppliers’ leadership. “This only works if we engage their senior management, because we want them to work on substantive process improvement,” says Zulueta. “And we work with them for months at a time. We need senior leadership buy-in for that. If their president or CEO or general manager isn’t interested, we have a high probability of failure.”

Results

To date, LM21 has encompassed more than 5000 projects, with more than 1000 of those in transactional areas (management, financial management, closings, purchasing, etc.). Their initial target was to take out $3.7 billion in cost over a four-year period—they’re actually on track to achieve around $4 billion of documented savings. As Mike Joyce points out, in an organization the size of Lockheed Martin, it’s impossible to say that all of that is the result of LM21, but the focus on excellence certainly has been a major contributor. Other business metrics are also improving: orders are at a record level; debt is down considerably from the post-acquisition levels; they are generating a billion dollars in cash every year. As noted in Chapter 1, these changes (many in the service aspects of its business) have allowed Lockheed Martin to deliver its next-generation cruise missile with the same mission capability of other products but at half the cost and a third of the cycle time. At the department and project level, Lean indicators are up across the board. Many processes operate with far fewer handoffs then before (which improves cycle time and customer satisfaction).

LSS Experience Leads to Advancement

James Isaac is an example of how LM21 is being used as for executive development. He is currently the Director of Procurement Excellence at MAC-MAR, a job he’s only had since the spring of 2002. Before that, he spent two years as a Subject Matter Expert. ”We received a lot of coaching and mentoring,” says Isaac, “as well as personal training on management skills around successfully managing projects and improving productivity.”

Isaac had only indirect experience in supply management before he took his current position. “I spent 18 years with Lockheed as a systems engineer before becoming an SME,” he says. “It’s interesting being on the other side of the equation, looking at design from the supply side. I have a newfound respect for what happens with the designs I used to create.”

Similar results are visible in many non-core-manufacturing areas throughout Lockheed Martin. The Naval Electronics and Surveillance Systems group, for example, is providing products, services, and the integration of advanced naval shipboard electronic weapons and communications suites in battle fleets around the world, with comparable gains in speed and cuts in cost. Results are also evident in Lockheed Martin’s ability to capture new business. Recently, for example, they were selected as one of the key contractors on Deepwater, the largest and most ambitious U.S. Coast Guard program ever undertaken.

Growing your business

According to Mike Joyce, it’s important that management not equate “eliminating waste” with “eliminating people.”

“We use LM21 not for the purpose of firing people once the waste is eliminated, but to help us improve the work we do, and to make sure that our people are deployed to value-enhancing tasks, not consumed by waste,” he says. “If we can eliminate the waste, we can provide customers with a better deal and grow our business.”

As with any business, Lockheed Martin acknowledges they cannot guarantee lifetime employment. But their LM21 efforts are contributing to their ability to win major new contracts. And those employees who participate in LM21 training and projects are becoming equipped with the skills to better serve customers and increase their lifetime employability. “With customers, come jobs,” says Joyce. “Therefore sustained employment is everybody’s end goal.”

Lockheed Martin will be the prime integrator on this multi-billion dollar program to rebuild the fleet infrastructure. The LM21 Lean Six Sigma tool set has already been used extensively to define customer value, develop critical-to-customer requirements, apply Design for Six Sigma, and establish new supplier partnerships in the initial efforts of this 20-year program.

Challenges

Think about how you get 125,000 people thinking and working in a new way and you’ll begin to appreciate Lockheed Martin’s challenges. Its goal is to get 60% of the employee population—about 70,000 people—through either a one-week Green Belt training or a one-week project by 2004. In the meantime, they are well on their way to value-stream mapping all 2000 of its programs. Other challenges include:

• Increased expectations of program managers. Up until this point in their careers, most program managers were just told to make sure they delivered to the customer what they contracted for: “Here’s the cost and schedule curve. Deliver on that.” Now, they’re being told that’s not enough: they have to not only deliver on the cost and schedule curve, but also be driving improvements in how the work happens inside their programs. It’s like changing the rules of the game mid-course,” says Mike Joyce. “We have to make sure they have the knowledge and tools to meet the increased expectations.”
• Keeping every part of the business in sync. Suppose Lockheed Martin had focused solely on streamlining its manufacturing operations until they were the epitome of Lean manufacturing: fast, efficient, working just-in-time with no wasted investment in inventory. All that work could be wasted if their scheduling people were still releasing orders in batches, or if procurement had not eliminated shortages, or suppliers had not improved quality or designs. These kinds of problems can affect any organization that doesn’t keep a systems view of its operations, making sure that the pieces of the puzzle continue to fit together. Keeping track of all the puzzle pieces helps companies avoid a classic failure mode that limits the return companies see from their Lean Six Sigma investment.

  “I know that by using Lean Six Sigma tools.my team has done its homework, has the facts, and I can then approach our internal Lockheed Martin customers to initiate joint Kaizen evens to realize breakthrough performance.”

  —George Sanders, Director of Sourcing (Northern Material Acquisition Center), Lockheed Martin

• Convincing people they need Lean Six Sigma. There are two predictable responses you’ll find if you try to take Six Sigma and especially Lean into a service area, and Lockheed Martin heard them both. The first: “It doesn’t apply here… It doesn’t have anything to do with software… with legal services… with ___ [fill in the blank].” Or you’ll hear, “Oh, yes, we’ve done that already, we did it 10 years ago. It doesn’t work.” Mike Joyce deflects these resistances by simply responding, “Okay, let’s go observe your process and find the current reality.” He invites people to “attach” themselves to a document going through their process, observe what happens, and get data on the current reality. Invariably, people are surprised by what they discover… and aware of their many opportunities for improving quality, cost, and speed!