UTC's supply team applies MRO best practices to managing chemicals spend
By Susan Avery -- Purchasing, 4/30/2009 2:00:00 AM
The supply management team at United Technologies Corp. (UTC) in Hartford, Conn., manages an integrated supply agreement for the company's maintenance, repair and operations (MRO) buy in North America and other regions of the world. By most accounts, the team is successful at implementing integrated supply at the company's manufacturing plants in these locations. UTC does not mandate its sites use the approach.
Typically under an integrated supply agreement, companies outsource MRO buying and distribution processes to a supplier, either an integrator or distributor, and integrate the provider's technology with its own. UTC's integrator for MRO is Bruckner Supply in Port Washington, N.Y.
Looking to better control costs associated with UTC's chemicals buy, the supply team decided in 2002 that it would apply some of what it learned about MRO integrated supply to chemicals, says Scott Little, the global commodity manager who manages both buys.
UTC purchases chemicals and services for use in its production processes and some MRO applications. The company's businesses consist of Carrier, Hamilton Sundstrand, Otis, Pratt & Whitney, Sikorsky, UTC Fire & Security and UTC Power. The supply management team at UTC received Purchasing's Medal of Professional Excellence in 2006.
Managing the chemicals spend and risks associated with it is a challenge for any company and, at the time, the plants were devoting countless resources to their purchase, storage and distribution. Outsourcing these processes and other activities to an integrator not only helps reduce costs and improve efficiencies, it also helps minimize risks associated with chemicals management.
The UTC supply team entered into a five-year agreement with Haas TCM in West Chester, Pa., to provide UTC with chemical management services in 2003. It renewed the agreement in 2008.
Haas TCM currently provides chemical management services to about 20 sites in North America including Puerto Rico, and is implementing the program at sites in Canada, the United Kingdom, Italy, Poland and Singapore. Because of complexity surrounding purchasing and managing chemicals for aerospace manufacturing such as strict requirements and quality controls, most of these sites are Pratt & Whitney, Hamilton Sundstrand and Sikorsky plants. Some of the company's manufacturing sites like Carrier are using a similar model through another provider.
For UTC, the benefits of integration are many. For one, it now has a standardized process for purchasing chemicals across the company. It is realizing cost savings of 5–10% from leveraging the buy for materials (price) in the first year per site. Productivity enhancements average 10–15%, also in the first year. Inventory turns are up, from three to 10 per year.
Delivery is 96–98% on-time, with no stock-outs and quality at 1,900 ppm (parts per million) is very good, with very few turnbacks or rejects, says UTC. What's more, feedback from internal customers is positive. The supply management team at UTC uses a scale of 1–7 to measure supplier performance and Haas TCM is at a 6. "It is almost gold," says Little, referring to UTC's program that recognizes supplier performance called Supplier Gold.
HOW THEY BUY. Haas TCM provides UTC with chemical management services which Little describes as "soup to nuts." To meet requirements of each plant, the supply team set up the agreement so that each may select from a menu of services:
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Level one: The supplier purchases all chemicals and delivers them to the plant. It also includes use of the supplier's systems, including its catalog, MSDS management and online ordering process.
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Level two consists of everything in level one plus a consigned onsite or offsite inventory management program. Delivery is within 24 hours for orders placed by 1 pm. The supplier assumes responsibility for receiving and inspection and becomes designated quality representative or source inspector. It manages all documentation. The plant becomes more fully integrated with the provider at level two.
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Level three consists of everything available at level two plus the supplier has a representative onsite at the plant. The rep manages a point-of-use system. UTC and the provider are even more integrated at this level.
To begin, the supply team develops a business case for the site. For it, the team asks a lead rep at the plant to gather all data pertaining to chemicals purchasing and management. Then it does an analysis similar to that for a make/buy decision to determine which level of services is appropriate.
"Over the past several years those that start at level one or two end up moving to level three because they see the value of integration," says Little. "With more integration comes more opportunity for cost savings."
For its part, Haas TCM creates a catalog for the site based on a site visit and analysis of all the chemicals it purchases and manages. The plant determines which personnel have access to the catalog. At some sites, a limited number of workers on the shop floor use the system to place orders with the supplier, with financial approvals, and have a direct line of communication with the supplier.
"In the plants with level three integration, our technicians are out of the business of worrying about chemicals," says Little. "All they have to do is turn to the cabinet and the item they need is there."
The relationship with Haas TCM is helping to standardize chemicals purchased across Pratt & Whitney, Hamilton Sundstrand and Sikorsky. Sikorsky recently acquired a company in Poland and the supply team already is helping with its chemical buying and is working to adapt the catalog to the requirements of its plants.
One of the biggest stakeholders within any company is the environmental health and safety (EH&S) operation. Before UTC implemented its chemical management program, EH&S was responsible for tracking and managing material safety data sheets (MSDS) for each chemical the company buys. This consists of ensuring that each supplier provide the appropriate current documentation for each product. Now, the supplier handles all of this electronically. EH&S also takes advantage of the company's reporting capabilities.
Once the program is in place at a plant (and initial cost savings realized), Little says it is time to turn to the supplier and ask, what other expertise do you have to offer? Now, the supplier provides coolants to UTC. "We have set up separate statement of work documents at a site level in several of our facilities," he says. The supplier comes in and manages everything related to coolants, including helping to determine whether the plant is using the right product on certain machines. Machinists and facilities managers used to perform these activities.
Little also questioned the supplier about its capability to service UTC plants located in other regions of the world. The supplier responded by expanding its geographic scope in the UK and Germany.
"We work with the supplier to manage the supply chain," he says, explaining that he communicates regularly with the company about how it aggregates buying to achieve the best material pricing and how it develops commodity strategies, especially for buying chemicals for aviation manufacturing. "We work to develop collaborative agreements," he adds.
Since renewing its agreement with Haas TCM, the supply team has asked the supplier to become involved in continuous improvement activities, including enhancing some critical processes, and to conduct benchmarking exercises. The supplier has responded by becoming involved in the company's ACE (Achieving Competitive Excellence) operating system.
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