Research Proposal on "Lockheed Martin Aeronautics"

Research Proposal 8 pages (2666 words) Sources: 4 Style: APA

[EXCERPT] . . . .

Lockheed Aerospace

Lockheed Martin Aerospace

Lockheed Martin (NYSE:LMT) is one of the global leaders in the research, development, design, sourcing, manufacturing and integration of advanced technology-based systems and services. The company competes in four divisions including Aeronautics, Electronic Systems, Information Systems & Global Services and Integrated Systems & Solutions. Revenue is evenly distributed across these divisions according to their latest fiscal year (FY) financial results reported as of December 31, 2008. As of FY end 2008 the company generated 19% of revenues from Space Systems, 27% of revenues from Electronic Systems, Information Systems & Global Services, and Integrated Systems & Solutions generating $42,731 million in revenue. Electronic Systems generates 30% of Operating Income, Aeronautics, 29% with Information Systems and Global Services generating 22% and Space Systems, 19%. Please see Appendix a, Lockheed Martin Segmentation Analysis for this analysis. Appendix B includes a five-year ratio-based analysis of Lockheed Martin for reference. Using the Porter Five Forces Model (Porter, 2008) Lockheed Martin's position in the global military aerospace products manufacturing industry is analyzed in this paper. Threat of New Entry, Competitive Rivalry, Supplier Power, Buyer Power, and Threat of Substitution comprise the five forces of the model. This has also been called the Determinants of Competitive Advantage (Porter, 1985) as this framework has been successfully used to determine how productivity within industries re-shapes buyer, supplier, and competitive rivalries.

Analyzing Lockheed Martin using the Porter Five Forces Model

The four divisions of the company compete in the global military aerospace products manufacturing industry by designing, manufacturing and servicing military aircraft, high-tech flight systems for missiles, and also completing extensive defense-related projects. As a result of this product and services focus the company takes a portfolio-based approach to managing products and projects (Gurgur, Morley, 2008). The three core markets of defense and intelligence, homeland security, and systems and information technology form the foundation of the company's revenue streams (Gurgur, Morley, 2008). With just over 3,000 programs active as of 2009 with the most well-known being the F-22 (King, Driessnack, 2007), Lockheed Martin has a culture that is heavily influenced by project-based values including Quality Management techniques including Six Sigma for continuous quality improvement (Prybutok, Ramasesh, 2005) and business process re-engineering (BPR) (Schiff, 2004). As project-based business models are heavily dependent on supplier collaboration and close work with their supply chains, Lockheed Martin continues to be one of the leaders in the aerospace industry at supply chain management and optimization (Myers, Cheung, 2008). Suppliers are often required to create customized components, assemblies, and modules for use in prototypes Lockheed Martin uses to test new products. This process workflow of streamlining product configuration and customization requirements across its divisions with a common market focus is also a competitive advantage of Lockheed Martin relative to more formally structured European competitors including European Aeronautic Defence and Space Company (EADS) (Johansen, Comstock, Winroth, 2005). All of these factors combined give Lockheed Martin a unique position in the global military aerospace products manufacturing industry. Figure 1 shows the Porter Five Forces Model which will be used for analyzing each specific aspect of Lockheed Martin's business.

Assessing Supplier Power

In the global military aerospace products manufacturing industry suppliers and manufacturers have a very tight, symbiotic relationship. This tight level of dependency is based on the highly customized nature of Lockheed's products and programs on the one hand, and the stringent quality management requirements suppliers must meet including military standard (MIL-STD) specifications on the other (Prybutok, Ramasesh, 2005). This symbiotic relationship is also strengthened by the tight timeframes and project management-based requirements Lockheed's customers place on them. Taken in aggregate these requirements force the company to concentrate on lean manufacturing and Six Sigma-based project management techniques to ensure compliance to customer needs (Browning, Heath, 2009).

Suppliers to aerospace manufacturers then are actually at a disadvantage to Lockheed Martin and aerospace manufacturers throughout the industry. As suppliers are dependent on the highly customized prototypes and final production-level assemblies, components and modules for the majority of their profits, the supply chain's viability in this industry is highly dependent on R&D by aerospace manufacturers. For new project and product development revenue there is also significant competition in the form of bidding and technology-based demonstrations on the part of suppliers vying for additional revenue. The integration of lean manufacturing concepts including engineer-to-order workflows and supplier quality management standards has resulted in manufacturers being able to define quality benchmarks and standards even before actual production is commenced (Browning, Heath, 2009). As compliance and quality management is crucial for suppliers to continue to earn the right to sell into aerospace manufacturing (Prybutok, Ramasesh, 2005), manufacturers are increasingly conducting quarterly reviews of supplier quality management practices. These reviews are also audited by the U.S. Department of Defense to ensure there is oversight of sourcing and procurement practices to ensure ethicacy of practices, also to ensure quality of products delivered. The many Boeing ethics violations including attempting to hire a senior U.S. Air Force officer who had the decision of which supplier to give the Air Fuel Tanker Project to (Swartz, 2003) has led to oversight and auditing on a regular basis by the U.S. Department of Defense. Suppliers must provide evidence of compliance to internal audit, compliance management, Corrective Action/Preventative Action (CAPA) and Non-Compliance/Corrective Action (NC/CA) process workflows as they relate to prototype and production-level products. This has had the net effect of giving manufacturers including Lockheed greater levels of power of suppliers than has been the case in the past (Browning, Heath, 2009).

Threat of Substitution

For Lockheed and its competitive positions in the core three markets served of defense and intelligence, homeland security, and systems and information technology, the threat of substitution is low. This is attributable to the designed-in process that its major customers including the U.S. Department of Defense, foreign defense departments and ministries, and space agencies often invest years in choosing a supplier and then integrating their products and systems into their organizations. An example of this would be the selection of a fighter jet by the U.S. Navy, which will often take over a year to decide on which supplier to source from. Once Lockheed has been chosen, it is nearly impossible to replace them from a competitive standpoint. First there are the myriad of supply chain issues that need to be resolve in the context of standardizing on a given type of jet. Second, the area of Maintenance, Repair and Overhaul (MRO), which are the series of systems, processes and procedures for managing spare parts for the jet also need to be taken into account (Camelier, Lourenco, Lourenco da Saude, 2008). In addition to these factors regarding the continual support of the jet there are also the implications of how it is operated on Navy ships including aircraft carriers, training of the pilots, support crews and repair mechanics. In short there is an entire ecosystem of support that emerges from the adoption of a given aerospace product and the critical role of MRO in its support over the life of its use (Camelier, Lourenco, Lourenco da Saude, 2008). When these factors are taken into account, it is clear that the threat of substitution is very low for Lockheed on those projects where they have attained design-in wins. The only threat of substitution the company faces over time is from aftermarket parts suppliers who attempt to replace Lockheed-produced parts for jets with their own. Companies including Parker Aerospace often are successful in commercial aviation, specifically when they focus on Airbus and Boeing jetliner replacement parts product and selling strategies (Camelier, Lourenco, Lourenco da Saude, 2008).

Threat of New Entry

For Lockheed Martin and its competing aerospace manufacturers, the threat of new competitor entry is low. The global military aerospace products manufacturing industry has very high barriers to entry due to the demanding compliance, financial, technological, and staffing requirements necessary to compete for long-term projects in this industry. Any new entrant would need to have the financial backing to invest in years of research and development of new technologies while also pursuing design-in opportunities with the U.S. Department of Defense and other nations' defense departments and ministries. Pursuing these two strategic tasks concurrently could easily cost billions of dollars with little assurance of winning a long-term contract. Compounding this aspect of any manufacturer considering entrance into this industry there is the requirement from the U.S. Department of Defense, clearly one of the industry's top customers, for manufacturers to be majority owned by U.S. investors (King, Driessnack, 2007). In conjunction with this requirement is need for adhering to compliance and quality management standards including periodic audits to ensure oversight of ethics and product quality (Prybutok, Ramasesh, 2005). Compliance and quality management are areas that even the most experienced aerospace manufacturers struggle with from a process learning perspective (Gurgur, Morley, 2008). Simply put, operating as a manufacturer in this industry is very challenging even for the most established companies including Lockheed Martin. In addition to these factors there is also the requirement of having employees have… READ MORE

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