Digital to the rescue?
Can big data and a digitized supply chain help reduce costs in the defense sector? Raytheon Company, the third largest U.S. defense contractor, is betting big that they can . I think they are right, and here’s why.
First, why does the supply chain even matter?
Because they can’t win without improving it. Raytheon is competing in a defense sector where contractors are increasingly being asked to do more for less. The global financial crisis and the widespread reduction in many national defense budgets that followed have created an environment of immense price scrutiny . From 2010 through 2014, the compound annual growth rate (CAGR) of sales for US-based defense contractors declined by an average of 1% each year . Despite this price pressure – emerging threats have kept demand for innovation high, just look at German demand for a new missile defense system due to concerns over threats posed by North Korea, Iran and Russia, as well as insurgent groups .
What does this have to do with the supply chain you ask? Well, roughly 70% of Raytheon’s project costs come from materials . It doesn’t take complex financial analysis to see that sourcing more efficiently would have a huge impact. Raytheon is frank about their reality,
“Sourcing at Raytheon has undergone a seismic shift in recent years as we explore and adopt new strategies for helping our customers tackle the geopolitical and budgetary challenges they face. That includes holding ourselves accountable for delivering the solutions we promised, at the price we promised, when we promised.” 
Ok – what are they doing about it?
They created a VP of Supply Chain position and are betting big on big data analytics and innovative collaborative technology to get them to a vision of a simplified supply chain, working with a smaller group of suppliers on a more strategic basis .
Big Data Systems – with 8,000 programs and more than 10,000 suppliers, Raytheon is moving to take advantage of their behemoth status by building out a data analytics platform which integrates company and external data and enables them to predict and respond to complicating factors such as a wildfire, hurricane, or earthquake that may affect suppliers’ ability to meet a deadline, as well as run strategic analysis on key factors for suppliers’ performance and financial stability. This enables them to look across programs and suppliers for ways to reduce costs, and empowers them to better negotiate terms by reducing total number of suppliers and engaging in long-term contracts for multiple programs.
Innovative Communication Tech – on top of analysis to inform better strategy and contracts, Raytheon is investing directly in how they operate with suppliers to improve transparency and efficiency. They launched a 3-D, immersive environment to drive product excellence and accelerate time-to-market through co-development and co-production of products. Users wear goggles to interact with virtual models of products projected into the room, and large-scale 3-D immersive data visualizations. This enables alignment between suppliers and engineers that is no longer constrained by need for work (and rework) expensive physical prototypes, or by physical location .
Good for them. But how do they stay ahead? What’s next?
The focus on supply chain efficiencies is promising, but it is still early days at Raytheon for big data-driven supply chain decision making, and the path to a simplified supply chain with a smaller group of suppliers and more strategic working relationships needs further innovation.
Here are my recommendations:
Expand Data Capture to Competition– use the analytical chops you’ve built to better track the competition. Map the marketplace for all available contracts – and know what happens when you lose one. Build a picture through time and use this to inform your strategy.
Scale Your Supplier Learning – double down on the power of scale and increase supplier performance data capture with an eye toward developing abstract-able insights that can be shared across suppliers to improve individual supplier performance. Creat
Expand Communication Tools – move beyond communication for improved prototyping, to a deeper level of problem exposure and solving with suppliers. Build new tools to enable real time problem exposure and solving with suppliers. Package these tools as a product and offer them to your suppliers to improve their working relationships with suppliers upstream from them. You win by making them more efficient.
Identify Untapped Partnerships – analytics on current suppliers is great, but future product innovations will undoubtedly come from outside sources. Raytheon needs to develop their big data analytics to better identify the small innovative partners before their competition does.
So… What do you think?
How would you use big data analytics to maintain a competitive edge? What additional technology investment would you make to drive supply chain efficiency?
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