A Raytheon Six Sigma Global Benchmarking Council Toronto

Agenda ØHistory ØProcess ØOrganization ØRaytheon Blitz ØSuccess Stories ØKnowledge Sharing ØSummary © 2001, Raytheon

Raytheon Businesses C 3 I Aircraft Integration Systems Electronic Systems Raytheon Technical Services Raytheon Commercial Electronics Raytheon Systems Limited Raytheon Aircraft © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001

Raytheon’s Heritage Acquisitions that have lead to the NEW Raytheon © 2001, Raytheon Company.

Dan Burnham’s Vision “Raytheon Six Sigma…is a whole new way to think about work… It’s going to touch everything that we do. ” Dan Burnham Raytheon Leadership Forum Jan. 14, 1999 © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001

Raytheon Six Sigma versus Traditional Six Sigma n n The classical 6 Sigma approach, utilized by Motorola, has its underpinnings in Hardware design and manufacturing. The Raytheon 6 Sigma Approach is based on Benchmarking with Allied Signal and General Electric and is more broad in scope – – Includes all processes and functions – Integrates Proven Philosophies and a Number of Continuous Improvement Techniques Raytheon and Tools 6 Sigma Approach – Supported by a full time Six Sigma Expert Network Motorola 6 Sigma Approach – Leads to a Culture Change © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001

Why is R 6 Different? n Built on Legacy knowledge and talent n Combining tools, customers and culture transformation n Applies to every part of our business n Designed from bottom-up – developing ownership n Leadership commitment and support n Focused on empowerment n Intensive communication, education and training n Made sure it is NOT a Quality program © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001

Raytheon Six Sigma – Definition: Raytheon Six Sigma is a Knowledge Based Process we will use to Transform Our Culture in order to Maximize Customer Value and Grow Our Business © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001

Alignment and Convergence © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August

Raytheon Six Sigma – Principles Specify value in the eyes of the customer Identify value stream; eliminate waste and variation Make value flow at pull of the customer Involve, align & empower employees Continuously improve knowledge in pursuit of perfection © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001

Knowledge Based Management n n Ask the right questions Act based on facts, not opinions – Get data, use data – Make it visual n n Have a closed loop process Capture lessons, share them widely In God we trust, all others bring DATA! © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001

R 6 Scorecard n Leaders n Experts 639 Into Training 527 Completed Training 144 Certified n Specialists 5221 Into Development 1202 Qualified n Projects 994 Started 442 Completed n Benefits © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001 7, 200 Educated $375+M Financial Benefits (As of January 2001)

What We Discovered The “why” is as important as the “what”: n n n It’s about culture and leadership more than tools It’s about changing how we do business and think about work We must change (leadership) – It requires alignment at every level of our company – We don’t know how to work together (yet) – We each have to make a sacrifice… change our behavior n …It’s up to us… not the consultants Louise Francesconi 1 st Leadership Session Jan 4 -8, 1999 Get alignment … then deploy © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001 16

A Continuum of Opportunity Simple – – Everyone Common Sense Empowerment Bureaucracy Busting © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001 Complex – Specialists – Some Tools – Some Training and experience – Raytheon Blitz – Experts – Multi-disciplined tool set – Lengthy training and experience – Expert Projects

R 6 s Process Visualize the Future Visualize Celebrate & Plan for the Future Design & Implement Changes Achieve Commit Improve Prioritize Characterize © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001 Define Current State Commit to Change Determine Improvement Opportunities

Visualize – IPO Inputs Current State Clear & pressing need for change Stakeholder demand Customer perceptions & Desires Market position & pressures Aspirations, Values, Goals n Process 1) Assess the current state. 2) Visualize alternate future states “blue sky” with stakeholders. 3) Converge to a common vision & validate (create need & generate excitement). 4) Draw the mental image that excites people and creates a need for change that demonstrates it. 5) Align and validate throughout the value stream: • Customer • Employees • Suppliers • Shareholders 6) Develop strategy (1 st steps): • Identify Sponsor / Change Agent Tool Chest – Survey Questions – Assessment Models – Change Management Techniques – Quality Function Deployment (QFD) Tools – Balanced Scorecard © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001 Outputs – – Vision of the Future Need for Change Strategy Accountable Sponsor Analysis Tools Value Stream Analysis Catchball Benchmarking

Achieve – IPO Inputs Management & Control Systems Improved Process Performance Transferred Knowledge Process Outputs 1) Define responsibilities to support & enable process. 2) Train, education & communicate new process. 3) Measure and compare results and expectations… take appropriate action. 4) Create Success Summary. 5) Reward, & recognize change agent team. 6) Capture & Share knowledge. 7) Monitor and analyze process for Continuous Improvement Opportunities. n Embedded New Process Delivered Results to the Organization Documented Success: • Case Study • Lessons Learned • Next Steps Recognition & Rewards Captured & Shared Knowledge Expanded R 6 s Community Tool Chest – – Knowledge Management System (transfer) New Financial/ Accounting Systems Change Management Tools Control Charts © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001 – Organizational Development – Employee Satisfaction Monitoring Systems – Communication Systems – Data Analysis Tools

Raytheon Six Sigma Principles Apply To: Product Development n Order Taking and Scheduling n Manufacturing n Logistics n Administrative Systems n Human Resources. . . All products, processes and services n . . . Everything! © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001

Typical VA/NVA (Waste) Distribution Value Added NVA Pure Waste NVA Planned Waste © 2001,

Eliminate Waste Seven Types of Waste* Correction Overproduction Material movement Motion Waiting Inventory Processing © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001 * from Tacchi Ohno

Waste (Administrative examples) n n n n Correction – incorrect data entry Over Production – preparing reports, not acted upon/multiple copies Material movement – extra steps in the process; distance traveled Motion – steps/data entry Waiting – processing monthly, not as the work comes in (closings) Inventory – transactions not processed Processing – signoffs, reports, etc. © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001

Deployment Leadership Champions/Master Experts 1% of population Specialist Project Team Specialist © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001 Specialist Project Team Specialist 10% of population

Organize for Success n n Sets vision Approves action plan Removes barriers Tracks progress RSC RAC Raytheon Leadership Team Dan Burnham Comm RE&C Corp Staff RSL Champion Raytheon Six Sigma Council Chairman — Don Ronchi Champion n n Champion Platform for corporate consistency Coordinate plans, schedules, and resources Communicate vision, expectations, and experiences Build and sustain momentum © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001

Key Six Sigma Team Members n Champions – Senior leaders who plan and execute the deployment in their organizations n Master Experts – Fully-trained, highly-experienced, full-time leaders responsible for planning, training, mentoring, and results n Experts – Fully-trained, full-time experts who lead improvement teams, work complex projects across the business, and coach Specialists n Specialists – Trained for applying skills to projects in their job areas © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001

Identifying target areas Strategy Business Plan Visualize Assess Business to Identify Target Areas Commit Prioritize Characterize Projects Business Assessment Strategic Tactical Visualize Achieve Commit Improve Prioritize Characterize Improve $$$ Achieve Repeat all 6 -Steps (including Visualize & Commit) for every project Assess Business to Define Target Areas © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001

R 6 s Improvement Tools Empowerment Constraint Management Performance Based Payments Tolerance Allocation Takt Work Standards Cross-training Blitz PCAT Teamwork Pull Run Rules Statistical Design Statistical Analysis FIFO Waste Elimination Visual Controls Less Multi-Tasking Setup Reduction Co-location Benchmarking Mistake Proofing Critical Chain 6 S Design For Manufacturability © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001

Expeditionary Warfare IR Lookout – R 6 Sigma Review Tools help Build Process Knowledge Pareto Chart 1 -May-99 thru Defect 30 -Nov-99 AT Test Yields 60% 40% 60 80% 45 60% 30 40% Percent Baseline & Determine Gap 80% 100% Quantity 100% 75 15 20% 0% Pareto Causes of Gap 0 0% se m K bly R eyp ea a r. P d an e An Zo l alo om g C C A Le ak ID C CA al Fla g Pw C r S 80 M up ic ply ro C on R t ec al Ba Eva l tt P Te WB st H Set ou sin Bia g s B M d H irro sg r N Lea o Fo k cu Fo s cu s Zo Pie om z o M ot H Vid all N or eo Effe FOV fla ct sh CC A w Pu /fo rg cu e. V s alv e As Is As Vision of the Future May Process Capability Measures Chart Mean = 42. 375 Std. Dev = 2. 48779 USL = 57. 301 LSL = 27. 448 Sigma Level = 6. Sigma Capability = 6. Cpk = 1. 9999 Cp = 2. D. P. M. = 0. 002 Series 1 USL LSL 25 USL 30 35 40 Critical Measure © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001 45 50 55 60 20% Jun Jul Aug Sep Fishbone Chart Oct Nov Percent of total

Business Knowledge in four areas CASH Financial REVENU MARGI E N Growth Orientation • Innovative financial arrangements • Equity investments Customer AWARD FEE • Build annuity business • Cultivate synergy • Leverage initiatives Process • Raytheon campus • R 6 initiatives CPI ROI ON IMPROVEMENTS Process Improvement Learning • Employee development © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001 Share Best Practices Focused People Strategy Protect, Expand Diversify Customer Base PERFORMANCE TO PLAN Integrated Planning & Forecasting GATE II COMPLETION ROI MARKET SHARE SPI Meet Commitments and Expectations ANNUA L GROWT H CAPTURE RATE ROI Market, Capture, Propose RETENTION RATE Skill Development Business Solutions PERFORMANCE TO PLAN Investment People/Assets/ Technology

Raytheon Six Sigma Blitz It’s a Lean Tool adapted from Kaizen Blitz (copyrighted by

Raytheon Six Sigma Blitz © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC

Raytheon Six Sigma Blitz Sample Raytheon Blitz Impact © 2001, Raytheon Company. All Rights

Some Success Stories • Assembly & Test • Supply Chain • Invoice Payment •

Ex. W: TWS Yield Improvement Assy & Test Optimization Yield Improvement Baseline & Determine Gap Average Assembly/Test Hours per Unit Summary Visualize Pareto Defects Causing Gap Prioritize Achieve Time Study Assembly Walk the flow on line Identify & reduce NVA Activities Chart the Build Process Time Value Map to ID white space Characterize Test/Assy Optimization Activity Characterize Closed Loop Corrective Action Process: � Reduce Leaks at Emergency Switch � Eliminate use of Loc-Tite � Detector Assembly Screening @ IRCo. E � Eyepiece Screening @ Elcan � Developed COTIB screening test. Improve � Redesigned D-hole on cover Redesigned © 2001, Raytheon Company. All� Rights Reserved. rail grabber Bill Baker, GBC August 2001 � Collocate & Combine UT, ASSY, UT � Reduce WIP from 250 to 125 � Establish WIP Limits � Establish Run Rules � Minimize SFDM activities � Point of use material and supplies � Automate test data collection � Purchase equip. to reduce touch-up Improve

Ex. W: W 1000 Production Yield Improvement and Assy/Test Optimization Assy/Test Process Analysis Production Flow Simulation Model PFMEA Reduced Rework Application of Lean Principles to Factory Floor Test Area Quality Issues Addressed failure potential WIP Shelves ANTS reduce failure/defect risk • Performed multiple “what if” runs • Modify flow to catch defects • Conducted capacity analysis with goal of 3 early to minimize rework cost Customer Requested Increase Front Lens Housing Strength Eliminate Knobs loosening Improve Lens Cover Use Black Hardware Hand Strap Improvement Reduce Battery Noise Improve Battery Pack Contacts ASELSAN Display Redesign (PO is TBD) Weapon Fire BI Vibe • Reviewed >100 steps for • 30 actions identified to Prior 100 Units Secure Lanyards Fix Eyepiece Detent Breaking Improve. Focus Knob Positive Stop Improve Focus Rack Gear Strength Add Metal Lens Housing Retainer Eyepiece Lens Distortion (ongoing improvement study) Off Site Leak units/day (50 units/month) Assy Workstations • Identified bottlenecks (Leak Test, AT) Work Cell • Predicted estimates for cycle time and touch labor AT Pack/Ship • Reduced batch sizes • Establish kanbans to control WIP levels 40 Internal Improvements Improve Enclosure Sealing Surface Increase Diopter Focus Range Improve Sealing Gaskets & Change Grease Use 6 V Ball Bearing Chopper Improve Battery Removal Strap Design Improve Flex PWB Layout Low and High Voltage PS Redesign (Thomas CRT) Use 35 C Detector AA Battery Cassette Redesign © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001 • Document Production Rules Maximize co-location of assy/test stations 25 22 Avg Assy/Test Touch Labor (Hours per Unit) • Establish data collection points

Ex. W: Supply Chain Management Improve the Materiel Program Management Process Baseline of Current Processes • Material Strategy • Systems Information Visualize Future Process and Quantify Potential Savings • Quantified the savings when material strategy used to leverage opportunity • Investigated materiel receive, inspect, and stock locations MPM Process and Materiel Strategy • Revise MPM templates • Loaded DVE data % • Sorted for 80% material $$ • Develop Cost Reduction strategies by part number • Completed Risk Mitigation Plan by Key Supplier Materiel Logistics • Revised system defaults for all users • Revised Warehouse Store locations on key program parts © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001 • Revised MPM Templates « Pilot Program - DVE • Reset System Profiles for planners MPM’s and 2000 Implementation Plan Program Material Costs • Deploy MPM Process/templates to all programs • Maximize leveraging across Ex. Warfare programs • Key Supplier Involvement on IPT’s

Sample Non-Manufacturing Process Improvement © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC

Expert networking and Knowledge sharing Annual Expert Symposiums e. Coach & and Docushare systems Benchmarking Library © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001 Project Library

Key Concepts n n Look at the entire business Focus on the Value Stream – Make waste visible – Fix one value stream at a time n Do it cross functionally – Converge/Diverge group problem solving methodology – Storyboard – keep the collective mind n Use systems thinking – Discover linkage/leverage – Concentrate on the vital few © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001

What have we learned? n Implementing major change has the best chance when top management is INVOLVED & COMMITTED n Common language is important in a large company n Defining financial benefits is crucial to getting business unit buy-in n Continual communication and reinforcement of the goals is needed to maintain focus n It’s the Performance Review stupid! © 2001, Raytheon Company. All Rights Reserved. Bill Baker, GBC August 2001