Supply management is core of success at UTC
Purchasing presents its Medal of Professional Excellence for 2006 to United Technologies Corp. for developing and sustaining a supply management culture throughout a successful, growing, yet decentralized global company.
By Susan Avery -- Purchasing, 9/7/2006 6:00:00 AM
Recognizing the value of leveraging the purchasing power of United Technologies Corp., George David, chairman and CEO, named Kent Brittan, vice president of supply management in 1997, giving him responsibility for pulling together spending of UTC's diverse businesses and a cost reduction goal of $750 million in four years.
Brittan, who was CFO at Otis Elevator, met the challenge head on, surpassing that goal by $250 million. And, more importantly, he created an organizational structure that's still in place today, building supply management into a core competency for the company.
It's evident from one end of the $43 billion-dollar Hartford, Conn.-based company to the other. Each UTC business—Carrier, Hamilton Sundstrand, Otis, Pratt & Whitney, Sikorsky, UTC Fire & Security and UTC Power—operates autonomously and has its own supply management operation. Keeping in mind that this independence is important to the success of the company, Brittan re-energized an existing UTC supply management council and encouraged the businesses to pool their purchasing.
Today, vice presidents of supply management at each business meet 11 times a year as a council under the leadership of Scott Singer, director of UTC global supply management, to make decisions on purchasing policy and procedure and share best practices.
With no purchasing experience himself, Brittan hired people from both inside and outside the company. While not everyone was skilled in supply management, all the recruits had one thing in common—leadership qualities. He provided training programs and gave the new hires freedom to take risks. Today, the corporate staff, based at UTC's Leadership Center in Farmington, Conn., consists of 54 purchasing professionals; more than 80% have advanced degrees. They have corporate responsibility for managing the indirect spend, quality, supplier diversity and other activities.
 Purchasing presented its Medal of Professional Excellence for 2006 to United Technologies Corp. at a meeting of the company’s supply management council on Sept. 7. From left to right: Scott Singer, director, UTC global supply management; Jothi Purushotaman, UTC vice president of operations and Paul Teague, editor-in-chief, Purchasing |
Brittan and his team took a commodity management approach to purchasing. (It's not an entirely new idea, but they use the strategy where it makes sense.) UTC spends $10.4 billion annually on direct materials and $6 billion on indirect goods and services. Forty percent of that annual tab for direct is spent by the company's aerospace businesses—Hamilton Sundstrand, Pratt & Whitney and Sikorsky. Since they share many of the same suppliers for the commodities they buy, they've been leveraging that spend for nearly 10 years. And, while savings top $250 million, they realize benefits that go beyond price discounts. For instance, the businesses, operating in a tightly regulated industry, together create corporate contracts with common terms and conditions, making it easier for suppliers to do business with UTC.
UTC's aerospace businesses are pioneers in setting up international purchasing offices in such emerging markets as China, India, Eastern Europe, Turkey and Brazil. Four purchasing professionals, under the leadership of Rick O'Donnell, director, UTC aerospace supply management, now spend their time developing suppliers in these emerging markets.
One aerospace business, Pratt Canada, is viewed by many within and outside the company as a model for involving suppliers in such initiatives as design for manufacturing. One example of that: The development of its PW600 engine for very light jets to meet anticipated customer demand. Likewise, supply management at Otis, one of UTC's commercial businesses, using Lean tools has created a new supply chain to develop technology for its Gen2 elevator.
While the commercial businesses—Otis, Carrier, UTC Fire & Security and UTC Power—have less opportunity to leverage spending, with the exception of some metals buying—the supply management operations frequently communicate with each other. Purchasing professionals and other executives at Otis, UTC Fire & Security and UTC Power recently attended a Carrier supplier conference to learn of new supply management initiatives.
Read more on UTC
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On the indirect side, Brittan and his team were especially innovative and made some bold moves. He was the first among his peers (at other companies) to outsource the procure-to-pay process to a third party in 1998. In this case, IBM is the supplier which provides the technology and initially lent a hand with strategic sourcing. The relationship continues today.
Supply management was an early adopter of reverse-auction technology available then through FreeMarkets, which is now part of Ariba. Savings of $600 million on a $4 billion direct and indirect reverse-auction spend helped focus management attention on supply in the early days, Brittan says. He used tools to manage supplier risk available through Open Ratings, now part of Dun & Bradstreet, and set up an integrated supply agreement through which UTC outsources its purchasing processes for MRO. This agreement may be expanded globally.
Brittan created UT500, a program for reducing indirect spending through improvements in policy, process and sourcing. Since 2001, UTC has saved more than $1.5 billion through the program. It's re-launched UT500 twice; now there are versions in Europe and Asia.
Elements of Excellence
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“The supply management operation at UTC really stands out as a model for companies that have that decentralized environment and organization, showing what can be accomplished,” says Bill Schaefer, vice president of procurement services, IBM Integrated Supply Chain. “Supply management has definitely proved its effectiveness over the years. Being able to pull it all together and launch common initiatives and be the innovators they are is really impressive.” Schaefer was working in the supply management operation with the late Gene Richter when IBM received Purchasing's Medal of Excellence in 1999.
“It's a tremendous combination of talent, vision, and the wherewithal to see things through,” says Robert Rosenbaum, president, Bruckner Supply Co., Port Washington, N.Y., of the supply management operation at UTC. The supplier provides integrated supply chain management and other services for MRO and indirect. “No one walks out of their facilities at least with respect to indirect without feeling awe over what can be accomplished. They've been an enormous influence on us. They are coaching us, encouraging us and got a commitment from us to really build this out into a global platform.” 
Anthony Santiago, vice president of global strategic sourcing and financial shared services at Bristol-Myers Squibb, works with the supply management professionals at UTC on a best practices sharing roundtable he routinely hosts. “My sense is that they are a first-class operation, not only in basic supply management principles, but also in the way they're able to connect with the operating management to create an environment in which their clients are eager to seek their service.”
Supply management indeed has a direct connection to operations at UTC and contributes to the company's success. In 2005, management appointed Brittan to chairman of United Technologies International Operations, and created a new post, naming Jothi Purushotaman, formerly senior vice president of finance at Pratt & Whitney, as vice president of operations. Brittan retired last year.
Supply management reports to Purushotaman, who also has responsibility for manufacturing and quality. Reporting to CEO David, Purushotaman leads an initiative called Operations Transformation that brings together supply management, manufacturing and quality.
Purushotaman meets regularly with a management team that consists of the presidents, leaders of supply management and other executives at the businesses. The teams track operation performance of the business in areas of manufacturing, supply management and quality and present the data in a dashboard format to David.
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UTC at a glance United Technologies Corp. is a $43 billion global diversified manufacturer with 210,000 employees headquartered in Hartford Conn. Its businesses and products consist of:
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In supply management, the businesses monitor delivery, suppliers, cost, quality and asset utilization. Because each business is unique (i.e., requirements at Otis differ from, say, Carrier), each has a unique way of presenting metrics in these areas. Generally, the metrics provide responses to these questions: Are items delivered on time? Are suppliers delivering quality materials on time and to expectation? Is inventory turnover rate acceptable?
Purushotaman says that “the operating management meetings are very important to the success and growth of UTC.” For the quarter ending on June 30, 2006, UTC reported that revenues increased by 9% (not counting growth by acquisition). That's following a 9% growth rate in the first quarter and yet another 7% for all of 2005.
Each year, Purushotaman develops a roadmap for his group that consists of these strategies: design for manufacturing, strategic sourcing, Lean and talent development. This roadmap relates to similar roadmaps developed for manufacturing, quality and supply management. “Everything is totally connected,” he says. “Without manufacturing, quality and supply management working together, we could never accomplish what we've accomplished and what we plan to accomplish,” he says, pointing to Pratt Canada's PW600 engine as an example.
“We are impressed with the resources UTC dedicates to working with the supply base,” says Colin Cooper, CEO of Whitcraft in Eastford, Conn. “They've done a superlative job getting suppliers ready to handle requirements of the PW600 program.” Whitcraft provides components to the aerospace businesses, and was selected by supply management at Pratt Canada to provide kitting for the new engine.
In supply management at UTC, Singer also develops roadmaps. The same holds true at the businesses, where supply management leaders draw up roadmaps for their operations. Of plans for 2007 and beyond, he says, “We recognize our journey still poses challenges in that we have different business models and how we as an organization can drive best practices and collaborate and use technology to help manage the supply base.” Likewise, each purchasing professional in supply management has his or her own roadmap. Individual performance is measured to these goals.
Recognizing the value of leveraging the purchasing power of United Technologies Corp., George David, chairman and CEO, named Kent Brittan, vice president of supply management in 1997, giving him responsibility for pulling together spending of UTC's diverse businesses and a cost reduction goal of $750 million in four years.
 UTC’s supply management team: (from left to right) Rick O’Donnell, director, aerospace supply management; Scott Singer, director, global supply management; Arnand Stanley, director, supplier development; Cassandra Charles Gerst, manager, supply base development & diversity; Susan Spence, director, general procurement; Leon Veretto, director, operations analysis; Susan Armstrong, manager, supplier quality; Danny Cronin, manager, leadership development. (seated, holding medal) Jothi Purushotaman, vice president, operations. |
With no purchasing experience himself, Brittan hired people from both inside and outside the company. While not everyone was skilled in supply management, all the recruits had one thing in common—leadership qualities. He provided training programs and gave the new hires freedom to take risks. Today, the corporate staff, based at UTC's Leadership Center in Farmington, Conn., consists of 54 purchasing professionals; more than 80% have advanced degrees. They have corporate responsibility for managing the indirect spend, quality, supplier diversity and other activities.
In supply management at UTC, Singer also develops roadmaps. The same holds true at the businesses, where supply management leaders draw up roadmaps for their operations. Of plans for 2007 and beyond, he says, “We recognize our journey still poses challenges in that we have different business models and how we as an organization can drive best practices and collaborate and use technology to help manage the supply base.” Likewise, each purchasing professional in supply management has his or her own roadmap. Individual performance is measured to these goals.
UTC recognizes supply management value
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Louis Chênevert, president and COO, UTC, recognizes the value of supply management, and looks to the organization to continue to contribute to the success of the company.
Supply management at UTC
Each of these purchasing professionals has a seat on the supply management council:
Beth Schwarz Vice president, supply chain management Pratt & Whitney
Al Altieri Vice president, supply management Sikorsky Aircraft
Steve Healy Vice president, global supply chain & logistics management Otis Elevator
Jay Lapointe Vice President, supply chain management Hamilton Sundstrand
Ed Dunn Vice president, supply management Carrier
Jim Jordano Vice president, supply chain management UTC Fire & Security
Articles on supply management at UTC:
For factory supplies, UTC workers hit the mall
Wanted: Suppliers who think like you
UTC hosts minority supplier development event
Factory supplies team kicks it up a notch
To read Purchasing’s Medal of Professional Excellence criteria & Articles on recent Medal of Professional Excellence recipients, please
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