ERP IN THE AEROSPACE AND DEFENSE INDUSTRY

1
ERP IN THE AEROSPACE AND DEFENSE
INDUSTRY OVERVIEW OF THE INDUSTRY IN MID
2000 Presented to the Government ERP
Conference New Orleans, LA September 12,
2000 Thomas E. Shaw Alexander
Lengyel Engineering and Manufacturing Management
Consultants
2

• AGENDA
• ERP Definition
• Overall Observations
• More on ERP in the AD Industry
• Broad Review of Programs
• Some Major ERP Implementation and Architectural
  Issues
• Example of Rapid Implementation
• The New Internet B2B Initiatives
• Lessons Learned and Conclusions and
  Recommendations

3

• ENTERPRISE RESOURCES PLANNING (ERP)
  DEFINITION
• A method for the effective planning and
  controlling of ALL these sources needed to take,
  make, ship and account for customer orders in a
  manufacturing, distribution or service company.
• Includes
• Typical MRP II Functions Quality Functions
• Sales Force Automation Field Service Functions
• Engineering Functions/PDM Complete Financial
  Functions
• Advanced Manufacturing Function Human Resources
  Functions
• Distribution/Logistics Functions Management
  Reporting
• ERP is a System for the Entire Company - A Global
  Tightly Integrated Closed-Loop System
• SourceAPICS Complex Industries Special
  Interest Group

4
Organization Chart vs. MRP II
SourceAPICS Complex Industries Special Interest
Group
5
Typical ERP Functionality
Sales Marketing
Distribution/ Logistics
Manufact- uring
Engineering
PROGRAM MANAGEMENT
Human Resources
Field Service
Quality
Finance
SourceAPICS Complex Industries Special Interest
Group
6

• AGENDA
• ERP Definition
• Overall Observations
• More on ERP in the AD Industry
• Broad Review of Programs
• Some Major ERP Implementation and Architectural
  Issues
• Example of Rapid Implementation
• The New Internet B2B Initiatives
• Lessons Learned and Conclusions and
  Recommendations

7

• EVERYBODY IS DOING IT OR TALKING ABOUT DOING IT,
  BUT THERE IS CONSIDERSABLE DIVERSITY IT IS A
  MIXED BAG
• AT ONE END OF THE SPECTRUM, MAJOR GO-LIVES IN
  THE LAST TWELVE TO EIGHTEEN MONTHS HAVE VALIDATED
  CURRENTLY AVAILABLE SOLUTIONS ACROSS THE WORLD
  SOME RESOUNDING SUCCESSES BIG BANG, MOST
  LEGACY SYSTEMS DISCONNECTED RAPID
  IMPLEMENTATION
• AT THE OTHER END PLODDING EFFORTS START
  PROJECT(S), STUDY, ASSEMBLE TEAMS,
  BUT,ORGANIZATION CHANGES, CULTURAL AND POLITICAL
  CONSIDERATIONS AND AFFORDABILITY ISSUES DELAY THE
  PROJECTS.
• BENEFITS ARE BEING OBTAINED, QUANTITATIVE DATA
  STILL SCARCE
• THERE IS CONSIDERALE EMPHASIS ON PROVIDING
  SOLUTIONS FOR AIRLINE OPERATIONS AND DEFENSE
  LOGISTICS AND SOME SOFTWARE PROVIDERS ARE
  WORKING TOWARDS BECOMING THE SUPPLIER OF CHOICE
  FOR A COMPREHENSIVE INDUSTRY SOLUTION
• MMAS, EVMS AND GOVERNMENT ACCOUNTING
  REQUIREMENTS CAN BE MET BY MODERNSOF SOFTWARE
  PRODUCTS
• CONFIGURATION MANAGEMENT STILL POSES CHALLENGES
• PDM SOLUTIONS STILL TEND TO BE POINT SOLUTIONS
• THE ADVENT OF THE INTERNET IS ENABLING
  INTEROPERABILITY AND - FINALLY - MAKING THE
  AUTOMATION OF SUPPLY CHAIN MANAGEMENT POSSIBLE

8

• Key Observation
• CULTURAL AND ORGANIZATIONAL ISSUES AND THE PULL
  OF LEGACY SYSTEMS ARE STILL VERY STRONG
  INFLUENCES
• Three factors affect what an organization can do
• Its resources
• Its processes
• Its values
• Reference
• Meeting the Challenge of Disruptive Change
• Harvard Business Review
• Reprint No. R00202
• March-April 2000

9

• THE MOST EXCITING DEVELOPMENTS IN THE INDUSTRY
  ARE INTERNET BASED
• THE ADVENT OF THE INTERNET IS ENABLING
  INTEROPERABILITY AND FINALLY MAKING THE
  AUTOMATION OF SUPPLY CHAIN MANAGEMENT POSSIBLE.
• THE INTERNET EXCHANGE WILL PROVIDE A NEW LEVEL
  AND PRO-COMPETITIVE ENVIRONMENT FOR AEROSPACE
  AND DEFENSE SUPPLIERS AND BUYERS OF ALL SIZES
  AROUND THE WORLD.
• CAUTION SOLID BACKBONE SYSTEMS ARE NEEDED MORE
  THAN EVER AND DATA ACCURACY IS MORE IMPORTANT
  THAN EVERE!

10

• AGENDA
• ERP Definition
• Overall Observations
• More on ERP in the AD Industry
• Broad Review of Programs
• Some Major ERP Implementation and Architectural
  Issues
• Example of Rapid Implementation
• The New Internet B2B Initiatives
• Lessons Learned and Conclusions and
  Recommendations

11
Complex, Highly Engineered Products
The Aerospace Defense Industry is Still in a
Process of Change . . . Trends 1950 to Present
Yesterdays AD Prime
1950 to 1990
1350 cos
Todays Prime Specialty House
High Quality Commercial House
Components or Assemblies
1991 to 2000
Components or Assemblies
13,000 cos
Specialty Commercial Supplier
Commercial Job Shop
Components
Raw Parts
Raw Material
Courtesy of Plant-Wide Research
12
Complex, Highly Engineered Products

• Yesterdays AD Prime 1950 to 1990
• Entire product delivered and manufactured
• Configuration Management is a major issue
• ERP must be MMAS compliant
• Pay as you go contracts
• Hierarchical organization
• 3300 major players in 1990
• R D oriented
• 320 major players in 1998
• Now, fixed-price contracts (after 1990), still
  some pay as you go

Yesterdays AD Prime
1950 to 1990
1350 cos
Todays Prime Specialty House
High Quality Commercial House
Components or Assemblies
1991 to 2000
Components or Assemblies
13,000 cos
Specialty Commercial Supplier
Commercial Job Shop
Components
Raw Parts
Raw Material
Courtesy of Plant-Wide Research
13
Complex, Highly Engineered Products

• Prime Specialty House
• Supports MMAS
• Configuration Management is a major issue
• Does some commercial work
• Out-sources production to specialty commercial
  suppliers
• RD oriented
• Highly qualified engineering personnel
• May be lean and agile

Yesterdays AD Prime
1950 to 1990
1350 cos
Todays Prime Specialty House
High Quality Commercial House
Components or Assemblies
1991 to 2000
Components or Assemblies
13,000 cos
Specialty Commercial Supplier
Commercial Job Shop
Components
Raw Parts
Raw Material
Courtesy of Plant-Wide Research
14
Complex, Highly Engineered Products
Yesterdays AD Prime

• Specialty Commercial Supplier
• Engineering driven
• High quality production
• Specialized equipment
• May be lean and agile

1950 to 1990
1350 cos
Todays Prime Specialty House
High Quality Commercial House
Components or Assemblies
1991 to 2000
Components or Assemblies
13,000 cos
Specialty Commercial Supplier
Commercial Job Shop
Components
Raw Parts
Raw Material Contract Mgmt side of the new AD
industry Complex Manufacturing and ETO Processes
Courtesy of Plant-Wide Research
15
Complex, Highly Engineered Products
Yesterdays AD Prime

• High Quality Commercial House 1994 to 2000
• Profit Oriented
• Strong engineering capability
• Not MMAS Compliant
• Commercial House
• May be lean and agile

1950 to 1990
1350 cos
Todays Prime Specialty House
High Quality Commercial House
Components or Assemblies
1991 to 2000
Components or Assemblies
13,000 cos
Specialty Commercial Supplier
Commercial Job Shop
Components
Raw Parts
Raw Material Contract Management Complex Manufg,
ETO
Courtesy of Plant-Wide Research
16
Complex, Highly Engineered Products
Yesterdays AD Prime

• Commercial Job Shop
• Profit Oriented
• High quality
• Commercial production
• May be lean and agilegile

1950 to 1990
1350 cos
Todays Prime Specialty House
High Quality Commercial House
Components or Assemblies
1991 to 2000
Components or Assemblies
13,000 cos
Specialty Commercial Supplier
Commercial Job Shop
Components
Raw Parts Non-contract Management Custom, ETO,
MTO, MTS processes
Raw Material Contract Management Complex Manufg,
ETO
33,000 companies
Courtesy of Plant-Wide Research
17

• AGENDA
• ERP Definition
• Overall Observations
• More on ERP in the AD Industry
• Broad Review of Programs
• Some Major ERP Implementation and Architectural
  Issues
• Example of Rapid Implementation
• The New Internet B2B Initiatives
• Lessons Learned and Conclusions and
  Recommendations

18
BROAD REVIEW OF SOME PROGRAMS

• SAP in Aerospace and Defense
• MOST AD OEMs HAVE SELECTED SAP (NOTABLE
  EXCEPTIONS BOEING AND GE ENGINES
• PRESENTED SEPARATELY
• Oracle Implementations
• GE Corporate ERP Strategy
• GE Aircraft Engine ERP
• Vendor Characterization

19
Oracles Applications Strategy

• Widespread adoption in large companies
• Too expensive for smaller companies
• Locks you into a predetermined business model

ERP no longer provides a competitive advantage
but has become a competitive necessity
ERP
MRP
Chart Courtesy of Oracle Corporation
Source Gartner Study, 1998
20
ERP will fail...
if not implemented as part of a complete
solution.
Gartner believes this is perhaps the worst ERP
market ever. - Gartner Research Note, May 27,
1999
Chart Courtesy of Oracle Corporation
21
Oracles Applications Strategy
Internet High Value Business Applications
An Open, Integrated E-Business Strategy
Understand your data
Automate your enterprise
Strategic Capability
MRP
1980s
Early 90s
Late 90s
2000
Chart Courtesy of Oracle Corporation
22
GE - Solutions Making Business Sense

• Fortunes Most Admired Company
• Grown from 30B to 100B a year while shrinking
  workforce from 400K to 230K
• GEs CIO describes GE/Oracle partnership
• Oracle products allow flexibility in process
• Oracle commitment to technology
• Supported Six Sigma standards and process
• Understanding that fit is not 100 but
  partnership makes it best fit for future
• Commited to standards, COTS, simplicity - focus
  on the value returned

Chart Courtesy of Oracle Corporation
23
GE Aircraft Engines

• Launch Customer GE Engine Services - 30 sites
  globally
• Complete ERP partner - Financials, Mfg, SCM,
  Distribution, MRO
• Address customer-unique business processes (e.g.
  UAL vs. Delta) govt regulatory reqts (e.g.
  FAA, DoD)
• Track raw materials from source through repair
  process (e.g. titanium)
• Monitor/document stringent training
  certification reqts personnel engaged in
  activities

Chart Courtesy of Oracle Corporation
24
MRO (Maintenance, Repair Overhaul)
RADM Heilman, MRO 99 Keynote speech on weapon
system product support

• Driving change Affordable weapon system
  from a life cycle view
• Key Enabler Information technology - New
  paradigm
• Strategy Increased reliance in the private
  sector
• Concern No metrics for enterprise
  optimization

Chart Courtesy of Oracle Corporation
25
Oracle MRO Value Proposition

• Inventory Reduction gt 20
• Configuration Managed Decisions
• Part Alternativity and Availability
• Turn-Time Reduction gt 25
• Real-time Part Ordering Rapid Routing
• Auto Shop Scheduling Production Balancing
• Provides Increased Capacity
• Allows for higher pricing
• Predictable Turn-Times lt 10
• Configuration Generated Plans
• Accurate and Planned Part Availability
• Other
• Reduced errors
• Enforces process compliance
• Saved documentation and storage costs
• Co-developed with Industry, focused on ROI vs.
  feature

Chart Courtesy of Oracle Corporation
26
ERP Systems Today Trends

• Internal external entities need password
  access to specific areas
• Information passed on the Internet can be
  subject to drag drop sharing
• Private Public Documents, Sieban links and
  encoding can be used to control the passing or
  access of information

All for one, one for all! Where does one system
end? Where does another begin? Who owns or
controls what? Security is both easy complex
to manage. The openness sharing of information
changes the definition of security. Where are
the protections, areas of leakage, risks?
ERP System
Point Soln
Web-Partners
Web-Partners
Courtesy of Plant-Wide Research
27
ERP Systems Today Trends(Continued)
Specialization by vertical horizontal categories
Vendors seek to gain growth and increased
share of specific markets WDS, Cincom
AD Baan, Glovia ETO Only the top-tier vendors
can specialize in all or most markets SAP,
Oracle
Vertical Industries
ERP System
Horizontal by Revenue Tier, Processes,
Partnerships
Courtesy of Plant-Wide Research
28
ERP Systems Today Trends(Continued)
Tiers Of Markets that each vendor
serves Vendors, by virtue of the many system
modules and the number of clients, can better
serve specific market segments Vendor revenues,
number of consultants, and scope of product
development all shape choices by manufacturers
Type of ERP System Markets they better serve
Global, Multi-Plant with 2 Billion/ in
revenues Diverse Operations -- Scalable to
mid-sized plants 50M revenue
Top-Tier ERP System
Upper-Tier ERP System
Multi-Plant Enterprise with specialized
needs, complex products
Mid-Tier ERP System
Commercial Enterprise with special focus
Lower-Tier ERP System
Single Site within an Enterprise
Courtesy of Plant-Wide Research
29
ERP Systems Today Trends(Continued)

• ERP systems have saturated their market prior to
  2000
• Investment is now focusing on CAD,
  E-Business, CRM, Life Cycle Mgmt and
  infrastructure to support integrated systems
• Expectations have now been matched by
  technology, diverse systems can be linked or
  integrated -- BUT the cost may still be high

Point-Solutions are taking market share APIs
(application interfaces), Microsofts COM, DCOM,
and HTML technologies, the Internet and Objects
-- all these and more have made it possible to
better imbed, integrate, interface and link
diverse systems
ERP System
Point Soln
Courtesy of Plant-Wide Research
30
ERP Systems Today Trends(Continued)

• SCALABILITY for a variety of plant sizes and
  processes
• CHOICES of the level of functionality used
• MODULES, functional areas to customize the core
  ERP system
• PORTALS, interfaces to serve unique needs and
  better commun- icate with remote sites
• COLLABORATION tools for Purchasing, Auctions,
  Multi-Plant Planning Production

Mid-Market Commercial Applications The biggest
market space for Enterprise Management Systems
and Point-Solutions lies in the mid-market.
This segment drives the development of new
applications. What is the focus of this new
development?
ERP System
Point Soln
Courtesy of Plant-Wide Research
31
ERP Systems Today Trends (Continued)
Interoperability (better than supercalifragilistic
expialidocous) Interoperability has required a
full decade to achieve Todays enterprise
consists of many operational sites -- call
centers, manufacturing, design, distribution,
financial, research, information technology and
business sites The extended enterprise has to,
and does, include trading partners suppliers,
and many types of customers
This is the Major New Achievement

• Diverse systems have to communicate and
  collaborate
• The Internet, Portals, Workflow Processes,
  datamarts, technology and system design all serve
  interoperability
• General and special Supply Chains can be
  achieved to enhance partners effectiveness

ERP System
Point Soln
Web-Partners
Web-Partners
Courtesy of Plant-Wide Research
32
ERP Systems Today Trends (Continued)
Plant-Wide Research
Complex, Highly Engineered Products Who Best
Serves This Market?
Vendor Categories
Top Tier
Upper Tier
Mid Tier
Lower Tier
Evaluation Criteria
Example Vendors Top Tier SAP Oracle Upper
Tier Baan WDS Mid Tier Cincom Glovia Lower
Tier Visibility CIMA
Scope of Functionality Multi-Plant
Capability E-Business Functionality Supply Chain
Capability Engineering Change Work Break
Down Govt Documentation Serves DoD Needs Serves
Commercial Needs Serves Prime Contractors Serves
Tier-1 Contractors Serves Tier-2
Contractors Serves Tier-3 Contractors
33
ERP Systems Today Trends (Continued)
Who Best Serves This Market?

• Prime Tier One Contractors Require
• Global, multi-plant capability with strong
  Engineering, Procurement Inventory Control
  functionality
• There are only a few ERP vendors who can serve
  this category

• Tier Two Contractors Require
• Multi-plant E-Business capability with strong
  Engineering, Procurement, Inventory
  Scheduling functionality
• Only a quarter of the top 50 vendors can serve
  this category

• Tier Three Contractors Require
• E-Business, Engineering, Inventory Scheduling
  functionality
• Half of top 50 vendors can serve this category

Plant-Wide Research
34

• AGENDA
• ERP Definition
• Overall Observations
• More on ERP in the AD Industry
• Broad Review of Programs
• Some Major ERP Implementation and Architectural
  Issues
• Integrated vs. Best of Breed
• The Legacy Systems
• ERP/PDM Relationship
• Example of Rapid Implementation
• The New Internet B2B Initiatives
• Lessons Learned and Conclusions and
  Recommendations

35
Integrated vs. Best of Breed
36
Integrated vs. Best of Breed

Ferrari Dealership
Big Als Auto Nirvana
2000 Ferrari Roadster 385hp Engine
Tiptronic Transmission Multi Link
Transaxle Motronic Fuel Injection
Ferrari Designed Pirelli Tires (all
components specifically designed to Ferrari
specifications)
2000 Best of Breed Ferrari Roadster
Corvette 5.0 Liter Engine BMW
M3 Transmission Porsche Transaxle
Maserati Fuel Injection System
Mercedes Designed Michelin Tires
Interfaces and Problem Resolution ??

• Do you call the Service Mgr from..
• Corvette, BMW, Porsche,
• Maserati or Mercedes ??
  

• One Call to your local Ferrari Service Mgr
• You are Covered by a Single Warranty

37
The Legacy Systems
38

• LEGACY SYSTEMS
• THE ORGANIZATION IS USED TO THE LEGACY SYSTEMS
• THE LEGACY SYSTEMS EMBODY THE PRESENT CULTURE
• THE LEGACY SYSTEMS OFTEN PROVIDE POINT
  OPTIMIZATION
• NOT ALL LEGACY SYSTEMS DESERVE RETIREMENT
• INTERFACES BETWEEN LEGACY SYSTEMS AND THE NEW
  SYSTEMS ARE MOSTLY COMPLEX, TIME CONSUMING TO
  BUILD AND CHECK AND EXPENSIVE
• BEFORE IMPLEMENTING A NEW ERP SYSTEMS THE COMPANY
  MUST MAKE SURE IT UNDERSTANDS ITS PROCESSES AS
  WELL AS THOSE ENCODED IN THE NEW SYSTEM
• KEEPING LEGACY SYSTEMS MAY MEAN KEEPING BAD OLD
  HABITS
• THE NEW SYSTEMS MAY ONLY PROVIDE 80
  FUNCTIONALITY - SOME, LIKE RAYTHEON AIRCRAFT,
  HAVE SHOWN THAT THIS IS GOOD ENOUGH, IF ONE GETS
  INTEGRATION AND PROCESS STREAMLINING WITH THE NEW
  SYSTEM
• BEFORE PROCEEDING THIS MUST BE A VERY SERIOUS
  TRADE-OFF

39
ERP/PDM Relationship
40
ERP/PDM Relationship
Shared Resources
InteroperabilityArea
ManagementReporting
Data Vault
HumanResources
Sales Marketing
ECAD
Redline
Part Master
Distribution
CAE
PDM
MCAD
MRP II
ERP
Bill ofMaterial
Routing
Workflow
CAM
Financials
ProjectManagement
Quality
CSM
ConcurrentEngineering
Design
Manufacture
ConfigurationManagement
Chart courtesy of Don Frank Associates
41
PDM-ERP WILL DICTATE THE INDUSTRYS FUTURE FOR
DEVELOPMENT AND MANUFACTURING INTEGRATION AND
INTEROPERABILITY

• SINGLE SYSTEM VERSUS INTEGRATED SYSTEMS
  SOLUTION
• EXAMPLES OF EACH MODEL ARE SUCCESSFULLY USED
• MANY ISSUES IMPACT APPROPRIATE DECISION
• SCOPE, FOCUS, OBJECTIVE, BUSINESS,
  INTEROPERABILITY

LM High Engrg. Content
Boeing DCAC/MRM
SAP
Other LM, RAC
42

• MAJOR PDM-ERP INTEGRATION INITIATIVES
• BOEING COMMERCIAL AIRCRAFT CO. DCAC (DESIGN
  CONTROL OF AIRCRAFT CONFIGURATION) MRM -
  METAPHASE (PDM), WESTERN DATA, BAAN ERP SYSTEMS
• SINGLE BOM OBJECTIVE
• EFFECTIVITY CONTROL VIA EBOM
• RAYTHEON AIRCRAFT CO. - INTEGRATED
  PRODUCT/PROCESS TECHNICAL DATA PACKAGE
• TECHNICAL DATA ENTITY
• IBM PRODUCT MANAGER (PDM), SAP ERP SYSTEM
• KEY ISSUE STANDALONE PDM OR INTEGRATED VIA ERP
• LOCKHEED MARTIN COMPANY
• ERP IMPLEMENTATION UNDERWAY IN SOME ORGANIZATIONS
• OMG - OBJECT MANAGEMENT GROUP PDM REQUIREMENTS
  FOR CORBA COMPLIANT SYSTEM (INCLUDING ERP
  INTERFACES)

43
AN INDUSTRY GOLD STANDARD EXAMPLE OF RAPID
IMPLEMENTATION RAYTHEON AIRCRAFT WICHITA,
KANSAS Charts Courtesy of John Ferney,
Raytheon Aircraft
44
Aircraft at a Glance
Chairman, Arthur Wegner CEO and President,
Hansel Tookes Worlds leading business and
special mission aircraft manufacturer
Headquarters - Wichita, Kansas Major
facilities Wichita, KS Little Rock, AR Madison,
MS Salina, KS
Chart Courtesy of John Ferney, Raytheon Aircraft
45
Aircraft Companies
Raytheon Travel Air Fractional Aircraft
Ownership Raytheon Aircraft Services Network of
FBOs located in the U.S. and abroad Raytheon
Aircraft Parts Inventory and Distribution Retail
aircraft spare parts sales and distribution Raythe
on Aerospace Contract logistics support for
aircraft around the world
Chart Courtesy of John Ferney, Raytheon Aircraft
46
How They Started

• Raytheon selected SAP as Corporate ERP standard
• Raytheon Aircraft committed key people to develop
  recurring benefits - commitments made and added
  to operating budgets
• Summer of 1997 visited live aerospace and
  defense sites
• Westland Helicopters - UK
• AVRO/BAe - UK
• General Electric - Cardiff, Wales
• Prepared program plan
• Completed a phase zero - proof of concept and
  team training

Chart Courtesy of John Ferney, Raytheon Aircraft
47
Team Raytheon Partners
Approach Synergy International Consulting Core
R/3 integration R/3 web enable Hardware R/3 UNIX
- SUN Cluster Web
Approach Synergy International Consulting Core
R/3 integration R/3 web enable Hardware R/3 UNIX
- SUN Cluster Web
Chart Courtesy of John Ferney, Raytheon Aircraft
48
End State - ERP
As - Is (as - was) Condition at RAC
Chart Courtesy of John Ferney, Raytheon Aircraft
49
Objectives

• Replace thirty year old non-integrated systems
• Obtain benefits of business process
  reengineering
• Use ERP to drive RAC integration
• Become a proactive organization
• Facilitate Achievement of Raytheon Aircraft
  Company -
• five year plan

Chart Courtesy of John Ferney, Raytheon Aircraft
50
Program Ground Rules

• Off the shelf software - no modifications
• Maximize use of pre-configured processes within
  SAP
• Leverage work completed by E-Systems
• Collocation of Team
• Projects redirected and tied to ERP
• Only case by case emergency changes to existing
  systems
• Extensive training and education
• Focus on cultural change
• Milestone driven using EVMS techniques

Chart Courtesy of John Ferney, Raytheon Aircraft
51
The Solution

• 16 month main go-live implementation program
• Big bang activation with all SAP modules -
  January 3, 2000
• Only five legacy interfaces
• 2400 average daily concurrent users - week one
• 4,500,000 dialog steps daily average
• iXOS document imaging for AP
• Vertex for sales and use tax
• JetForm for printed documents
• ITS based Web enablement

Chart Courtesy of John Ferney, Raytheon Aircraft
52
Scope

• RAC
• RAPID
• RAS 7/00
• RA 10/00
• Includes
• - Finance - Web
• - Materials Mgmt - Sales and Distribution
• - Supply Management - Tooling
• - Quality - Program Management
• - Manufacturing - Sales Tax
• - Asset Mngt - Loan Mngt (7/00)
• - Service mngt

Chart Courtesy of John Ferney, Raytheon Aircraft
53
ERP Processes, Not Technical

• Legacy systems (MRP) were primarily Information
  Technology projects focused on automation of
  existing processes
• ERP is a vehicle to facilitate process redesign
• ERP is not an I.T. project, it is a business
• process project
• 15 I.T.
• 25 Software, Hardware
• 60 Users (People and Processes)

Business event, not technical
Chart Courtesy of John Ferney, Raytheon Aircraft
54
Program Ownership
- Raytheon led project management office
focused on solution and change management -
Full time business manager, EVMS managed - Used
ASAP templates - Integrator (Synergy) had prior
Aerospace implementation
experience
Chart Courtesy of John Ferney, Raytheon Aircraft
55
Project Team
Program was led by business process owners -
Transferred into new ERP department/cost center -
Full time (plus!) - Co-located - No offices,
all levels - Trained - Configuration done by
process owners
Chart Courtesy of John Ferney, Raytheon Aircraft
56
Team Structure
Aligned team by business processes - Eight
process teams - Each team worked multiple
modules - Forced cross training - Mixed team
seating to promote communication - Team
structure drove integration - Did not
effectively integrate ABAP staff with teams
Chart Courtesy of John Ferney, Raytheon Aircraft
57
Schedule
Aggressive 16 month schedule - Big bang - Early
scope definition - Early exit out of realization
phase allowed 6 months for end to end
testing - Lowered overall cost (58M vs
100M) - Allowed early benefits realization -
Assured momentum - Kept team focused
More time would not have helped.
Chart Courtesy of John Ferney, Raytheon Aircraft
58
Roll Out
BIG BANG ! - 2,400 concurrent users on day one -
Reduced overall program schedule and cost -
Eliminates need/expense for temporary
interfaces - Integrated solution centered around
SAP processes - Go-live pain over in one go -
Executed an early go-live for team practice -
Focused business on the new way .
Chart Courtesy of John Ferney, Raytheon Aircraft
59
Process Re-engineering
Used best practices built into SAP - SAP
processes offer flexibility - SAP allows for
continuous improvement after go live Active 6
sigma program in place - Limit R/3
modifications - 80 solution (some folks give
for the good of the whole)
Chart Courtesy of John Ferney, Raytheon Aircraft
60
Change Management
- Key process owners own solution - Engaged
senior management steering committee - Solid CEO
support - Process demos mini Sapphire at end of
realization - Extensive communication -
Continuing education
Chart Courtesy of John Ferney, Raytheon Aircraft
61
Data Conversion
They got this one wrong - Needed to do more
clean-up and conversion within SAP - Ownership
for data clean-up and mapping - Under estimated
the impact of integration
Chart Courtesy of John Ferney, Raytheon Aircraft
62
R/3 Training
Process education - Process training rather than
transaction training Not sure this was the best
approach - Invested in education (e.g. APICS) -
Ensure the right people are in the new roles -
Extensive post go live training
Chart Courtesy of John Ferney, Raytheon Aircraft
63
Go-live
Go-live is painful !
- Activation support team - Power users and
consultants on floor - Highly responsive HELP
desk - Developed and measured health metrics
Meet daily with steering committee and weekly
with CEO - Tiger teams to key issue areas -
Data was root of most problems - Solution was
solid
Chart Courtesy of John Ferney, Raytheon Aircraft
64
Integrated Solution
The RAC solution was all SAP - Five interfaces
(payroll, PDC, PM, carousel, Eng. doc) - All SAP
modules and business processes (excl. payroll) -
Modified processes to fit those in SAP -
Achieved high degree of integration - Forced
master data issue to the forefront quickly -
Warranty end to end process developed with key
ABAP and Web (ITS) - No temporary interfaces
Chart Courtesy of John Ferney, Raytheon Aircraft
65
Major ERP Driven Changes

• Make to stock fabrication facilities - two month
  cycle time reduction
• Eliminated thousands of weekly WIP transfers
• Integrated RAPID with the factory
• Forecasting of spare parts integrated
• Standard cost solution replaces prior actual cost
  system
• Assembly lines pull materials using networks
• Sales use variant configurator to specify and
  communicate aircraft configuration (reduced up to
  3 months of cycle time)
• Web time cards, travel, expenses, customer order
  entry
• One company data base and associated master data,
  real time

Chart Courtesy of John Ferney, Raytheon Aircraft
66
Issues

• Data Collection Stability
• Ryder Warehouse Management Interface
• WM/IM imbalances
• Data Cleansing and Integrity
• Training versus Education
• Transition to Business Ownership
• Pay Attention to the Easy Stuff

Chart Courtesy of John Ferney, Raytheon Aircraft
67
RAC ERP Future

• Remote service facilities
• APO demand planning and global ATP
• Global ATP with APO integrated to sales
• Business information warehouse
• Customer relationship management
• mySAP.com
• B2B procurement
• Loan management
• Optimization

The go-live is not the end of the journey, but
the beginning
Chart Courtesy of John Ferney, Raytheon Aircraft
68
Issues

• Data Collection Stability
• Ryder Warehouse Management Interface
• WM/IM imbalances
• Data Cleansing and Integrity
• Training versus Education
• Transition to Business Ownership
• Pay Attention to the Easy Stuff

Chart Courtesy of John Ferney, Raytheon Aircraft
69
The ERP Future

• Remote service facilities
• APO demand planning and global ATP
• Global ATP with APO integrated to sales
• Business information warehouse
• Customer relationship management
• mySAP.com
• B2B procurement
• Loan management
• Optimization

The go-live is not the end of the journey, but
the beginning
Chart Courtesy of John Ferney, Raytheon Aircraft
70
Key Take Aways

• Approach was sound - ASAP !
• Process is bigger than the software
• Data is the cornerstone
• Our R/3 configuration is solid
• Education on MRP II skills is critical
• Legacy process bottlenecks did not disappear
  with R/3
• Post go-live support teams for users
• Master data
• Education

Chart Courtesy of John Ferney, Raytheon Aircraft
71

• AGENDA
• ERP Definition
• Overall Observations
• More on ERP in the AD Industry
• Broad Review of Programs
• Some Major ERP Implementation and Architectural
  Issues
• Example of Rapid Implementation
• The New Internet B2B Initiatives
• Lessons Learned and Conclusions and
  Recommendations

Some charts courtesy of SAP America, Inc
72
The Internet Changed Everything

• The Internet has
• changed the way we do business
• Expanded market opportunities
• Improved business process efficiencies
• New ways to retain customers

73
OVERALL INTERNET OBSERVATIONS

• The Internet is a fact of life, and will replace
  / cannibalize some of the traditional
  communication tools - It may turn business models
  up-side down, allowing new companies to globally
  compete in low-cost, non-traditional ways
• The Internet brings on additional opportunities -
  and challenges - to todays business managers -
  it does not replace all existing opportunities
  and/ or challenges
• Especially in the AD industry, the future
  Internet Business Solutions will be subjected to
  traditional requirements (e.g. serial numbers,
  certifications, tracking, etc)
• In order to harvest the Internet opportunities,
  the overall business application platform ( i.e.
  master system ) needs to respond at network
  speed
• Common standards, integrated and auditable data
  sources and real-time systems as pre-requisite
  for eBusiness

74
e-Business Collaboration and Personalization
Unleashing Intangible Sources of Value
Customer
Partner
Collaboration
Supplier
Employee
Process
c-Business Value creation across company
boundaries by dynamically connecting ppeople and
applications in all aspects of business.
75
The Vision of Collaborative Business
Everyone Shares Information
Customers, employees, suppliers andbusiness
partners working togetheras one successful
entity.
76
Personal, Collaborative Solutions on Demand

• MarketplacesCollaboration hubs
• WorkplacesPortals for personalized, universal,
  role-based access
• e-Business Applicationse-Commerce, CRM, SCM,
  Business Intelligence,Logistics, Financials,
  Human Resources
• Application HostingThroughout the solution life
  cycle

77
Vision of transactional coverage
Sellers
Buyers
Banks
Logisticsproviders
Authorities
78
Electronic Marketplaces / Portals / Internet Hubs
Sellingcompanies
Buyingcompanies
Old World
Suppliers Partners
Customers Employees
Marketplace
NewWorld
79
Why Marketplaces?

• Buyers like
• 30-70 reduction of transaction costs
• 5-10 cost reduction by avoiding maverick buying
• 3-5 lower prices for aggregated goods
• 10-20 lower prices for auctioned goods
• Sellers like
• 30-70 reduction of transaction costs
• Up to 50 lower sales costs
• Market makers like
• All businesses will be connected to marketplaces
• New sources of revenue
• Participation in other companies business
• Equity stakes/revenue sharing in co-owned
  marketplaces

80
Integration Continues to be Key
High
A real plan Iintegration architecture
Short term fixBuy/build tactically

• Needed
• A plan
• Openness
• Partnerscomponents
• Crosscompanysynchronization
• FederatedMarketplaces
• Commonmessagingsemantics

Strategic nature of integration
Hackers heaven
Go to the lab ?
Low
High
Time before plan changes
81
No Openness, No e-Business!
UserIntegration
Enterprise Integration
MarketIntegration
82
New Type of Inter-Enterprise Apps
A)

• Components migrateinto marketplaces
• Serving multiplecompanies at a time
• Hosted
• Ubiquitious
• Personalized
• Self help
• Partner softwarebuilt-in
• Integrated withback-end
• Scalability,performance,availabilityand
  security

B)

• Supply Chain Optimization
• MRO Procurement
• Direct Procurement
• Planning and Optimizing
• Analysis
• Relationship Management
• Sales
• Service
• Marketing

83
Buying and Selling Made Easy
c-Business Scenario One-Step Business
Buyer ABC Inc.
Seller XYZ Inc.
Identify need for goods or services
Publish products in catalog or Web store
Marketplace
Sell Side Sol.
HTML
HTML
Find business partner
Select and configure goods or services
Buy Side Solution
Business Directory
Multi-vendor shopping basket
Availability check and pricing
Document Exchange
Createpurchase order
Createsales order
Backend
XML
XML
Backend
Fulfillment and billing
Receipt and payment
84
Reaching Every Marketplace and Workplace
Federation of Marketplaces
Auctions
mySAP.comMarketplaces
RFPs
e-Bay
BulletinBoard
Ubid.com
Bidding Invitations
auctions.com
...
Apps
mySAP.comWorkplaces
85
Network Excellence Is Joining Corporate Fitness
The next wave of corporate benefits will be
derived from interface optimization and
re-design within the supply network
86
Evolution of Business Solutions
Enterprise Resource Planning
Business Collaboration

• Objectives
• Create Value
• Flexibility
• CustomerRelationshipManagement
• Collaboration within business communities
• User-orientation
• Focus on the Internet hub

• Objectives
• Cost andEfficiency
• Automation
• Best-PracticeBusiness Processes
• Integration ofbusiness processes
• Process-orientation
• Focus on internal systems

87
The role of the Master System
Buy - Side Upstream
Sell - Side Downstream
Master System

• Sell Side
• Able to transact via Marketplaces, but ...
• Counteracting the aggregating effects of
  Marketplaces
• Customer Relationship Management Mechanisms
• Value Added Services
• Supply Chain Mngmt / Inventories / Forecasting
• Documents

• Master System
• Maintaining Master Data
• Product Availability Data
• Engineering Data
• Program Management
• Costing Data
• Audit trails / traceability
• Responding _at_ Internet speed (i.e real time)
• Integrated data is pre-requisite for eBusiness
  efficiency

• Buy Side
• Able to transact via multiple Marketplaces, and
  ...
• Benefiting from Aggregation / Comparison /
  Increased competition
• Utilizing common standards, benefit from any
  value adding services provided by the supplier

88
The structure of the AD Industry
10 - 30
100 - 300
- 15000
of participants
30 - 300
100
Material and service volumes subject to
long-term, regulated and / or quasi-monopolistic
relationships
Purchasing volume ()
Commodity material and service volume
0
Airlines / Defense
2nd tier
Raw Mat.
1st tier
OEM
89
The structure of the AD Industry (Continued)
10 - 30
100 - 300
- 15000
20 - 300
eBusiness push
Benefits
Airlines/ Defense
2nd tier
Raw Mat.
1st tier
OEM
90
The structure of the AD Industry Continued)
10 - 30
100 - 300
- 15000
20 - 300
Airlines / Defense
2nd tier
Raw Mat.
1st tier
OEM
91
The structure of the AD Industry (What is Going
on Today)
10 - 30
100 - 300
- 15000
20 - 300
FastAero.com
Airbus, EADS, et al ????
StarAlliance
BAe, Lockheed, Raytheon, Boeing
E-gatematrix
ATA spec2000. com
AAR / SITA Aerospan.com
T2
UTC / Honeywell MyAircraft.com
AviationX.com
Delta, American, United, BA, AF, etc
BAe Systems
myboeingfleet.com
EU Travel
TradeAir.com
PartsBase.com
SkyFish.com
Airlines
2nd tier
Raw Mat.
1st tier
OEM
Source Flight International 23 - 29 May 2000 -
list is not comprehensive
92
Caution!
Today many current Internet offerings lack
integration to the enterprise systems, and
require double entry of data for the buyer and
the seller
93
An Example Using B2B for Parts Provisioning
Mechanic searches/verifies part number in eIPC
Part numbers posted to B2B shopping
basket Purchase Request
Material Planner checks parts availability Purchas
e Order
Availability?
check part availability
Availability report
94

• AN EXAMPLE OF A MAJOR NEW INTERNET B2B
  INITIATIVE
• A NEW GLOBAL TRADING EXCHAGE FOR THE AEROSPACE
  AND DEFENSE INDUSTRY
• Farnborough, July 25, 2000 -- The four founding
  partners of the recently created Aerospace
  Defense Global Trading Exchange today announced
  that they have signed a definitive agreement and
  are planning to launch the web-based exchange by
  the end of September. They also announced Exostar
  SM as the name of the new company.
• Initial partners in the Exostar SM venture
  include BAE SYSTEMS, The Boeing Company (NYSE
  BA), Lockheed Martin Corporation (NYSE LMT),and
  Raytheon Company (NYST RTNA, RTNB).. Other
  aerospace and defense suppliers and buyers around
  the world are invited to participate.
• Exostar SM will be an independently incorporated
  and neutral electronic marketplace designed to
  increase the efficiency of supply chain
  transactions and improve design collaboration
  across the aerospace and defense industry.
• "We are forging a new e-commerce world for the
  aerospace and defense industry. The
  multi-national aspects of Exostar SM reflect our
  aspiration to create a global e-marketplace for
  our business."

Courtesy of George P. Shaw, CIO, Exostar and
Partner Andersen Consulting
95
A NEW GLOBAL TRADING EXCHAGE FOR THE AEROSPACE
AND DEFENSE INDUSTRY (continued) "In addition
to the signing of the definitive agreement, we
have put together a plan that represents the
cooperative efforts of our companies, which at
one time or another, have been customers,
suppliers, competitors and now partners," said
Phil Condit, Boeing chairman and CEO. "The
Internet exchange will provide a level and
pro-competitive environment for aerospace and
defense suppliers and buyers of all sizes around
the world." Condit went on to say, "our
companies are committed to integrating
their related internal e-commerce initiatives
with the exchange where it makes business sense."
He also welcomed and encouraged other companies
to join the industry exchange. Our initial
trading partners are some of the most significant
and largest players in the marketplace," said
John Weston, chief executive officer of BAE
SYSTEMS. "We have the critical mass, the global
presence, and the determination needed for an
industry wide exchange to be successful."
96

• A NEW GLOBAL TRADING EXCHAGE FOR THE AEROSPACE
  AND DEFENSE INDUSTRY
• (continued)
• Dan Burnham, CEO of Raytheon, said, "We are
  committed to developing and delivering an
  industry leading exchange that draws upon the
  industry knowledge and foresight of its trading
  partners." Burnham went on to say that Exostar SM
  "will create a 'frictionless' environment that
  will enable us and our global customers,
  suppliers and service providers to lower
  transaction costs significantly and deliver
  exceptional value. In fact, we are in discussions
  with major customers and suppliers to determine
  how best to leverage Exostar SM for their
  operations."
• Exostar's SM web site (www.exostar.com) was
  activated today. This informational web site will
  become the site for all transactions when the
  exchange becomes operational in September

97

• A NEW GLOBAL TRADING EXCHAGE FOR THE AEROSPACE
  AND DEFENSE INDUSTRY (continued)
• "Significant progress has been made since we
  announced our intentions four months ago,"
  Specifically, Exostar SM will be conducting
  actual business transactions in September, said
  Vance Coffman, CEO and chairman of Lockheed
  Martin.
• "We are forging a new e-commerce world for the
  aerospace and defense industry. The
  multi-national aspects of Exostar SM reflect our
  aspiration to create a global e-marketplace for
  our business."

98
More on the E-Business Model
99
E-Business Model Plant-Wide Research
Internet Partners . . . what the E-Business
environment is all about! Gaining savings in
purchases Speeding transactions Expanding
choices Reaching more prospects Becoming more
competitive Improving services to
customers Lowering transaction costs, Collaboratin
g for efficiencies Sharing, selling trading
designs
Internet Partners Managed Trade
Exchanges Supplier or Customer Application
Service Provider CRM Information
Consolidation Centralized Service Center Remote
Mobile Agents
100
E-Business Model Plant-Wide Research
Internet Access Tools
E-Business Functions
Interface Points to ERP System
An E-Business System has processes
facilitating contact and business conduct with
Customers, Suppliers and Partners that may be
spread over a global community . . . And is
supported in those processes by an Enterprise
Management System The Internet, E-Business ERP
Systems combine to improve competitiveness!
Internet Partners
101
E-Business Model Plant-Wide Research
The E-Business System is the bridge between
an internal ERP system and the outside world . .
. It may be part of the ERP System or a
point-solution that is tightly integrated or
simply interfaced-linked to a host ERP
system E-Business Systems speed transactions,
lower costs and expand opportunities!
E-Business Functions
Self Definition of Products E-Store
Catalog Self Service Sales Call Center
Operations Order Entry, Ackt, A-T-P Mobile
Agent Sales Sales, Lead Mgmt, SFA Marketing
Campaigns Post-Production Mobile
Services E-Collaboration E-Purchasing Data
Marts Purchase Receipts, Inventory AR, AP,
Credit, Monitoring Shipping Fulfillment Drop
Shipping . . . and Optional Functions
102
E-Business Model Plant-Wide Research
Internet Access Tools Internet
connection Intranet (internal) network Portals
Browsers with personalization
tools Workflow processes E-Mail Electronic Data
Exchange or EDI Access to Data Marts and
Trading Exchanges Access to Internal
Informn Security
The E-Business System is dependent upon Internet
tools and common system utilities to facilitate
communication around the globe. . . . The
difference in system effectiveness depends
upon resources used, their costs, and imagination
of developer. E-Business Systems can apply
common tools with highly un-common results!
103
E-Business Model Plant-Wide Research
The E-Business System The combined E-Business
and ERP system offers imbedded functionality
The integrated solution brings a point-solution
to a standard ERP system The interfaced solution
lets a legacy or other ERP system be upgraded
with E-Business capability
Interface Points to an ERP System Configuration
Estimates, Product Engineering Order Entry
Management Services Production
Scheduling Demand Forecasts Procurement Inventory
Quality Financial Operations Warehousing
Distribution
104
E-Business Model Plant-Wide Research

• E-Business . . .
• Breaks down barriers between any and all business
  partners
• Brings collaboration, speed and advantages to
  each partner
• Delivers higher quality and better products to
  customers
• Unifies all systems businesses into an
  effective Supply Chain
• E-Business . . .
• Its not cheap, its not optional!
• Jim Dickey, Industry Consultant

Internet Partners E-Business ERP System
105
Internet in AD Summary
106
Internet Realities in Aerospace Defense

• Most major companies have commenced their
  Internet activities
• Web presence
• Online Stores
• Business Directories
• Internet enabled Customer Relationship Management
  applications to improve competitive advantage
• Most Buying Selling applications in a B2B
  environment currently ignore the integration
  aspects between the accounting systems
• Most companies are recognizing the benefit of the
  Internet, yet the lack of industry standards may
  prevent the realization of some of the Internet
  dreams
• Marketplaces or Exchanges are being created
  to enable the communication within the various
  communities

107
Implications for AD Companies

• The utilization of Web-enabled functionality for
  Internet / Intranet usage will continue, and
  accelerate
• Todays applications allow for true interaction,
  beyond simple representation of the company and
  product range - They lack back office integration
• Tomorrows functionality will allow for genuine
  linkage to the enterprise based systems, enabling
  true electronic handshaking
• B2B (Business to Business) and B2C (Business to
  Consumer) concepts
• Simple Master-slave updating, exchanging or
  collaborating systems
• Linkage for engineering, project and financial
  data
• Internet applications may evolve to be the
  Customer Relationship Management (CRM) tool for
  our industry
• The Internet will be a major enabler to the AD
  industry in the future

108
Summary - Top three Take-aways

• The Internet is providing a new set of
  challenges, some of which may change the rules of
  business
• In the Internet age, the complex processes of the
  AD industry still have to be mapped to software
  applications
• Beyond the simple buying and selling
  applications, most current Internet applications
  appear to be stand-alone today

109

• AGENDA
• ERP Definition
• Overall Observations
• More on ERP in the AD Industry
• Broad Review of Programs
• Some Major ERP Implementation and Architectural
  Issues
• Example of Rapid Implementation
• The New Internet B2B Initiatives
• Lessons Learned and Conclusions and
  Recommendations

110

• LESSONS LEARNED (AGAIN)
• Conclusions and Recommendations - 1
• WHILE NEW TECHNOLOGY IS ADVANCING AT DIZZYING
  SPEED, WE SOMETIMES STILL HAVE OUR FEET MIRED IN
  THE MUD OF THE PAST CULTURAL CHANGE IS THE MOST
  DIFFICULT OBSTACLE
• THE INTERNET IS HERE AND DEVELOPING - JOIN IT,
• BUT
• DATA HAS TO BE BETTER THAN EVER
• YOU STILL NEED A BACKBONE TRANSACTION SYSTEM

111
LESSONS LEARNED (AGAIN) Conclusions and
Recommendations - 2

• RAPID IMPLEMENTATION OF ERP IS POSSIBLE AND MOST
  COST EFFECTIVE
• DO NOT LET LEGACY SYSTEMS OVERWHELM YOU
• MODERN AD ERP SYSTEMS ARE AVAILABLE AND PROVEN
• TOP MANAGMENET INVOLVMENT AND COMMITMENT
• ONE TEAM, ONE PLAN, USERS ARE THE OWNERS
• DATA CLEAN-UP IS DIFFICULT AND OFTEN
  UNDERESTIMATED

112
Consideration Plant-Wide Research
Adopting New Applications Technologies Is
Essential! We are not talking about putting
lipstick on a pig . . . We are talking about
survival . . . Yours!