BEING RESPONSIBLE
Global Supply Chain MANAGEMENT

Global Supply Base

As we expand Northrop Grumman further into global markets, we continue to enhance our efforts to prevent human trafficking and other misconduct within our global supply base. We have a robust anticorruption program to help ensure that we are doing business only with parties that share our corporate values for integrity and adhere to transparent and ethical business practices.

Human Rights

We are focused on identifying, managing and minimizing the potential of human rights violations occurring within our supply base. Within our Supplier Standards of Business Conduct, we outline our expectations for suppliers to treat people with dignity and respect.

Conflict Minerals

We submitted our 2017 Conflict Minerals Report on Form SD on May 25, 2018. We are committed to the responsible sourcing of minerals through our Global Supply Chain. As stated in the Northrop Grumman Supplier Standards of Business Conduct, suppliers must comply with any applicable laws and regulations regarding conflict minerals and assist us in meeting our obligations under law and regulation. We report annually to the United States Securities and Exchange Commission on the potential of conflict minerals in our supply chain (tantalum, tin, tungsten and gold) originating in the Democratic Republic of Congo (DRC) or any of the DRC’s adjoining countries.

Our suppliers must support our efforts to conduct due diligence on the use of conflict minerals in our supply chain, including the identification of products in their supply chain that contain conflict minerals and validating the country of origin of these minerals. Northrop Grumman is a member company of the Responsible Minerals Initiative, and we have issued a Conflict Minerals statement. This statement sets forth our commitment to the responsible sourcing of minerals in our Global Supply Chain and is available on our website at www.northropgrumman.com.

COMMUNITIES OF PRACTICE (CoP)

To effectively integrate supply chain activities across the company, we utilize an enterprise CoP construct. Each CoP defines and executes initiatives to optimize and harmonize cross-company efforts.

SUPPLY CHAIN RISK MANAGEMENT

Deploy a comprehensive Global Supply Chain risk model that evaluates specific elements of operational, financial and business–related risks to ensure a healthy, capable and resilient supply chain.

OPERATIONAL EXCELLENCE
Drive performance excellence, strategic focus and collaboration across the company to integrate and enable best practices across the organization.


ORGANIZATIONAL DEVELOPMENT
Expand and enhance organizational talent development to facilitate skills development, career progression and cross-company mobility


SUPPLIER QUALITY
Drive the proactive assessment of our suppliers utilizing a dynamic set of criteria in order to ensure delivery of quality products and services that meet our customer needs as well as determine the “most critical suppliers” to our core business requirements.


COMPLIANCE
Drive cross-functional alignment to optimize resources, minimize regulatory risk and ensure social responsibility. Promote legal and regulatory compliance of Global Supply Chain through standardized terms and conditions, contract templates, streamlined processes and training to ensure consistency across the organization.


INTERNATIONAL SUPPLY CHAIN
Expand our international presence, serving customers in Europe, the Middle East and Asia–Pacific Regions through streamlined communication, collaboration and alignment of the international supply chain.

Quality Management

At Northrop Grumman, our commitment to our customers and enhancing global security is steadfast. In 2017, we maintained our global focus on quality as one of our key strategic priorities. We continued using quality measures company-wide that reflect the performance of our key programs against quality expectations across the program life cycle including engineering, manufacturing, supply chain and services.

We promote a company culture that infuses quality throughout Northrop Grumman. By highlighting the relationship between individual employees’ work and customer success, we create sustained performance improvement. We recognize that a holistic view of our quality performance and engaging all key stakeholders drives successful performance outcomes for our customers. To identify and prioritize areas for improvement in quality and customer satisfaction, we utilize a rigorous self-assessment process at both the business unit and corporate level.

QUALITY IS PERSONAL

Each year we recognize employees for taking personal responsibility for top-quality outcomes and striving for first-time excellence and continuous improvements. We had a record number of nominations in 2017 with more than 300 employees recognized with a Quality is Personal Award.

2017 QUALITY IS PERSONAL HIGHLIGHTS

AVIATION WEEK PROGRAM EXCELLENCE

The Aviation Week Program Excellence awards recognize best-in-class technical and business performance across the aerospace and defense industry. In 2017, we had two Northrop Grumman finalists in the Aviation Week Program Excellence awards:

  • Forward Area Air Defense/Counter-Rocket Artillery and Mortar Command and Control
  • Defense Support Program Sustainment

QUALITY SYMPOSIA

In October 2017, we held 10 Quality Symposia events across the company. We kicked off Quality Month at our Palmdale, California facility and concluded in the United Kingdom, which illustrates our global focus on quality. The Quality Symposia is an opportunity for us to showcase how quality and other key company priorities connect and build a foundation for top performance. During the events, we recognized a record number of employees, more than 300, with our “Quality is Personal” awards. This award honors individuals and small teams who demonstrate continuous improvement and produce high-quality outcomes.

Global Supply Chain

OUR SUPPLIERS ARE ESSENTIAL TEAM MEMBERS

As part of our company values, suppliers receive the same respect we show to our customers, including fair and equitable treatment, clear agreements and honest feedback on performance. As teammates, we consider the needs of our suppliers in conducting our business.

DIVERSE SUPPLIER SPEND

$6.8 billion subcontracted to a broad base of suppliers




SMALL BUSINESS Performance

We embrace supplier diversity and inclusion as a business imperative. Numerous organizations have recognized the company with awards for the success of our global supplier diversity programs.

$2.7 billion went to small business suppliers
12 Consecutive years Northrop Grumman has exceeded the U.S. small business goal of 23%




Northrop Grumman Mentor-Protégé signing ceremony for Digit All City
Elected state leaders from Maryland attend the Northrop Grumman Mentor-Protégé signing ceremony for Digit All City, Coppin State University and Morgan State University.


WE EMBRACE SUPPLIER Responsibility AND DIVERSITY

At Northrop Grumman, our vision is to be the leader in delivering integrated and effective supply chain solutions by harmonizing and leveraging shared strategy, processes, people and systems to generate value.

To help align goals with our values, employees with procurement authority are required to complete annual specialized ethics training. Our employees are also required to certify their understanding of, and compliance with, our Standards of Business Conduct and disclose any known or potential conflicts of interest.

SUPPLIER ALIGNMENT WITH
NORTHROP GRUMMAN VALUES

In 2017, we published the new Supplier Standards of Business Conduct that further reflect our commitment to ethical conduct and social responsibility at all tiers of our supply base. Our supplier standards are based, in part, on the supplier codes from the Defense Industry Initiative (DII), as well as the International Forum on Business Ethical Conduct (IFBEC). To further define our commitment to ethical principles and practices, suppliers receive an annual notification about policies and values. We expect our suppliers (and those who work for them, including employees and subcontractors) to comply with our Supplier Standards of Business Conduct. A strict adherence to ethical practices is a priority at Northrop Grumman and an essential element of our supplier relationships.

We regularly communicate our commitments to our suppliers regarding social responsibility and regulatory areas including Equal Employment Opportunity/ Affirmative Action, conflict minerals, counterfeit parts, anti-human trafficking and cybersecurity.





Supplier Diversity

The Northrop Grumman Global Supplier Diversity Program office is a link to small and disadvantaged business owners, as well as to our partners at Historically Black Colleges and Universities, Hispanic-Serving Institutions and Tribal Colleges and Universities. We host outreach events for members of the small business community, offer mentoring programs and sponsor academic, customer and industry activities that support small business growth and development.



DEPARTMENT OF DEFENSE (DOD) MENTOR- PROTÉGÉ PROGRAM

This program encourages major DOD prime contractors to develop the technical and business capabilities of:

  • Small Disadvantaged Businesses.
  • Women-Owned Small Businesses.
  • Service-Disabled Veteran and Veteran-Owned Small Businesses.
  • Historically Underutilized Business (HUB) Zone Small Businesses.
  • Organizations Employing Severely Disabled Individuals.

SMALL BUSINESS INNOVATION RESEARCH (SBIR)

Throughout 2017, we continued to investigate innovative ways to address government customers and technology needs at Northrop Grumman. The Small Business Administration funds the SBIR program to engage small firms in federal research and development projects with commercialization potential. The SBIR program is a three-phase process of transitioning new, small-business technology from proof-of-concept to prototype development, and ultimately to commercialization within industry and government platforms.

Program Objectives
  • Stimulate technological innovation
  • Contract with small businesses to meet federal research and development needs
  • Encourage socially and economically disadvantaged people to participate in innovation and entrepreneurship
  • Increase private-sector commercialization of innovations derived from federal research and development funding

At Northrop Grumman, we currently track an estimated 20 SBIR firms involved in various phases of the program. We use the SBIR program to augment our technical and scientific expertise. Our technical experts collectively work at each sector to identify and interview potential SBIR/Commercialization Readiness Program candidates who can integrate into Northrop Grumman solutions. Ultimately, the SBIR program provides funding to small business firms to assist them in bringing technologies to commercialization.

2017 SMALL BUSINESS HIGHLIGHTS

Mentor-Protégé Program

Small Business

In 2017, for the seventh consecutive year, we hosted a joint technology interchange workshop encouraging synergy among small business owners, military representatives and Northrop Grumman employees. As part of this forum, Missile Defense Agency (MDA) SBIR Phase I firms participated in an independent SBIR Technical Interchange Meeting with Northrop Grumman technical representatives to identify new, innovative technologies for MDA programs.

Northrop Grumman ranked

  • #1 “Top 10 Companies for Veterans” (by DiversityInc.).
  • #2 “America’s Top 50 Organizations for Multicultural Business Opportunities” (by DiversityBusiness.com).
  • TOP 100 Corporations for Women’s Business Enterprises (by Women’s Enterprise magazine).
  • SUPPLIER DIVERSITY ADVOCATE OF THE YEAR 2017 (by National LGBT Chamber of Commerce).
MENTOR-PROTÉGÉ PROGRAM

Since the inception of the Mentor-Protégé Program, employees at Northrop Grumman have formally mentored people at more than 130 small businesses. As a result of these engagements, Northrop Grumman has won 24 Department of Defense Nunn-Perry awards, the most awards of any prime contractor. Nunn-Perry awards are the highest honor prime contractors can receive for participation in the program. The award honors retired U.S. Senator Sam Nunn, who sponsored legislation to enact the Mentor-Protégé Program in 1991, and former Secretary of Defense William Perry.

In 2017, we developed two unique Mentor-Protégé agreements. The first, with Digit All City (DAC), a small minority business located in Baltimore City, educates and trains students from Morgan State and Coppin State Universities in cyber security. This program allows students from under-served and underrepresented communities to receive their DoD 8570 cyber security certifications and enter the cyber security workforce.

Secondly, we entered into a three-year Air Force reimbursement Mentor-Protégé agreement with S&K Electronics with support from Salish Kootenai College, a tribal college located in Pablo, Montana, to provide training and certifications on the use of 3D printers for students and employees.




Supplier Performance

Suppliers to Northrop Grumman are valued team members. We expect each to understand the critical need for top performance while achieving the highest standards of ethics and integrity. We have processes for assessing, monitoring, rating and improving performance and risk levels in our supply chain. We routinely evaluate the performance of our suppliers using standard industry supply chain criteria for schedule, cost and quality of performance. We also use additional evaluations for more complex requirements.

Critical Suppliers Criteria Include:

  • Level of criticality of program.
  • Past performance.
  • Dollar value and total spending.
  • Open purchase order value and volume.
  • Sole-source versus single-source.
  • Multiple programs
  • Affordability
  • Risk/Financial Health
  • Investments, business agreements and small business categories.
  • Unique technology and strategic partnering.

GOAL AND
PERFORMANCE SUMMARY

GOAL

Engage various external stakeholder groups that support and serve our values and interests in identifying, developing and recognizing a diverse supply base.

PERFORMANCE

We partnered with many external organizations to develop our diverse supply base. These organizations provided forums for our employees to create longlasting connections, volunteer in their communities and contribute to the company’s success through recruiting and developing employees and suppliers. Several of our employee resource groups aligned their meetings with annual partner conferences and supplier diversity outreach events to identify potential diverse suppliers.

GOAL

Ensure performance of our supply base is consistent and compliant with our values, Supplier Standards of Business Conduct, regulations and our customers’ expectations.

PERFORMANCE

We expect a commitment from our suppliers and their supply base to achieve the highest standards of ethics, integrity and performance. In 2017, we revised our standard supplier terms and conditions to add a provision requiring compliance with our Supplier Standards of Business Conduct.

We have a harmonized supplier performance and ratings procedure that defines common elements for evaluating, monitoring and rating performance within our supply chain.

We proactively engage in verification of product supply chains to evaluate and address various risks, such as counterfeit prevention, as well as conduct supplier audits to evaluate compliance with regulatory, contractual requirements and company policies and procedures. Rigorous corrective action plans are issued for any non-compliance and monitored closely until closure.




GOAL

Promote best practices in sustainability with our supply base and customers.

PERFORMANCE

We continued the advancement of our supply chain sustainability program to improve risk management, performance and transparency. As part of the ongoing efforts, we support the International Aerospace Environmental Group and Workgroup 6 that develops surveys for aerospace and defense companies to collect information about environmental sustainability within their supply chain.




GOAL

Continue to ensure commitment to ethical conduct and identify any conflicts of interest with current and potential suppliers

PERFORMANCE

During 2017, Global Supply Chain employees reviewed the procurement integrity policy and signed a certification specifying that they will not accept supplier gifts, bribes or kickbacks. We also regularly performed due diligence to monitor and assess our suppliers and potential suppliers for a variety of risk, including anticorruption as well as debarment or suspension from U.S. government contracting.

GOAL

Protect our products and sensitive information throughout Northrop Grumman by avoiding counterfeit parts and exposure to cyber attacks within our supply chain.

PERFORMANCE

During 2017, we continued our comprehensive approach to protecting our products and sensitive information from supplier-based cybersecurity attacks and from counterfeit parts. We provided cyber awareness and online resources to aid Northrop Grumman suppliers in implementing advanced information security. We fortified our own core network, incorporating the latest industry best practices. We issued specific guidance on cyber and counterfeit parts to internal procurement personnel. We conducted a baseline risk assessment of suppliers with which we exchange sensitive data and developed, as warranted, individual supplier corrective action plans. Also, we participated in government-industry working groups, several in leading roles, to support and advise customers and to develop common supplier cybersecurity processes and tools for improved quality and affordability.