Case Studies
Raytheon Systems Company & Chemical
Partnership Collaborative

Summary

Raytheon entered into a comprehensive, far-reaching partnership with its service-provider, Radian, in May 1999. The 5-year contract covers the entire lifecycle of chemical management for all chemicals and gases including procurement, inventory, delivery, waste disposal, and data management. The contract includes incentives for gainsharing, or "shared savings," for reductions in chemical use and purchase price and improved process efficiency.

Name of Program
Chemical & Gas Management Program (CGMP)

Program Start Date
May 1999

Company Profile
Raytheon is one of the world's leading diversified technology companies with worldwide 1998 sales of more than $19 billion and more than 100,000 employees. Raytheon's core businesses span defense and commercial electronics, business aviation and special mission aircraft, and engineering and construction.

CSP engaged in a collaborative effort with Raytheon's Air Force Plant #44 in Tucson, Arizona in 1996. The specific objective was to identify chemical use reduction opportunities and consider chemical management services (CMS) as a strategy to improve their chemical management system.

Following this initial pilot project in Tucson, Raytheon recognized the potential value of a CMS program and launched a company-wide initiative. Today, Raytheon's CMS program includes over 70 facilities at more than 30 sites.

Chemical Footprint
All chemicals, gases and wastes

Scope of Services

• Sourcing and procurement of chemicals

• Supply side management of cylinder and bulk gases

• Inspection

• Inventory Management (offsite)

• Just-In-Time Delivery

• Delivery to point of use (optional)

• Technical support and process optimization

• Data management and EH&S reporting (MSDS, use tracking etc.)

• Management and disposal of wastes

Contract Structure

• 5 year contract covering over 30 sites

• Service fee

• Incentives for garnishing or "shared savings"

• Bonus for chemical use reduction

Drivers For Program

• Reduce chemical lifecycle cost at each facility

• Outsource areas that were outside of core competencies

• Seek strategic alliances with suppliers

• Reduce purchase and inventory costs by leveraging across the Company

• Reduce waste

• Improve data management for environmental reporting

• Desire to become one company despite multiple systems, cultures, and procedures that resulted from recent merger

CSP Pilot Program
CSP worked with Raytheon to:

• establish a cross-functional site team including representatives from purchasing, environmental, warehouse and delivery, quality, finance, engineering support and waste management;

• conduct a process mapping exercise to determine how chemicals move through the facility; conduct a materials accounting analysis of one painting operation to determine material emissions and the cost of material cost;

• conduct a chemical management cost analysis to assess the total cost of chemical use for the facility; expand the chemical management cost analysis to the top 10 chemical using facilities in the company;

• develop the scope of a new chemical services (CGMP) program and issue an RFP;

• and review and help negotiate a final agreement with Haas TCM, formerly Radian International with specific incentives for cost and chemical use reduction.

Results of the Analysis

• The process map identified six different information systems and more than twenty discrete organizational functions supporting chemical management.

• The cost analysis revealed chemical management costs of $1 for evry dollar of chemicals purchased.

• Paint shop analysis provided necessary information to validate a move to powder paint and other investments in transfer efficiency technologies. In the same area, efforts are underway to eliminate redundant inks and paints that often result in needless waste generation.

• Raytheon replicated the materials analysis in the printed wiring board shop and proposed significant changes to the facility's waste treatment processes to result in reductions in energy use, treatment chemical use, and hazardous waste generation. Conservative estimates suggest annual operating savings of $400,000. (The changes were not implemented due to the merger with Raytheon and transfer of the PWB Fab out of Tucson).

Program Performing

• Operations streamlined via automated ordering and tracking system tcmIS: ~20,000 chemicals & gases, ~1,000 waste profiles on-line

• Improved service and quality
- On time delivery & purchase order (PO) cycle time reduced 10-20%
- Scrap Rates Reduced By 250%

• 10-20% net savings in first 2 years (5 Yr. ~ 30-40%)
- Direct (commodity) and indirect (structural) costs

• Reduced waste
- Consolidated inventories & higher inventory turns

• Customer satisfaction continually improved
- Supply, tech center, supply optimization, service, cost savings areas recognized

Business Benefits

• Based on the results of the materials accounting (MA) analysis, the facility took steps to improve its paint application efficiency in its main painting area, resulting in an estimated 71% decrease in paint waste.

• Radian implemented an internet enabled chemical lifecycle outsourcing program with aligned incentives for cost reductions and process efficiency improvements, including chemical use reduction and cycle time reduction.

• Some examples of specific benefits realized include:

Key Elements for Success

• The CSP cost analysis and the initial successes of the materials analysis justified moving ahead with a comprehensive program.

• This cost analysis was replicated at the top 10 chemical using facilities. The information provided the basis for the RFP.

• The major goals announced by the new CEO of Raytheon were directly in line with the CMS program; reducing costs and usage and implementing an integrated, nationwide solution.

• The Department of Defense imperative for cost reduction, forced commitment from upper management to consider major changes.

• The merger created an atmosphere of change thus making it easier to propose a new program for managing chemicals.

Key Challenges

• This was the third attempt at implementing a CMS program, and there was much skepticism.

• Union labor was generally opposed to the idea.

• Inherent cultural bias at Raytheon that "we know best" created some resentment by the team to outsource this function.

• Once cost analysis was in hand, the Team struggled to define what their vision for chemical management should be.

• Lacked involvement and support from an upper management champion in the beginning. It was a round-up effort.

• The process-mapping exercise should have been conducted in one of the first meetings. It brought to light for the entire team the complexity and costs of chemical management.

• Continuity of program management-key personnel continued to change and depth in the site team was necessary for follow through.

• Cultural differences between legacy companies posed challenges to implementation.

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