Smarter stock-up, lower costs
Raytheon honors 15 companies in celebration of supply-buying strategy
The Pentagon wanted an upgrade for a major part of a command and control network, and Raytheon was in the running for the contract to build it.
The team assigned to win the contract was confident its product would be technologically superior, but that was just half the challenge: They also had to offer it at the best possible price.
Raytheon’s biggest opportunity to drive down costs was with materials, which can often make up 60 to 70 percent of a program’s cost. To come in with the most affordable solution, the company had to take a different approach to sourcing materials from suppliers.
That approach – an across-the-board accounting of how Raytheon produces similar systems and what it needs to make them – helped the company win the production contract, and it is a case study in the way Raytheon designs and obtains materials for its broad range of defense and aerospace systems.
Raytheon celebrated that approach and honored 15 key suppliers at a conference in Boston on March 31. In addition, Raytheon was recently recognized for excellence in supply chain management by the Institute for Supply Management and Michigan State University.
A Fresh Approach to Supply Chain Management
The team that set out to win that command and control contract lowered the supply costs of its proposal using a process known within the company as Enterprise Sourcing and Performance Excellence, or ESPX.
The process harnesses Raytheon’s engineering expertise as well as its buying power, and it incorporates and builds upon techniques that contract teams have used for years. Rather than ordering parts for the satellite system piece by piece over time, the process calls for the team to review Raytheon’s entire portfolio and find opportunities to buy common items in bulk.
That, in turn, helps the company negotiate less expensive and longer-term contracts with suppliers.
“With $9 billion spent annually with our suppliers, this strategy is absolutely critical,” said David Wilkins, Raytheon’s vice president for contracts and supply chain. “It’s helped us to reduce risk, build stronger relationships with top suppliers and gain tighter control over the quality and affordability of the solutions we deliver to our customers.”