Directive Orientation Early Systematic Approach Process Management - Cycles of Improvement 1940s to 1970s 1980s to 1990s Reactive Approach Directive Orientation Early Systematic Approach Quality Orientation Deming Challenge Strategic & Operational Goals Strategic & Operational Goals TQMS MIL SPEC DOD/FARs Employee Involvement SPC Contract Quality Circles Used processes for many years Reacted, non-focused approach CQI Started Continuous Improvement 1990s to 2000 Aligned Approach Process Orientation Strategic & Operational Goals Integrated Approach Systematic Orientation Business Excellence Framework Leadership Strategic Planning Customer & Market Focus Measurement, Analysis & Know. Mgmt Human Resource Focus Process Management Business Results Vision Support Plan Benchmarking Comparative Data Breakthrough Best Practices EI Lean PBM CMM/CMMI 6-Sigma Tools to be applied to achieve business excellence Today PBM & PAS EI ISO Strategic & Operational Goals CMM Lean Best Practices 6-Sigma Process Design & Management Process Assessment Process Improvement

T-38C Avionics Upgrade Program Overview Upgrade 511 USAF T-38 A/C to Digital Cockpits 36 Aircrew Training Devices (Simulators) Avionics Logistics Support First Flight - 8 July 1998 Production Planned through FY2008 Fwd Cockpit Provide Realistic Advanced Training for Future USAF Fighter/Bomber Pilots

Mobilize the Commitment to Lean Selling the Vision . . . . . Metric LRIP 1 (Dec ’00) Lean Baseline (Sept ’01) Future State (June ’04) Delivery (Units / Mo) 1 4 8 Cost (DLHs / Ship) 100% 87% 30% Inventory (Units in Flow) 6 14 9 Cycle (M-Days) 109 64 24 Quality (Defects / 1K Hrs) NA 25.3 10.5

Benefit of Lean Manufacturing Lean Enables Accelerated Learning and Reduced Variability Pre-Lean Actuals Post-Lean Actuals 437 281 286 308 265 283 123 48 259 58 82 116 Lean Benefit Relative DLHs (Including Rework) FY01 FY02 Max – Min Variation AUP DLHs (Including Rework) Business as Usual 85% Learning Curve Pre-Lean Trendline 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 CUM A/C Grouping Cell 1 Cell 2 Cell 3 Lean Cell Implementation Cells 4 - 7 Post-Lean Trendline Post-Lean Trendline and Benefit Analysis Based on CUM 39 thru CUM 73 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125 130 135 140 Completed Aircraft CUM Number

Lean and Efficient Systems Supply Chain Services Value Chain Customer Relationship Customer Service Planning Quote & Order Processing Production Logistics Leadership (Goal, EPP IBAP) Customer & Supplier Partnership Employee Involvement Performance Management Information Technology Lean & Process Management Lean and Efficient Systems Enterprise Value Stream Map Standard Processes Visuals In place Supplier Development Partnership Pull and Point Of Use Continuous Process Improvement Benchmark & Breakthrough Process Redesign Examples of Deployment Examples of Benefits Process Based Management on Quote, Order, and Delivery Accounts Receivable Process Direct delivery of shipments Common Processes across SCS Common Catalog Standard Asset Management Planning Process Reduced account receivable backlog– 254% imp. in cash flow VIDS parts procurement from 4 days to 2 hours Improved F/A-18 supply availability from 65 % for C/D to 85% for E/F