United States General Accounting Office

GAO Report to the Subcommittee on

Acquisition and Technology, Committee

on Armed Services, U.S. Senate

March 1998 BEST PRACTICES

DOD Can Help

Suppliers Contribute

More to Weapon

System Programs

GAO/NSIAD-98-87

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-275845 

March 17, 1998

The Honorable Rick Santorum

Chairman

The Honorable Joseph I. Lieberman

Ranking Minority Member

Subcommittee on Acquisition and Technology

Committee on Armed Services

Unites States Senate

As you requested, this report assesses whether best commercial supplier practices offer ways to

improve the process the Department of Defense (DOD) uses to manage suppliers engaged in

developing and producing major weapon systems. It also determines how differences in

commercial and DOD environments for managing suppliers affect the corresponding practices.

We make recommendations to the Secretary of Defense that are intended to help DOD improve

the way it manages suppliers.

We are sending copies of this report to other congressional committees; the Secretaries of

Defense, the Army, the Navy, and the Air Force; and the Director, Office of Management and

Budget. We will also make copies available to others on request.

If you or your staff have any questions, I can be reached at (202) 512-4841. The major

contributors to this report are listed in appendix II.

Katherine V. Schinasi

Associate Director

Defense Acquisitions Issues
Executive Summary

Purpose Leading commercial companies have found that more cooperative

business relationships with suppliers have improved their ability to

respond to changing business conditions. Such relationships have led to

lower costs and have translated into higher quality, greater productivity,

and shorter product design and delivery times. The Department of Defense

(DOD) also faces difficult business conditions in that it must find ways to

modernize its weaponry more economically, for it continues to state a

need to modernize weapons at a faster pace. DOD has an opportunity to

incorporate best supplier practices into the process it uses to acquire

weapon systems. In doing so, DOD may be able to respond more quickly to

technological changes with shorter cycle times, reduced costs, and

improved weapon system quality.

The Chairman and the Ranking Minority Member, Subcommittee on

Acquisition and Technology, Committee on Armed Services, requested

that GAO assess whether best supplier practices can benefit weapon system

programs. Specifically, this report (1) identifies best commercial practices

for establishing, managing, and sustaining excellent supplier relationships

and (2) compares these practices with those of DOD, selected prime

contractors, and the supplier teams on two weapon system programs.

Background The term “supplier” refers to a firm that provides goods or services that

comprise part of a final product being made by another firm. On a

complex product such as an aircraft or a weapon system, suppliers can

number in the thousands and are categorized into different levels or tiers.

For example, on a military aircraft program, the firm responsible for

putting the complete aircraft together and delivering it to DOD—the final

customer—is referred to as the prime contractor. The firms that supply

components or services to the prime contractor comprise the first tier of

suppliers. Firms that supply products to the first tier constitute the second

tier of suppliers. The tiers continue until the products being supplied reach

an elemental level, such as raw materials, rivets, and bolts. Suppliers are

typically responsible for the majority of a complex product’s content,

whether the item is military or commercial. Generally speaking, suppliers

account for 50 to 80 percent of a major item’s value. Perhaps more

importantly, much of the technical innovation incorporated into a new

weapon comes from the suppliers.

To gain insights into the dynamics of contracting teams in an actual

program situation and to obtain the supplier’s perspective, GAO conducted

case studies of two munitions programs. One program was the Brilliant

Page 2 GAO/NSIAD-98-87 Best Practices
Executive Summary

Anti-armor Submunition, referred to as BAT, which is the older and more

traditionally managed of the two programs. It is a self-guided submunition

that searches for moving tanks and other armored targets that it is

intended to track and destroy. The other program was the Joint Direct

Attack Munitions (JDAM), which is a strap-on guidance kit that converts

free-fall bombs into guided munitions. JDAM is one of seven congressionally

authorized Defense Acquisition Pilot Programs that were afforded early

statutory and regulatory relief to test methods for streamlining the

acquisition process. The program has employed several acquisition

reforms and has applied innovative supplier management techniques.

Results in Brief The best commercial practices, when analyzed in the aggregate, can be

seen as four traits that operate in a system that is self-sustaining because it

provides mutual benefits to both the firm responsible for the final product

and its suppliers. First, the leading commercial firms embraced effective

supplier relationships as a core business strategy and built organizational

structures with skilled people to carry out the strategy. Second, leading

companies used a rigorous supplier selection process to create a strong

supplier base that they could more effectively manage. Specific practices

included use of stringent supplier selection criteria, reliance on a

manageable number of suppliers, maintaining some level of competition

between suppliers, and periodic supplier base assessments against

company goals. Third, they established effective communications and

feedback systems with their suppliers to continually assess and improve

both their own and supplier performance. These practices not only helped

the firms’ goals, priorities, and performance assessments to be well

understood by all key suppliers but also helped the suppliers’ ideas and

concerns to be understood as well. Fourth, the firms fostered an

environment in which suppliers realized that more significant

contributions were matched with significant rewards, which made

suppliers more likely to invest their intellectual capital—their ideas—into

the venture.

DOD and prime contractors were aware of such benefits and were

implementing some of these practices. However, experience on the

Brilliant Anti-armor Submunition program showed that it could be difficult

to translate the desire for better supplier relations into tangible differences

in the actual relationships among suppliers, prime contractors, and DOD. In

the Brilliant Anti-armor Submunition program, the four traits did not

comprise as powerful a system as was formed by the best commercial

practices. Although practices found in the second and third traits—such as

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Executive Summary

supplier certification, ratings, and a forum for meeting with

suppliers—had been adopted, their impact on the Brilliant Anti-armor

Submunition was blunted by weaknesses in central support and a

rewarding environment. The prime contractor’s commitment to improved

supplier relationships was not perceived by some key suppliers as much

more than procedural changes. Some key suppliers did not feel they were

encouraged to contribute to the product’s design or that their extra efforts

to innovate were encouraged. Consequently, their performance was

strictly limited to compliance with contract requirements. On Joint Direct

Attack Munitions program, a more rewarding environment was created for

suppliers even though improved supplier relations was not an explicit

program objective. Nonetheless, the actions taken by DOD on the program

bolstered the support for supplier relationships and encouraged the

suppliers to play a much greater role. Ultimately, the relationships with

suppliers became central to the success of the acquisition reform

initiatives being piloted.

DOD shares responsibility with the prime contractors for shaping the

suppliers’ environment. Thus, the role it plays on individual programs has

a direct bearing on the sophistication of supplier relationships and the

success of best supplier practices. The supplier relationships on the

Brilliant Anti-armor Submunition program reflect DOD’s traditional role of

distancing itself from suppliers. This role can be traced, in part, to the fact

that DOD has not articulated a particular supplier policy to guide program

managers. By default, DOD’s concerns over interfering with the contractual

relationship between the prime and a supplier have encouraged an

arms-length approach to suppliers by managers. Also, the Brilliant

Anti-armor Submunition prime contractor believed that the system’s

requirements were made so specific by DOD that there was little

opportunity to allow suppliers much voice in the design. DOD disagreed

that it had exerted such control. On the Joint Direct Attack Munitions

program, DOD was much more proactive and involved with the suppliers.

Its pilot program mandate supported the program office’s involvement in

seeing that best supplier practices were used. As a result, high-performing

suppliers were selected, all tiers of suppliers participated in meeting the

program’s priorities, and long-term benefits were offered to the prime

contractor and its suppliers for good performance. The ultimate success of

this approach in producing a weapon that will perform as required remains

to be seen. Nonetheless, suppliers praised the approach for the

relationships it fostered.

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Executive Summary

Principal Findings

Supplier Relationships

Must Have Central Support

The commercial firms embraced effective supplier relationships as a core

business strategy and built organizational structures with skilled people to

carry out the strategy. For example, Chrysler is organized into several

product platform teams such as for large cars, small cars, and trucks. The

platform teams developed strategies for each product, coupled with

commodity strategies that defined which product components were to be

purchased from which suppliers. These teams linked business objectives

and performance factors with supplier relations. In so doing, they replaced

supplier relationships previously forged by individual business units. The

companies also created purchasing organizations to support their supplier

management strategies. It is a major undertaking for a firm to commit the

resources to implement an active supplier policy. Such a commitment is

not based on altruism or a management theory; rather, the commitment

comes from the desire to maintain a competitive edge.

While commercial firms can act unilaterally to garner better relationships

with their suppliers in weapon programs, DOD shares the responsibility for

directing the programs with the prime contractors. Thus, if DOD does not

encourage improved supplier relationships, the prime contractors may not

have as strong an incentive to adopt best practices. According to DOD

officials, the traditional concern for violating privity of contract has

distanced DOD and its program managers from supplier management

concerns. Privity refers to the direct relationship between the parties to a

contract. Thus, there is privity between DOD and the prime contractor but

not between DOD and the prime contractor’s suppliers. However,

experience with JDAM shows that privity of contract concerns do not

prevent a program manager from taking a more active role in prime and

supplier selection. This more active approach during the competitive

development phase set the expectation from the outset that supplier

management would figure prominently into JDAM’s success and DOD’s

selection of the prime contractor. For example, DOD program officials used

the actual performance of the suppliers and the prime contractors during a

competitive development phase as a key factor for choosing the prime

contractor and supplier team that would complete development and enter

production.

Page 5 GAO/NSIAD-98-87 Best Practices
Executive Summary

Rigorous Supplier

Selection Creates Strong

Supplier Base

By concentrating on proven suppliers meeting stringent selection criteria,

the leading commercial companies limited the number of suppliers,

thereby reducing internal resources needed for supplier management and

oversight. Over a decade, Varian Oncology Systems reduced the number of

its production suppliers from 1,100, which it considered unmanageable, to

345. The companies selected suppliers using specific assessment methods,

such as certifications and quality audits that identified the total cost of

doing business, not just the sales price of the supplied product. Total cost

includes tangible factors, such as quality, and intangible ones, such as

effective communications. For example, DuPont assessed a supplier’s

technology edge, as well as price and the cost to the company if the

supplier failed. While building closer relationships with fewer suppliers,

the companies included enough suppliers to ensure there was competition

and a back-up source.

Several defense contractors had reduced the number of suppliers and

established criteria for selecting the best suppliers. Since 1991,

AlliedSignal Aerospace has reduced its supplier base from over 10,000 to

less than 3,000. Also, DOD has placed new emphasis on using best value,

which calls for using broader criteria than lowest price for selecting

contractors. Best value can include criteria such as quality and a firm’s

performance on past contracts. Prime contractors had begun using best

value in selecting suppliers, but some believed that price was still DOD’s

main concern. Officials from one firm said that there was resistance at the

lower levels of the services to applying best value.

The BAT program experienced turnover in some key suppliers, suggesting

difficulties in the selection process. One supplier we met with was the

third source chosen for that component, after two lower priced suppliers

had faltered. Another supplier was changed because program

requirements had been revised. In contrast, the DOD program office’s

involvement helped guide the selection of JDAM suppliers. As a result of the

DOD teams including key suppliers as part of their assessment of the prime

contractors, one of the prime contractors later selected two new suppliers

after asking the DOD teams to recommend better performers. DOD offered

its advice, but did not mandate changes in the choice of suppliers.

An Effective

Communication and

Feedback System Must

Exist

Leading commercial firms established a framework for communications

with their suppliers that allowed for continuous feedback to improve the

performance of both parties. Suppliers knew whom to discuss suggestions

or problems with because they had a single, authoritative point of contact.

Page 6 GAO/NSIAD-98-87 Best Practices
Executive Summary

Key suppliers were often included as members of teams and shared in

decision-making and design ideas. The companies’ attention extended to

performance of lower-tier suppliers primarily through communication

with first-tier suppliers. The companies’ own commitment to optimal

supplier relationships helped them to look for and expect the same

commitment from their own suppliers. In other cases, companies took a

more “hands on” approach; Chrysler worked with first tier suppliers to

jointly manage lower-tier suppliers, extending all the way to the raw

material stage. The leading companies interacted with key suppliers in

close teaming arrangements that facilitated sharing information.

Commonly called integrated product teams, members worked together so

that design, manufacturing, and cost issues were considered together.

Instead of a hierarchy, team members were encouraged to participate as

partners in meeting project goals and to interact frequently. Some

companies colocated suppliers with their own people or set up central

working facilities with suppliers.

The companies regularly provided suppliers with feedback on their

performance. Performance was assessed formally through periodic reports

and informally through team participation. For example, Plow and Hearth

provided suppliers with a quarterly performance summary that

supplemented weekly meetings on supplier issues raised by

merchandising, product returns, and inventory control staff. When

problems were identified, the company and the supplier worked together

to develop corrective actions. The companies provided technical

assistance to their suppliers to help improve performance. Companies also

solicited feedback on their own performance as a customer, recognizing

the importance of being a “preferred” customer of the top suppliers.

Most prime contractors said that they had processes for setting

performance expectations, assessing performance, and providing

feedback. All of the prime contractors were using integrated product

teams. For some BAT suppliers, the presence of commercial-like

mechanisms like these, by themselves, did not improve supplier

relationships. Some suppliers believed that engineers made design

decisions without considering cost and schedule considerations. One

supplier said that its concerns over the cost and producibility of its own

component were ignored in the program’s production readiness

assessment and cost estimate. It noted that technical assistance personnel

was sent by an upper-tier firm, but did not have the expertise to offer in

solving problems. JDAM suppliers were uniform in describing the program

as structured in a way that encouraged communication. A key factor was

Page 7 GAO/NSIAD-98-87 Best Practices
Executive Summary

how integrated product teams were employed from the

beginning—including the design phase—with DOD closely involved. DOD

helped create this situation by requesting team plans as part of the original

request for contract proposals.

A Rewarding Environment

Is Key to Fostering the

Best Supplier

Relationships

The best practices were sustained when a commercial firm created an

environment in which it became an attractive customer. Firms did this by

not only rewarding superior suppliers with future business but by building

partnerships, allowing top suppliers to participate in product planning and

design, sharing business plans, and relaxing the procedures for doing

business together. Not all suppliers enjoyed these sophisticated

relationships—commercial companies made distinctions in how they

worked with different suppliers. In turn, the key suppliers were willing to

go the extra mile, commit their own resources to enhance prospects for

future business, and comply with the rigor that the source selection and

evaluation mechanisms demanded. The suppliers’ responses improved

product output and reinforced the initial commitment that the product

developer made to strengthening supplier relationships.

Mutual trust—earned through action—was essential to creating this

environment. For example, Chrysler’s relationships with some suppliers

had evolved to the point that it no longer needed to make large

investments in some key technology areas because of the relationships it

had developed with some suppliers. Instead, the suppliers made the

technology investment themselves and had enough confidence in their

relationship with Chrysler that they did not fear the long-term commitment

that this entailed. For its part, Chrysler trusted the suppliers to make the

investments that would keep their vehicles competitive. Both supplier and

product developer saw their success as that of the final product and a

continuing, mutually beneficial relationship.

Defense prime contractors believe there are legal, regulatory, and

budgetary obstacles to fostering such long-term relationships. Similarly,

some key BAT suppliers did not see their environment as conducive to such

relationships. They viewed their role as only complying with the design

requirements handed down to them by the upper-tier firms. They believed

that attempts to do more—such as offer design suggestions or make

long-term investments—would not reap benefits. Some suppliers believed

no consideration was given to their years of working together when it

came to the low-rate production contract proposal. One supplier said it

was required to submit a four-volume proposal for the low-rate production

Page 8 GAO/NSIAD-98-87 Best Practices
Executive Summary

contract, detailing how its component would be designed, produced, and

made to conform to quality standards, even though it had just spent the

last 6 years designing, documenting, and producing the component for BAT.

The president of one supplier firm said that while he invested the firm’s

own funds for commercial tooling because of its long-term potential, he

would not invest the firm’s funds in BAT tooling because the return was too

uncertain.

In contrast, JDAM suppliers believed they were full participants in a

long-term relationship with the upper-tier customers. Through the joint

effort of the DOD program manager and the prime contractor, these

relationships were cultivated in the JDAM program without being stymied

by the obstacles perceived by some prime contractors. Second-tier

suppliers cited the importance of developing a strong alliance between the

parties. One supplier said the prime contractor held clear authority over

the program, but the development of new solutions to win the contract

was the result of great teamwork. For example, one supplier was able to

substitute commercial materials that differed in configuration from

military materials but not in function. The supplier worked with other

first-tier suppliers, the prime, and DOD, and they agreed on an improved

interface connection for the component.

Recommendations GAO makes recommendations to the Secretary of Defense. These

recommendations are intended to strengthen DOD’s support for better

supplier relationships and to create an environment that encourages such

relationships. These recommendations appear on pages 63 and 64 of the

report.

Agency Comments DOD concurred with the views expressed in the report and all of the

recommendations and also provided additional information on efforts to

address the issues. A discussion of DOD’s actions appears on pages 64 and

65. DOD’s comments appear in appendix I.

Page 9 GAO/NSIAD-98-87 Best Practices
Contents

Executive Summary 2

Chapter 1 

Introduction

12

Suppliers Play a Key Role in Developing and Producing End

Items

12

Best Supplier Practices Produce Tangible Benefits 13

Objectives, Scope, and Methodology 14

Chapter 2 

Commercial and DOD

Supplier Practices

Have Similarities and

Key Differences

21

Best Practices Are Fueled by Mutual Benefits Between Customer

and Supplier

22

Incentives for Improved Supplier Relationships May Not Be as

Strong for DOD Programs

23

Chapter 3 

Commercial-Like

Mechanisms Adopted

by Defense Firms Can

Be Muted in

Implementation

25

Supplier Relationships Must Have Central Support 25

Rigorous Supplier Selection Creates Strong Supplier Base 32

An Effective Communication and Feedback System Must Exist 38

Chapter 4 

A Rewarding

Environment Is Key to

Fostering the Best

Supplier Relationships

46

Best Commercial Practices 46

DOD Practices 52

Chapter 5 

Conclusions and

Recommendations

61

Conclusions 61

Recommendations 63

Agency Comments and Our Evaluation 64

Appendixes Appendix I: Comments From the Department of Defense 66

Appendix II: Major Contributors to This Report 69

Page 10 GAO/NSIAD-98-87 Best Practices
Contents

Figures Figure 1.1: The BAT Submunition 17

Figure 1.2: The JDAM System 19

Figure 2.1: System of Four Traits Seen in Commercial Best

Practices

22

Figure 3.1: Examples of Motorola Commercial Products 27

Figure 3.2: C-17 Cargo Aircraft 29

Figure 3.3: Evaluation Techniques for Selecting Suppliers 34

Figure 3.4: Examples of Assistance Commercial Firms Provided

Their Suppliers

40

Figure 3.5: Problems in How Teams Operated 43

Figure 4.1: Mutually Beneficial Aspects of a Rewarding Supplier

Environment

47

Figure 4.2: Company Actions Taken to Solicit Supplier Concerns 50

Figure 4.3: Chrysler Concorde LXi 52

Abbreviations

BAT Brilliant Anti-armor Submunition

DOD Department of Defense

GAO General Accounting Office

IPT integrated product team

ISO International Standards Organization

JDAM Joint Direct Attack Munitions

Page 11 GAO/NSIAD-98-87 Best Practices
Chapter 1 

Introduction

The Department of Defense (DOD) continues to state a need to more

quickly modernize weapons for the armed forces. It has a budget of over

$40 billion for fiscal year 1998 to acquire and upgrade weapons and may

not receive substantially more than that in future years unless savings

materialize in other budget areas. Therefore, it must find new ways to

modernize more economically. DOD has an opportunity to incorporate

commercial supplier practices into the process it uses to acquire weapon

systems. In doing so, DOD may be able to respond more quickly to

technological changes with shorter cycle times, reduce costs, and improve

weapon system quality.

Suppliers Play a Key

Role in Developing

and Producing End

Items

The term “supplier” refers to a firm that provides goods or services that

comprise part of a final product being made by another firm. For example,

a tire manufacturer would be considered a supplier to an automobile

manufacturer. In this case, the automobile manufacturer would be viewed

as the “customer” by the tire supplier. On a complex product such as an

aircraft or a weapon system, suppliers can number in the thousands and

are categorized into different levels or tiers. The term “subcontractor” is

also used to refer to a supplier.

In the case of a military aircraft, the firm responsible for putting the

complete aircraft together and delivering it to DOD, the final customer, is

referred to as the prime contractor. Although the prime contractor may

make some of the aircraft itself, it may buy major subsystems, such as

engines, landing gear, and navigation equipment, from other firms. The

firms supplying these items and other products to the prime contractor

comprise the first tier of suppliers. Each of these firms, in turn, makes

significant products for which it depends on suppliers. For example, the

engine manufacturer buys major engine components from its own

suppliers; thus, it is a supplier to the aircraft manufacturer and a customer

to the engine component suppliers. The major engine component suppliers

would comprise the second tier. The firms that they buy parts from would

comprise the third tier. These tiers continue down to basic piece parts,

such as rivets, bolts, common computer chips, and raw materials.

Some firms are suppliers for one product and prime contractors for

others. Although the smaller firms tend to be found among the lower tiers

on complex products, in the upper tiers it is possible for a supplier on a

given product to be a larger firm than the firm assembling the complete

product. For example, it is possible for a large firm like Lockheed Martin,

Page 12 GAO/NSIAD-98-87 Best Practices
Chapter 1 

Introduction

a manufacturer of major military and commercial end items, to supply

components for a smaller firm’s product.

Suppliers are typically responsible for the majority of a complex product’s

content, whether the item is military or commercial. Generally speaking,

suppliers account for 50 to 80 percent of a major item’s value. For DOD, this

means that a large part of the money spent on building a new weapon

system may actually be paid to suppliers. Perhaps more importantly, much

of the technical innovation that is incorporated into a new weapon comes

from the suppliers. According to the Aerospace Industries Association,1

much of the technical innovation comes from the suppliers at the lower

tiers. Studies of agile manufacturing techniques reinforce that much of a

company’s competitive edge will depend on its supply chain.

Many leading companies recognize they must encourage the best suppliers

to view them as valued, preferred customers. Being a good customer may

be a necessity because the supplier can be less dependent on the customer

company than vice versa. Suppliers are becoming increasingly powerful in

dealing with customers because of their size or almost sole-source

relationships. Some suppliers can choose their customers or be inflexible

about the product they are willing to supply. Such is also the case for DOD,

as evidenced by the recent withdrawal of many integrated circuit

manufacturers from the military market.

Best Supplier

Practices Produce

Tangible Benefits

We have reported that companies have become increasingly aware that

they cannot do everything on their own.2

 Therefore, companies are

rethinking their business relationships, such as developing closer

relationships with strategic suppliers. Companies have found that

cooperative business relationships improve their abilities to respond to a

changing economic environment by allowing them to focus on their core

businesses and reduce costs in their business processes. For example,

since 65 percent of its automobiles is made by suppliers, Ford Motor

Company realized that to reduce costs and improve quality, it would have

to improve its relationships with suppliers. In addition to lower product

and administrative costs, exemplary supplier relationship practices can

translate to significant company benefits such as higher supplier quality

1

The Association is a trade association that represents the leading manufacturers of commercial,

military, and business aircraft, helicopters, aircraft engines, missiles, spacecraft, and related

components and equipment.

2

Partnerships: Customer-Supplier Relationships Can Be Improved Through Partnering

(GAO/NSIAD-94-173, July 19, 1994).

Page 13 GAO/NSIAD-98-87 Best Practices
Chapter 1 

Introduction

levels, greater productivity, faster product design and delivery times, and

better supplier engineering and technological contributions, as the

following examples show.

• Texas Instruments Semiconductor Group reduced its cycle time in

obtaining manufacturing supplies by 25 to 40 percent and the number of

material inspectors from 14 to 1 at one site and 15 to 7 inspectors at

another site.

• Honda claimed an 8 to 1 return on its supplier relationships investment

with an average 48-percent increase in supplier productivity, a drop in the

average parts per million defect rate from 900 to 200, and virtual

elimination of cost overruns.

• Varian Oncology Systems saved about $10 million and eliminated half of

its inspection staff.

To the extent that opportunities to improve supplier relations on defense

programs exist and are capitalized upon, the outcomes of weapon system

programs could similarly improve. Suppliers can contribute to resolving

long-standing cost and schedule problems in major weapon system

programs. As the pace of technological improvement quickens, shorter

product cycle times will improve DOD’s ability to incorporate the latest

innovations. Better supplier relationships may lower investment costs,

enabling the services to modernize at a faster pace with existing funding.

DOD believes that modernization should proceed more quickly and wants

to increase the annual investment in procurement by $20 billion, but the

money has been slow to materialize. In addition, shorter weapon system

development cycles could yield improved products and better capabilities

to the military forces sooner.

Objectives, Scope,

and Methodology

The Chairman and the Ranking Minority Member, Subcommittee on

Acquisition and Technology, Senate Committee on Armed Services, asked

us to assess whether best supplier practices can benefit weapon system

programs. The objectives of this report are to (1) identify best commercial

practices for establishing, managing, and sustaining excellent supplier

relationships and (2) compare these practices with those of DOD, selected

prime contractors, and the supplier teams on two weapon system

programs.

To identify firms considered among the best in the commercial sector

regarding supplier relationships, we conducted literature searches,

consulted data from past winners of the Malcolm Baldrige Quality Award,

Page 14 GAO/NSIAD-98-87 Best Practices
Chapter 1 

Introduction

and met with experts in the area of supplier management to gather

uniform information about supplier management practices and their

effects. We gathered information from the following commercial firms,

which our research showed to be among the best in the area of supplier

relationships:

• Motorola, Inc. (wireless communication equipment manufacturer),

Schaumburg, Illinois.

• Chrysler Corporation (automobile manufacturer), Auburn Hills, Michigan.

• Texas Instruments Semiconductor Group (semiconductor manufacturer),

Dallas, Texas.

• Xerox, Inc. (document production equipment manufacturer), Webster,

New York.

• Honda of America (automobile manufacturer), Marysville, Ohio.

• Corning, Inc. (glass product manufacturer), Corning, New York.

• Varian Oncology Systems, Inc. (oncology equipment manufacturer), Palo

Alto, California.

• Baxter Healthcare Corporation (medical supplies manufacturer), Round

Lake, Illinois.

• DuPont (petroleum and other products manufacturer), Wilmington,

Delaware.

• Plow & Hearth (mail order catalog company), Madison, Virginia.

• Toyota Motor Sales, USA, Inc. (automobile manufacturer), Torrance,

California.

• McKesson Corporation (wholesale distributor), San Francisco, California.

We selected 6 companies from the top 50 DOD prime contractors to assess

the degree to which defense contracting companies were aware of and

were implementing best supplier practices. These firms were

• McDonnell Douglas Military Transport Aircraft Division (acquired by the

Boeing Corporation during the course of our review), Long Beach,

California;

• Northrop Grumman Electronics and Systems Integration Division

(acquisition by Lockheed Martin pending), Hawthorne, California;

• AlliedSignal Aerospace, Torrance, California;

• Honeywell Defense Avionics Systems Group, Albuquerque, New Mexico;

• Motorola Space and Systems Technology Group, Scottsdale, Arizona; and

• Boeing Space and Systems Group, Seattle, Washington.

Some of these firms also serve as suppliers to other defense prime

contractors and perform a significant amount of work for commercial

Page 15 GAO/NSIAD-98-87 Best Practices
Chapter 1 

Introduction

companies. Together, the companies receive billions of dollars in

government contracts for goods and services each year. We met with each

firm and reviewed literature on their supplier management practices.

Interviews with knowledgeable officials at both the commercial and

defense firms were a primary source of information.

To obtain insights into the dynamics of contracting teams in an actual

program situation and to obtain the supplier’s perspective, we conducted

case studies of two weapon systems currently in development. Our case

studies were performed on two munitions programs: the Brilliant

Anti-armor Submunition, referred to as BAT, which is the older and more

traditional of the two programs; and the Joint Direct Attack Munitions

(JDAM) program, which is piloting several acquisition reforms and has

applied innovative supplier management techniques. For each program,

we discussed practices with the military service program office and the

prime contractor and selected suppliers at the first and second tiers. We

concentrated on suppliers who were designing custom components for the

end product. In the report, we kept suppliers anonymous—designating

them with a letter—to guard against harming the contracting team.

BAT Program The BAT is a 3-foot long, 44-pound self-guided, submunition that, once

dispensed, glides as it searches for moving tanks and other armored

targets that it is intended to track and destroy. The submunition began in

1984 as a classified program and progressed into the engineering and

manufacturing development phase in May 1991. It is an Army program and

Northrop Grumman is the prime contractor. The Army has funded efforts

to develop a new version of the BAT, which is to improve performance

against stationary targets. It is expected to be fielded about 5 years after

the basic BAT. Figure 1.1 shows the BAT.

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Introduction

Figure 1.1: The BAT Submunition

The BAT program used more traditional acquisition practices.

Source: DOD.

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Introduction

The BAT program has had some turbulence. We recently reported that the

submunition’s test schedule appeared to be extremely ambitious and that

testing uncovered several problems that required design changes,

additional testing, and schedule delays.3

 Subsequently, the low-rate initial

production was rescheduled from December 1997 until December 1998.

An earlier delay (2 years) resulted from the Army’s switch of BAT carriers,

from the Tri-Service Standoff Attack Missile to the Army Tactical Missile

System, according to the program manager. Further, the number of BATs to

be purchased was cut from 35,000 to 19,500. Most recently, the Congress

deleted all $85.2 million in fiscal year 1998 procurement funds and added

$35 million in research and development funds in response to the program

delay. Including the improved seeker, these changes have increased

development costs from $700 million to $1.2 billion and production costs

by almost $7,000 per unit (all figures in constant 1991 dollars).

BAT was conceived and designed before major acquisition reform

initiatives, such as the replacement of traditional military specifications

with performance specifications, were implemented in 1994. Nonetheless,

the Army believes BAT is ahead of other programs in applying acquisition

reforms. Northrop Grumman has nine first-tier suppliers for the major BAT

components. We interviewed five of the nine first-tier suppliers, five

second-tier suppliers and the two additional first-tier suppliers competing

for the seeker on the improved BAT.

JDAM Program JDAM is a strap-on guidance kit that converts free-fall bombs into guided

munitions. The program is jointly funded by the Air Force and the Navy.

The prime contractor is McDonnell Douglas, recently purchased by

Boeing. The program is in the last year of engineering and manufacturing

development, with production planned for mid-fiscal year 1998. DOD plans

to buy about 87,500 JDAM kits at about $3.39 billion, amounting to a

program unit cost of about $38,700. Figure 1.2 shows the JDAM.

3

Brilliant Antiarmor Submunition: Opportunity Exists to Conduct Critical Test Prior to Production

Decision (GAO/NSIAD-98-16, Oct. 30, 1997).

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Introduction

Figure 1.2: The JDAM System

The JDAM program used commercial-like practices with its suppliers.

Source: DOD.

DOD views JDAM as a successful program that benefited from the

application of commercial practices. In this sense, it represents a

departure from the traditional DOD approach to acquisition management.

JDAM is one of seven Defense Acquisition Pilot Programs that were

afforded early statutory and regulatory relief under the provisions of the

Federal Acquisition Streamlining Act of 1994 to test methods for

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Introduction

streamlining the acquisition process. This designation gave DOD the

authority to manage these programs more like commercial programs.

According to DOD, the successful application of commercial practices

enabled these programs to demonstrate significant improvements; it

believes that these programs could reduce cycle time by 25 percent. In

addition to applying DOD’s formal acquisition reform initiatives, JDAM has

been cited as a program that placed an unusually strong emphasis on

suppliers from the beginning. We interviewed four of the first and five of

the second-tier suppliers.

In this report, we highlight best commercial practices in supplier

relationships. As such, they are not intended to describe all of commercial

industry, all commercial practices, or to suggest that commercial firms are

without flaw.

We conducted our review between October 1996 and January 1998 in

accordance with generally accepted government auditing standards.

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Commercial and DOD Supplier Practices

Have Similarities and Key Differences

The best practices of commercial firms recognized as industry leaders in

the area of supplier relationships maximized the participation and

contribution of key suppliers in developing, producing, and planning

products. We found that supplier relationship practices could be

aggregated into four traits:

Central support: The leading firms made a strong commitment to

optimizing supplier relations as essential to maximizing product success.

This was manifested by making sure that supplier relationships received

central direction and support, including the services of an effective

purchasing organization staffed by experienced and skilled people.

Rigorous supplier selection: A rigorous supplier selection process was

implemented, which created a manageable pool or base of strong

suppliers.

Communications and feedback: The firms created channels for open

communication and continuous assessment of performance for both

customer and supplier.

Mutually rewarding environment: The firms created an environment

whereby the suppliers also benefited from superior performance.

All of the commercial companies we contacted had all four traits, but

individual practices differed.

DOD and its prime contractors are aware of these practices and their

benefits and are attempting to implement the practices in varying degrees.

However, on the basis of our meetings with prime contractors, we found

that it can be difficult to translate the desire for better supplier relations

into tangible differences in the actual relationships among suppliers, prime

contractors, and DOD. It is particularly difficult to create an environment in

which suppliers for DOD programs believe there are true incentives for

doing more than complying with the terms of the contract. DOD’s

experience with JDAM so far indicates that it is possible to create a better

environment for fostering mutual benefits between defense prime

contractors and their suppliers.

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Best Practices Are

Fueled by Mutual

Benefits Between

Customer and

Supplier

The leading commercial firms went beyond simple supplier relationships

that were limited to the purchase of goods and services in return for

payment. Their relationships evolved to the sharing of information and

interaction on a variety of business functions in a joint effort to make a

better quality product more quickly and less expensively. Both the firm

responsible for the complete product—the product developer—and its

suppliers benefited from the process. The four traits we used to describe

these relationships can thus be seen as the components of a self-sustaining

system as shown in figure 2.1.

Figure 2.1: System of Four Traits Seen in Commercial Best Practices

Strong

Central

Support

Rigorous

Suppler

Selection

Clear

Communications

and Feedback

Investment In Supplier Relations

Better Product Outcomes Greater Supplier Contribution To Product

Rewarding

Environment

For Suppliers

The first three traits put the mechanisms in place to develop the desired

relationships between the product developer and the suppliers of product

components. In essence, this is how the product developer created the

system and communicated it to the different tiers of suppliers. Together,

the individual practices within these traits shaped and guided the

relationships and developed a clear understanding of the product goals

and business terms as well as effective conduits for assessing performance

and communicating. These conduits were primarily face-to-face contacts

with people who used agreed-on measures of performance. They extended

through all tiers of suppliers and were built upon stable, cooperative

relationships. The product developers saw to it that the system and the

product’s needs were communicated to all tiers of suppliers.

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Commercial and DOD Supplier Practices

Have Similarities and Key Differences

It is the fourth trait that generates the energy in the system. The practices

within this trait created the “quid pro quo,” that is, the realization by the

key team members that they were all benefiting from the relationship and

that more significant contributions were matched with significant rewards.

Essentially, the best practices emerged and were sustained when the

product developer created an environment in which it became an

attractive customer. It did this by not only rewarding superior suppliers

with future business but by building partnerships, allowing top suppliers

to participate in product planning and design, sharing business plans, and

relaxing the procedures for doing business together. In turn, the suppliers

were willing to go the extra mile, commit their own resources to enhance

prospects for future business, and comply with the demands of the source

selection and evaluation mechanisms. They were also willing to invest

their ideas and intellectual capital back through the system. The suppliers’

responses improved product output and reinforced the initial commitment

that the product developer made to strengthening supplier relationships.

Mutual trust—earned through action—was essential to creating this

environment.

Incentives for

Improved Supplier

Relationships May Not

Be as Strong for DOD

Programs

Supplier relationships on defense acquisition programs differ from the

commercial sector. In the commercial sector, the product developer

decides how best to meet customer needs; in the defense sector, this

responsibility is shared between DOD and the prime contractor, with DOD

having the ultimate responsibility. While DOD is implementing a number of

reforms to make its acquisition process more commercial-like, its supplier

relationships can be hampered by traditional acquisition practices.

In a more traditional program, like BAT, the four traits do not comprise as

powerful a system as is formed by the best commercial practices. While a

number of the practices that make up the middle two traits—such as

supplier certification, ratings, and a forum for meeting with

suppliers—have been adopted, their impact on the BAT program was

blunted by weaknesses in central support and the quid pro quo

environment. The commitment of the prime contractor to improve

supplier relationships was not perceived by some key suppliers as having

been much more than procedural changes. Part of the reason is that

although DOD shares responsibility for determining what is important in

managing an individual program, its traditional approach has been to

maintain an “arm’s length” relationship with prime contractors and have

little involvement with suppliers.

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Commercial and DOD Supplier Practices

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Regarding the fourth trait, some key BAT lower-tier suppliers did not

believe they were encouraged to contribute to the design of the product or

that their extra efforts to innovate were encouraged, or that business

relationships were simplified. Instead, they believed there was no basis for

expecting the business relationship to extend beyond the contract in hand.

Consequently, their performance was limited to compliance with contract

requirements, impairing the program’s ability to take full advantage of the

suppliers’ intellectual capital, such as design or product ideas.

The JDAM program office took a much more active role in ensuring that

high-performing suppliers were selected, ensuring that all tiers of

suppliers understood and participated in meeting the program’s priorities,

and offering long-term benefits to the prime contractor and its suppliers

for good performance. In short, it had bolstered the practices in the first

and fourth traits. At the time of our review, the program appeared to have

fostered a system of supplier relationships that emulated best commercial

practices.

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The defense prime contractors we met with recognized the need to adopt

commercial-like practices to maximize the contributions of their suppliers.

To varying degrees, these firms had put in place the mechanisms or

infrastructure to select the best suppliers and to establish the means for

communicating and improving performance. Thus, the prime contractors

were attempting to establish better supplier relationships in the areas we

described as the first three traits of commercial best practices. However,

differences in whether suppliers actually perceived an improvement in the

relationships on the individual BAT and JDAM programs suggest that how

these mechanisms were implemented was as important as their

establishment. Specifically, the mechanisms applied on the BAT program

did not effectively reach or have the same impact on several second-tier

suppliers as they did on JDAM. To some extent, these differences could be

attributed to the newness and increased latitude of JDAM as a pilot program

and to its prime contractor being further along in adopting commercial

practices. Another key factor was the more traditional “arms length” role

DOD played on the BAT program, as contrasted with the proactive role it

played on JDAM.

Supplier Relationships

Must Have Central

Support

Best Commercial Practices The leading commercial firms embraced effective supplier relationships as

a core business strategy and built organizational structures with skilled

people to carry out the strategy. These firms provided central, consistent

supplier policy direction and enforced specific practices across business

units.1

 By so doing, the firms not only informed the different business units

but also helped the units agree on implementing factors, such as supplier

costs, selection, development, and long-term alignment of key suppliers

with business goals. The firms implemented their supplier strategies

primarily by creating supplier management teams (often called commodity

teams or internal councils). These teams or councils linked business

objectives and performance factors—such as quality, cycle time, and total

cost initiatives—with supplier relationship activities. In so doing, they

replaced independent supplier relationships previously forged by

individual business units.

1

For purposes of this report, a “business unit” is an organized unit within a corporate firm. Most major

firms have divided their businesses into some type of strategic business units.

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For example, Chrysler is organized around several product platform teams

such as for large cars, small cars, and trucks. The platform teams

developed strategies for each product, coupled with commodity strategies

that defined which product components were to be purchased from which

suppliers. Motorola has had a commodity team structure since 1982.

Motorola said they also established a central Supplier Management

Council and three regional councils for the Americas, Europe, and Asia.

The councils followed the same mission and vision statements and shared

decisions with each other to ensure consistency across the company. The

use of councils encourages people in all areas of the company to approach

supplier relationships from a common understanding. Collectively, the

council and commodity structure forged unity and a willingness to share

supplier information between business units and regions and a willingness

to work together. Some of Motorola’s products are shown in figure 3.1.

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Figure 3.1: Examples of Motorola Commercial Products

Motorola’s council and commodity structure helps share information among different products.

Source: Motorola.

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Leading commercial companies generally created purchasing

organizations to support their supplier management strategies. Often a

blend of centralized and decentralized operations, the purchasing

organizations assisted line management on both a company-wide and

business unit level. These purchasing organizations were staffed by

experienced and well-trained people who helped line managers consider

multiple factors, such as product quality, total life-cycle costs, and

technological capabilities, in deciding on which suppliers to use.

Commercial firms also supported their supplier management strategies by

streamlining the supply ordering and distribution process and building a

technological infrastructure to facilitate company and supplier business

contacts and supplier base management. Internet sites, electronic

commerce, electronic data interchange, bar coding and scanning, and

advance shipping notices were some of the information technology

applications companies used to make it easier for suppliers to conduct

business with them.

It is a major undertaking for a firm to embrace an active supplier

management policy and to commit the resources necessary to implement

the policy. A firm’s commitment to such an undertaking is not based on

altruism or a particular management theory. Rather, the commitment is

based on the desire to maintain a competitive edge. In our recent report on

applying best practices to preparing weapons for production, leading

commercial firms took a similar position: best practices were adopted

because they helped a firm succeed.2

Defense Prime Contractor

Practices

The defense companies we visited had corporate policies regarding

suppliers, but some firms were further along in establishing corresponding

organizational practices than others. McDonnell Douglas, the JDAM prime

contractor, had a well-established supplier program. Supplier importance

was recognized in the firm’s corporate philosophy and was designated as a

core company competency. Well-documented problems with the C-17

aircraft encouraged McDonnell Douglas’ Military Transport Aircraft

division to revamp its quality and supplier selection program using best

commercial practices. The division also created nine commodity teams

and sponsored a supplier management council. Figure 3.2 shows the C-17

aircraft.

2

Best Practices: Successful Application to Weapon Acquisitions Requires Changes in DOD’s

Environment (GAO/NSIAD-98-56, Feb. 24, 1998).

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Figure 3.2: C-17 Cargo Aircraft

Problems on the C-17 program led to major changes to improve supplier relationships.

Source: DOD.

Boeing Space and Systems Group’s supplier base management program

has as one of its goals, a common and consistent approach to manage its

supplier base. AlliedSignal Aerospace had Sector Commodity Teams

managing specific commodities. The teams were responsible for selecting

partners and developing long-term agreements to be used by all

purchasing organizations throughout AlliedSignal Aerospace. The

Northrop Grumman division responsible for BAT initiated procedures in

September 1996 to formalize communication with suppliers and provide

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performance feedback. The procedures reflected their corporate value

statement, which states:

We regard our SUPPLIERS as essential team members. . . . We owe our suppliers the same

type of respect that we show our customers. Our suppliers deserve fair and equitable

treatment, clear agreements and honest feedback on performance. We consider our

suppliers’ needs in conducting all aspects of our business.

DOD Policies Silent on

Supplier Issues

Although DOD has devoted significant effort to reducing the cost of doing

business with the government, it has not directed its policies at the types

of relationships that exist between prime contractors and their suppliers.

Some DOD efforts may facilitate better supplier relationships, such as the

use of teams. While JDAM made use of these tools to help build good

supplier relationships, focusing on suppliers as a means to make reforms

work was an innovation of the JDAM program and not an explicit objective

of the pilot program.

According to an Aerospace Industries Association official, the significance

of suppliers has tended to be overlooked. He noted that until recently, the

Association had not adequately considered supplier firms in its dealings,

citing an example of how an acquisition reform that prime contractors

support can have unanticipated consequences on suppliers. Specifically,

the Single Process Initiative gave prime contractors the opportunity to

simplify quality assurance and other procedures in their own facilities.

However, suppliers that worked for more than one prime contractor

suffered as each contractor established its own processes. In 1997, the

Association expanded its membership to supplier firms and created a

council to represent the suppliers’ views.

Similarly, while DOD is interested in whether its prime contractors choose

capable suppliers, it has traditionally taken a hands-off approach to how

prime contractors deal with suppliers. DOD officials attributed this

approach to a concern that direct dealings between the government and

subcontractors would be contrary to the legal doctrine of privity of

contract.

Privity refers to the direct relationship that arises between the parties to a

contract as a result of their mutual obligations. Thus, there is privity

between DOD and the prime contractor on a contract but not between DOD

and the suppliers because there is no contract between them. According to

DOD officials, the traditional concern about privity of contract has

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distanced DOD and its program managers from supplier management

concerns. Although privity concerns might preclude communications that

could imply a contractual relationship between DOD and a subcontractor or

that would be inconsistent with the existing contracts, they need not be a

barrier to other forms of communication with suppliers or to efforts to

improve relationships between and among the government, a prime

contractor, and suppliers. Moreover, privity concerns may be reduced by

the parties agreeing that the government may have direct communications

with suppliers. We believe such communication appears to have facilitated

innovation and teamwork on the JDAM program.

While the role played by DOD through the Army program office on the BAT

program was traditional regarding supplier relationships, a very different

role was played by the JDAM program office. Officials were significantly

involved in the JDAM effort from the beginning of the program, taking a

much more open, hands-on role in dealing with potential prime

contractors and their suppliers. This approach set the expectation that

supplier selection and management would figure prominently into

program success and DOD’s selection of the prime contractor. According to

DOD officials, the more active approach was taken because affordability

was the top program objective. DOD program officials visited and evaluated

the performance of the individual suppliers to the two competing prime

contractors. They used the actual performance of the suppliers and the

prime contractors during an early development phase as a key factor for

choosing the prime contractor and supplier team that would win the

competition to complete development and enter production.

DOD’s traditional reticence in guiding supplier relationships represents a

significant difference in the environment defense prime contractors

operate in compared with commercial firms. Commercial firms are driven

toward optimizing supplier relationships to gain a competitive edge in

winning the customer’s business and they can act unilaterally in garnering

those relationships. In the acquisition of weapon systems, DOD is the

customer on the one hand and on the other it shares responsibility for

managing and directing the program with the prime contractor. Thus, if

DOD does not encourage implementing best practices in order to get the

best out of suppliers, the prime contractors may not have as strong an

incentive as commercial firms to adopt such practices.

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Rigorous Supplier

Selection Creates

Strong Supplier Base

Best Commercial Practices Leading companies used a rigorous supplier selection process to create a

strong supplier base. Specific practices included using stringent supplier

selection criteria, relying on a manageable number of suppliers,

maintaining or developing some level of competition between suppliers,

and periodically assessing the supplier base against company goals. A

desired result of such a process was a strong supplier base that companies

can effectively manage. For example, Texas Instruments Semiconductor

Group said their selection process meant there was a reliance on a few,

very capable suppliers, a stronger relationship between the company and

suppliers, and stronger business processes for both companies when they

interacted.

Knowing the importance of suppliers to their business success, the leading

commercial companies used specific criteria to select suppliers and the

supply chains they represented. Companies selected suppliers based on

needs for supplier backup, capacity requirements, competition needs,

suppliers’ product range, and the complexity of the product. In their

selection procedures, the companies weighed the total cost of doing

business with each supplier, not just the sales price of the item. The total

cost of doing business included tangible factors, such as quality, and

intangible factors, such as effective communications. If the companies

only considered lowest price suppliers, then their total costs might be

higher because of quality, delivery, and service problems. Using the total

cost approach in conjunction with selecting a limited number of suppliers

was seen as important to building more sophisticated supplier

relationships.

Another key selection criterion best practice companies stressed was

comprehensive quality. They expected their suppliers to have a

comprehensive quality system, generally based on ISO-9000, the Malcolm

Baldrige National Quality Award, or other quality standard systems.3

 For

example, Motorola required all of its suppliers to show intent to apply for

3

ISO-9000 is the commercial standard for quality assurance. Independent, certified quality consultants

conduct on-site audits of applicants and give approval. The Malcolm Baldrige National Quality Award

promotes awareness of quality excellence, recognizes quality achievements of U.S. companies, and

publicizes successful quality strategies. Industry specific quality standards also are used, such as the

QS-9000 for the automotive industry.

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the Baldrige competition. Xerox used a multinational supplier quality

survey and an on-site assessment as part of its supplier selection. As a

result, many companies often replaced expensive incoming part or item

inspection of selected supplies with supplier certification programs or the

assurance of high performance capabilities through the supplier selection

process. Baxter Healthcare Corporation, for example, developed a quality

history for supplier certification. By certifying the supplier’s test methods,

Baxter minimized its own product testing and eliminated some receiving

and inspection functions. Its plants did not have to wait for supplier

shipments to be inspected or hold inventories anticipating poor quality

materials or delayed shipments.

The companies evaluated suppliers using assessment methods such as

certifications, surveys, inspections, statistical process control, and quality

audits. The method varied by the importance of the product and how

much performance assurance was desired. Companies started by

thoroughly analyzing their supplier base needs, drawing on information

about business requirements, industry performance trends, supplier base

performance and supply chain management, and potential suppliers.

Supplier evalutation techniques used by Dupont and Honda are described

in figure 3.3.

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Figure 3.3: Evaluation Techniques for

Selecting Suppliers

Dupont 

Assesses risks based on:

 supplier technology

 price and cost 

 production history

Rates suppliers on quality, timeliness, 

delivery, and customer satisfaction

Honda

 Discusses compatibility of 

philosophy and strategic 

plans

 Evaluates supplier on cost, 

timely delivery, speed of 

product development, and 

management attitude

Almost all the leading companies we contacted either had limited or

planned to limit the number of suppliers that they relied on by

concentrating on proven suppliers that met the selection requirements. By

relying on a limited supplier base targeted to companies’ purchasing

needs, companies could make better use of their internal purchasing

resources, such as people. At the time of our review, Toyota Motor Sales

officials said they planned to reduce the number of suppliers providing

goods and services, such as advertising, from 1,500 to about 1,000. Of

these, only 100 suppliers accounted for 80 percent of the company’s

indirect purchasing expenditures. In 1986, Motorola began implementing

its supplier reduction strategy, which relied on creating a base group of

suppliers that stayed the same unless performance fell or new suppliers

offered technological innovations. Over a decade, Varian Oncology

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Systems reduced the number of its production suppliers from 1,100, which

it considered unmanageable, to 345.

In reducing the size of the supplier base, commercial companies were

careful to include enough suppliers for an item to ensure there would be

competition and a back-up source. These were not necessarily

head-to-head competitions. For example, Honda said they selected two

suppliers that made the same product but targeted the product for

different automobile models, such as one steering wheel supplier for the

Honda Accord and another for the Honda Civic. Several of the commercial

firms also attempted to limit the business they did with an individual

supplier to keep the supplier from becoming too dependent on any one

customer.

Defense Prime Contractor

Practices

Several of the defense prime contractors we contacted had developed or

were developing supplier selection practices similar to best commercial

practices. They had reduced the number of their suppliers and established

selection criteria and categories to differentiate between types of

suppliers. For example, AlliedSignal Aerospace reduced its supplier base

from over 10,000 in 1991 to less than 3,000, increasing the volume of

business with the remaining suppliers. By reducing suppliers, Honeywell’s

Defense Avionics Systems Group reported reducing costs by reducing the

number of buyers and quality managers required.

DOD has placed new emphasis on the use of “best value” to justify selection

of a contractor or supplier on a basis of more than lowest price. This

initiative is similar to the total cost approach to supplier selection used by

commercial firms. Some defense contractors recognized and were moving

toward the use of best value in selecting suppliers. Boeing’s Space and

Systems Group said they used historical performance data to determine

overall best value by recognizing the penalties associated with late

delivery and poor supplier quality. Honeywell Defense Avionics Systems

officials said they get best value in some commodities by reducing the

supplier base to only preferred suppliers, then competing them on price.

Some prime contractors were skeptical of whether DOD was really

supporting the best value approach. According to one firm, the

government hurts itself by basing awards on the lowest bid. It noted that

the government does not necessarily get the best value product if the

supplier is late or has low quality. Another firm noted the incentive for a

prime contractor to use best value in selecting its suppliers reflects the

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emphasis DOD places on best value in selecting the prime contractor.

Officials from this firm stated that although DOD may support a best value

policy, resistance to that approach was still apparent at the lower levels in

the services, particularly auditing agencies, which still focus on price

differences in evaluating subcontracting practices.

Sharp Contrasts in

Supplier Selection on BAT

and JDAM Programs

The different experiences with the selection of suppliers on BAT and JDAM

pointed out the key role both the prime contractor and DOD played in

establishing a strong, dependable team at the outset of a program. The BAT

prime contractor described the selection of its major suppliers as a

targeted process, not part of an overall supply base strategy. The JDAM

program had a much greater emphasis on a commercial-like, long-term

supplier strategy at the outset of the program.

Of the 10 BAT suppliers we met with, 5 were original suppliers and 4 were

replacements for original suppliers that had trouble with their

components. Northrop Grumman reported one new supplier was added

when the Army decided to use a different—and faster—missile to carry

the BAT submunition, which required a different technology. Second-tier

supplier F, the third BAT supplier for a particular component, stated that

the two previous suppliers had good track records and lower bids, but

after 2 years of development neither could produce the part within

specifications. A company official said it took the firm’s experience and

special processes to make the part within specifications. On another

component, second-tier supplier D was the back-up source until the first

supplier “bowed out.” If supplier D had been selected earlier, company

officials said they could have used their knowledge in establishing the

requirements. Two other firms informed us that they became BAT suppliers

after the original suppliers had failed. One supplier official believed that a

focus on procurement unit cost was the primary concern of the BAT

program, rather than life-cycle cost. He believed this became an

impairment, particularly when decisionmakers make poor assumptions

about costs that affect the rest of the program, such as how much a part

will cost.

Program priorities could influence the extent to which more supplier

changes are made in the future. For example, one of the first-tier suppliers

competing for the new seeker in the improved BAT informed us that

because of a very tight schedule set by the Army, the firm selected a

second-tier supplier based on its ability to build a test article quickly—not

on its ability to meet the long-term criteria of production capacity,

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delivery, and quality. The first-tier firm said that they might consider using

other suppliers in the next program phase.

Program office involvement helped shape the selection of JDAM suppliers,

emphasizing their potential for long-term success. The DOD teams that

evaluated potential prime contractors included key suppliers as part of

their assessment and reviewed manufacturing capabilities and prime

contractor business practices. After the prime contract competition was

reduced to two firms, DOD officials said that they met with officials from

the firms and discussed what the teams had found at their suppliers. As a

result, one prime contractor selected two new suppliers after asking DOD

program officials to recommend better performers. DOD offered its advice

but did not mandate changes in the choice of suppliers. Nonetheless, DOD’s

demonstrated interest in supplier capabilities, particularly in terms of

price, quality, and production capabilities influenced McDonnell Douglas’

selection of suppliers.

McDonnell Douglas officials described their selection of JDAM suppliers as

an exhaustive, iterative, affordability-driven screening process. The

company used its Preferred Supplier Certification process, which

emphasized supplier performance and key process controls at the factory

and the business level. Some suppliers were picked by the contractor to

meet unique JDAM requirements, such as the high-volume requirements.

Others were used because of their performance and preferred supplier

status. Some dual sources were used to address component criticality and

risk issues. JDAM suppliers confirmed the rigor of the process. Supplier M

said that the process was much more involved than that of other weapon

systems, typified by an intensive site survey process of first-tier suppliers.

The review emphasized manufacturing, the supplier said, and forced the

prime contractor and suppliers to think through JDAM from a design and

production efficiency perspective.

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An Effective

Communication and

Feedback System

Must Exist

Best Commercial Practices Leading commercial companies established effective communications and

feedback systems with their suppliers to continually assess and improve

both their own and supplier performance. These practices helped the

product developer’s goals, priorities, and performance assessments to

reach all key suppliers and for suppliers’ ideas and concerns to be

expressed to the product developer.

Some leading companies designated an authoritative contact person as a

single interface with suppliers so that suppliers trying to resolve

day-to-day questions or problems were not passed from one company

official to another. For example, each Chrysler supplier had a Chrysler

person knowledgeable about the supplier’s business to contact for all

supplier dealings for that commodity. Typically, the leading companies

also interacted with key suppliers in close teaming arrangements that

facilitated sharing information. Commonly called integrated product teams

(IPT), members worked together so that design, manufacturing, and cost

issues were considered together. Team members were encouraged to

participate as partners in meeting project goals and to interact frequently.

In addition, some companies collocated suppliers with their own people or

set up central working facilities with suppliers for working out issues such

as how a product might be improved or be made less expensive. Motorola

and Xerox saw such teams as a key vehicle for facilitating early supplier

involvement in their products—one of their primary strategies. Motorola

said key suppliers had building access and came in many times during a

week to work with Motorola engineers.

To establish an objective basis for communicating about performance, the

leading commercial companies set performance measures and

expectations for each supplied product and service, using key elements

such as quality, responsiveness, timeliness, and cost. These factors were

consistent with the firms’ selection criteria, and the product developer

made clear to suppliers what these elements meant and how they would

be used in business decisions. Most leading companies also provided

periodic “report cards” and met formally with their key suppliers to

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discuss issues such as performance evaluation results, comparison of the

suppliers with their competitors on key quality measures, customer and

supplier improvement strategies, and future business opportunities. For

example, Plow and Hearth reported sending suppliers a quarterly

performance summary that supplemented continuous supplier feedback.

Also, once a week, Plow and Hearth officials representing merchandising,

product returns, quality assurance, and inventory control discussed

specific supplier issues.

The customer and the supplier generally worked together to develop

milestones, commitments, and deliverables for corrective action. Suppliers

needing improvement met with Plow and Hearth for a “customer-supplier

alignment,” which clarified each other’s services and problems and

developed corrective action plans. Commercial firms typically provided

their suppliers technical assistance to help improve performance that was

supported by sophisticated company, supplier, and industry information

systems and reports. Examples of such assistance included quality audits,

benchmarking, training, newsletters, and direct help on production

techniques. Specific assistance provided by individual firms is shown in

figure 3.4.

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Figure 3.4: Examples of Assistance

Commercial Firms Provided Their

Suppliers

Texas Instruments

Participated in a consortium for supplier 

training

Motorola

Developed a training guide book

Trained suppliers on specific quality goals 

at its Supplier Institute

Provided technical assistance to suppliers 

on performance problems

Varian Oncology Systems

Provided an engineer-staffed hot line and 

other technical assistance

Honda

Used teams to examine the operations and 

technology of a supplier to improve product 

and meet target cost

Opened up internal training courses to 

suppliers

Commercial companies also extended their attention to lower-tier

suppliers. This level of attention was in recognition that lower-tier

products accounted for a significant portion of product costs and

significantly affected the final product’s performance. Few companies

reported direct involvement with lower-tier suppliers if they were satisfied

with the first-tier supplier’s supplier management processes and

performance. While not directly managing lower-tier suppliers, the

companies had ongoing knowledge of these suppliers’ efforts through

communication and monitoring of first-tier activities. More importantly,

their own commitment to optimal supplier relationships helped them to

look for and expect the same commitment from their own suppliers. For

example, Honda reported working with first-tier suppliers to develop

self-reliance or the capability to effectively manage their own supply

chains. In other cases, companies took a more hands-on approach;

Chrysler said they worked with first-tier suppliers to jointly manage

lower-tier suppliers, extending all the way to the raw material stage.

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Defense Prime Contractor

Practices

Most of the prime contractors informed us that they had processes for

setting supplier performance expectations, assessing supplier

performance, and providing feedback. McDonnell Douglas continuously

measures supplier performance and reports to suppliers quarterly. To

remain a McDonnell Douglas preferred supplier, specific criteria for

quality and delivery must be met. For example, to remain a bronze

supplier, the lowest level of preferred supplier, quality must be at

98 percent or better, and delivery must be within the 15 days prior to

delivery date at least 95 percent of the time. AlliedSignal incorporates

performance criteria in its agreements measuring cost, quality, delivery,

and service. It also publishes and shares monthly measures with supplier

partners, along with how their performance compared to other commodity

sector partners. Boeing’s Space and Systems Group had established a

process for evaluating selected suppliers semiannually on performance

factors that included cost, delivery, quality, and technical contribution.

Similarly, Honeywell Defense Avionics Systems suppliers received

monthly reports detailing their performance and were rated on quality,

delivery, and any shortfall. Honeywell also met quarterly with the

executives of their top suppliers to discuss short- and long-term strategies

and improvement plans. Northrop Grumman formally discussed

performance results biannually with suppliers, supplementing other

sources of performance feedback. The company recently began a supplier

management program as a result of its Baldrige self-assessment that

identified supplier management as an area for improvement. In 1997, the

firm initiated a Subcontractor Performance Assessment procedure and

planned to give suppliers a color-coded score based on performance in 16

areas, such as submitting data on time, and performance of a supplier’s

subtiers. A supplier performance assessment was to be used monthly to

evaluate and document supplier performance on a variety of elements. A

BAT supplier was the first to be assessed under the new procedures.

In 1995, the Secretary of Defense directed the services to apply the

integrated product and process development and team concepts to the

acquisition process. The initiative established teams as the preferred

method for DOD to perform acquisition functions. This direction is

consistent with the teaming that the leading commercial companies are

doing. All of the defense prime contractors we met with stated that they

were using IPTs. For example, Motorola said the Land Warrior program had

many major development subcontracts, with a significant amount of new

design, that were set up as teaming agreements. Boeing described a long

history using teams for both military and commercial programs. Top

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suppliers are team participants and involved early on in the programs.

While BAT was initiated before the DOD directive on teaming, the program

manager for Northrop Grumman said that the program has operated under

a team concept since its beginning.

BAT Suppliers Cited

Problems With

Communications, Teaming,

and Feedback

The BAT program’s incorporation of commercial-like practices such as the

use of teams and supplier rating systems received a mixed reception by

BAT suppliers. The experience of at least some second-tier suppliers on the

BAT program suggested that the presence of commercial-like mechanisms

alone did not improve supplier relationships.

BAT has 10 IPTs, 1 for each major subsystem. Program officials described

membership as generally consisting of a team leader, engineer,

subcontract administrator, business management representative,

scheduler, quality person, manufacturing representative, and a

government focal point. Suppliers below the first tier were generally not

involved. Two suppliers believed that the team approach was working

well. First-tier supplier G said that there was a work process team in place

at the beginning of its contract and the firm held weekly teleconferences

with the prime contractor. While engineers might call each other directly,

most communication with the prime contractor was through the supplier’s

contract manager. Similarly, supplier E stated that the IPT was central to

the BAT program and had facilitated communication and problem solving.

Other BAT suppliers found problems with how the teams operated, as

depicted in figure 3.5.

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Figure 3.5: Problems in How Teams

Operated

Comments From Some Suppliers on Teams

It was hard to construe that a real team existed

Engineers made design decisions without 

consulting other team members

Technical requirements dominated over cost and 

schedule considerations

Some BAT problems were due to trade-offs not 

being made

Other suppliers suggested that improved communications between

suppliers would have benefited the BAT program. Supplier D said that

design problems could have been avoided if it could have met with higher

level assemblers. It stated that instead of working together to solve

problems, the firms resorted to defending their own actions. Supplier A

noted that there was no forum for the suppliers to collaborate with other

firms that were supplying components for the same section of the

submunition. The supplier believed that a few thousand dollars per unit

could have been saved by exchanging physical space within the

submunition to enable simpler packaging. Another second-tier supplier

said that its first-tier customer sent technical assistance personnel, but

they were not at all helpful. They noted that the technical people sent did

not have the expertise to help and that their problem was much more

sophisticated.

Supplier I cited some key communication voids with the upper-tier firms.

This firm, which was responsible for a sophisticated and mission critical

electronic component, believed that the design it has been given is not

producible because of the limited opportunities to make design trade-offs

as previously discussed. Nonetheless, the firm was not a part of the Army

production readiness review to assess the risks the BAT program faced in

preparing for production. Moreover, the firm believed the cost of its

component to be three times the cost the prime contractor included in the

overall cost estimate, but it was not consulted about costs either. Had

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communications been better, these problems could have been addressed

already; instead, they may show up as surprises later in the program.

Perhaps reflecting the newness of the Northrop Grumman rating system,

several suppliers were not familiar with the new procedures or satisfied

with the system’s criteria and feedback. Some of the suppliers believed

that their ratings were lowered for decisions DOD or the prime contractor

had made, which resulted in skepticism about the usefulness of the

ratings. Several examples follow.

• Supplier G said it received an overall poor rating from the prime

contractor because BAT was behind schedule, caused by a stretch in the

program—something the supplier had nothing to do with.

• Officials from supplier B believed the company’s rating was low because

of waivers that were necessary until the prime contractor decided on

certain requirements.

• Supplier C said it received a low rating for waivers that were necessitated

by the Army’s change in the missile carrier for BAT. The supplier said that

the changes were not reflected in the rating criteria or the delivery

schedule. It was devastating to the firm, the supplier said, partly because

personal bonuses were affected by customer ratings.

JDAM Suppliers Impressed

With the Effectiveness of

Communications and

Feedback

JDAM participants uniformly described the program as structured in a way

that encouraged communication. A key factor was how IPTs were

employed from the beginning—including the design phase—with the

government customer (represented by the DOD program office) closely

involved. JDAM was one of the first programs to use these teams in all

aspects of business. DOD helped create this situation by requesting that IPT

program management structures detail the plans for teams and

subcontractor as part of the request for contract proposals. The teaming

approach was consistent with McDonnell Douglas’ corporate view that it

was a critical tool for developing products and working with suppliers.

An executive-level team set the core strategy for the JDAM project, and

other teams were organized around issues such as affordability and

component design. The executive team included vice presidents from

McDonnell Douglas and the first-tier suppliers and focused on high-level

programmatic approaches and pricing strategies. The executives were not

allowed to delegate their responsibilities to lower-level managers,

according to two suppliers. The executive team promoted affordability for

the whole system rather than costs for individual suppliers. According to

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supplier O, the team was instrumental in the decision to use a Lockheed

Martin connector that was more reliable and cost-effective than a

McDonnell Douglas product.

JDAM suppliers we met with spoke highly regarding communications on the

program. This communication started with a clear understanding at all

supplier levels of what the program’s priorities were and the institution of

open channels (primarily through the teams) for exchanging information

and making trade-offs to protect these priorities. Suppliers were

considered integral members of the IPTs and fully participated in program

decisions. For example, supplier engineering, purchasing, and

manufacturing people were involved in the design process, which a

supplier described as an interactive process in which the product

specifications were defined by DOD, the prime contractor, and suppliers.

One supplier observed that a key factor in the teams’ success was

McDonnell Douglas had put someone in charge at every level of the

project who could make decisions and established a disciplined

configuration control process.

JDAM suppliers agreed to a rigorous assessment. The foremost performance

criterion was the achievement and continued maintenance of the average

unit production price, quality, and schedule goals. McDonnell Douglas

tailored corporate performance measures to JDAM and used a variety of

methods to collect performance data. Suppliers generally received

monthly reports or program reviews for JDAM. Informally, the IPTs allowed

for ongoing assessments and responses to problems. Second-tier suppliers

believed that the technical assistance provided by McDonnell Douglas and

upper-tier firms was extensive and was facilitated by the IPTs. According to

one supplier, problems were not seen as weaknesses of its customer or of

itself but as issues that should be worked on jointly. Another supplier

noted problems are cooperatively resolved, and that expertise was shared

on both sides, consistent with the teaming philosophy.

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In our analysis, it was the fourth trait—providing a rewarding environment

for sophisticated supplier relationships—that provided the energy for the

other practices to work. This last trait constituted the quid pro quo or the

realization by both the suppliers and the product developer that they were

all benefiting from the relationship in ways other than near-term monetary

compensation. Through tangible action on the part of both the product

developers and the suppliers, each learned that more significant

contributions were matched with longer-term rewards. The result was

trust and commitment.

The participants in weapon system programs may face difficulties in

creating an environment that fully leverages the other practices to get the

most out of supplier relationships. As with the other traits, both DOD and

the prime contractors play a significant role in fostering the right

environment. Defense prime contractors believe there are obstacles to

fostering such long-term relationships. As discussed in chapter 3,

experience on the BAT program shows that despite the relaxation of some

DOD requirements and the institution of individual best practices, such as

IPTs, and supplier assessments, several key suppliers believed that their

environment was unchanged. JDAM’s more rewarding, commercial-like

environment was created through an atypical, proactive approach by DOD

and the prime contractor that cultivated supplier involvement.

Best Commercial

Practices

The leading commercial firms we met with had created an environment in

which both they and their suppliers were getting more from their business

relationships than a good product for a fair price. Suppliers had become

important to the conception and design of new products and the products

benefited from their contributions. The mutually rewarding nature of this

environment are depicted in figure 4.1.

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Figure 4.1: Mutually Beneficial Aspects

of a Rewarding Supplier Environment

Suppliers

accept

rigorous

certification

process

Product

developers

provide

rewarding

environment

Suppliers

make

superior

contributions

As indicated in the figure, the interaction of the product developer and the

suppliers in fostering a rewarding environment can be seen as a loop or

cycle. As discussed earlier, leading firms establish rigorous systems for

selecting, rating, and communicating with suppliers. Suppliers first had to

see enough potential benefit to be willing to put themselves through this

process. In return for suppliers meeting these demands, product

developers provided more sophisticated, long-term relationships that

included more involvement with product design, business plans, and

streamlined business procedures. The suppliers responded by committing

some of their own resources, including intellectual capital, to the

longer-term business opportunities. This response made for a better

long-term product and reinforced the product developers’ commitment to

better supplier relationships.

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Suppliers Accept the Rigor

of the Product Developer’s

System

The first steps in establishing the right environment for optimizing supplier

relationships are taken by the product developer when it commits to

fostering more rewarding relationships and puts the mechanisms in place

to develop these relationships. We described these as the first three traits

earlier in this report. Leading commercial companies are asking a lot from

suppliers when they submit them to rigorous selection criteria,

performance standards, and continuous assessments. A potential supplier

faces the potential denial of business if it fails to meet the selection

criteria. Moreover, suppliers in undergoing the process are agreeing to be

judged under criteria determined by product developers and that they may

not be rated in the top category.

Most commercial companies made some distinction among suppliers’

performance. For example, Baxter Healthcare Corporation said they

designate some suppliers as preferred. Supplier were designated preferred

based on factors such as quality, delivery, service, and cost. These were

suppliers who also had exemplary continuous improvement practices and

would work on a continuous basis to reduce both theirs and Baxter’s

costs. A supplier’s willingness to submit to such a system, therefore, is a

significant step that is taken with the expectation that the customer’s

business offering is worth the effort.

Companies Offer Key

Suppliers More Rewarding

Business Relationships

Leading commercial companies ask suppliers to meet high standards, then

differentiate the types of relationships within their pool of suppliers. Many

treat key suppliers—those contributing the most to their product, such as

critical parts or unique processes—differently than suppliers for

noncritical or standard parts. For example, one Corning division

categorized suppliers and developed relationships with them based on the

extent of their impact on the customer and performance. Level 1 suppliers

have a direct impact on customer satisfaction, level 2 suppliers are

important to day-to-day operations but not directly linked to customer

satisfaction, and level 3 suppliers provided commonly available products.

DuPont differentiated between alliance partners—suppliers with similar

goals and objectives that wish to work with DuPont for mutual

benefit—and all other suppliers.

The more sophisticated relationships that commercial firms cultivated

with their key suppliers included features such as participation in business

planning, product design, and long-term agreements that operated with

reduced procedures. Relationships were also strengthened by an openness

to suggestions and criticisms from suppliers as a way to improve the

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customers’ performance. For example, Texas Instruments formed

alliances with some suppliers and involved them in planning long-term

strategies and risk assessments. Company executives meet biannually to

discuss their joint progress and emerging problems.

Some leading companies recognize that key suppliers need accurate and

timely sales forecasting and other business information to manage their

own supply chains. The companies develop processes to provide shortand long-term sales forecasts, helping suppliers anticipate the amount and

timing of orders. Motorola said a large number of suppliers participate in

schedule sharing. Under this program, Motorola electronically posts a

26-week schedule depicting forecasted usage of supplied components.

Varian Oncology Systems allows suppliers to dial into its manufacturing

forecast for the next 12 months, officials said. They also share more

detailed and sensitive information with suppliers who have closer

relationships with the Varian. Honda meets with many of its key suppliers

in a top management business meeting to discuss performance, the

supplier’s financial situation, the definition of a fair profit, and the

potential for expansion of Honda’s business.

Key suppliers were directly and actively involved in significant product

decisions, including design. Most often through the use of teaming

arrangements, the companies encouraged the key suppliers to participate

and provide input during the entire product life cycle. Some companies

collocated suppliers with their own people or set up central working

facilities with suppliers to share information and coordinate design and

production activities. For example, Chrysler reported that they select key

suppliers early in a product’s concept stage. These suppliers joined a

design team for a specific platform and made presentations to Chrysler

management on product design, target cost, and the design and delivery

schedule. Officials from Varian Oncology Systems informed us that they

had involved suppliers in design for the last 4 or 5 years.

In some cases, contractual arrangements reflected the different

relationships. Contracts and agreements that guided strategic alliance or

partnering relationships were less structured and generally lasted for

several years. For example, Corning contracted with its best suppliers for

a 3- to 5-year period. Also, once Corning determined a supplier to merit a

“certified” or “preferred” rating, then its materials were no longer subject

to incoming inspection. Honda considered some key suppliers as suppliers

“for life” and used only a purchase and sales agreement to conduct

business with those firms, officials said. These agreements did not include

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details on quantity, price, or the length of the agreement. At Texas

Instruments, the commodity teams made some strategic supplier contracts

virtually open-ended.

Some leading companies’ commitment to mutually rewarding relationships

with suppliers was also demonstrated by their willingness to identify and

take action on supplier issues and problems. The companies used methods

such as surveys, supplier meetings, and formal customer-supplier councils

or supplier advisory councils to assess existing customer-supplier working

arrangements, identify problem areas, and report back to suppliers. Figure

4.2 gives examples of how some of the companies we visited identify and

take action on supplier issues.

Figure 4.2: Company Actions Taken to

Solicit Supplier Concerns

Chrysler Surveys Suppliers on:

Performance of Chrysler purchasing agents

Trust in Chrysler

Willingness to invest in future business

Honda

Surveys suppliers about how good a customer 

Honda is

Responds in writing on how it will address 

concerns

Motorola

Holds business reviews with each supplier

Uses supplier advisory council for feedback

Suppliers Respond by

Offering More Than a

Good Product and Price

Key suppliers responded to these more sophisticated relationships by

investing their skills and expertise in making the end product better. Their

contributions were not limited to providing a quality component at a good

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price or to the contract’s terms. Often, the product developers and

suppliers jointly identified cost drivers and used this information as a basis

for target costing and cost reduction on specific products.1

 Honda said

they involve key suppliers in target costing for its new car model designs

and found that the suppliers could help Honda (1) evaluate Honda’s

component cost estimates and (2) pinpoint component cost differences,

including those based on poor Honda design or use of obsolete

technology.

Perhaps more significantly, Chrysler’s relationships with its suppliers had

evolved to the point that it no longer needed to make large investments in

some key technology areas. Instead, the suppliers made the technology

investment themselves and had enough confidence in their relationship

with Chrysler that they did not fear the long-term commitment that this

entailed. For its part, Chrysler trusted the suppliers to make the

investments that would help keep their vehicles competitive. In this case,

both supplier and product developer saw their success as that of the final

product and a continuing mutually beneficial relationship. Figure 4.3

shows a Chrysler product.

1

Target costing involves determining the final price the customer will pay for the product, and then

working backward to set fair prices for products, subsystems, and component parts.

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Figure 4.3: Chrysler Concorde LXI

Chrysler products depend on suppliers’ research and development efforts.

Source: Chrysler.

DOD Practices The environment for defense programs is complicated by having more

players than commercial products with the addition of DOD as a

participant. The environment for a given weapon system involves the

interaction of DOD, the prime, and the suppliers. Experiences with the BAT

and JDAM programs illustrate some of the problems DOD and the prime

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contractors face in creating a rewarding supplier environment that

encourages contributions, as well as potential solutions. Some BAT

suppliers viewed their role as only complying with the design

requirements passed down by the upper-tier customers and limited their

efforts to the existing contract. They believed that to do more—such as

offer design suggestions or make long-term investments—would not yield

benefits. In contrast, JDAM suppliers believed they were full participants in

a long-term relationship with their customers. Through the joint effort of

the DOD program office and prime contractor, supplier relationships were

cultivated without being stymied by the obstacles perceived by some

prime contractors.

Prime Contractors Support

Offering Suppliers

Rewarding Relationships

but See Obstacles

Like leading commercial companies, most of the defense companies we

contacted categorized their suppliers in various ways. Some used the

terms such as preferred, acceptable, restricted and/or other designations

to denote different levels of supplier performance. In general, the highest

rankings were reserved for suppliers who consistently met quality,

timeliness, and cost goals. The defense prime contractors also attempted

to tailor different relationships to different suppliers.

Motorola officials informed us that their management of suppliers varied

by categories. Fewer than 10 percent of their overall supplier base fell into

their “approved” category. This category was significant because most of

the products shipped from the approved suppliers were not subject to

receiving inspection. Similarly, the preferred supplier certification process

at McDonnell Douglas was used to rate suppliers into three categories:

bronze, silver, and gold. Supplier performance was measured in key areas,

such as acceptance rate and on-time delivery rate. Performance ratings

ranged from “1” (process output does not meet customer expectations) to

“5” (process output consistently exceeds customer expectations and

positive trends have been documented for greater than 36 months).

Preferred suppliers had to receive a 2.5 rating to merit the bronze category

and a 4.5 rating to merit the gold category. Only 9 of 20,000 McDonnell

Douglas suppliers had earned the gold rating at the time of our review,

officials said.

To better leverage the capabilities of suppliers, AlliedSignal Aerospace

develops Sector Long-Term Agreements between AlliedSignal Aerospace

and suppliers chosen as partners for up to a 5-year period. They document

the pricing, terms, and conditions for selected products and require yearly

performance improvements. In return, the suppliers are guaranteed a

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stable business base with AlliedSignal. Honeywell Defense Avionics

Systems consolidated requirements and forecast future needs for selected

goods across its commercial, space, and military groups. The company

believed these actions would allow it to get better prices for these goods

because of higher and more steady volume demands.

The prime contractors cited some difficulties in developing more

rewarding relationships with their key suppliers. The process for

AlliedSignal to set up its long-term agreements was lengthy and involved

over 50 people to ensure compliance with government rules and

regulations, such as the Federal Acquisition Regulations, before approval

was granted, according to a government official. Boeing’s Space and

Systems Group officials believed that because of the nature of government

contracting and method of funding, they could not forge long-term

agreements or partnerships with their suppliers or provide their suppliers

with reasonable forecasts of future demand. In contrast with their

commercial business, the officials described the government contracting

environment as low volume with unstable funding. They cited as an

example an order to deliver 11 F-22 aircraft over a long period of time with

no guarantee that the program would go forward.

Motorola officials stated that while their commercial divisions have moved

to beneficial relations with their suppliers, starting with early teaming in

design, the way government does business would impede a movement to

this type of relationship on defense programs. They believed that

requirements regarding competition in contracting made it difficult for a

defense contractor to make an initial commitment to a supplier. Motorola

stated that government pressure to continually compete suppliers worked

counter to long-term relationships. Honeywell officials stated that

government requirements, though reduced under the Federal Acquisition

Streamlining Act, were still complicated and confusing, for many

commercial-type suppliers. They noted that in their role as supplier on

some programs, the prime contractor added as many or more

requirements than DOD.

Several BAT Suppliers Did

Not Believe the Program

Fostered Rewarding

Relationships

Relationships on the BAT program were described by several suppliers as

bureaucratic, without distinguishing between established, proven

suppliers and new suppliers. Some first-tier suppliers we contacted

believed no consideration was given to their years of working together

when it came to the low-rate production contract proposal. Supplier A said

it was required to submit a four-volume basic proposal for the upcoming

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low-rate production contract, detailing how their component would be

designed, produced, and made to conform to quality standards even

though it spent the last 6 years doing those very tasks for the BAT

component. They said that although the low-rate production contract was

essentially a re-buy of units already produced for testing, the prime

contractor approached the next phase as if the program was back at the

drawing board. Supplier C said that the prime asked for information it

already knew from years of working with the supplier. Officials believed

their company’s high standards were unrecognized and wished their team

could be allowed “to just do its job.”

A number of first- and second-tier suppliers were frustrated with their

inability to participate more fully in the BAT program. A key concern for

several suppliers was nonresponsiveness to their cost-saving suggestions

that involved design changes. A supplier A official said that the prime

contractor’s stated desire for using commercial items was not backed up

by action. Although the company estimated cost savings of three or four to

one using an industrial grade commercial part and was willing to

guarantee the part for 20 years, it was told there was not enough data to

make the change. Supplier D officials stated the original design for its

component had a costly scrap rate and was not likely to be producible at

high rates. The company invested its own funds to design an alternate part

that met government specifications and could cut costs in half. However,

the alternate part was not used because it challenged certain

requirements.

Some suppliers thought that the prime contractor was not serious about

adopting acquisition reforms and other changes in the upcoming low-rate

production phase. Supplier B noted that although the prime contractor

would say it removed some of the detailed military specifications from the

program, the prime contractor had retained its own tight requirements

anyway. The supplier also stated that the low-rate production proposal

contained requirements that had been waived during development.

Supplier A noted that the low-rate production contract referred to

documents to be used as “guidelines,” which were military specifications.

Another supplier questioned why its component still needed government

source inspection after passing its own ISO-certified quality manufacturing

inspection and prime contractor inspection, considering that none of its

products had failed the government inspection. The supplier shared

concerns with the prime contractor and the Army regarding the added cost

and effort for retesting thousands of production components, but the

prime contractor included it in its contract proposal. Other suppliers

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believed that the continued use of military specifications limited their

ability to contribute to the product and reflected the customer’s lack of

trust.

The president of one second-tier company said that commercial firms kept

suppliers more abreast of business plans and that he was confident that

his commercial investments would pay off. Because of the uncertain

nature of defense contracting, the president explained that he had to look

at each defense order as a stand-alone order, which was an expensive way

to do business. For example, he stated that while he invested the firm’s

own funds for commercial tooling because of its long-term potential, he

would not invest the firm’s funds in BAT tooling because the return was too

uncertain. He said that although the 19,000 BAT units planned for

production were held out as a carrot, the probability of the company

working through the entire production was low because the program

could be downsized, canceled, or the prime contractor might award later

production to another supplier.

One second-tier supplier did have a long-term agreement with a first-tier

customer that had not worked out well. According to one supplier official,

the firm established a fixed-unit price for its component based on the

volume forecast. They noted that while the supplier made good on its

prices, the customer had only met 30 percent of the forecast volume, and

had been inaccurate from the start. One supplier manager said that they

typically invested their own funds in engineering efforts because with

most customers, the return from large volume production covered the

investment. On BAT, they lost money with this approach. The official said

that they will not renew their long-term agreement with the first-tier

customer and that any new agreements for research and development will

be on a customer-funded basis.

Some suppliers had more positive experiences on the program. Supplier E

officials said that they helped formulate the requirements in the

development contract and that they had worked with another supplier to

compromise on space utilization. Supplier F also believed the prime

contractor was open to suggestions. Supplier C believed that many of the

suppliers’ recommendations to use commercial rather than military

standards would be incorporated, although the supplier thought some

changes would be too costly at this phase of the program.

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BAT Prime Contractor

Believed DOD

Requirements Provided

Little Flexibility

BAT prime contractor officials said their ability to treat established

suppliers differently from new suppliers, such as with streamlined

inspections and paperwork, was constrained by program requirements.

The officials stated that the development contract with DOD was very

clearly defined and they were compelled to pass explicit requirements

down to their suppliers, regardless of prior dealings with those suppliers.

The officials said one difficulty in obtaining supplier input was that the

program started with a “build-to-print” development package based on

specifications. Every drawing referred to military specifications we were

told. As a result, the prime contractor prepared and sent technical

documents to potential suppliers requesting that they bid on the

component as designed. They said they did not solicit input from suppliers

even in low-rate initial production because the design was set and it would

be too expensive to make substantial design changes. DOD disagreed that it

has exerted such control over the BAT design. According to DOD, the Army

did not have control of design when the Engineering and Manufacturing

Development phase started, but only established a functional baseline. DOD

stated that the contractor was responsible for developing the

specifications and passing on requirements to subcontractors.

Prime contractor officials believed the low-rate production phase of the

program would have more latitude in the requirements passed down to

suppliers, but that many customer-imposed requirements would persist.

They stated they have tried to use the miliary specifications only as

guidelines wherever possible, but the customer still wanted the same

product. Consequently, many of their direct suppliers incorporated the

original military specifications in their low-rate production contract

proposals.

Prime contractor officials stated that they have forwarded any business

forecast information they received from their customer to the suppliers.

They noted that one of the reasons the firm invited the DOD customer to a

supplier conference was so that suppliers could get the information

directly. They said they wanted their suppliers to stay interested in the

product because they wanted their suppliers to invest in equipment and

tooling for BAT. However, the officials said that for some suppliers, the BAT

contract amount was a “drop in the bucket,” and thus not a great spur for

investment.

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JDAM Provided a

Commercial-Like

Environment in a Defense

Setting

On JDAM, the prime contractor said they formed alliances—sophisticated

relationships—with key suppliers. The DOD program manager played an

active role in creating the conditions conducive to such relationships,

according to prime contractor officials. The ultimate success of this

approach in producing a weapon that will perform as required remains to

be seen. However, the approach did receive praise from key suppliers for

the types of relationships it fostered.

The prime contractor and all four key first-tier suppliers informed us that

the strong alliance between participants was based on trust and mutually

shared goals. The parties agreed to long-term relationships that, according

to the prime contractor, was the optimal way to achieve program target

costs, high quality, and schedule performance. This approach was strongly

supported by the Army customer. Vice presidents from the key first-tier

suppliers were members of an executive IPT, which made them strategic

partners in the program’s development and design process. Participants

had to focus on how to make the best product as a whole because of the

top priority DOD placed on decreasing the cost. To achieve cost reductions,

the program manager at the time said the prime contractor had to turn to

their suppliers. These characteristics encouraged suppliers at different

tiers to invest more of their own resources in design and performance

improvements.

Suppliers echoed the importance of developing a strong alliance between

the parties. In highlighting differences between JDAM and other projects,

supplier M said the “seamless” teams on JDAM stood out. The supplier said

the prime contractor did not take a strong-armed role but asked its

subcontractors to participate as partners. Supplier N said the prime

contractor held clear authority over the program, but the development of

new solutions to win the contract was the result of great teamwork. A

second-tier supplier said the teaming arrangement was a lot closer than

with other weapon systems. These arrangements also offered the

second-tier suppliers the opportunity to add value because they were

involved early in the design phase.

The JDAM environment was the byproduct of actions taken by DOD, the

prime contractor, and the suppliers. Suppliers participated in the weapon’s

design and had open communications with the prime contractor. Unlike

the detailed specifications for BAT, DOD had stated the JDAM requirements in

terms of key performance parameters, which allowed the contractor teams

room to make design trade-offs. Instead of passing down specific design

requirements to the suppliers, the prime contractor delegated design

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authority and configuration control where possible, according to DOD

program officials. This added responsibility gave the suppliers a stake in

the product design and ultimate success. The suppliers retained ownership

of their design responsibilities as long as they met the cost and

performance specifications. According to the DOD program manager at the

time, the lifetime warranty DOD demanded of JDAM also had the

consequence of increasing supplier involvement. He said the suppliers

were willing to accept the liability as long as they had a voice in the

design.

Second-tier suppliers reported similar team participation experiences. For

example:

• Supplier U said they were attracted to the program because their early

involvement allowed them the opportunity to be innovative and make

suggestions rather than work from a blueprint.

• Supplier S said they worked extensively with its first-tier customer to

reduce the cost of its part.

• Supplier Q characterized its role in JDAM decision-making as a dynamic

exchange of information. The supplier was asked how it would meet

requirements and also to pose alternatives. At no time was the first-tier

contractor dictatorial. The supplier was treated as an expert and its

opinions were respected.

The planned stability and high procurement volume of the program

facilitated the building of long-term relationships on the JDAM program by

allowing the prime contractor to guarantee suppliers a certain amount of

work and obtain their commitment, according to DOD program officials.

One of the major steps that DOD took to facilitate this was to state in the

contract that the government would neither compete the production nor

ask the prime contractor to compete the suppliers for the duration of the

commitment, as long as the program’s performance specifications and cost

goals were met. Prime contractor officials agreed that the long-term aspect

of the program was very important and believed that suppliers were

attracted to the high volume and long-term mutually beneficial

relationships that resulted.

The suppliers agreed that the JDAM program was attractive from a business

standpoint and they did not believe they were contending with a low

volume, annually funded program. It represented a long-term commitment

and a high volume of parts and millions of dollars in business potential on

the domestic market, plus the potential for foreign sales. Suppliers could

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fit JDAM into their own strategic plans because the program offered

long-term stability—they would be together for 5 or 6 years if they won the

contract. Supplier U said they signed a general memorandum of

understanding for 5 years with its first-tier customer. Most suppliers also

reported that there was extensive sharing of business information.

According to supplier A, the prime contractor shared project information,

scope, scale, and business forecasts with them, which they shared with

their second-tier suppliers. Lower-tier suppliers found the information

important in planning and in staying fully informed on the program’s

status. Equally as important, the suppliers found the information to be

valid and accurate.

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Conclusions and Recommendations

Conclusions In both the commercial and defense sectors, suppliers play a key role in

the development and manufacture of major products. Suppliers are critical

in terms of both the amount of the finished product they make, as well as

the technological innovation included in the final product. The leading

commercial firms have found that developing sophisticated relationships

with key suppliers gives them a competitive edge in the cost, features,

quality, and development time of their products. If such relationships were

not beneficial from a business standpoint, they would not be cultivated

because they take commitment, effort, and resources. DOD and its prime

contractors realize the criticality of suppliers to the success of weapon

system programs and DOD has emphasized the selection of capable

suppliers. Nonetheless, a gap can be seen between how supplier

relationships have traditionally operated on weapon system programs and

how they operate in the leading commercial firms. DOD’s experience with

JDAM may show how to narrow that gap. Clearly, the need exists. The

persistence of problems on weapon system programs, coupled with DOD’s

desire to modernize more quickly, spotlight the need to get better

outcomes from new weapon programs, particularly in terms of

development cycle time and cost.

Best commercial supplier practices, when analyzed in the aggregate, can

be seen as four traits that operate in a system that is self-sustaining

because it provides mutual benefits to both suppliers and the product

developer. When this construct is applied to a traditional DOD program,

gaps can be seen in two traits: (1) providing central support for optimum

supplier relationships and (2) creating an environment whereby key

suppliers see their extra commitment and effort as worthwhile.

Experience on the BAT program shows that weaknesses in these two areas

can diminish the effect of other best practices, such as the use of a

rigorous supplier selection process, teams, and rating procedures.

Central Support In the commercial sector, the product developer can unilaterally commit

to centrally supporting better supplier relationships and can institute the

requisite organizational changes that make a company a preferred

customer. In the defense sector, DOD and prime contractors share this

responsibility. It is difficult for the prime contractors to translate the

desire for better supplier relations into tangible differences in the actual

relationships without the active support of DOD. To some extent, the prime

contractors have their own history to overcome; the Aerospace Industries

Association, for example, noted that until recently, the Association itself

had not adequately considered supplier firms. Similarly, DOD has

Page 61 GAO/NSIAD-98-87 Best Practices
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Conclusions and Recommendations

traditionally focused its attention on the prime contractors; it has

encouraged the selection of capable suppliers but adopted a hands-off

approach regarding supplier relationships.

DOD’s involvement is important in influencing the prime contractors’

commitment to better supplier relations and the extent to which such

commitment permeates the different tiers of suppliers. DOD shares this

responsibility because on any given weapon systems program, it is the

customer, financier, requirements setter, and co-manager. One reason for

the distance DOD has kept between itself and suppliers is the concern over

violating the privity of contract that exists between the prime and its

suppliers. However, the role played by the program office on JDAM shows

how critical DOD’s support can be to the value placed on supplier

relationships at the outset of a program, without crossing the line on

privity. Essential to DOD’s influence on that program was the program

office’s weighing the choice of suppliers heavily in selecting a prime,

supported by clear action—such as substantive visits to the suppliers

during the competition.

A Rewarding Environment DOD and the prime contractors share in fostering an environment in which

suppliers believe that there are true incentives for doing more than

complying with the contract’s terms. It is true that the BAT program did not

enjoy all of the advantages of the JDAM program for improving supplier

relations. Nonetheless, the best practices that were attempted on BAT were

not perceived by some key suppliers as much more than procedural

changes. Several suppliers believed their design and other ideas were not

welcomed or acted upon. In their view, despite their years of experience,

they were treated like newcomers when they bid on subsequent BAT

contracts. They also expressed reservations regarding the business

projections that upper-tier customers shared with them. In short, they

believe little trust or mutual benefit existed. They viewed their role as

restricted to delivering a product that complied with the design

requirements given them—they saw no value in doing more.

Several defense prime contractors stated that they were attempting to

build long-term, more rewarding relationships with their suppliers, but

believed that aspects of government business inhibited such relationships.

They noted that government requirements, though reduced, were still

complicated and that competition for lowest price was still emphasized by

DOD contract officials. Another noted that instability of DOD programs, such

as from funding uncertainty, weakened business projections. We do not

Page 62 GAO/NSIAD-98-87 Best Practices
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Conclusions and Recommendations

disagree that these may inhibit developing long-term relationships.

Nonetheless, ways were found on the JDAM program to overcome these

obstacles and create a commercial-like environment for suppliers.

While it remains to be seen if JDAM can deliver as promised, the lessons

learned may help other programs to fully realize the potential of involving

lower-tier suppliers to get better outcomes. Acquisition reform initiatives

may provide vehicles for facilitating supplier relationships. On the other

hand, the suppliers’ full participation may be essential to the effectiveness

of such reforms.

In establishing good supplier relationships, commercial firms have had to

become better customers. By implementing the lessons learned from those

firms—creating a system of incentives that rewards productive supplier

relations—DOD can become a better customer for weapon systems. In so

doing, DOD can also help its prime contractors forge better relationships

with their suppliers.

Recommendations We believe that actions to improve supplier relations are needed at both

the Department level and the individual program level in DOD. Accordingly,

we recommend that the Secretary of Defense:

• Develop a policy that promotes productive supplier relationships and

emphasizes the importance of suppliers in improving program outcomes.

In its absence, concerns about privity may dominate and minimize the

contribution of suppliers.

• Communicate this policy throughout the acquisition workforce and the

defense industry through training and other means. Training could include

tools that effectively promote best supplier practices for both new and

ongoing programs. Practices used in the JDAM program would be one good

source of identifying such tools.

We also recommend that the Secretary of Defense ensure that weapon

system program managers provide leadership and incentives for

optimizing supplier relations on their programs by taking the following

actions:

• Establishing acquisition strategies that support good supplier

relationships. The conduciveness to supplier relations may be affected by

(1) how program priorities, such as performance requirements, are set;

(2) how enabling practices, such as design flexibility, cost-performance

Page 63 GAO/NSIAD-98-87 Best Practices
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Conclusions and Recommendations

tradeoffs, and teaming responsibilities will be used; and (3) what tools for

recognizing and incentivizing prime contractor performance, such as

source selection factors and contracting arrangements, are made available.

• Supporting the strategies with action. This can involve active interfaces

with suppliers, through teaming or other vehicles, providing technical

assistance, evaluating the prime contractors’ success in fostering best

supplier practices, and following through on promised rewards and

corrective measures.

Agency Comments

and Our Evaluation

DOD concurred with a draft of this report and all of its recommendations

(see app. I). In agreeing that a policy, which emphasizes consideration of

the prime subcontractor relationship and its outcome on programs is

needed, DOD noted that this policy must also reflect consideration of

privity concerns. DOD envisioned that this policy would also include the

actions called for by our recommendation to ensure that leadership and

incentives be provided by program managers in their acquisition

strategies. DOD believes that current policies and efforts address some of

the concerns raised in the report. These initiatives include (1) reducing the

use of detailed specifications; (2) placing decision-making authority with

the prime contractor; and (3) using IPTs, cost as an independent variable,

past performance information, and integrated program team contractor

reviews. DOD stated that, in addition to the extensive acquisition reform

training currently offered, a JDAM case study was being prepared for

release this year. Finally, DOD noted that (1) the biggest impediment to

acquisition strategies that support good supplier relationships is the

financial stability of the program and (2) stability is considerably beyond

the control of any program manager or service. Nonetheless, DOD stated

that long-term relationships can be established that are contingent upon

the program’s continuation under commercially acceptable terms and

conditions.

We believe that some of DOD’s current policies—such as less detailed

specifications and cost as an independent variable—can give a program

manager the latitude needed to create an environment that fosters greater

supplier involvement. Others, such as IPTs, represent tools program

managers can use to build and maintain relationships. Although these

policies and tools are not directed at supplier relationships, they can

facilitate stronger relationships and are at the same time dependent on the

relationships. A supplier policy could thus clarify the role expected of

program managers in cultivating supplier relationships to increase the

chances for program success. We believe that the JDAM case study DOD

Page 64 GAO/NSIAD-98-87 Best Practices
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Conclusions and Recommendations

plans to incorporate into its training curriculum could help communicate a

supplier policy by sharing not only the specific experiences of the JDAM

program, but also by making the broader points that program managers

(1) recognize their responsibility to be fully aware of the activities and

progress being made by key suppliers, regardless of tier; (2) be made

aware that, with appropriate regard for privity concerns, they may be more

directly involved with suppliers; and (3) be encouraged to do so for the

benefit of the program.

As DOD points out, there are factors that create instability beyond the

control of a program manager or service. These could include reductions

necessitated by an unexpected military operation or congressional

direction. On the other hand, other factors are controllable by the services,

such as decisions to reduce the funding of some programs to

accommodate changes in other programs or to start new programs.

Nonetheless, stability is but one of several factors that can affect a

program manager’s ability to build trust and commitment among

suppliers.1

 Other factors, which are more controllable, include setting

reasonable expectations about production quantities and schedules;

setting a cost, schedule, and performance baseline that has a practical

probability of being executed within available funding; and taking steps to

ensure that prime contractors reward high-performing suppliers, such as

with simplified business arrangements and increased business.

1

For more information on these issues see Weapons Acquisition: Better Use of Limited DOD

Acquisition Funding Would Reduce Costs (GAO/NSIAD-97-23, Feb. 13, 1997) and Weapons Acquisition:

A Rare Opportunity for Lasting Change (GAO/NSIAD-93-15, Dec. 31, 1992).

Page 65 GAO/NSIAD-98-87 Best Practices
Appendix I 

Comments From the Department of Defense

Page 66 GAO/NSIAD-98-87 Best Practices
Appendix I 

Comments From the Department of Defense

Page 67 GAO/NSIAD-98-87 Best Practices
Appendix I 

Comments From the Department of Defense

Page 68 GAO/NSIAD-98-87 Best Practices
Appendix II 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Louis J. Rodrigues

Paul L. Francis

Gordon W. Lusby

Maria J. Santos

Los Angeles Field

Office

Sharon L. Caudle

Monica L. Kelly

Marguerite P. Mulhall

Office of the General

Counsel

John A. Carter

(707190) Page 69 GAO/NSIAD-98-87 Best Practices
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