The critical role collaboration plays within the supply chain

On Thursday, I delivered the keynote address to JOSCAR Live about the opportunities and challenges facing the defence supply chain as well as the importance of collaboration between all tiers of suppliers. You can read my remarks below:

Thank you for inviting me to be here this morning.?

During my 30 plus year career in the aerospace and defence sector I have worked with hundreds of Small and Medium sized enterprises.?And Lockheed Martin’s current work with the British supply chain is worth the equivalent of a quarter of all British defence exports each year.

I am therefore delighted to have the opportunity to reflect on the challenges and opportunities facing the supply chain for our sectors.?

And to discuss how collaboration within the supply chain is critical to overcoming those challenges and grasping those opportunities.

Challenges

To say that the past few years have been uncertain is an understatement.?

From the COVID-19 pandemic and ongoing challenge of climate change…

…to the illegal Russian invasion of Ukraine and the challenge of ransomware and other cyber attacks…

…global events have brought to light, accelerated, or accentuated longstanding challenges in our supply chain.

The Global Supply Chain Pressure Index has been at an historic high since 2019.?Even though the Index may have begun to moderate, the pressures are likely to remain with us for the foreseeable future.?And who can predict what may happen next?

I would offer the following four observations.

First, we have found that supply chains are not as resilient as we may have thought.?Accenture described the challenge well: global supply chains can break down during multi-country disruptions.

The COVID pandemic was an example of this, characterised by lockdowns and associated disruptions to manufacturing and logistics.?It has led to a backlog of supplies in critical components and sub-systems.?And with many companies needing the same items from similar sources of supply, prices pressures are also evident.

More recently, the illegal invasion of Ukraine has highlight how dependent Europe was on natural gas and crude oil from Russia, including its industries.?It has also illuminated the large role Russia plays in supplying critical minerals to many countries.?And, as noted by Deloitte, it has led to greater awareness of Russia’s Tier 2 supplier relationships globally, which number 7.6 million.

That leads me on to a second observation, which is related to the assurance of supply chains.?There is growing awareness of the risk of fraud, counterfeit parts, and malign investment in industrial bases and supply chains.

Thirdly, there is a skills challenge across all levels of our supply chains.?And we are of course competing for skills with other sectors.

Fourthly, and as observed by Accenture, supply chains and operations may not be as sustainable as stakeholders want them to be.?For our sectors, government customers understandably have an increasing interest in how public procurement contribute to tackling climate change and other aspects of Social Value.

Each of these factors leads us to think about how to change the way our supply chains operate to improve their resilience.?

There are calls, with which you will all be familiar, to have greater visibility of all tiers of a supply chain…

...for new ways of working to fully exploit technological advances such as autonomy…

…for ‘onshoring’ sources of supply…

…and for all parts of a supply chain to contribute to sustainability, tackle economic inequality, and support employee wellbeing.

These calls could be viewed as challenges.?I would prefer to look at them as opportunities.

Opportunities – Supply Chain Visibility & Technologies

On supply chain visibility, in a recent survey of chief procurement officers, 70% believed they had good visibility into risks in their Tier 1 suppliers. But only 15% had the same confidence about Tier 2 and beyond.?

Addressing that will be a significant task.?But technologies such as Artificial Intelligence, data analytics, and automation offer us the prospect of greater visibility and monitoring of our supply chains, including in real time.

The same technologies offer us the opportunity to reduce the cost and burden of supply chain operations for everyone through process automation, including SMEs.

They also offer us the opportunity to integrate supply chain considerations across all parts of our business much more than we have done in the past. ?Supply chain is no longer an afterthought! ?That could in turn create more holistic business opportunities for suppliers.

Opportunities – Friend-shoring

On the debate about ‘onshoring’, whilst bringing supply chains “home” could help remove the risks posed by foreign dependence, this is not always possible or affordable.?

I am therefore more of an advocate for ‘friend-shoring’.?

As a multinational company, how do we achieve integrated investment strategies, supply chains, skills initiatives, and production capacity across key allies and their industrial bases, rather than treating each country as a separate and competing market?

Opportunity – Ways of Working

Finally, on the question of new ways of working, even before the pandemic, Lockheed Martin had shifted to a four day work week.?

Before the Government introduced Net Zero requirements for public procurement, we had a ‘Go Green 2030’ initiative in excess of scientific based targets.

And we have a comprehensive Digital Transformation programme across all areas of our business.

But it is fair to say that COVID has taught us how to adapt faster and accelerated some initiatives.

Primes supporting SMEs

Viewed from the perspective of an SME, that all probably sounds daunting.?You may also think – ‘that’s easy for you to say, as you come from a large multinational’.

But as a large multinational, with an extensive supply chain of over 500 companies – 75% of whom are SMEs – we and our customers need to help you be successful.?

That is a business imperative for us – and for our peers.

We have a track record of supporting our suppliers to manage risks and to adapt.

Since the COVID pandemic, we have accelerated payments of almost ￡1 billion to British companies to sustain their businesses and output.?This is in addition to being a signatory to the prompt payment code and the SME Action Plan.

Since 2018, we have helped provide access to growth capital by investing $15 million in the UK through our Corporate Venture Capital arm.?

We also help develop skills and infrastructure for the future.?For example, the F-35 Programme has contributed at least ￡3.3 billion of knowledge transfer and ￡29.7 million of training and technical assistance to British companies in areas from digital manufacturing to ‘stealth’ technologies.?It has also invested over ￡600 million in capital infrastructure.

And we have helped our suppliers meet new legislative requirements.?For example, we have for many years provided training and guides for cyber security, Ethics, sustainability, and tackling the risks of Modern Slavery. And we are exploring whether we can share unused apprenticeship levy with suppliers -?something that could add more meaningful support to the supply chain ecosystem and help us address the collective skills challenge.

Spirit of JOSCAR

We already have a strong foundation on which to build and adapt together.

The virtue of Primes…

…which sometimes have an unfair and unfounded reputation for being slow, for not being innovative, and for reducing the access of SMEs to customers in Defence…

…is that we can “take the burden” and help you stay the course when government decisions or payments are slow.

I hope my overview of how Lockheed Martin collaborates with suppliers has been instructive and reassuring in this respect.

JOSCAR has also been a trailblazer in enabling collaboration.?It is an example of us working together to reduce the complexity of defence procurement for SMEs, by giving you quicker and easier access to our supply chains.

So, as we see calls for greater visibility of all levels of the supply chain …

…as there are newer requirements to reduce malign risks and contribute to social good…

…and as countries ‘friend-shore’…

…I am confident that we will work together in the same collaborative spirit as JOSCAR.?Primes do not want to add a burden.?Your success is our success.

Shaping the Market

More broadly, as Primes and SMEs we should be working together more proactively to shape the future market.

How do we develop collective input for future Integrated Reviews?

How do we support the emergence of regulations for the responsible development and technologies such as AI?

How do we develop new approaches to systems engineering and Verification & Validation of disruptive technologies?

How do we develop new approaches to procuring long lead items?

Conclusion

This is a time when collaboration is crucial.

The renewed and central focus on supply chain strategies and investments by Primes – and customers – should give you confidence.

I hope we will work together in the “Spirit of JOSCAR” to turn perceived challenges into opportunities, for mutual benefit…

…and that you find today helpful on our journey together.