Implementing novel inventory controls and weighing the costs and benefits of supplier managed inventory (SMI) in a consolidated manufacturing center

The Largo manufacturing site of the Raytheon Company is a pure production facility with limited collocated design capabilities. All of the initial design and development engineering is done in four external sites Marlborough, MA; St. Petersburg, FL; Towson, MD; and Ft. Wayne, IN before final specifications are “thrown over the wall” to Largo for production. Because manufacturing is geographically sequestered there are numerous organizational and informational disconnects. Accountability is not easy with four distinct program management offices; each has equally distinct incentives and needs, and expects stellar results from the Largo production staff. Materials normally account for approximately 75% of the total costs for a standard manufacturing operation. Largo is no different; however its material costs are often even higher than this benchmark for unique reasons. Difficulties arise for Largo in structuring its supply chain agreements because the four design sites have disparate material requirements and harbor unique supplier preferences. A salient symbol of the challenges faced by the site’s supply chain management group is the millions of dollars worth of inventory that sits in the vast factory storeroom. Current inventory floor accuracy is at an unacceptable level of 85.3%. Getting rid of the inventory monster and its attendant problems is no trivial task, and certainly not one that could be accomplished in a six month LFM internship. But steps were taken to help get the ball rolling in the right direction and to generate some quick wins in the near term. The first phase of the project involved the creation of a novel sourcing agreement with a key CCA supplier. The second phase involved optimizing the replenishment system to minimize material flow, implement pull, and increase material accountability. The final phase involved creation of a financial cost v. benefit model to standardize the site’s methodology for making sourcing and partnering decisions in the future. All of these topics are discussed in this thesis as shown in the table of contents.