With a greater focus corporate-wide on systems integration work and less of a focus on traditional manufacturing work, Raytheon knew that it needed a new supply chain strategy for the new millennium.

After all, the Waltham, Mass.-based company, at one time largely a defense contractor, has grown and diversified over the years through acquisitions of divisions of companies like Hughes Aircraft, Texas Instruments, and E-Systems. But that strategic diversification strategy had complicated the overall supply chain systems, as each business unit continued in its own silo without sharing knowledge or data with other similar business units. Indeed, at one point, Raytheon had as many as 69 purchasing systems, a similar number of logistics and receiving systems, and multiple MRP and enterprise resource planning (ERP) systems functioning in various business units.

That's why, under the direction of Tim Wholey, vice president of supply chain, it's been revamping its entire supply chain. One area of focus: logistics, where Raytheon hopes to save $45 million over the next five years, largely through inventory reduction, where the company estimates that it now has an extra $1 billion on its books.

In a recent presentation at the Northeast Supply Chain Conference entitled "Logistics Success through Communities of Practice," Raytheon's George Ellis, director of integrated logistics, detailed the transformation in the company's logistics strategy and how it fits in with overall supply chain plan at Raytheon.

Historically, the work in streamlining logistics goes back to 1997 when a logistics council was created within Raytheon with the primary goal of leveraging freight contracts across the company's disparate business units where possible. While that was a step in the right direction, it was just a small one.

In 2003, the company took a much larger step and created its Raytheon Integrated Logistics Community of Practice (RILCOM) organization to support the corporate wide Integrated Supply Chain initiative and Wholey picked Ellis to lead the new Integrated Logistics organization at Raytheon. (Ellis holds a Harvard MBA and worked for logistics provider Penske for a number of years as general manager of supply chain engineering. He was also CEO of logistics technology start-up, Eggworks Logistics in Wellesley, Mass.)

Under Ellis' leadership, RILCOM identified six drivers of logistics excellence: collaboration, optimization, connectivity, execution, speed and visibility. It also targeted knowledge management as a focus area. "Common technology enables easy knowledge sharing and collaboration," asserts Elllis. To that end, Raytheon not only named a corporate knowledge management champion to drive the process, but it also implemented a knowledge management portal and best practice database to help share and retain the expertise and work completed in RILCOM.

Freight payments

The best example of technology supporting knowledge management in RILCOM is in its freight payment systems. As a result of its acquisitions and growth of various business units, Raytheon was using up to 38 different systems for freight payment, according to Ellis. RILCOM decided to consolidate on one technology to simplify the processes, enforce stronger business rules and gain more visibility into its spend. According to Ellis, RILCOM is in the midst of a "freight payment process blitz" that is expected to save the company $5 million in the reduction of duplicate invoices over three years.

RILCOM selected the PowerTrack system from U.S. Bank as its technology of record for freight payment (see results in sidebar). According to U.S. Bank, the PowerTrack product can store contract, pricing, and catalog information and electronically submit invoices and purchase orders. In his presentation, Ellis said the PowerTrack system pays carriers and then bills Raytheon. Jaime Bohnke, director of supply chain management at Raytheon's Missile Systems division, said in a presentation at the Council of Logistics Management, that under the previous system, it took an average of 52 days for Raytheon to pay its logistics services suppliers and carriers, but with the PowerTrack system, that time has been reduced to 20 days.

Material tracking

Another area where RILCOM pushed to apply technology to improve its existing processes was in material tracking. According to Ellis, Raytheon's disparate material and property tracking systems were labor-intensive and too reliant on paper, which resulted in limited visibility and poor connectivity across the enterprise and contributed to that $1 billion in extra inventory. At the same time, as a major government and defense contractor, Raytheon has to comply with a U.S. Department of Defense mandate to incorporate RFID (radio frequency identification) technology.

This time, instead of selecting a tool off the shelf, RILCOM developed the web-based MTrak material tracking system internally. The system leverages barcode technology and helps internal and external customers track shipments better. The result is fewer lost shipments, improved inventory and materials visibility, and better use of logistics personnel and resources overall across the entire company. The company is now working to integrate the MTrak system into its SAP enterprise resource planning system.

Going forward, says Ellis, RILCOM plans to focus on technology-heavy areas such as transportation optimization, asset management and optimization, import/export technology, and development of both the people and communication within the RILCOM team.