Michael Bruno Raytheon Technologies, possibly the largest A&D company this decade, eyes $1 billion in supplier savings.
Michael Bruno
Credit: U.S. Army
The latest news from what could be the largest aerospace and defense (A&D) company ever, Raytheon Technologies, may leave suppliers with a sense of deja vu all over again. In short, the OEM is ramping up its Performance+ supply chain squeeze as it looks to make good on promises to investors of achieving $1 billion in cost-cutting initiatives.
Performance+, named this year, has been expected since before the April 2020 merger of defense prime Raytheon and the commercial aerospace units of United Technologies (UTC). In marketing the program, including at the Vermont Chamber of Commerce’s advanced manufacturing event in September, executives are fleshing out what the A&D industry’s recently formed behemoth will prioritize as it streamlines its supply chains.
“As we proceed, we will rationalize and consolidate our supply base, which will create opportunities for our best-performing suppliers,” says Sarfraz Nawaz, vice president of supply chain, in a Raytheon newsletter.
Karen Dumont, senior director for supplier performance and supply chain technology at Raytheon, says Performance+ was launched with the company’s high-end, critical suppliers just ahead of a global rollout. Ultimately, the rollout will include designating preferred suppliers.
Chosen suppliers will be those that help Raytheon meets its objectives, offer dedicated production lines and facilities and meet performance guarantees such as 98% on-time delivery and defect rates lower than 50 parts per million. In addition, supplier management must be proactive and considered “engaging” by Raytheon, providing visibility into the supplier and its subtier’s inventory, raw materials, finished goods and work in progress.
Interestingly, Raytheon Technologies will also hold suppliers responsible for environmental, social and governance concerns. Andrea Desaulniers, the company’s director for supply chain strategic initiatives, says Raytheon is tracking workforce diversity and inclusion within its suppliers.
Beyond diversity and inclusion, Dumont says Raytheon will manage supply chains and suppliers with other 21st-century factors in mind, including increased cybersecurity concerns, post-pandemic economic recovery, and U.S. and Western policies regarding China and Russia such as increased Buy American mandates. “There’s lots of risks and pressures on both us as a prime and on our supply base coming from climate impact right through geopolitical impact,” she says.
When it comes to supply chain spending, Raytheon Technologies throws a lot of heft into the supplier base. The company, which is sometimes called a mini-OEM or Super Tier 1, spent roughly $21 billion on products in 2020—with almost equal spending by the four divisions, albeit more from Collins Aerospace and less from Raytheon Missiles and Defense. The entire corporation also spent about $10 billion on “nonproduct” consumables, contract labor, human resources and other professional services from suppliers, with Collins the predominant spending division and Missiles and Defense accounting for a fraction compared with the others.
Could Raytheon Technologies’ actions move the proverbial needle on the A&D supplier base? They might, because some industry observers believe the company could become the leading A&D behemoth this decade, displacing embattled Boeing and surpassing Airbus and Lockheed Martin. Ironically, Raytheon Technologies was formed in part as a reaction to Boeing’s controversial Partnering for Success supply chain squeeze.
For its part, Raytheon is dangling prospects of a more congenial approach, starting with an Enterprise Supplier Advisory Council. The council, comprising 25 suppliers, will meet each April, August and November to provide feedback on Raytheon initiatives and market trends and share advice among suppliers.
Desaulniers also says Raytheon Technologies will continue to lean on suppliers for innovation and new business lines. “It starts really way back in the supply chain and giving suppliers the opportunity to put forward what they have,” she says. “That’s embedded in our process. Heritage Raytheon had a strategic sourcing process and heritage UTC had one, and honestly, they were very, very similar—which is probably not surprising, both being very high-tech aerospace companies merging together.”
Nevertheless, Raytheon executives know there is more work to be done on their end. While it seeks a more streamlined, one-stop-shop experience on its RTX.com/suppliers portal and in its supply chain operations, the executives admit that the company is still coming together, including merging more than 13 enterprise resource planning systems.
Asked how best to approach Raytheon Technologies with new ideas and new products, several managers reply that suppliers should continue to reach out to existing contacts at individual Raytheon divisions along with registering on the portal.
