Los Angeles - November 14, 1997

Peter S. Hellman
President and COO, TRW

"Lean Thinking in the Space Dimension"

It is a special honor to be invited to speak before the Air Force Association. TRW has well been aware of your many activities. We are proud of our long membership and proud of Mary Anne Thompson from our company for her many years of service, most recently as a director. My assignment this morning to speak for industry gives me the honor of offering a very warm welcome to the new Air Force Chief of Staff, General Ryan and the newly appointed Under Secretary, Mr. Peters.

General Ryan, we welcome you to your new role as we do to Secretary Peters. You can be sure that all of industry pledges to work very closely with you. It is our tradition and it is our job. TRW's tradition is a long one. We have been intimately associated with space and missile programs for some 45 years. We began our ICBM work back in 1953 when two highly talented technical guys named Ramo and Wooldridge signed on with the Air Force to do ballistic missile work.

Ramo and Wooldridge are still represented in the "R" and "W" in our name. They are literally two-thirds of our corporate personality. Combine our long years of work with the ICBM programs, with our other work with the Air Force, DoD and NASA activity and you understand why space and defense continues to be deeply rooted in TRW's culture.

As a theme for my remarks, I want to borrow a symbol from one of our ICBM programs, the Minuteman. Minuteman missiles stand on guard even now in their silos. They are still a vital part of America's defense. The Minuteman tradition has a special value. It says something important about the industrial firms that support the Air Force. The colonial minuteman was a civilian who took his military obligations seriously. He worked his trade in peace, but kept his rifle ready by the door. So do we all in industry today.

Everyone here, military and civilian, is fascinated by the challenge of "Defense in the Space Dimension." That fascination is heavily colored by the excitement of the technologies involved. As much of space has become an operational medium, it is still very much a laboratory. The defense aspect of space opened an era that will continue to captivate the best technical minds of America and for the coming century and beyond.

For all that has been accomplished, we are still only pioneers setting out onto a great plain. We are the early sod busters of space. But we also know that space has a practical side. It has a side to be seen and managed as a down-to-earth challenge, just like all other defense requirements. Those facts bring us back to earth in a hurry. On earth, there is much talk about the value of commercialization. The automobile, that is the "T" in TRW, has been our commercial side for the past 95 years. At TRW, we have tended for most of our long history to view space and automotive as two very different, basically unrelated worlds. That may be true as well for all companies which have a commercial as well as a defense personality.

But there is a relationship. It has been there for years, only waiting for the time when you would want it. Industry might have been slow to take advantage of the genuine linkage between the commercial and the military worlds, if the Air Force had not encouraged all of us to look into a different mirror. When you revolutionized the process of bringing new technology into the Air Force inventory, industry had to meet a new standard of performance. A lot changed and it changed quickly.

Much of that change is welcome to industry. The drive for a new efficiency became a referendum for trust and trust won. We are all happy to see a new productive era of open cooperation in both our contractual and professional relationships. Every company that serves the Air Force has found new ideas and methods within its own operations. TRW has discovered that we can learn a lot from our experience in the automotive world.

No, we won't head to space in a snappy new car any time soon, although that might be worth thinking about, but both industries are pushing the envelope of business reengineering. I believe we will be better off if we head to space with lessons learned from the dog-eat-dog automotive world.

Let me tell you a little about the cost-control demands that we face on that side of TRW and how we must meet them. There are strong parallels with the new demands of space and defense. Our automotive customers expect us to reduce our prices to them by five percent a year. We must do that in the market that sees cost increases for raw materials, labors and other factors by some three percent a year. The bottom line is we need to find efficiency gains of eight percent a year, every year.

How do we get there? We do it with higher productivity, constantly improved technology and better designs. We target safety first with a passion: seatbelts, steering gear, electronic crash sensors and air bags absolutely must work the first time and every time. That is a mission. But because they do, they lower costs, especially human costs. We also value the safety of our employees and strive for a work place that is second to none in safety. That safety is also an economy.

All manufacturers target quality, but as a manufacturer of safety-critical parts, there is no alternative to high-quality products. A little known fact is that the end-of-the-line quality is higher in the automotive industry than in the aerospace industry. The quality is manufacturered in, not inspected in. When your manufacturing quality is high, you lower your inspection, rework and warranty costs. Quality does not war with cost reduction, it is a method in cost reduction. Reliability is obviously essential on its own terms. We know it is vital for the Air Force. The reliability of your industry suppliers will be essential to your mission in a time when our activities merge far more than ever.

A hard focus on reliability leads with certainty to overall lower costs. Look at the service life the satellites are achieving today and the impact on such reliability on budgets and force structures. So yes, we sometimes work on small savings, perhaps pennies per part, but we get there without compromising safety, quality or reliability. Every one of your suppliers should make that statement. I think it is an important statement. The safety, quality, reliability approach to cost savings is obviously a method that fits the Air Force requirement perfectly. It is in the intersection between industry and space. To require higher safety, higher quality, higher reliability while lowering your costs is the essence of lean thinking.

Compare it to the "Lightning Bolt" or the CAIV [Cost as an Independent Variable] initiatives. It is basically the same and with the same degree of promise for cost cutting. It dove-tails with the lean air craft initiative which Dr. Hastings, the new Air Force chief scientist, has been encouraging. Lean thinking targets added value and eliminates non-value added activities. If any action or material adds no value, it is by definition considered to be waste. The Japanese call waste "mooda" and much of their most aggressive activity is focused at eliminating "mooda." When you combine such tough-minded global discipline with America's creative capability, you get the most effective, lean-thinking programs and processes in the world. The Toyota, Honda and Sony plants operating in the United States are the most productive, top-quality facilities the Japanese own anywhere in the world.

Lean thinking pays. That is why TRW, along with your suppliers, is transferring such cost-cutting thinking to space and defense work, making the appropriate changes, of course, as we do so. We have made and still are making the link from commercial practices to space on a systematic basis. Our lean-thinking reengineering has focused on some one hundred processes in design, engineering and manufacturing. We looked for activities in periods of non-activity which added no value to the end result. To quote one key example, we found that the productive power of our best engineering minds was some times on hold, a task that might require eight man-days of actual engineering work could be extended over a period of three weeks. This start-stop-start approach meant ramping up both mentally and physically many times over those weeks. It added time and cost. We reengineered that activity. The reengineering method is now being applied to our space and defense work as well.

A second insight touches on an obstacle the Air Force has recognized immediately -- the price of excessive oversight. Reviews are essential in any productive process, but highly repetitive reviews soon encounter the law of diminishing returns. We found them and cut them out. We also discovered again what we already knew, that integrated product teams work. They substantially reduce cycle time and rework. Using IPTs, the automotive industry has gone from seven years in designing a new car to 21 months. The Air Force can point with pride to similar gains. A universal "lesson learned" is that smaller companies or companies with commercial roots have a built-in capability for fast action and quick inclusion of developing technologies. Large companies attain it by creating carefully focused internal groups. Whatever road is taken, lean thinking leads to speed, flexibility and minimized cycle times in all activities.

The systematic transfer of lean thinking to space activities touches every task. It changes management, organization, teaming concepts, standardization requirements, inventory handling, working empowerment, process mapping and route-cause analysis. It always targets the elimination of waste. None of this is theoretical and none of it is exclusive to any one company. Every manufacturer can offer specific examples. United Technology, in its most recent annual report, relates their Sikorsky group applied lean production techniques and achieved a reduction of 70 percent on the spindal rejection rates while cutting machining time by 57 percent. Lower costs, higher quality, less rework. Others, including ourselves, have experienced savings in the same ranges.

Industry's most important lesson learned is that lean thinking skills are transferrable. They travel well from commercial operations to defense. TRW, Boeing and Lockheed Martin are each applying their own versions of such cost-cutting processes to the Airborne Laser project. The Air Force is reaching the same productivity goals. The project office for the Airborne Laser is very small, made up of just 50 people, where in the past, three or four times as many people might have been involved. The ABL program is tightly controlled. Lean thinking is a model for everything we are doing and hope to do in that project.

This transfer of best practices is happening more and faster today than ever. Lean thinking is a continuous improvement process. It is never finished. What we did two years ago was good. Last year, it was improved. This year, it is even better. The picture I am painting fits comfortably with the goals of both industry and the Air Force, but it should not make us feel too comfortable. There is a lot more that we can do as we work together to bring lean thinking to the space dimension.

We all agree that we have major opportunities for mutual improvement in areas of communications. Let me point out some interesting possibilities. In the automotive world, communication from customer to supplier is well advanced. We experienced enhanced communications in the IPT, where customer and supplier sit side-by-side from concept to production. We see it enhancing the performance of the supply chain. Some techniques in communication are pretty innovative. Chrysler, for example, supplies TRW with a monthly report that tells us exactly how well we are doing in comparison to their six hundred largest suppliers. This Chrysler system is not based on any specific program. It ranks us among all its suppliers of all types of products. Chrysler rates its supply base on specifics such as price, customer service, quality, delivery and warranty. Quality gets a 30 percent weighting in the factors. That monthly ranking is invaluable to us. We can never fall into the trap of assuming we are meeting the standards that we and Chrysler have agreed on and then getting a nasty surprise. Besides, the standards are always changing.

It is possible to succeed within a single program and not know well enough how you are actually doing as a competitor. Chrysler tells us where we stand and they tell us monthly. They define the competitive landscape for us.

Here is a mutual challenge: Industry could work with the Air Force to find a Chrysler-style rating system that would tell us all where we stand as competitors. We want to know. We need to know if we are going to mutually push the envelope of change. I would also like to suggest that the best practices could be shared more freely. This form of supplier management can lead to an extended enterprise throughout the supply chain. The basic data for such an evaluation exists, at least in substantial part in the Contractor Performance Assessment Report or CPAR.

That might be a promising place to begin. Whatever method would be used, helping industry to see itself as you see it, would be a useful advance in communication. Industry can work with the Air Force to achieve still another form of enhanced communication. I believe that all companies need a greater understanding of the long-range Air Force strategy. Of course, the Air Force already takes us into its confidence to a degree. But the close-to-the-vest tradition, there for historical reasons, still exists. And yet today, with a very different post-Cold War challenge, I wonder if that tradition might not be modified. The better the industry understands long-range strategy, the better it can commit its own resources and best minds to the amplification and implementation of that strategy. As good as our long-range strategy communication is, I believe it can become much better. Call it an aspect of continuous improvement.

We have still another area of challenge and I refer to General Marsh's infrastructure study. It occurred to me during those remarks that technology leads to dependence. Dependence on technology leads to defense. With the amount of commercial assets in space, there is an increasing role of the military, the Air Force, to protect the commercial interests just as the Navy protected the interests of the commercial sea lanes early on in our country's history.

It also seems clear that we have entered a period when our historic level of investment in basic research is threatened for both the nation and individual companies. The old sense that the battle against an unequal colossus would last for decades gave us real impetus for basic research both in government and in industry. Today a sense of well being can put us to drift off our guard, like a sentry nodding off to sleep. A good example of the value of basic research is the high-energy chemical laser. If you rely on what you read, this may seem like the decade of the laser. Articles appear regularly on lasers on the ground, in air and in space applications. That popularity is gratifying. But it didn't come easily or quickly.

Beginning early in the 1960s, the Air Force and industry had to fight a long battle for the support and funding of high-energy laser development. Those who believed in this technology won. Today we are actively developing laser payloads for ground, air and space applications. The way ahead is open for smaller, lighter and more powerful lasers. This would not have happened without the support for a long, shared, long-term view and a belief in the future applicability. In a period of budget pressures, it is far more difficult for either the Air Force or any company to gain support for such long-term basic research and development efforts. But we have to find a way when true innovation is at stake. This long-range challenge will demand the very best thinking and the most effective actions that any of us can take.

This indeed is the link between lean-thinking concepts that I have discussed and the national security of space. It is my strong recommendation that some of the costs and efficiency savings that come out of lean thinking or commercialized techniques be reinvested in maintaining our national technology advantage in space. As the Air Force and industry journey together into an age of technological development in the mutual use of space for defense and commercial operations, we should find many new ways to work ever more closely together. Cooperation, partnership, shared viewpoints all will help achieve our combined and parallel goals sooner and at a lower cost.

Basically, we have to understand each other better to understand space better and understanding space means listening to many different voices. From one valid point of view, space is a new but normal theater of operations. From another equally valid, it is different. It is more complex. It presents demanding time lines for development and deployment. It is incomparably important. No other theater of operations can approach its ability to have a positive impact on the outcome of an action in many other theaters.

Space is a military multiplier. It can achieve a return on investment that can't be approached in a two-dimensional world. From every view point, one can see the commitment of the Air Force to do its job. In space, it has always done in the atmosphere. The Air Force planning process that is underway, judging by the studies that have been released lately, is as exciting to the technical and patriotic imagination as anything in our history. Although I speak personally, I am sure I express the feeling of all companies that supply the Air Force when I say that we are as high on the space dimension as we have every been.

When the space era was launched, we were with you. As it matured, we grew with you in understanding, creativity and accomplishment. Today, we Minutemen, all stand ready to give you our best while applying the lean thinking that can help preserve more Air Force resources for direct application to its mission. We are citizens. We are soldiers. We are and always will be honored to serve the Air Force wherever it flies and wherever its imagination takes it.

Gen. Shaud: How does a company like TRW deal with its own information vulnerabilities?

Mr. Hellman: TRW has long been in the information services business for our customers and for ourselves. In fact, one of the best examples of commercialization of defense conversion was the establishment of the credit reporting business. The connection may seem somewhat obtuse, but we developed a computerized credit reporting industry in the United States using high speed and complex data management techniques we learned serving you. As such we have worried a lot about the security of that data base. As it turns out, we sold that business last year, but we had in one place more credit information of United States citizens than any other company in the world. We had 180 million credit files in a single credit files in a single location. Clearly where we were allowing customers to access that information over the Internet, we had to put in extremely secure fire walls and intrusion detection. But it is a very tough problem and I agree with the study that the General Marsh pointed out, it is a national security issue. There is vital information that is in the decentralized state throughout the world that affects the United States and we need to have better technology and early detection and prevention.

Gen. Shaud: Can TRW compete effectively with larger companies created by mergers?

Mr. Hellman: We think so. We've taken somewhat singular view. We have not been a participant, either on the buy or the sell side of what some would say is a feeding frenzy, but at least an industry consolidation. We believe that focus is paramount. At TRW we have certain market areas that we are focused on and we believe that no one is ahead of us. Throughout this period, we have been focused on those areas and will continue to be focused on those areas. For the very large companies, the integrated defense contractors, these areas may even appear to be niches. We hope so. We hope they look at them as niches and we hope they look at them as our niches. But through focus and efficiency, we not only can be a survivor in a very competitive industry, we can excel and serve you better as a perhaps more focused, perhaps more nimble, but always a very loyal supplier.

Gen. Shaud: Let me pick up on one of your main themes. It happens to have echoed no less an authority than former Secretary of Defense Bill Perry when he talked to us earlier this year. RD now appears to be more the responsibility of industry versus the military. The military now uses industry R&D for programs. The trend is for greater reliance on industry for the R&D that can have applicability to military systems. What incentives are necessary and important to do this? I know you touched on this as you went through your talk, but is there anything further that you might want to say. It is a tremendous transition from the way we have operated in the past.

Mr. Hellman: The shift of responsibility is one that we take very seriously. I think another dimension of the question is how can we maintain jointly a technological leadership and advantage when we are using commercial off-the-shelf technology. The key to all of this is integration. The key is integration of systems. That is something the supply base can do quite well. What we can do is draw technology on a world-wide basis, but integrate it in a way that creates an advance technology and provide that in a time line and a budget sense that is more efficient than the military customer. It is appropriate for them to have oversight. Equally important, it is vital that they have a role in the concept, the design and the production, as a team player so that we never get ahead or behind and that we have a clear understanding of what the end objective is.

Gen. Shaud: The next question come from one of our Air Force leaders. As General Ryan pointed out earlier, as we get into contracting out, there is an impact on morale. What do you think is the long-term impact of lean thinking on employee morale?

Mr. Hellman: The morale question is a key to the successful implementation. Our space and defense unit downsized from 33,000 to 17,000 people over a period of four years. We faced the morale issue straight on. I would also point out during that period, and you'll recall, we are primarily a cost-plus provider, our sales maintained about the same level. We had tremendous increases in employee productive. The key in any sort of employee transaction, between management and employees, including lean thinking is, open communication and sharing of data.

There is often fear in the system. But there also is an innate view of employees to do what is right. The employees know better than management where the waste is, and where the process can be improved. To share that data by welcoming it on the team is the way that you open the mind and get the answer. They must be involved. The morale question turns out to be a second order, as it turns out, as long as their is open communication and fair treatment of out placement. There is an excitement on reengineering that overcomes the fear of employment. It all is in the trust of communication and fairness and treatment of the people. Besides, the leanest companies will grow. There is an enormous demand for the technology that we have in automotive or that we have in space and defense. We can look forward to cost advantage, quality advantage, service advantage and safety advantage by lean thinking, can promise our employees at least better growth than with competitors and if anything charges them up, that does.

Gen. Shaud: You used the phrase "price of excess oversight." What major changes in the acquisition process and regulations would you suggest so the military-space world could better take advantage of the commercial sector movement to lean thinking less expensive satellite systems for the new constellations of communication systems?

Mr. Hellman: The answers start with a clean piece of paper. The requisition process, the procurement process, any controlled process has an historical legacy. Having come out of the finance community, where audit and control is one of our functions, I've always looked at controls like Christmas tree ornaments. They are put on the tree for a good reason, but too often they don't come off the tree, so the tree gets loaded with ornaments that all have a historical precedent. We must ask, "Is that precedent still a valid one." By starting with a clean piece of paper and putting in the appropriate controls, and controls at the appropriate period of time, we can make the system far more efficient.

Gen. Shaud: Thank you for your excellent comments.

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