RANDY BELOTE - Northrop Grumman Corporation LOGISTICS SOLUTION 06.25.13 PAGE 1 RANDY BELOTE: We’re...

INNOVATIVE LOGISTICS SOLUTION 06.25.13 PAGE 1

RANDY BELOTE: We’re going to go ahead and get started. Good morning. My name

is Randy Belote. I'm Vice-President of Strategic Communications for Northrop Grumman

Corporation. I’d like to thank you all for joining us here at the National Press Club this

morning in another briefing of an ongoing program of briefings that Northrop Grumman

offers here at the Press Club.

Northrop Grumman is focusing its National Press Club briefings to define its core areas

of capabilities. We affectionately refer to them as our four pillars: cyber, which we

briefed here at the end of May, C4ISR and unmanned systems, which we will be briefing

in the coming months, and today, logistics.

Northrop Grumman delivers innovative logistics solutions, enabling affordability,

effectiveness, and global mission readiness, from modernization and sustainment, to

supply chain management, training, and simulation, high technology services, and

automated test equipment. We offer the full spectrum to support or meet any mission

requirement.

Northrop Grumman has logistics expertise across the organization. To ensure that we are

bringing value to our customers, we approach logistics in a cross-company, integrated

team concept. Today you’ll hear from Northrop Grumman’s logistics experts, as they

discuss the marketplace and how mission execution, effectiveness, and innovation for

affordability define the company’s performance in this critical area. Today, 70 percent of

the cost of a military system is in sustaining and modernizing that product over its entire

lifecycle, while 30 percent of the cost is in its research, development and production.

Today’s briefing is structured to provide you with some insight into Northrop

Grumman’s approach to innovative logistics, how we think about it, how we define it,

and how we approach it. To exemplify and expound on our approach, today on our panel

are four subject matter experts. To my immediate left, Chris Jones, the corporate Vice-

President and President of Northrop Grumman’s Technical Services Business Sector.


Next to Chris is Tom Moore, Director, Systems Engineering and Logistics, Electronic

Systems Sector. Jim Zortman follows, Sector Vice-President, Global Logistics and

Operational Support, Aerospace Systems Sector. And last but certainly not least is Steve

Hogan, Sector Vice-President and General Manager, Integrated Logistics and

Modernization Division of our Technical Services Sector.

Now, a few administrative details. Today’s media briefing is on the record, unless

otherwise noted. A Q & A session will follow the panel discussion immediately

afterwards. So please hold your questions until then. And so now I’d like to turn the

microphone over to Chris. Thank you.

CHRIS JONES: Thanks Randy. And thanks everybody for attending. And thanks for

allowing us the opportunity to discuss what logistics sustainment and modernization

means to Northrop Grumman. You know, being a former Air Force maintenance officer,

being in the Air Force for 20 years and having deployed overseas, I fully appreciate how

important logistics sustainment and modernization is to our customers, allowing them to

complete their missions.

You know, as Randy mentioned, a full 70 percent of the lifecycle cost of a military

weapons system, or a piece of military hardware or capability is post-production. It’s in

logistics, sustainment and modernization. So we feel that’s a very good business for us.

What we’re focused on is that part of logistics where we can apply the decades of

experience Northrop Grumman has in designing, developing, building, maintaining and

upgrading military equipment.

So we feel we have the level of expertise and capability required to provide the solutions

that our customers need. You know, given the global security environment, we feel there

will be operations ongoing throughout the world. And, if you look at those military, both

U.S. and our coalition partners, the equipment tends to be rather old. And, given the

constrained economic environment, it’s very difficult for these customers to buy new


equipment. So we feel that sustaining, upgrading the modernization military equipment,

you know, both that which is developed and built by Northrop Grumman, and that which

is not built by Northrop Grumman but is in use with our customers, that’s a very good

market to be in.

And, as Randy mentioned, the company is focused on four pillars: unmanned systems,

C4ISR, cyber and logistics. Logistics is an enabler for the other three pillars to be

successful. Having robust sustainment and logistics environments for all of the capability

we have in the other three pillars is critical. So, what you're going to hear today is a

discussion of what logistics means to Northrop Grumman.

So we’ll start with looking at the design and development of systems and how we think

about logistics early in the lifecycle. And then talk about logistics and sustainment for our

products after the product is fielded, and how we make sure that the product operates

correctively and effectively. We’ll talk about innovation for affordability and logistics,

and then talk about sustainment and modernization, so how we upgrade this equipment

and make sure it stays relevant.

With that, I’ll turn it over to Tom.

TOM MOORE: Thank you, Chris. We talked about the 70 percent cost. And we believe

that you set the trajectory for affordability in a system at the beginning of the design

phase. And, since we’re committed to affordability throughout the lifecycle of our

programs, we are using modular open system architecture principles, along with logistics

analytics, to be able to design our systems to be affordable over the long run. There's a

number of key principles that we follow as we go through our modular open system

architecture designs: modular functional designs, how can we break apart the system,

both for sustainment, as well as performance and cost. And I’ll elaborate more on that a

little later. Application software we use. Software is a big part of system costs. How can

we reuse that and allow it to evolve as time goes on?


Another part that I'm going to talk about is collaboration and competition. We believe

affordability is driven by competition. And working with our supply base, we’re able to

drive competition and affordable systems in the future. Interoperability, our systems have

to continue to be interoperable. And, as I said, all these sum up to lifecycle affordability.

So, as we talk about modular system architectures, what we’re really trying to drive

towards is something called product line architectures, where we’re sharing common

components across our various products. This enables us not only to lower our costs in

our development, but it also enables us and our customers to be able to share in common

stories of sparing, common depot[?] actions, and overall, commonality across platforms.

We also believe that, through these commonalities, the training becomes common across

components. So, once we have a system that has similar components, we’re able to share

training across them. We also employ diagnostics and prognostics in our systems. So our

systems understand what their mission-capable status is, as well as what spares and

repairs are needed in order for them to meet that capable status. The key is to having the

right spares at the right time.

One of the things I talked about earlier is the functional partitioning of our systems. It is

very important to how you partition them, such that it doesn’t set the cost in the future.

So, and recently, we’ve been able to partition our systems to balance affordability,

availability, and performance. By doing that, we’re able to broaden the supply base for

each of these components. As an example, we recently had a supplier conference where

we brought in various suppliers to how they could provide components into our systems

and share in our open architectures.

As we talk about open architectures in a hardware perspective, there's also open

architecture from a software perspective. The software is a big part of today’s systems.

We use a component-based software architecture that allows not only further


development, but allows third parties to develop applications that can fit into our systems,

providing advanced capabilities, as well as being able to take advantage of the best

capable software development.

We use what we refer to as a middleware, that isolates our computer programs from our

processing hardware. And we do that because it enables an easier upgrade path as new

processing hardware becomes available, being able to maintain the software and inject

new capabilities. In addition, this middleware provides an application interface that our

third party suppliers can provide software into, and again, be able to have a larger group

of applications, as well as competition for software.

All these components, whether it’s commonality hardware, commonality in software,

open interfaces, are fundamental to driving competition and being able to drive down

costs in our systems and the future logistics. So Jim is going to take this theme we've

talked about in affordability, and continue that discussion at the system level.

JIM ZORTMAN: Well thanks, Tom. That’s really a great discussion about a number of

the things that are being done at the subsystem and the component level that absolutely

form the foundation. My background, a lot like Chris’s, I spent a lot of years as a user

and then a provider of logistics as a military officer. And I’ve got some really good bad

examples of what a bad design will do once something gets into the field.

And I can remember laying under a fighter, an aircraft carrier deck that was scheduled to

launch in two or three hours. And a bunch of young sailors trying to put an 80 pound part

in around something that never should have been put in the way there. And the part, if it

was going to be changed, should have been a lot more reliable. And them going, “I

wonder who the knucklehead was that did this.” And I always use that as a personal

example of, I don’t want to be that knucklehead that those young guys were talking

about.


When we design these state-of-the-art systems that are going to go out into the field

anywhere from 20 to 50 years, something that’s cutting-edge today can very quickly

become something that’s a lot less than cutting-edge. And, by the time you get to the end

of its projected service life, the ability to maintain it and keep it up to date, a lot of that

was set during the initial design phases.

So, as a large system designer, producer, and ultimately sustainer of space systems,

manned aircraft and unmanned aircraft, we've tried to take an approach that focuses on

how do you start in the design phase to make those systems affordable. And we believe

that it’s through innovation and a technical approach that allows us to do it. And our aim

is to bend that 70 percent curve, that 70 percent cost curve that Chris referred to, so that

when that system is in the field for those decades that it’s out there, we have the chance

to really do something about it.

I kid my friends in manufacturing, if somebody designs a $20 million dollar wing and

then turns it over to the production guys to build it for $10 million dollars, probably not

going to be a good outcome of that. And it’s probably very much the same in the support

and logistics business. If, in the design phase, you don’t get the right things in place, you

can want to support it for a lot less money. But the opportunities to do it have probably

passed you by.

So, I'm really going to talk about three areas that we've gone and we think have got some

very innovative and industry-leading capabilities. The first one is, as part of design, is

modeling and simulation. And then, 3-D visualization that allows us to see results. And

it’s about enabling decisions to be made during that design phase. And I’ll talk a little bit

more about that in detail.

The second thing is, how do you, once that thing is fielded, deal with diminishing

manufacturing of material sources that, if it’s going to be out there for 20 to 50 years, the

inevitable change of technology, and the ability to forecast that coming down the road in


partnership with the people who own and operate it. And then, the third thing is, in

support anywhere, and that is, how do you get an IT architecture and a system that allows

you to take all this great information that’s developed during design and development,

and use it and repurpose it through the many lifecycles that a product will go through?

And that enables the partnership with suppliers and industry and then, ultimately, the

customer and the government who’s going to operate that.

So I’d like to be able to talk a little bit about each of those three things. And, at the end,

have a good picture of how they allow us to be affordable. And that’s based on

technology and innovation.

So, modeling and simulation, we feel like, through some internal investment, we’ve

developed some capabilities that don’t exist anyplace else in the industry. And there's

really two parts of it that we think we have to be good at doing. And one is,

understanding the operational concept that the customer is going to operate the system

and the field under, so that we can show different basing schemes and different ways of

how it would be repaired, and how it would be supported, and show the operational

outcome that that has, how much it’s available, how much it’s there to do what it’s

supposed to do.

And then, at the same time, be able to take that modeling and simulation and flip it on its

head, and say, “Okay, if you do it that way, here is what the cost of that is.” And then be

able to put those two together, again, during design and development, so that both

internally and as customers, they are in a position to make choices where now we can go

back in and we can affect that level of reliability, that scheme of repair, that concept that

they're going to operate under.

So, you say, “Okay, well that sounds great. What is something that maybe has come out

of that?” And I’ll give you a couple of examples. We’ve used the 3-D visualization as an

example for an aircraft that we were building for the Navy. And they decided to put it on


a couple of different classes of ships. And the typical way to do fit checks on that is, is

you actually have to have one, and you move it onto the ship. And then you move it

around and see if it fits in all the various places. The fidelity of the system was such that

we could take design engineering information, put it into the modeling and the 3-D

visualization. And they were able to make the decision about whether it would fit or not

based on the fidelity of it. And it saved them over a million dollars and, more

importantly, a lot of time in the initial design, to say if we could go forward that way.

Another example is, in a long endurance system, that the metric of if it was effective or

not was, its effective time on station. And we were able to model a number of basing

options, and then repair options, and then placement of spares based on reliability, and

actually cut the cost in acquisition of the spares that they had initially budgeted for by

about 25 percent. So, these are real numbers that turn into real support cost later on in

life. And it’s part of that bend in that 70 percent curve.

Now, the second thing is, is when a system goes out there, it inevitably will age. And, just

like all of us that own computers or televisions, that HDTV that was the best thing out of

the box, two years from now your friends come in and look at it and go, “Wow. Where

did you get that?” The same thing in very complicated, integrated systems.

And the ability to be able to look around the corner, and look into the future on things

that are going to diminish in the amount of material sources and the manufacturing

sources that are available to do that, is very important, and particularly important as

suppliers-- and, more and more, multiple suppliers are involved in building these things--

they decide that they're moving onto the next big thing. Or, they have decided that they're

just not going to do that particular thing anymore. The ability to see ahead on that, and

either make buys while they're still in production, or identify alternate sources, is a

problem that both industry and the government customer faces.


So again, we’ve, through internal investment, we’ve developed a tool we call foresight.

And foresight is a way of taking design data, putting it in, and then being able to share it

across, in prediction models, across the lifetime of that system, and be able to make

decisions about, do you buy the stuff ahead of time? Do you go identify alternate

sources? Or, in some cases, do you really have to go out and look at a modernization?

Because there just isn't any way it’s going to do that.

So, it’s a copyrighted system that has got a level of fidelity that we are actually using it

with the government customer today to run. And they use the results to make budget

decisions. So we think that’s a pretty strong endorsement of the fidelity and the use of it.

And we continue to be part of the DMS, Diminishing Manufacturing Sources community

that goes across all of industry.

So, as an example, in 2009, it won a pretty significant award out of the Defense

Department for DMS. And Society of Automotive Engineers has recognized it also as a

tool that has clickability [?] across a wide piece of industry. So, as an example, in our

long endurance global op program, we were able to identify, just in a couple of areas,

over $300,000 dollars a year of potential savings through taking these actions ahead of

time. And that program, as a result of that and some other things, recently, in 2012, was

awarded the James Roche, Dr. James Roche Maintenance Award for the entire Air Force.

So again, a pretty strong endorsement that the things we’re doing are making sense.

The last thing I’ll talk about is, this is an era of big data. And big data is kind of a

buzzword that’s out there these days. We don’t necessarily think about big data. But we

think we’ve got a lot of data. And we've gone, and again, through some pretty significant

internal investment, with an IT structure called Support Anywhere. And Support

Anywhere is just that. How do you take the data, developed in the design phase, and then

take it through the lifetime of the product, and repurpose it? So, it was great that it was

designed so you could figure out if you could build it. And you use the same data on a

INNOVATIVE LOGISTICS SOLUTION 06.25.13

PAGE 10

shop floor to use, again, through 3-D visualization to build it, and then repurpose that

data to use it when it’s time to train, and when it’s time to maintain.

So, a young maintainer out there, now, instead of having a book that a lot of pages that

may not get updated, he’s got a device in his hand. And he can get a 3-D visualization

picture that allows him to see how the thing is put together. Same thing when it comes

time to train. So, this is particularly important, we believe, in terms of how we product

the data as it comes up. Cyber security, a huge, huge issue. And so, information

assurance, and then the security and the availability of that data.

I’ll give you an example of where we think this is really helping us out. We’re looking at,

in the recurring parts of our programs, about a 35 percent reduction over the last three

years, just through the reduction in software redundancies. And then, in nonrecurring,

we’re seeing about a 20 to 40 percent reduction as we take this particular program and

standup new programs, we’re able to just replicate and do it over and over and over

again, and make minor changes to it. And then, all of us that are in this business are able

to share that.

NATO alliance ground system, we’re using it, really a big piece there. And, when you're

bringing 28 countries together to agree on something, that’s never an easy thing to do.

But we’re seeing great results from it. So, I’d close by saying, this is, as Chris said, a

technology-based approach that we’re taking. And we’re using that technology to design

and affordability. And then, over the life of the product, be able to use that and repurpose

that systems and that data to continue to deliver affordability.

Now, that’s all great. But it doesn’t mean anything unless it’s in the field, operating the

way it’s supposed to, 24/7, 365. And Steve Hogan is going to talk about how we’re doing

that, including modernizing those systems as they come along. Steve.


PAGE 11

STEVE HOGAN: Thanks Jim. So Chris talked to you about our strategy as a logistics

pillar. Dr. Moore talked to you about how we are looking at the front end of logistics, and

we’re designing capability into those products, so that we can maintain them throughout

their life. And then, Jim talked to you a little bit about affordability.

And so, as I bring up the rear here, my background was acquisition. So I am that

knucklehead that Jim referred to, who built that product, and then delivered it to our

military, and then tried to have them maintain it. So, thanks Jim for pointing that out.

[laughter] Actually, that was the first two-thirds of my career, so I had kind of forgotten

about that.

But, now that I'm in a position to help, let’s talk about execution. So our team in technical

services really concentrates on 24/7 global mission readiness. So we help our customers

either view the problem in a different way, innovate by inserting technology, for allowing

these systems, these weapons systems to stay in the field much longer than they were

ever really intended, as Jim was just referring to.

The three things that I want to talk about today are really, operational sustainment. We’re

going to talk about smart modernization, which is really that piece that Jim referred to

where we look at the technology that we have developed, and we insert that technology

so that it makes sense for our war fighters, and gives them mid-cycle upgrades with

capability. As Jim mentioned, your TV goes out of-- Well, we have some computers that

were developed in the ‘60s, that, frankly, we can put a card in and do that smart

modernization. So we’ll talk a little bit about that.

And then, global deployed logistics and embedded training that goes with that, to allow

our war fighters to have the capability and the technology in their hands. So, now that we

have this new generation of smart kids, you know, they don’t want to read a manual

anymore. They want to be able to take an iPad out there with them, and flip through, and


PAGE 12

make sure that they understand the drawings and the techniques they're supposed to use

all at the same time.

So, let’s talk a little bit about sustainment. Sustainment-- and I’ll give you a couple of

very specific examples. The Joint Surveillance Attack Radar System, or Joint STARS as

it’s commonly referred to, was a Beck Award winner. Which means it’s the outstanding

logistics sustainment program of the year. So our team works on those in a depot. We do

depot level repair, bring the aircraft in, break it down, look at critical components, replace

those critical components, and send it back to our fleet.

We concentrate on zero defects. So, I mean, there were lots of things-- TQM, all of the

strategies that were employed in the ‘80s and ‘90s. But the zero defect process that we've

employed at Northrop Grumman has allowed us to deliver the last 34 of 35 aircraft

defect-free. So, what does that really translate to? It translates to a product that gets in the

hands of our users that they don’t have to do anything with to go out and use that product

right away. So huge amount of savings for a fleet of aircraft maintainers who then don’t

have to worry about whether it came out of the factory the right way. So, excellent work

on that team.

KC-10 is another great example. On the KC-10 program, we were able to focus on what

we called our Drive for 85. We were looking for above 85 percent availability. And we

did that through a depot modernization process that is total lifecycle support. So we’re

able to look at high time components and replace those components. And one of the areas

that we concentrated on was the engines.

So, when we put our proposal together, we teamed with a commercial provider of

engines, which was not something the military was typically comfortable with, or had

been done that way. They kind of focused on organic support most of the time, on a

product like this. That commercial vendor was able to save us over a million dollars per


PAGE 13

engine on this rework process. And we have done over 185 engines in this process to

date.

So you can imagine that the government is able to use those funds, and do smart

modernizations, that we would always like them to be able to do but, frankly, they didn’t

have the budget to do. So, by allowing that commercial vendor to use commercial best

practices, to give us those savings, we were able to roll that into the other things that

we’d like to do to maintain and persevere in that particular air frame.

Switching gears a little bit, we also looked at ground vehicles. Northrop Grumman has a

large footprint in California at Fort Irwin, and then the training center at Fort Polk, over

7,000 ground and wheel tracked vehicles that we maintain. And our job was to provide a

97 percent or greater availability rate to those users. And so, we broke down the process

with them, looked at the maintenance practices, and have been able to achieve higher

than their stated objectives. Which means they're paying less for more in a process where

smart buying power and all the things that [00:27:46] and the team are doing, really focus

on that dollar that they can spend in a different way.

Smart modernization, if you shift what we do well in the depot world and in the

maintainability world, you think about how you can upgrade that product during the mid

lifecycle. So, an example of that is the electronic attack pod, or EAPUP. We take two

fielded systems, the ALQ131 pod and the ALQ184 pod, and we take out the critical

technology components that we can reuse.

We combine that with some development that NGES, the electronic systems sector is

doing, to put a new brain, for lack of a better word, on where we control the profiles and

the algorithms for jamming an electronic world. And we combine that back together, and

provide them a savings of-- a maintenance savings of over $750 million dollars over the

course of the program. That’s a very good, affordable way to take two systems that,

frankly, on their own, probably were unsupportable, upgrade the critical pieces through


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smart modernization, and then use the innovation techniques that we’ve used off of other

programs to insert that software and those hardware products that have already been

designed and developed for other platforms. So, that was a very good-- And we gave

them about a two times increase in maintenance man hours. So they didn’t have to fix

that product. So that was a tremendous savings for our customer.

If you think about commercially on smart modernization, the Department of State and the

Highway Patrol Commissions are always looking for new a way to go out and do their

mission, whether it’s border crossings, whether it’s just doing casual observance of a city

environment. So we developed a product called Air Claw. Air Claw is a commercially

available aircraft that we then modified to put surveillance and reconnaissance systems I,

at a very, very affordable price. In other words, we’re not using the high end grade

military kinds of equipment. We’re using commercially available radars and information

systems. And we’ve networked them through the kind of networking that you do, frankly,

in a normal computing environment.

For this user, it’s an elegant solution at a very affordable price. So we’re allowing them to

get into a technology that they would have never been able to afford had we given them

the DoD solution that we certainly have developed and paid for. But again, they don’t

have the same requirements. So we've made sure that smart modernization makes sense

for that particular user.

The last piece that I wanted to talk about is deployed logistics. So Jim talked about the

field and weapons systems. Technical services, along with each of the other sectors,

deploy forward. So we are often, with our customer, at the front edge of the battle space,

you know, helping them maintain or produce readiness levels, to allow them to do their

mission. Global Hawk is an interesting example. We were able to rapidly redeploy to

support the 2011 tsunami in Japan. Not typically something you’d think about doing. But,

because the readiness levels were at the height of where they needed to be, they were able

to move that asset quickly, and maintain it in an environment that they weren't ever


PAGE 15

anticipating to maintain it in. So, not only a military application, but a commercial

application as well.

Hunter is one of the earliest UAV programs, I think, that was developed-- you know,

quoted as the program that will never die. And frankly, it keeps doing just what the

services need. When the Army needed a forward-deployed ISR program, they developed

a government-owned, contractor-operated scenario where we put our employees forward

and located at the range which made sense to operate. And we, for that effort, we were

achieving 99.9 percent availability rates, which, frankly, is unheard of with several

aircraft doing 24/7 kind of operations. And we won the Army’s Joseph Cribbins Award

for that extraordinary effort of making a system availability be our primary contract

factor.

If we think about internationally, we, Northrop Grumman, are also developing significant

footprints in deployed logistics internationally. So the UK AWACS program, or airborne

warning and control system that’s based in Waddington, does-- we do a whole life

logistics support, much like we talk about CLS here in the United States. Whole life

support is akin to that in the UK. And so, we are responsible for the depot level

maintenance, the commercial seat checks, which is a way of ensuring that phase

maintenance is done properly, and then the upgrade parts of those programs.

So, by giving that all to Northrop Grumman, teamed with a couple of industrial partners

in the UK, BAE, one of our primary partners there, we are able to provide four aircraft

mission-readiness capable, so that they can go off and do things like they did in Libya.

They had fantastic performance out of this weapons system when called upon for that

particular operation.

We’re going through midlife upgrade right now. So all of the smart avionics activities

that we’re doing in AS and ES logically flow right into that process. So, that was-- The

UK team is very happy with us. In fact, we’re going over to the air show here fourth of


PAGE 16

July weekend, because they don’t have fourth of July. So we’re going over there to

support a lot of flying that this system is going to do.

The last example I have is, we also do things that you don’t typically think about in the

deployed logistics arena, like supporting our first responders. We’ve trained over 75,000

first responders for real life activities, for things that you don’t know are going to happen,

but they need to be ready for. Whether it’s a wildfire in California, whether it’s a

potential bomb or nuclear event, we go through the whole process of training those

teams. And so, we’ve made sure FEMA and DoD have available and ready trained people

to meet those missions. And that’s a big deal.

So, kind of my final thoughts on where we’re going here. We’re focusing on delivering

integrated, affordable solutions, through leveraging the technologies that we are

developing, either with our industry partners, or with our customers. We’re also-- We’ve

got a strong industrial partner relationship that we’ve also developed. So, a lot of the

people that are supporting us are also helping us maintain these kinds of readiness levels.

And it’s changed the culture in some of the activities they're doing. So, to make our

suppliers ready is equally important to have Northrop Grumman people on the front lines

ready.

And then, the last piece, the relationships with our DoD and the initiatives that we’re

doing. A lot of those initiatives are actually starting in the commercial industry, rolling

through the Department of Defense, and then becoming initiatives that allow affordable

solutions to be inserted into the programs. And we’re very proud of those activities.

So Chris, back to you.

CHRIS JONES: All right, thank you. And, as you’ve heard from our presenters today,

logistics is an important focus area for all of Northrop Grumman. We look at this in a

lifecycle manner. We look at it starting with basic design and development, trying to


PAGE 17

design high amounts of reliability, maintainability, and readiness into our products. We

remain focused as these products are developed, tested and produced, then as they're

deployed. And, we apply the same level of expertise and technical excellence for

sustainment, then eventual modernization.

We apply all of that to both our own products and those products not designed or

developed by Northrop Grumman, where we think we can add value. And, given the

large amount of equipment that exists in the world, given the environment that this

equipment will be used in, and given the requirements of our customers, we feel this is

going to be a good business for us today and for the future, to be able to leverage the

technical expertise Northrop Grumman has, to provide logistics, sustainment and

modernization solutions.

So, with that, Randy, I’ll turn it over to you. And hopefully we have some questions.

RANDY BELOTE: Okay, thanks Chris. And thanks, panelists. So this concludes the

formal remarks portion of the briefing this morning. And we’ll now enter into the Q & A

session. So happy to take questions, either to the panel or an individual on the panel. As

we take your question, please identify yourself and the media organization with whom

you are associated.

And we also have several media online. And we invite them to send questions in. And

we’ll be happy to read those to the panel. Thank you.

Q: [00:37:19] of Defense Daily. Can you guys talk about 3-D visualization? I'm

assuming that’s like the name of the program. Have you guys talked to any government

customers about that? Can you just tell me more about the program in general?

CHRIS JONES: So what I’ll do is I’ll start off, and I’ll let Jim add, or anybody else on

the panel. We started an initiative a while ago, looking at how to optimize a sustainment


PAGE 18

environment. So, if you have an engineer or an employee performing a drawing of a

component during development, the thought was, how to leverage that drawing of that

component throughout the entire sustainment infrastructure.

In the past, a person would design a part. Then, someone was working on the publication

to the manuals, would take that 3-D component, make a 2-D drawing of it, put it in a

manual. And then, another person who was working on training and training aides, would

take that 3-D model, put it in some other type of media, to perform training.

So, what we decided to do was create an environment where the drawing is done one

time. That same 3-D model then can be used in a publication. And we’re going to move

to, at some point in the future, all electronic tech manuals and publications. Then that

same 3-D model can be used in training. And then, if there is a modification or upgrade,

that same 3-D model could be used, so that no one has to recreate that model.

So that was the thinking a couple years ago. We’ve put systems in place to enable that to

happen. So I’ll let Jim address some of the specifics.

JIM ZORTMAN: Chris has done a great job of laying out how we’re doing that. And

the only two things I would add is, is that the wanting to do it, and then having a way to

really do it so you can capitalize on all the things that Chris talked about, was the

technology is out there to do it. But, if your engineering data is developed one way, and

your shop floor guys have a different system-- So we made a commitment to make,

ensure that we had that digital thread that we could draw all the way through.

And so, as the guys we talked to, they said, if a picture is worth a thousand words, then a

moving 3-D picture is worth a thousand pictures. And so, what we’ve been able to do is,

not only show and use it and repurpose the data. But then, as the inevitable changes get

made, updating that bill of materials, that electronic bill of materials, so that the shop

floor, as designed, as built, and as maintained, really stays connected. And that’s


PAGE 19

probably one of the biggest drivers of diminishing material sources and, ultimately, errors

that get made in documentation is, is that those bills of material get disconnected from

each other.

And so now, in addition to all the things that Chris pointed out that are real advantages

out of this, when a change is made in a design drawing or it has to get made during

production in order to make it more producible, you can make that change electronically.

It flows through that entire thread. And, for the guy or girl that, ten years down the road,

is maintaining that, that is huge, to be able to see, no kidding, a real picture of the way--

and then understand why the change was made. It makes all the difference about keeping

the system modernized, and then being able to maintain it.

Q: [00:41:03] [off microphone]

CHRIS JONES: Okay, I’ll take a stab at that. I think what distinguishes us is the

technical excellence that we bring to logistics across a wide range of products, right. So

we don’t only work on platforms, we actually design and develop them. We have a rich

heritage in electronics systems. So we have a lot of expertise in sensors, ground-based, in

airborne, in avionics, in components. Not only in maintaining them, but in designing and

developing them.

We have decades of experience in being field deployed. So, being shoulder to shoulder

with our customers. So we have a rich heritage of being able to take that information that

exists, and flow that back into design and development. And we have a fundamental

understanding of a lot of our customers’ missions. Because, again, we have decades of

experience. So we’re able to translate what we see in the field into mods, programs and

upgrades.

So, having that combination of rich technical heritage, breadth of components across

platforms, components, hardware and software, and being able to leverage that, combined


PAGE 20

with the excellence we have in each of the support areas, whether that be hubs, training,

support equipment, spares and repairs, etcetera. It’s that combination, I think, that

distinguishes us. And that allows us to provide solutions, as we saw here, that are

effective, and that are affordable, and that generate the results that our customers need.

STEVE HOGAN: Yeah, I think, Chris, what I’d add to that is, you know, as a very

specific example, KC-10. So the customer, when they put out this latest contract that we

won, prior to that, they had been hovering around 73 to 75 percent mission availability.

Which means they need more aircraft to make the kinds of sorties that they need to do.

When we set these goals in place and did our Drive to 85 percent, the calculus associated

with that said we’d have enough aircraft to meet all the missions in the theatres that they

need to be in.

And I'm happy to tell you that, you know, other contractors did work on that aircraft.

That’s not our aircraft, as Chris mentioned. It originally was a Boeing D.C.-10

commercial derivative. And so, we were then able to put our processes into place. And

I’m happy to say that, last month, we were over 90 percent available, which is the highest

it’s ever been in the history of the KC-10 program.

So, smart innovation, smart representation of the challenges that exist, proper

prepositioning of logistics spares and repair parts, both forward deployed and at the

depot, allow us to give the kind of service that our customers are looking for.

JIM ZORTMAN: And the other thing I’d say is, what distinguishes us from the

competitors is, we view this as a high tech business. And we really believe that

innovation, and then taking that technical approach, is what’s going to allow us to drive

affordability in that 70 percent operations and maintenance part of the total ownership

cost. And we’re connected and really committed, at a whole company level, to doing that.

So it isn't like, well they do that over there. And they do that over there. We are

connected in a way that I don’t think any of the other companies are.


PAGE 21

Q: I wanted to ask more about 3-D visualization. Have you guys sold or been in any

discussions to sell this to any government customers?

CHRIS JONES: As far as the capability of using 3-D visualization and sustainment?

Q: Yeah.

CHRIS JONES: The answer is no, not in an independent sense. What we’re focused on,

now, is being able to use that technology for either components or platforms that we’re

designing, or those that we are being asked or on contract to, to sustain. So we’re not in

the business of selling the technology in and of itself for government or somebody else to

use. It’s an enabler for us to provide sustainment and modernization and upgrade for our

programs, and then for those programs that we would perform sustainment and

modernization on. It’s not our business model to sell applications or sell portable devices.

It’s more of an enabler for us.

Q: So it’s kind of maybe like a different approach to your modernization systems?

Would I have that correct there, maybe?

CHRIS JONES: Probably approach is probably too strong a word. And I think it’s an

enabler or a philosophy or provides the framework to conduct the sustainment that we are

either on contract for, or that we have, when we design our own products. So, being able

to use data that exists, and use it-- create it once and use it throughout the lifecycle of a

weapon, it’s more of an approach. And we use that, as Jim mentioned, not just in

sustainment, but in design, in development, in testing, in production, then sustainment,

then modernization and upgrades. And then, at some point, when the system needs to

eventually be replaced, then we have all of that data as well, to help us on new designs.

Q: Okay, thanks.


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RANDY BELOTE: Any other questions from the participants and those online?

Hearing none, we’ll move to adjourn. I just want to thank everyone, again, for

participating this morning. And, as I indicated in opening remarks, we are planning two

other briefings here at the National Press Club, one on C4ISR and the last one on

unmanned systems. So we’ll be issue media advisories in the near future, outlining the

dates and the structure of those briefings. So please be on the lookout for those. And

again, thank you very much for participating this morning.

END

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