The objectives of this report are to (1) identify best commercial practices for establishing, managing, and sustaining excellent supplier relationships and (2) compare these practices with those of DOD, selected prime contractors, and the supplier teams on two weapon system programs. Our case studies were performed on two munitions programs: the Brilliant Anti-armor Submunition, referred to as BAT, which is the older and more traditional of the two programs; and the Joint Direct Attack Munitions (JDAM) program, which is piloting several acquisition reforms and has applied innovative supplier management techniques. Mutually rewarding environment: The firms created an environment whereby the suppliers also benefited from superior performance. However, on the basis of our meetings with prime contractors, we found that it can be difficult to translate the desire for better supplier relations into tangible differences in the actual relationships among suppliers, prime contractors, and DOD. The practices within this trait created the “quid pro quo,” that is, the realization by the key team members that they were all benefiting from the relationship and that more significant contributions were matched with significant rewards. In a more traditional program, like BAT, the four traits do not comprise as powerful a system as is formed by the best commercial practices. Consequently, their performance was limited to compliance with contract requirements, impairing the program’s ability to take full advantage of the suppliers’ intellectual capital, such as design or product ideas. Supplier Relationships Must Have Central Support

			Best Commercial Practices

The leading commercial firms embraced effective supplier relationships as a core business strategy and built organizational structures with skilled people to carry out the strategy. While the role played by DOD through the Army program office on the BAT program was traditional regarding supplier relationships, a very different role was played by the JDAM program office. In the acquisition of weapon systems, DOD is the customer on the one hand and on the other it shares responsibility for managing and directing the program with the prime contractor. Rigorous Supplier Selection Creates Strong Supplier Base

			Best Commercial Practices

Leading companies used a rigorous supplier selection process to create a strong supplier base. DOD offered its advice but did not mandate changes in the choice of suppliers. An Effective Communication and Feedback System Must Exist

			Best Commercial Practices

Leading commercial companies established effective communications and feedback systems with their suppliers to continually assess and improve both their own and supplier performance. Some suppliers had more positive experiences on the program. The ultimate success of this approach in producing a weapon that will perform as required remains to be seen. However, the approach did receive praise from key suppliers for the types of relationships it fostered. Best commercial supplier practices, when analyzed in the aggregate, can be seen as four traits that operate in a system that is self-sustaining because it provides mutual benefits to both suppliers and the product developer.
Why GAO Did This Study

Pursuant to a congressional request, GAO reported on whether best supplier practices can benefit Department of Defense (DOD) weapons systems programs, focusing on: (1) best commercial practices for establishing, managing, and sustaining excellent supplier relationships; and (2) a comparison of these practices with those of DOD, selected prime contractors, and the supplier teams on two weapon system programs.

What GAO Found

GAO noted that: (1) best commercial practices, when analyzed in the aggregate, can be seen as the four traits that operate in a system that is self-sustaining because it provides mutual benefits to both the firm responsible for the final product and its suppliers: (a) the leading commercial firms embrace effective supplier relationships as a core business strategy and build organizational structures with skilled people to carry out the strategy; (b) leading companies use a rigorous supplier selection process to create a strong supplier base that they could more effectively manage; (c) they establish effective communications and feedback systems with their suppliers to continually assess and improve both their own and supplier performance; and (d) the firms foster an environment in which suppliers realized that more significant contributions were matched with significant rewards; (2) DOD and prime contractors were aware of such benefits and were implementing some of these practices; (3) however, experience on the Brilliant Anti-Armor Submunition program showed that it could be difficult to translate the desire for better supplier relations into tangible differences in the actual relationships among suppliers, prime contractors, and DOD; (4) in the program, the four traits did not comprise as powerful a system as was formed by the best commercial practices; (5) consequently, their performance was strictly limited to compliance with contract requirements; (6) in the Joint Direct Attack Munitions (JDAM) program, a more rewarding environment was created for suppliers even though improved supplier relations was not an explicit program objective; (7) nonetheless, the action taken by DOD on the program bolstered the support for supplier relationships and encouraged the suppliers to play a greater role; (8) DOD shares responsibility with the prime contractors for shaping the suppliers' environment; (9) thus, the role it plays on individual programs has a direct bearing on the sophistication of supplier relationships and the success of best supplier practices; (10) the supplier relationships on the Brilliant Anti-Armor Submunition program reflect DOD's traditional role of distancing itself from suppliers; (11) on the JDAM program, DOD was much more proactive and involved with the suppliers; (12) its pilot program mandate supported the program office's involvement in seeing that best supplier practices were used; (13) the ultimate success of this approach in producing a weapon that will perform as required remains to be seen; and (14) suppliers praised the approach for the relationships it fostered.