Carrier’s China Sourcing Office serves as model for UTC’s overseas sourcing
By Dave Hannon -- Purchasing, 9/7/2006 6:00:00 AM
When the Carrier unit of UTC opened its China Sourcing Office in 2000, it had five people running a lot of quotes, but mostly as leverage against domestic suppliers. Today, Carrier’s China Sourcing Office has 25 people in it and last year they awarded $600 million to Chinese suppliers.
What made the difference? In 2003, Carrier held a formal review of its global sourcing strategy. It brought all of its engineering leaders and business unit heads to Shanghai, as well as some representatives from General Electric and Emerson to discuss the best strategy for sourcing in China. The major takeaway, says Ed Dunn, vice president of supply management at Carrier, was that an overseas purchasing office needs to be staffed with people who had business unit expertise, as well as sourcing skills.
“You want to leverage your spend across business units, but some spend areas require specific business unit expertise,” Dunn says. “That means having some buyers dedicated to sourcing for that business unit.”
Carrier also learned from that meeting that it needed more controls in place because too many suppliers were quoting directly with some of Carriers’ business units as well the central office and the company was losing leverage. Across Carrier, one supplier was getting various prices for the same product and that spend wasn’t being leveraged. “We weren’t getting the advantage of buying overseas,” Dunn says. “So we identified those gaps, got them under control and standardized supplier pricing and focused the sourcing people on leveraging the spend.”
Carrier has also learned and emphasizes the value of supplier evaluation in global sourcing. For example, when one contract was shifted from a domestic source to a Chinese supplier, the Chinese supplier later subcontracted a process that caused a major quality problem for the part.
“We had to go back to the incumbent supplier in the U.S. and ask them to start making this part again,” Dunn says. But the UTC mentality is not to view this as a failure. “In a case like that, we do some good root-cause analysis to figure out what went wrong and fix it with standard work and you’ll learn from that.”
Another key best practice for global sourcing Carrier has picked up is keeping suppliers in tune with corporate goals both short-term and long-term. “But that’s good strategy for global sourcing as well as domestic,” Dunn says. “It’s in your best interest to partner with companies that are best aligned with your corporate goals and culture.” Carrier plans on doing more supplier conferences in China more often to develop new sources that can be shared with other UTC business units where appropriate.
Carrier, the largest UTC division, is now sharing its knowledge and lessons with other UTC divisions. A quarterly meeting is being established where the head of Carrier’s China Sourcing Office will meet with all business units buying in China to share information and answer questions. And Dunn participates in the UTC Supply Management Council, which usually includes global sourcing on its agenda. Representatives of the China Sourcing Office have addressed the council in the past.
Another strategy will have Carrier rotating some of its China sourcing agents out of Carrier into other divisions of UTC to share knowledge.
Dunn says one of the biggest challenges in running an overseas sourcing operation is maintaining the personnel. “As more companies start up their own global sourcing organizations, they want to recruit our people. We’ve got an established organization here and they want to get our people. Our people get phone calls and unsolicited offers for a job. Today, these people are getting five times what they were 2.5 years ago.”
Dunn says in addition to pay and job security, team-building is a big motivator to keep employees in China. “Yes, I’ve even done Karaoke with some of these guys and Karaoke on a $200,000 sound system in Beijing is pretty interesting. The good news is there’s no lack of talent in China—it’s amazing how well-educated young Chinese people are today.”
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