Raytheon’s supply chain disrupted by work restrictions at small suppliers

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diving letter:

  • Raytheon Technologies’ reliance on small suppliers is exacerbating raw material shortages as many suppliers struggle to recruit workers, CFO Neil Mitchill told an investor conference Nov. 8.
  • Higher turnover rates at smaller suppliers have resulted in delays and limited supplies of materials such as castings and rocket motors. About 46% of defense contractor suppliers are considered small businesses.
  • “Think of the stress that a small supplier faces when you have high labor turnover rates,” Mitchill said, adding he doesn’t expect a recovery until next year.

Dive insight:

The defense company is working to improve supplier visibility by using predictive analytics, entering into long-term agreements and holding underperforming suppliers accountable.

In order to “[get] its supply chain healthy”, Raytheon aims to address a $67 billion defense backlog, up $3 billion year-to-date.

“I’m confident we will be able to work back some of the cost growth that we are seeing by entering into long-term agreements, working with suppliers who are underperforming and holding them accountable so we don’t.” pay a higher price for things we don’t get on time,” Mitchill said.

The company has faced particular challenges related to casting supplies and is currently working with casting suppliers to try to find alternative ways to qualify materials and keep the parts moving, Mitchill said. The shortages are likely to last for most of next year before stabilizing.

Raytheon also had trouble sourcing rocket motors, which are built into a rocket later in the manufacturing process. The company expects the disruptions to continue into 2024 and is working with suppliers to help move materials into Raytheon’s factories.

Though Raytheon isn’t “out of the woods” just yet, Mitchill noted that he’s encouraged by the ongoing dialogue and improved visibility. The supply of semiconductors and microelectronics has stabilized somewhat, partly due to longer-term contracts.

“I’m confident we will be able to work back some of the cost growth that we are seeing by entering into long-term agreements, working with suppliers who are underperforming and holding them accountable so we don’t.” pay a higher price for things we don’t get on time,” he said.

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