Original Date: 09/14/1998
Revision Date: 01/18/2007
Information : On-Hand Inventory Level
In 1991, Raytheon Missile Systems Company (RMSC) initiated a program to reduce its production On-Hand Inventory Level to a three-month quantity. This change was the result of government contractual requirements, which set five months as the maximum on-hand inventory level. Customer-provided progress payments to RMSC are not authorized beyond this limit.
RMSC researched the defense and aerospace industries to determine the best-in-class On-Hand Inventory Levels. Based on this level of 2.7 months, RMSC set its own inventory goal at three months. The company reduced its On- Hand Inventory Level from 4.8 months to the goal level of three months.
Since implementing the three-month On-Hand Inventory Level, RMSC reduced resource investments for on-hand inventory; enhanced the utilization of customer-provided progress payments; simplified management reviews; became compliant with the DOD’s Material Management Accounting Standards; and heightened visibility to individual programs. The company plans to continue operating at this on-hand inventory level.
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