Network Centric Systems Six Sigma and the Supply Chain Steve Case Supplier Relations and Productivity Expert October 2006 Export control review number TDR 06-9001 Agenda Introduction Raytheon overview Why talk about the Supply Chain? Clock-speed Raytheon Six Sigma What is it? Involving suppliers in Six Sigma Applying a structured methodology Impact of insertion points Network Centric Systems Company Background Network Centric Systems Raytheon at a glance The data presented represents the entire Raytheon Company Early years Radio tubes, WW II radar technology Today $21.9 Billion in Sales in 2005 76,400 employees, 20+ countries 27,000+ suppliers >$7 Billion Annual Spend 72% of spend is Direct . . . 28% of spend is Indirect
Core business focus Government and defense electronics, aviation business Network Centric Systems Why Talk Supply Chain Direct Material is Often the Largest Single Product Cost Element 50% To Tomeet meetour ourcost costand andSix SixSigma Sigmagoals, goals,we we must mustmanage managesupply supplyas asaacore coreprocess, process, same as product development and same as product development andproject project management, etc management, etc 30% 15% Material OH
Network Centric Systems Labor Product Cost Elements 5% Engr Material Type Drives The Strategy Select Selectstandard standardparts partsfrom fromapproved approved suppliers suppliers Tools: Tools:Preferred Preferredparts partslist, list,approved approved suppliers suppliers Track: Track: %%standard standardparts, parts,##suppliers, suppliers,OTD OTD 30% Low $ Commodities Medium $ Key Parts 20% Network Centric Systems High $ Critical Parts/ Subassemblies 50% Partner
Partnerwith withbest bestininclass classsuppliers suppliersofofkey key technologies technologies Include Includesupplier supplieron onIPT IPT Tools: Six Sigma With Tools: Six Sigma WithSuppliers Suppliers Track part cost and predicted Track part cost and predictedperformance performance Material Costs Must be Addressed Early in the Design Cycle . . . Network Centric Systems Selecting Core Competencies Network Centric Systems Where should we invest our limited resources to develop capabilities that will become our core competencies in the future? Ask yourself: Which subcomponents will have the highest barriers to entry in the future? Which will demand the highest profit margins in the future? Which subcomponents will drive customer purchasing behavior in the future?
Which subcomponents are we good at producing today? Raytheon Six Sigma TM Network Centric Systems Visualize Achieve Commit Improve Prioritize Characterize Raytheon Six SigmaTM is a knowledge based process we will use to transform our culture, maximize customer value and enable business growth. Raytheon Six Sigma versus Traditional Six Sigma Network Centric Systems The traditional Six Sigma approach, utilized by Motorola, has its underpinnings in hardware design and manufacturing The Raytheon Six SigmaTM approach was based on benchmarking with Allied Signal and General Electric and is more broad in scope: Includes all processes and functions Integrates proven philosophies and a number of continuous improvement techniques and tools (statistical & lean tools) Supported by a full time Six Sigma Expert network Leads to a culture change Raytheon 6 Sigma Approach Motorola
6 Sigma Approach Traditional Approaches What are the elements of part purchase price? 100 80 Part Price 60 40 20 Profit What SCM tools are available to reduce price? Pricing targets Multiple rounds of bidding Leverage Negotiation G&A/Overhead Scrap/Rework Testing Eng Labor Mfg Labor Material 0 Network Centric Systems Typical Part Which element of cost do these tools address?
Raytheon Six SigmaTM with Suppliers Network Centric Systems Down Selection Process for Supplier engagements Network Centric Systems Su p pli er Su pp lie r Sr up e plie Su li er i l p r p r pp p pplie S up u S lie u u ppl r lierS S ier p Su S p pp
up Su l i pl r er e i l ie pp r u S Supplier Supply Base Optimization (SBO) Y/N Candidate Evaluator Supplier Supplier Supplier Supplier Supplier Supplier Supplier 1.Supplier 2.Supplier 3.Supplier 4.Supplier Supplier Selection Process Candidate Evaluator 1.05 Supply Base Optimization Local Houses Outstanding Financial Technology Performers Risks Poor Leaders Performers Sole Low Cost Redundant Sources Directed
Providers Capabilities Sources Commodity Providers Acceptable Performers Network Centric Systems Niche Providers Potential Partners Optimization Process Preferred Approved Eligible to do business with NCS programs based upon merit of evaluation thru optimization process Approved Suppliers Preferred Strategic Restricted Targeted for business based upon Delivery Quality Cost Technical (performance driven decisions) Approved (w/restrictions) Strategic Eligible to do business with specific legacy programs due to programmatic issues (customer direction, re-qual costs, etc.) Provides technological and strategic advantage
Risk Mitigation plans required for each Willing to form partnerships / alliances Shares risk and opportunities including investments Transition plans to ASL required for each Enterprise-wide, Standard Definitions SBO Background Info Network Centric Systems What is Supply Base Optimization ? A data led, systematic approach to identifying a cross-functionally endorsed list of suppliers within a given commodity family Stratification within a specific commodity family that identifies (1) approved suppliers, (2) preferred suppliers and (3) strategic suppliers A dynamic commodity strategy for each commodity family which forces continuous optimization of the supply base, through the utilization of cross-functional subject matter experts (Eng, Quality, SCM, PL, etc.) A Disciplined Governance process for list maintenance and standardized use of the SBO outputs R6s w/Supplier Tools General Raytheon Tools Supplier Selection Decision Tools Supplier Rating System Lean Assessment Tool Supplier Total Assessment Tool SBO Process Radar Charts Y/N Evaluator Candidate Evaluator 1.5 Network Centric Systems R6with Suppliers Network Centric Systems R6s with Suppliers is a targeted effort examining total cost of ownership for a part or service focussed on maximizing cost reduction while minimizing investment. Features: Widely proven methodology
Uses a gated flow making investment incremental Leverages upon the large pool of R6s tool or technical expert resources as appropriate Standard templates drive consistency The Six Sigma With Suppliers Process Network Centric Systems Process Steps: Step Step1: 1:Visualize Visualize Analyze the BOM and determine the key suppliers and parts Step Step2: 2:Commit Commit Get supplier commitment, set objectives and prepare for workshop by analyzing unit costs and quality Step Step3: 3:Prioritize Prioritize Conduct assessment workshop with supplier to identify improvement projects Step Step4: 4: Characterize Characterize Begin improvement projects by analyzing current conditions Step Step5: 5:Improve Improve Continue improvement projects by implementing needed changes Step
Step6: 6:Achieve Achieve Measure results and determine impact on performance and cost Prework: Developing the Total Cost of Ownership $ Raytheon Partassociated Costs Raytheon Total Cost of Ownership for a Supplied Part Operations Responsibility COPQ Incurred by Raytheon Unit Strip-out Costs Unit Rebuild Costs Schedule Impact Raytheon Costs Incoming Testing Integration Testing Processing Costs Integration Costs Current Price Supplier Profit Raytheon Neg. Price Network Centric Systems Supplier COPQ Supplier Cost
Supplier Costs Field Failure Impact Field/Sched. Intangibles Profit Prod. Scrap Prod. Rework Customer Return Failure Analysis Cust. Rtn Replacement Cust Rtn Rework Material Engineering Testing Sales Overhead Manufacturing Marketing Purchasings Responsibility Focus on Total Cost of Ownership Example from Actual Prework Network Centric Systems COPQ Breakdown Total COPQ Est Total Cost Breakdown Total Cost Est Cost of Poor Quality (COPQ) 27% Material Cost 44% Labor Costs 29% Labor Breakout by Module Top Material Cost Drivers Representing Top 52% of Material Cost Y/N Screening Evaluator
Network Centric Systems Purpose: Recommended for initial general evaluation of potential suppliers. It provides a quick look at the viability of a candidate or it allows the comparison and prioritization of multiple candidates Minimal product and supplier knowledge is required Normally filled out by SCM personnel (MPM, Buyers), or interested IPT members Output is radar chart that provide a graphical representation of supplier candidacy Identifies risk areas to R6sS success Numerical score to be used as a comparative The Y/N Evaluator Network Centric Systems The Y/N Evaluators Output Network Centric Systems The Candidate Evaluator 1.05 Network Centric Systems estimate Is a tool to the highest potential savings/improvement For Raytheon, the supplier, and the customer Provides a way to rank order suppliers in the order of the highest potential payback Provides an estimate of where the savings are coming from and where they are going Provides a consistent methodology for ranking suppliers for supplier engagements Requires detailed knowledge including time-phased procurement plans and contract information, Raytheon program, product and supplier background Used by trained SCM personnel or IPT The Candidate Evaluator 1.05 Network Centric Systems Results R6 with Suppliers Tools
Network Centric Systems DTC/CAIV Design to Cost / Cost as An Independent Variable Set and achieve product cost goals. PBS Performance-Based Specifications Set specifications that clearly state what we need, not how to build it. DFMA Design for Manufacturability and Assembly Identify alternative design solutions to eliminate non-essential elements of the design and non-essential steps in the manufacturing process. DFSS Design for Six Sigma Analysis of uncertainty during the requirements definition and design process. PSP Part Selection Process Identify opportunities to lower commodity cost, improve part standardization, reduce part count, and identify problem suppliers and parts. PFMEA Process Failure Modes and Effects Analysis Improve process flow and identify high-risk process elements. DOE Design of Experiments Optimize product designs or manufacturing processes by using experimentation that links variables to performance outputs. Lean Lean Manufacturing Techniques Improve total production process from planning through shipping. Achieve consistent operational performance through improved product and information flow. Blitz Blitz Workshops Eliminate waste and non-value-added activities in manufacturing and administrative processes. STAATS Statistical Analysis and Acceptance Test Software Analyze supplier acceptance test data. Identify test reduction opportunities and parameters that drive yield. Improvement Tools have Time Phased Benefits Early Involvement DTC DTC PBS PBS DFSS DFSS DFMA DFMA
Payback 30X Network Centric Systems DOE DOE Transition Effort PSP PSP PFMEA PFMEA Lean Lean/Kaizen /KaizenBlitz/PI Blitz/PI Test Testreduction reduction Production Effort 5X Concept Eval Dem-Val EMD LRIP Typical Program Life Cycle FRP Linking Product Costs to Applicable Tools Step 1: Cost Components Product Cost Structure Labor Step 2: Cost Drivers
Step 3: Applicable Tools Network Centric Systems Material Factory O/H GS&A Non-std processes Test rqmts Rework/repair Oversight Labor efficiency Setup times Non-std parts Mil parts Tech. decisions Make/buy policies Buying leverage Supplier costs Inspection rqmts Buildings Support costs Inventory Automation level Schedule mgmt Admin support Corporate expenses Marketing Purchase volume Future business outlook DFMA STAATS DOE Automation studies Lean PFMEA Process Improvement
PBS DFMA PSP (std, comm) Volume pricing Sub-tier cost reduction Sub-tier source selection Leveraged buys Process Improvement Lean Standardized test sets Lean Consolidated buys Supplier partnering Assessment Workshop Typical Agenda Day 1 Introductions R6 overview Tool detail Supplier introduction Part cost drivers Process tour Brainstorming Network Centric Systems Day 2 Continue brainstorming Prioritize ideas Conduct feasibility studies on ideas generated Debrief Rank opportunities Develop roadmap Example of Baseline Results Candidate Projects Part 1 1 1 1 1 1
1 2 2 2 2 2 2 2 Payback Ratio Opportunity Spine DFMA 46 Retaining Rod DFMA 33 Assembly PFMEA 32 Plug DFMA 26 Test Reduction 23 Lean Blitz 21 Housing DFMA 13 Assembly DFMA 19 Lean Blitz 18 Test Reduction 17 Machining PFMEA 16 B Stitch PFMEA 11 Assembly PFMEA 7 Casting Supplier DOE 5 22 Summary Implementation Cost Possible Savings $13,000K Payback $600K Cost
Material 50% Identify Workshop Team Material Cost Drivers Electronics 20% Motors 30% Misc 5% Housing 15% Sensors 30% The Supplier Workshop: The Keystone Process Steps: Step Step1: 1:Visualize Visualize Step 3: Prioritize - Supplier Workshop Cost Breakout Assess design and process Assembly 26% Overhead 16% Machining 26% Electronics 5% Step Step2: 2:Commit Commit
Network Centric Systems Core 13% Rod Assemblies 6% Shaft 8% Tool Definitions Learn tools to mitigate cost DTC/CAIV Design to Cost / Cost as An Independent Variable Set and achieve product cost goals. PBS Performance-Based Specifications Set specifications that clearly state what we need, not how to build it. DFMA Design for Manufacturability and Assembly Identify alternative design solutions to eliminate non-essential elements of the design and non-essential steps in the manufacturing process. SWI Software Improvement Optimize the development and architecture of software projects. PSP Part Selection Process Identify opportunities to lower commodity cost, improve part standardization, reduce part count, and identify problem suppliers and parts. PFMEA Process Failure Modes and Effects Analysis Improve process flow and identify high-risk process elements. DOE Design of Experiments Optimize product designs or manufacturing processes by using experimentation that links variables to performance outputs. CFM/Agile Continuous-Flow Manufacturing/Agile Manufacturing Improve total production process from planning through shipping. Achieve consistent operational performance through improved product and information flow. Step Step3:
3:Prioritize Prioritize PI Process Improvement Workshops Eliminate waste and non-value-added activities in manufacturing and administrative processes. Identify cost drivers and tool opportunities Step Step4: 4: Characterize Characterize Cost Driver / Tool Linkage STAATS Statistical Analysis and Acceptance Test Software A nalyze supplier acceptance test data. Identify test reduction opportunities and parameters that drive yield. Product Cost Structure Baseline Costs (prework) Assess Drivers (works hop) Apply Tools (roadm ap) Labor Factory O/H Material GS&A Non-st d pro cesses Test rqmts Rework/repair Oversight La bor efficiency S etup time s
Non-std parts Mil parts Tech. decisions Ma ke/bu y policies Buying leverage Supplier costs Insp ectio n rqmts Building s Support costs Inve ntory Automation le vel Sch edule mgmt Admin support Corporate expen ses Ma rketin g Purchase volume Future busine ss o utloo k DFMA S TAATS DOE A utom ation stud ies A gile/CFM P FME A PI S WI PBS DFM A PSP (std, com m) Volume pricing Sub-tier cost reduction Sub-tier source se lection Leveraged bu ys PI Agile/CFM Standardized te st se ts SWI Agile/CFM Consolida ted buys Supp lier partnering
Payback Ratios Evaluate effect of tools Step Step5: 5:Improve Improve Housing DFMA CFM (ERGM) STAATS (ERGM) Melt Plug DFMA Assembly PFMEA Implementation Roadmap Project Step Step6: 6:Achieve Achieve Create action plan 2000 Redesign for SM Technology Assembly Process PFMEA CFM Engagement Apr Jul Oct Jan Spine DFMA 0 2001
Flow Solder DOE Jan Retaining Rod DFMA Apr Jul 10 20 30 40 50 IPDS: The Way We Do Business Defines the way we plan, capture and execute programs Network Centric Systems Provides an environment for continuous process improvement Raytheon Six SigmaTM Provides One Company language and tools to enable program capture and successful execution Provides tools and processes that enable Integrated Product Teams to perform their tasks EVMS, IMP/IMS, CAIV Building a Process Culture - Requires Discipline! Integrated Product Development System (IPDS) Gates
Proposal Development Make vs. Buy Standard Parts Preferred Suppliers Risk Mitigation Material Program Plans Manufacturing Plans Design Rules/Standardization Strategic Make vs. Buy DFSS (Performance Scorecards) Identify Key Supplier Characteristics Integrated Business Planning Risk Identification/Reduction Early Supplier Involvement Teaming and Partnering BD Contracts Engineering Finance Production Program Management Quality Supply Chain Management + Customers + Strategic Suppliers Example 1: Targeting Viewer Gate 1 Gate 2 Gate 3 Gate 4 Gate 5 Gate 6
Design Review Review Review Review Strategy Readiness Closure Review Readiness Situation: Critical Critical Component in Component in US Vehicles US Vehicles 45% of products fail in system or field Expensive part, slow deliveries Supplier unhappy with profitability Supplier Benefits: Rework of specs and testing plan Reduced process steps by 15% Redesign to reduce matl cost Payback PaybackRatio: Ratio: 15:1 15:1 Raytheon Benefits: Decreased material shortages Redesigns reduce handling damage and factory rework Factory yields increased to >85% Payback PaybackRatio: Ratio: 16:1 16:1 Example 2: Payload Delivery System Gate 1 Gate
Opportunity Win Readiness and Readiness Design Design Review Functional Review Review Strategy Proposal Design Readiness Readiness Closure Design Review Review Review Review Strategy Readiness Closure Review Readiness JSOW JSOW Situation: Prototypes produced Need to cut cost and make more producible New factory being designed Part Part Payload Dispenser Payload Dispenser Results: Factory designed with Lean principles Significant cycle time reductions Example 3: Guided Projectile Gate 1 Gate 2 Gate 3 Gate 4
Gate 5 Gate 6 Gate 7 Gate 8 Gate 9 Network Centric Systems Gate 10 Gate 11 Transition System PreProduction Transition Test/Ship Critical Start-up System Preliminary Proposal Opportunity Win Preand Production Test/Ship Critical Functional Preliminary Start-up Proposal Proposal Opportunity Win Readiness and Readiness Design Design
Review Functional Review Review Strategy Proposal Design Readiness Readiness Closure Design Review Review Review Review Strategy Readiness Closure Review Readiness Situation: ERGM Initial design completed Need to reduce price by 50% Aggressive structural requirements Results: Redesign of major components Decreased manufacturing complexity Increased structural integrity ERGM: Precision guided projectile for Naval 5-inch gun. Also applicable to U.S. Army and Marine Corps 155mm artillery programs Example 4: Guidance Component Gate 1 Gate 2 Gate 3 Gate 4 Gate 5 Gate
6 Gate 7 Gate 8 Gate 9 Gate 10 Network Centric Systems Gate 11 Transition System PreProduction Transition Test/Ship Critical Start-up System Preliminary Proposal Opportunity Win Preand Production Test/Ship Critical Functional Preliminary Start-up Proposal Proposal Opportunity Win Readiness and Readiness Design Design Review Functional Review Strategy Proposal Review
Design Readiness Readiness Closure Design Review Review Review Review Strategy Readiness Closure Review Readiness Situation: Next generation guidance system needed Reduce the price by 40% Meet performance profiles of multiple programs Results: Redesign of tri-mount frame Decreased manufacturing complexity Payback PaybackRatio: Ratio: 65:1 65:1 The Right Engagement Yield Handsome Returns Network Centric Systems 70 60 ROI 50 Tech Dev DFSS LRIP Prod 40 30 20 10 0 0 200
400 600 800 Investment ROI is total impact of the project, and is expressed in multiples of investment Total impact includes gap closure, cost avoidance and cost savings Success Factors Carefully select company core competencies Identify and manage critical supplier relationships Select strategic suppliers for engagements Network Centric Systems Spend time up front to collect the essential data that no one person has Target both immediate and long-term results Use gated process that spends investment money incrementally Ensure customer involvement Gain top executive support for process and pull for results Back-up Supplier Relationships and Supplier Performance back-up materials Network Centric Systems Success Factors Network Centric Systems Dollarize potential impact before engaging management
Align multiple departments - both functional and product related Communicate clear, structured methodology and roadmap during initial kickoff and revisit often Spend time up front to collect the essential data that no one has Offer up data to the supplier, dont just demand it of them Target both immediate and long-term results Use gated process that spends investment money incrementally Ensure customer is involved Gain top executive support for process and pull for results Top Reasons for Failure Network Centric Systems Tried to engage supplier during price negotiations Product managers kicked off workshop by listing constraints Price is far less than supplier costs Supplier is a competitor
Supplier cant dollarize their own costs Supplier cost model entries are far higher than actual costs Engineers are unwilling to consider modifications Prework data collected is incomplete Distrust between supplier and OEM
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