Defense Logistics Agency

1. Defense Logistics Agency Aerospace Industries Association Spring Product Support Conference May 11, 2004 Commander Defense Supply Center Philadelphia

2. The DLA Enterprise Scope of Business FY 02 Sales/Services: $21.5B FY 03 Sales/Services: $25B FY 04 Projection: $28.9B • 45,000 Requisitions/Day • 8,200 Contracts/Day • #55 Fortune 500 – Above Northrop Grumman • #2 in Top 50 Distribution Warehouses • 23 Distribution Depots • 4.6 Million NSNs • 24.7M Annual Receipts and Issues • 1411 Weapon Systems Supported • 147.7M Net Barrels Fuel Sold (FY 03) • $12.5B Annual Reutilizations/Disposals • Land/Maritime/Missiles: $ 2.7B • Aviation: $ 3.3B • Troop Support: $10.2B • Energy: $ 5.2B • Distribution: $ 2.2B • Other: $ 1.4B Foreign Military Sales • Sales: $719M • Shipments: 580K • Supporting 124 Nations People • 21,468 Civilians • 525 Active Duty Military • 636 Reserve Military • Located in 48 States/28 Countries

3. Road Map…. • Strategic Supplier Alliances • Performance Based Logistics • Preparing For The Future

4. What Is A Strategic Supplier Alliance? • Established Customer/Supplier Partnerships • Transcends Individual Purchasing Transactions • Leverages Customer Purchasing Power and Knowledge With Supplier Capabilities • Develops A Joint Strategy/Team Approach To Identify Improvement Opportunities • Forges A Relationship That Fosters Innovative Contracting And Supply Solutions That Will Create An Integrated Value Chain • Delivers A Superior Return On Relationships For All Involved Parties

5. S U P P L I E R Alliance Members DLA MILITARY SERVICES Strategic Supplier Alliance

6. Strategic Supplier Alliance Evolution FY01 Contract Focused FY02 Transition FY03/04 Relationship Focused • Focused On Corporate • Contracts Improvements • SSA Relationship • Grown Out Of • Contracts • Initial Engagement • Of Military Services • As A Principal • Stakeholder • Concept Of Supplier • Teams Introduced • Limited SSA • Development Process • Focused On Process, • Policy And Total Cost • Improvements • DSC Resources • Committed (SRM • Division) To Manage SSA • Development • Long Term SSA Strategy/ • Planned Development • Major Effort To Engage • Military Services In SSA • Engaged Supplier Teams • SSA Process Implemented • Honeywell SSA • Military Services • Not Principal • Stakeholders • No Focused • Structure

7. Alliance Selection Criteria Three Key Elements • Significant Number of Sole Source NSNs • Dollar Value Of Sole Source Business • Historical Contractual Relationship

8. DLA Strategic Supplier Alliance Candidates DSCC AM General Dresser Rand GDLS OshKosh Truck Co. Raytheon United Defense LP Night Vision Warren Pump DSCR Aircraft Braking Systems BAE Boeing Canadian Commercial Eaton Corp. General Electric Goodrich Corporation Hamilton Sundstrand Honeywell Lockheed Martin Moog Inc. Northrop Grumman Parker Hannifin Pratt & Whitney Rolls Royce Sikorsky Textron/Bell Helicopter Unison Industries DSCP AVIBANK Alcoa (Fairchild Fasteners) SPS Technologies Fully Established SSAs

9. DLA SSA Current Engagement X = Currently Engaged

10. DLA Strategic Supplier Alliance Execution Plan Completed – Charter Signed

11. Strategic Supplier Alliance Benefits All Participants • Leverage the knowledge of all organizations • Share best practices • Reduce cycle times • Reduce repetitive efforts Government • Improve right item, right time, right place, right price • Leverage DoD Combined Spend • Reduce inventory by reducing lead time • Reduce total ownership cost • Admin • Process • Acquisition & Logistics Industry • Single process across spares business base • Minimize uncommitted production • Improve capacity utilization • Reduce admin / interface costs • Long term business base • Performance-based incentives • Reduce Costs (Take Out Cost)

12. Road Map…. • Strategic Supplier Alliances • Performance Based • Preparing For The Future

13. Spectrum of PBL Strategies More Organic More Commercial ORGANIC CONTRACTOR Contractor Support Organic Support MIX Contractor Responsible For Majority of Support Public/Private Partnering Opportunities Traditional Organic Support Environment • Examples: • Total System Support Responsibility (TSSR) • Industry Partnering • Service Level Agreements • Performance-based Agile Logistics Support (PALS) • Prime Vendor Support (PVS) • Contractor Delivery System (CDS) • Performance Plans • MOU with Warfighter • PBL strategies will vary along this spectrum depending on: • Age of System (Phase in Life Cycle) • Existing Support Infrastructure • Organic & Commercial Capabilities • Legislative and Regulatory Constraints One Size Does Not Fit All

14. DoD Logistics Transformation Evolving DoD Supply Chain … Warfighter Customers Supply Partners/Leads JSF E-10A Aerial Command Post Multi-Mission Maritime Acft Future CLS/ PBL OEMS Aerospace Companies Small Business DCMA Less F-18 E/F, C-17 F-117, JSTARS Transition DoD Supply Chain Involvement F-18 A-D, E-2, EA-6B, A10, F-15 DLA Behind Curtain Legacy More Challenges … Affordability, Regulatory

15. Performance Based Logistics Future PBL Role For DLA… What We Can’t Do • Full Readiness Based Contracts DLA Only One Piece of Solution

16. Performance Based Logistics Future PBL Role For DLA … What We Can Do • Supply Performance Contracts • DVD, VPV, IPV • Strategic Supplier Alliances • Backed by Robust Corporate Contracts • Leverage Support Across Major Vendors • Increase Value for Gov/Industry Partners • Support Weapon System PBLs • GFM … Partner • CFM … “Behind the Curtain” • Market Baskets • Harness Competitive Sector for Common Items • Insurance Item Investments Government/ Industry Partnerships For Best Value One Size Does Not Fit All

17. DLA Value To PBLs • Supply Chain Value • Leverage Buying Power • Preposition Material/Inventory • Only Pay When Requisitioned • Joint Forecasting • Storage Inside the Gate • Single Touch Point to Other Suppliers • Information Technology (BSM) • Dominating Infrastructure • People • Places • Processes • In Plant Presence (DCMA) • Technical Expertise • Consumable Repair Part Mgnt • Global Distribution Management • Global Transportation Mgnt • Performance Monitoring • Compliance Reviews • Contract Management • Longstanding Relationships • Customer Base • Industrial Base • Pricing Agreements • Proven Track Record Strong financials for inventory investment $28.9B Projected FY04 Revenue…#55 On Fortune 500, Next To Northrop Grumman Partnership Strengthens PBL Value & Effectiveness

18. DLA Initiatives Performance Based Logistics • In Place: • C-17 Flexible Sustainment • F/A –18 E/F Integrated Readiness Support Team (FIRST) • Navy’s Consolidated Automated Support Systems (CASS) • Lockheed Martin Kelly Aviation Center (LMKAC) • AF F-22 Raptor Air Dominance Fighter • Joint STARS TSSR • B-2 Total System Support Partnership

19. DLA Initiatives Performance Based Logistics • Under Development: • Hamilton Sundstrand/OC-ALC • Hamilton Sundstrand APUs: H-46/H-53 Navy • Boeing/AMCOM for CCAD Support • Navy F404 Engine Rebuild • F/A-18 FIRST Expansion to A-D Models & EF-18G • Boeing Aerospace Support Center For KC-135 PDM

20. DLA Initiatives Performance Based Logistics • Future • Joint Strike Fighter (JSF) • Multi-Mission Maritime Aircraft • E-10A Aerial Command Post • Tactical Unmanned Aerial Vehicles • USCG’s Deepwater Program: Aviation Systems – Lockheed Martin

21. Road Map…. • Strategic Supplier Alliances • Performance Based Logistics • Preparing For The Future

22. Preparing For The Future Supplier Relationship Scale Relationship Growth Partnering Relationship Personal Relationship Transactional Relationship Most Supplier Relation- Ships New Relationship No Relationship

23. Preparing For The Future • Readiness Is Our Target … • Must Haves: • High Product Availability • Increasing Reliability • Critical Success Factors: • Knowing What The Customer Needs (Customer Knowledge) • Sourcing With OEMs To Support PBLs (Supplier Relationships) Expanding The Partnership !