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.

Small Business Performance:

We embrace supplier diversity and inclusion and view it as a business imperative. During government fiscal year 2016, we subcontracted more than $7 billion to a broad base of suppliers. We subcontracted 38 percent, or $2.88 billion, to small business suppliers. As a company, Northrop Grumman has exceeded the 23 percent U.S. government small business statutory goal for more than 11 consecutive years. Numerous organizations have recognized the company with awards for the success of our global supplier diversity programs.

WE EMBRACE SUPPLIER RESPONSIBILITY AND DIVERSITY:

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

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

SUPPLIER ALIGNMENT WITH Northrop Grumman VALUES:

In 2016 we developed new Supplier Standards of Business Conduct that reflect our commitment to ethical conduct 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). Further defining our commitment to ethical principles and practices, suppliers annually receive notification about our policies and values. Without exception, 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 Mineral, Counterfeit Parts and Anti–Human Trafficking.

Centers of Excellence (CoE) and Communities of Practice (CoP)

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

Operational Excellence COE

  • Focus: Connect, integrate and enable people, processes and automation with a strategic focus on customer needs and integrated systems.
  • Action: Assessed spending data in 2016 to identify opportunities for cost efficiencies and leverage supplier relationships.
  • Action: Identified opportunities for small business participation strategies.

Organizational Development CoP

  • Focus: Expand and enhance organizational talent development to facilitate skills development, career progression and internal mobility.
  • Action: Deployed the Global Supply Chain Functional Development Center as an employee development framework.

STRATEGIC Sourcing and Supplier Management COE

  • Focus: Enhance supply chain risk management framework.
  • Action: Implemented an enhanced framework for supplier risk management across the operational, financial and business categories including 20 assessment characteristics.

Compliance policy and Supplier Contracts COE

  • Focus: Align with Corporate Compliance Council and the Supply Chain Leadership Council for business practices to optimize resources, minimize compliance and regulatory risk and ensure social responsibility.
  • Action: Implemented a series of compliance initiatives including standard procurement practices.
  • Action: Developed a set of company standard terms, conditions and forms.
  • Action: Developed a new Supplier Standards of Business Conduct which set forth the fundamental requirements that we expect our suppliers to comply with at all tiers.

Supplier Excellence COE

  • Focus: Proactive assessment of our suppliers’ ability to deliver products and services that meet the needs of our customers.
  • Action: Maintained a formal method for assessing, monitoring and rating supply chain performance.
  • Action: Used a dynamic set of criteria framework to determine the “most critical suppliers” to our core business requirements. We designed this framework to be flexible and correlate each element appropriately based on business needs.

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 and financial health
  • Investments, business agreements and small business categories
  • Unique technology
  • Current pursuits, future pursuits and strategic partnering efforts

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 sponsor outreach to 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 Business.
  • Organizations Employing Severely Disabled Individuals.

Since the inception of the Mentor-Protégé Program, Northrop Grumman representatives have provided guidance to more than 130 small businesses. Northrop Grumman has won 23 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.

Small Business Innovation Research (SBIR)

Throughout 2016, we continued to develop our SBIR program, which is the small business program funded by the Small Business Administration to engage such 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 to commercialization within industry and government platforms.

SMALL BUSINESS INNOVATION RESEARCH PROGRAM OBJECTIVES

  • Stimulate technological innovation.
  • Contract with small businesses to meet federal research and development needs.
  • Foster and encourage participation in innovation and entrepreneurship by socially and economically disadvantaged people.
  • 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 the various phases of the program and have partnered to enable them to receive an estimated $6 million in transition funding to commercialize innovative technology. We use the program to augment the company’s 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 market.

2016 Small Business Highlights

Local Focus:

We used local small businesses within communities surrounding our operating facilities whenever feasible. During 2016 government fiscal year, 38 percent of procurement spend went to small, women and minority-owned businesses.

U.S. Government Mentor-Protégé Program:

We managed six Mentor-Protégé agreements, and in 2016 subcontracted $50.4 million to protégé organizations.

Six Mentor-Protégé agreements, and in 2016 subcontracted $50.4 million to protégé organizations

small business:

In 2016, for the sixth consecutive year, we hosted a joint technology interchange workshop encouraging synergy among small business owners, military representatives and Northrop Grumman employees. As part of the joint Department of Defense Industry Small Business Innovation Research (SBIR) and commercialization readiness program, Northrop Grumman technical representatives invited SBIR firms for one-on-one meetings at a Northrop Grumman facility.

RECOGNITION:

Northrop Grumman ranked as the #2 “Top 10 Companies for Veterans” (by DiversityInc.) and #3 among “America’s Top 50 Organizations for Multicultural Business Opportunities” (by DiversityBusiness.com).

Supplier Performance

Suppliers to Northrop Grumman are valued team members. We expect each to understand the critical need for top performance. We have processes for assessing, monitoring, rating and improving performance and risk levels in our supply chain. We routinely evaluate 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.

This supplier rating process helps us make decisions, predict performance and identify suppliers at risk of reduced performance. It also provides supplier performance expectations, regular communications and the ability for Northrop Grumman, as well as our suppliers, to review their performance across multiple programs.

Northrop Grumman employees visit California State University Los Angeles (CSULA), a Minority Institution
Northrop Grumman employees visit California State University Los Angeles (CSULA), a Minority Institution, to learn about alternative fuel technologies at the school’s hydrogen station. Engineering students at CSULA further advance innovation through participation in the SourceAmerica Design Challenge to improve workforce functionality for people with disabilities.
GOAL AND PERFORMANCE SUMMARY

GOAL

Engage various external stakeholder groups that support and serve our values and interests in recruiting, developing and recognizing a diverse workforce.

PERFORMANCE

We partnered with many external organizations to develop our diverse supply base. These organizations provided forums for our employees to create long-lasting connections, to volunteer and develop leadership skills in their communities, and to 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 with our values and our customers’ expectations.

PERFORMANCE

We routinely evaluated performance of our suppliers using standard industry supply chain criteria for schedule, cost and quality of performance. When a specific subcontract warranted, we also evaluated other factors including general management, product performance, systems engineering, software engineering, technical aspects, team commitment, sub–tier supply chain, proposal adequacy, service levels and process effectiveness.

GOAL

Establish a single, consistent operational focus promoting best practices in environmental control and sustainability with our supply base and customers.

PERFORMANCE

A continued focus in 2016 was advancing our sustainability practices. We augmented our International Aerospace Environment Group participation to address the European Union regulation REACH (Registration, Evaluation, Authorization and Restriction of Chemicals).

GOAL

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

PERFORMANCE

We continued to take a proactive approach to prevent counterfeit parts from entering our supply chain and developed a risk management plan for supply chain cybersecurity. In 2016, we:

  • Used a company-wide team of Northrop Grumman experts to establish consistent communication and processes, procedures, tools, training, and governance.
  • Established a company-wide working group to implement customer cyber security requirements to prevent and communicate exposures to cybersecurity attacks and promptly report such events.
  • Participated in industry and various other external working groups to share best practices, develop standards and establish industry guidelines.
  • Developed and implemented system enhancements that allow increased visibility and reporting of suspect counterfeit parts via automated controls.

GOAL

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

PERFORMANCE

During 2016, procurement 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 assess whether suppliers and potential suppliers have been debarred or suspended from U.S. government contracting. In 2016, we implemented a risk-based supplier anti-corruption due diligence and monitoring process.

Japanese E-2D Advanced Hawkeye airborne
The U.S. Navy awarded Northrop Grumman a contract to begin production of a second Japanese E-2D Advanced Hawkeye airborne early warning (AEW) and surveillance aircraft.

Supply chain Risk Management

Supply chain Risk Management


Risk Management In 2016, we established a Supply Chain Risk Management governance and operating model using 20 characteristics to collectively monitor and manage risks.

Supply Chain Cyber Security

  • In early 2016, we partnered with a supply chain research organization called CAPS to host a critical issues exchange on Supply Chain Cyber Security.
  • We served as a co-leader for the Aerospace Industries Association (AIA) Supplier Management Council Cyber Security working group.
Supply Chain Cyber Security

Being Responsible: Global Supply Chain Management

Global Supply Base: As Northrop Grumman expands further into global markets, we are enhancing our efforts to prevent human trafficking and other misconduct within our global supply base. We have a robust anti-corruption 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 eliminating 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 the 2015 Conflict Minerals Form SD and a conflict mineral report on May 26, 2016. Northrop Grumman is a member company of the Conflict Free Sourcing 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 northropgrumman.com.