Raytheon Co. is one of the world's major suppliers to the aerospace, defense and homeland security markets. The company makes highly sophisticated systems that depend on state-of-the-art technology. Its global supply chain is correspondingly complex, relying on suppliers large and small to provide critical components and raw materials. Raytheon's concerns include security, supplier stability, strict government regulations on the transfer of sensitive technology, and the making of products that simply cannot fail under the most arduous conditions. In an interview conducted at the annual Gartner Supply Chain Executive Summit in Scottsdale, Ariz., Vivek Kamath, vice president of supply operations, talks about the unique challenges that Raytheon faces today, and how it is addressing such issues as supplier consolidation, the need for cost-cutting and the imminent retirement of so many skilled workers.
Q: How did the transformation of Raytheon's supply chain begin? What was the basic challenge that you saw at the outset?
A: Kamath: A little known fact: probably between 65 and 70 cents of every dollar that Raytheon brings in, of our $25bn in revenue, is in our supply chain. So if you could think of a single thing that you could do to become more strategic and competitive, it's about how you can make your supply chain more efficient. If you can impact 60 to 65 percent of your cost in a positive way, you obviously become more competitive. And you're able to provide better solutions to your customers, become more efficient and really provide a level of service that customers expect from you.
Q: When you say more efficient, you're not just talking about lower costs, right? A lot of companies will just go to their supply-chain manager and say, 'We need to cut costs by X percent.' You have a very complex supply chain, with high-security, high-value materials and huge armies of suppliers. So the word "efficient" to you means more than just cost.
A: Kamath: Absolutely. In our world, cost is important, but having the best value and providing speed are critical. Think about it: most of our products are being developed to resolve solutions that we need in theater now. We may have a problem in Iraq, or Afghanistan, or any of the areas of the world where we currently are having issues. Our customers come to us in real time and tell us that they need a solution to resolve a particular problem that's impacting our war fighter. We can't sit around for months trying to figure out how to solve this problem. Our ability to develop solutions with speed and agility has an impact on the lives of many of our war fighters.
We have to be able to develop solutions quickly. Supply chain plays an integral part. Our ability to work closely with our partners, and come up with real solutions that we can deploy in theater in a timely manner, becomes critical to how we can support our customers on a day-to-day basis.
Q: Let's start at the beginning of the supply chain. What are the challenges involved in working with such a huge number of suppliers?
A: Kamath: When you have such a large number, the biggest challenge we have is having to deal with the day-to-day issues of suppliers to make sure they're performing. Two years ago we introduced, and have made great progress with, center-led sourcing approach to rationalize our supply base. [The goal was] to get to an optimal level of suppliers with whom we can be more proactive. Now, when we have a smaller group of suppliers, we can sit with them, share with them our business plan, align with their business plan, and have discussions around their capacity and their capability. We can pull them into the design phase early on, so we don't have problems later. We're able to do a lot more of these things because we don't have to deal with thousands of suppliers. We now deal with the critical few that we've chosen purposefully, based on their technology, their capability and their alignment to our business model. And we can continue to partner with them, not just for today's needs, but for tomorrow's as well.
Q: But not so few that you run into problems of risk - that you have a sole supplier that can no longer provide you with a very essential part. So how you do you balance the need to consolidate suppliers, and at the same time give yourself continuing options?
A: Kamath: Ironically, the opposite problem exists for us. We have sole sources today, and we're trying to solve that using our center-led sourcing approach. This is a risk aerospace and defense companies have had for decades. Because of the technologies that we have, many of the suppliers we have out there today in the field are sole-source. As a result of the sourcing process that we introduced a couple of years ago, we have been able to target those instances where we have a sole-source situation, and develop alternate sources.
So we're doing a little of both. We have situations where we have too many suppliers in one category, and others where we have one or two suppliers that we continually worry about in terms of their capability, their capacity and their ability to grow with us. In those instances, because we have a smaller supply base, we're able now to focus on developing alternates, and invest in the time to mentor them so they can grow their capabilities. We introduce other suppliers with similar capabilities who can mitigate that risk.
Q: In addition to your supplier management program, where else are the efficiencies coming from? Technology? Process? People? What's the main source of the benefits?
A: Kamath: Actually, all of them. Let me give you a couple of examples. Around the tools, we created four years ago a specific organization within the enterprise supply chain group focused on technology. These are a group of technologists - IT folks, in common terms - that have supply-chain acumen. They know the supply-chain work, they understand the business model, but they also have the IT background, to be able to combine the business process with an IT solution. So we've been on a great journey on that.
We've developed specific tools - a subcontract agreement management system, for example, or a new tool we just launched about a month ago called Supplier Insight. It allows our supply-chain professionals to have a one-stop shop on their desktop or laptop. It gives you everything you'd want to know about a supplier - either one you're currently doing business with, or one you're investigating to potentially do business with in the future - in a global environment. We mine the data that we have on the performance of existing suppliers, and we also look at external sources of information - news articles or anything like that. Then we marry the two together and have analytics decide and model for us. Is there risk with the supplier? Does the supplier have the capabilities we need? It's all in one place. If you're a buying or a subcontracting professional, you don't have to spend a lot of time Googling in one area, and fishing in four or five systems looking for information. You just get into Supplier Insight and type in the name of the supplier. It comes back with a dashboard, a tabular form that gives you various pieces of information about that supplier in real time, that allows you to make real-time decisions based on facts and data. That's a critical element of our transformation.
The people element is perhaps the most critical. In aerospace, there's a little bit of a learning. Not only do you have to have the supply-chain background, experience and knowledge, you have to know how to do it in aerospace and defense: the security, the risks, the regulatory environment. These are things that you only learn by doing. So we have an extra battle to fight: to train our folks so they're able to operate a contemporary supply chain, but in an aerospace and defense environment.
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