Teamwork is very important in the supply chain at United Technologies Corp., especially when one of the company's divisions is about to design a new jet engine, an air-conditioning system or a new high-tech elevator.
By James Carbone
Purchasing
September 7, 2006
Management at UTC knows that having a leading-edge design is not enough, so purchasing and suppliers get involved in design early through the 3P production-planning process.
“It is a one-week event that really lays out requirements in terms of manufacturing, logistics and design and gets everyone on the same page,” says Leon Veretto, director of operations analysis (supplier development). The product, its specifications, performance and cost, quality and targets are discussed. The idea is to make sure the product launches successfully.
“The 3P process is really attempting to mistake-proof a lot of different things, including the robustness of our design and the robustness of our supply chain,” says Scott Singer, director of supplier management.
Scott Singer: "We outline our expectations of the supply chain. We would like to see some cost sharing."
Purchasing helps select the suppliers that are involved with the 3P. Suppliers must have a needed technology and manufacturing expertise as well as meet UTC's quality and cost goals.
Purchasing's involvement in 3P is only part of its involvement in new product introduction. Purchasing also helps select suppliers and involve them with design even before the 3P process begins. Purchasing also evaluates potential new suppliers, especially in Lean manufacturing techniques, and helps them develop through a unique, innovative program called Operations Transformation Leaders (OTL).
“Procurement helps bridge our design community and supply base,” says Singer. “Procurement starts in the preliminary design phase when they start to scope out the high level sourcing plan for the products,” he says. That function is done by “strategic sourcing folks within our supply management organization who look at supplier selection,” he says.
Know thy supplier
The job of strategic sourcing specialists in supply management is to understand the supply chain capabilities of suppliers and to facilitate a dialogue with them and help determine which suppliers should be involved in new product development.
“In the early conceptual design stage before we award business we will bring in suppliers, in some cases competitors, to outline high-level objectives of the projects,” says Singer.
This early involvement by suppliers has become important, too, because many of UTC's new programs require significant investments by UTC and suppliers.
“We outline expectations of the supply chain. We would like to see some cost sharing,” says Singer. “Our expectations are that they view nonrecurring engineering and hardware development as an investment in the platform. In other words, we want free test hardware to be part of the co-investment of our tier one supply base,” he says.
Singer notes that UTC is asked by its customers such as Boeing and Airbus, for the same type of co-investment.
These early sessions with suppliers will help UTC determine which suppliers should be considered.
“We want to quickly get to the point of who do we believe the players are that we want to heavily engage with on 3P,” says Singer. “At that point, we are making a significant commitment with the supplier on the design and test of the program.”
No guarantees
Even though a supplier is selected to participate in 3P, it is no guarantee the supplier's products will be on the bill of materials for a new UTC product. “Suppliers may be switched out during the process,” says Veretto.
“In the 3P process, we have found suppliers that may have stood up and said 'we can embrace all these philosophies,' but we discover they did not have the management systems in place to meet our requirements, so we had to make some decisions and swap some of new tier-one suppliers,” he says. “It's much better to have this flushed out in the early phase than after you are launching production purchase orders.”
UTC often uses suppliers it has used in the past in the 3P process. “We like to work with our preferred legacy suppliers that have proven themselves on previous platforms,” says Singer. “However, we are always looking for a value proposition that will help us be more competitive in the marketplace.”
In some cases, UTC has to use new suppliers because of a transition to a new technology. An example is the Gen2 elevator developed by UTC's Otis Elevator division based in Hartford, Conn.
“We essentially created a new supply chain for it,” says Singer.
He said new suppliers were necessary because instead of using wire rope in the elevator, the Gen2 uses flat-coated steel-belt technology, a gearless machine and a permanent magnet motor to power it.
“It was a joint effort between engineering and procurement in identifying and choosing new suppliers,” says Martin Weichhardt, director of supply chain management at Otis.
He says finding a supplier to develop and manufacture coated steel belts was key to the success of the Gen2 elevator.
“The coated steel belt has wire strands, molded into a polyurethane type of material. Using the belts rather than wire ropes allowed us to reduce the weight of the elevator tremendously,” says Weichhardt. “A big part of the weight of an elevator is the wire rope itself, which is a steel cord, and there are usually a couple of wire ropes per elevator.”
Taking out weight allowed Otis to make an elevator that didn't require a machine room. Instead the electrical controls of the elevator are mounted on top of the elevator cab.
Otis considered a number of suppliers for the steel belts, but chose ContiTech of Hanover, Germany because of the company's expertise in the technology and its manufacturing and design capabilities. Later, Otis developed a second source, Brugg Group in Switzerland.
When UTC needs to change suppliers and qualify new ones, it evaluates them in two ways. Like many businesses, it has a standard supplier assessment process where suppliers are evaluated on quality, financial stability and manufacturing capability.
“But we have also developed a Lean assessment tool where we go to into a supplier with a series of questions and score them in terms of Lean manufacturing,” says Veretto.
“We look at quality systems, flow in shop, safety, leadtimes, and capacity. There are eight different elements that we score them on. We look at their management and their competency in terms of Lean and manufacturing,” he says.
Singer says other considerations include a supplier's engineering capabilities and a continuous improvement philosophy. “Are they a Six Sigma shop for example? Do they have a type of Toyota production system or a derivative of it?”
Based on that assessment, UTC determines if a supplier can “come up to speed” to meet the requirements necessary to be a UTC supplier.
If the supplier has a weakness, UTC will work with the supplier to improve with OTL teams.
“OTL teams are skilled in Lean and they work with a supplier's specific issues,” says Veretto. OTLs will do value stream mapping at suppliers, examining their processes to identify waste and find ways to eliminate it.
Many new suppliers, especially those in emerging markets, may have low-cost manufacturing, but lack robust quality systems and OTL can work with suppliers to improve those systems.
“In emerging markets, we are making significant investments in technical assistance because suppliers don't have requisite quality systems or sometimes even business systems to deal with large multinational corporations like UTC,” says Singer.
OTL, 3P and early purchasing and supplier involvement is paying off for UTC. It is reducing its number of suppliers and parts on platforms and speeding up assembly time.
Case in point: the Pratt & Whitney 600 jet engine, developed in 2005 and used in Cessna, Eclipse and Embraer planes. UTC programs helped to reduce parts count on the engine by 50%, reduce the number of suppliers from 110 to 25 and cut assembly time from eight days to eight hours.
Elements of Excellence
Involve suppliers early
Evaluate suppliers on Lean, among other criteria
Help suppliers develop themselves
The goals of 3P
Deliver customer required design quality.
Reach production volume for expected demand.
Hit target date of market availability.
Attain target cost.
Supplier tool reduces risk for UTC
While UTC works closely with suppliers, it is no guarantee that the supplier will be successful in the marketplace and continue to be financially healthy. To monitor suppliers' financial performance, UTC uses an online tool that sends up early warning signs if a supplier starts to get into financial hot water.
UTC uses a risk management tool called SBManager, developed by Open Ratings, a Dun and Bradstreet company.
Leon Veretto: "Operations Transformation Leader teams are skilled in Lean and they work with a supplier's specific issues."
“It is a pattern-recognition model,” says Leon Veretto, director of operations analysis. “It looks at past bankruptcies of suppliers and the events that lead up to the bankruptcies and patterns them in terms of three months before and six months before. It analyzes the types of things that were happening with the supplier.”
He says UTC monitors 25,000 suppliers with this tool. “When a supplier starts replicating a pattern that is consistent with other companies that have gone bankrupt, it gives you an early alert,” says Veretto. “It gives you a heads-up months before there is an issue and you can intervene.”
Intervention can involve talking with the suppliers about the financial issues and helping the supplier correct them or dropping the supplier from a project.
UTC has used the tool to prevent delay of launching of a new product.
Scott Singer, director of supplier management, said a couple of years ago a new supplier was selected because the supplier had a new high-speed machining technology for helicopter frames. “We had selected this supplier because the supplier was new and had differentiated itself with the technology,” he says.
“Things started to go badly with the supplier and the tool alerted us that the supplier was in financial trouble. It gave us a six to eight week advantage over other customers of this supplier to take corrective action,” he says. UTC found another source and the supplier went bankrupt.
Jim Lawton, vice president of marketing for Open Ratings in Waltham, Mass., says about 40 companies use SBManager and it has a success rate of 92% at predicting bankruptcies of companies six months ahead of time.
He says the tool identifies supplier problems, such as failing to pay their own suppliers, legal issues and problems meeting government and environmental regulations.
By James Carbone
Purchasing
September 7, 2006
Management at UTC knows that having a leading-edge design is not enough, so purchasing and suppliers get involved in design early through the 3P production-planning process.
“It is a one-week event that really lays out requirements in terms of manufacturing, logistics and design and gets everyone on the same page,” says Leon Veretto, director of operations analysis (supplier development). The product, its specifications, performance and cost, quality and targets are discussed. The idea is to make sure the product launches successfully.
“The 3P process is really attempting to mistake-proof a lot of different things, including the robustness of our design and the robustness of our supply chain,” says Scott Singer, director of supplier management.
Scott Singer: "We outline our expectations of the supply chain. We would like to see some cost sharing."
Purchasing helps select the suppliers that are involved with the 3P. Suppliers must have a needed technology and manufacturing expertise as well as meet UTC's quality and cost goals.
Purchasing's involvement in 3P is only part of its involvement in new product introduction. Purchasing also helps select suppliers and involve them with design even before the 3P process begins. Purchasing also evaluates potential new suppliers, especially in Lean manufacturing techniques, and helps them develop through a unique, innovative program called Operations Transformation Leaders (OTL).
“Procurement helps bridge our design community and supply base,” says Singer. “Procurement starts in the preliminary design phase when they start to scope out the high level sourcing plan for the products,” he says. That function is done by “strategic sourcing folks within our supply management organization who look at supplier selection,” he says.
Know thy supplier
The job of strategic sourcing specialists in supply management is to understand the supply chain capabilities of suppliers and to facilitate a dialogue with them and help determine which suppliers should be involved in new product development.
“In the early conceptual design stage before we award business we will bring in suppliers, in some cases competitors, to outline high-level objectives of the projects,” says Singer.
This early involvement by suppliers has become important, too, because many of UTC's new programs require significant investments by UTC and suppliers.
“We outline expectations of the supply chain. We would like to see some cost sharing,” says Singer. “Our expectations are that they view nonrecurring engineering and hardware development as an investment in the platform. In other words, we want free test hardware to be part of the co-investment of our tier one supply base,” he says.
Singer notes that UTC is asked by its customers such as Boeing and Airbus, for the same type of co-investment.
These early sessions with suppliers will help UTC determine which suppliers should be considered.
“We want to quickly get to the point of who do we believe the players are that we want to heavily engage with on 3P,” says Singer. “At that point, we are making a significant commitment with the supplier on the design and test of the program.”
No guarantees
Even though a supplier is selected to participate in 3P, it is no guarantee the supplier's products will be on the bill of materials for a new UTC product. “Suppliers may be switched out during the process,” says Veretto.
“In the 3P process, we have found suppliers that may have stood up and said 'we can embrace all these philosophies,' but we discover they did not have the management systems in place to meet our requirements, so we had to make some decisions and swap some of new tier-one suppliers,” he says. “It's much better to have this flushed out in the early phase than after you are launching production purchase orders.”
UTC often uses suppliers it has used in the past in the 3P process. “We like to work with our preferred legacy suppliers that have proven themselves on previous platforms,” says Singer. “However, we are always looking for a value proposition that will help us be more competitive in the marketplace.”
In some cases, UTC has to use new suppliers because of a transition to a new technology. An example is the Gen2 elevator developed by UTC's Otis Elevator division based in Hartford, Conn.
“We essentially created a new supply chain for it,” says Singer.
He said new suppliers were necessary because instead of using wire rope in the elevator, the Gen2 uses flat-coated steel-belt technology, a gearless machine and a permanent magnet motor to power it.
“It was a joint effort between engineering and procurement in identifying and choosing new suppliers,” says Martin Weichhardt, director of supply chain management at Otis.
He says finding a supplier to develop and manufacture coated steel belts was key to the success of the Gen2 elevator.
“The coated steel belt has wire strands, molded into a polyurethane type of material. Using the belts rather than wire ropes allowed us to reduce the weight of the elevator tremendously,” says Weichhardt. “A big part of the weight of an elevator is the wire rope itself, which is a steel cord, and there are usually a couple of wire ropes per elevator.”
Taking out weight allowed Otis to make an elevator that didn't require a machine room. Instead the electrical controls of the elevator are mounted on top of the elevator cab.
Otis considered a number of suppliers for the steel belts, but chose ContiTech of Hanover, Germany because of the company's expertise in the technology and its manufacturing and design capabilities. Later, Otis developed a second source, Brugg Group in Switzerland.
When UTC needs to change suppliers and qualify new ones, it evaluates them in two ways. Like many businesses, it has a standard supplier assessment process where suppliers are evaluated on quality, financial stability and manufacturing capability.
“But we have also developed a Lean assessment tool where we go to into a supplier with a series of questions and score them in terms of Lean manufacturing,” says Veretto.
“We look at quality systems, flow in shop, safety, leadtimes, and capacity. There are eight different elements that we score them on. We look at their management and their competency in terms of Lean and manufacturing,” he says.
Singer says other considerations include a supplier's engineering capabilities and a continuous improvement philosophy. “Are they a Six Sigma shop for example? Do they have a type of Toyota production system or a derivative of it?”
Based on that assessment, UTC determines if a supplier can “come up to speed” to meet the requirements necessary to be a UTC supplier.
If the supplier has a weakness, UTC will work with the supplier to improve with OTL teams.
“OTL teams are skilled in Lean and they work with a supplier's specific issues,” says Veretto. OTLs will do value stream mapping at suppliers, examining their processes to identify waste and find ways to eliminate it.
Many new suppliers, especially those in emerging markets, may have low-cost manufacturing, but lack robust quality systems and OTL can work with suppliers to improve those systems.
“In emerging markets, we are making significant investments in technical assistance because suppliers don't have requisite quality systems or sometimes even business systems to deal with large multinational corporations like UTC,” says Singer.
OTL, 3P and early purchasing and supplier involvement is paying off for UTC. It is reducing its number of suppliers and parts on platforms and speeding up assembly time.
Case in point: the Pratt & Whitney 600 jet engine, developed in 2005 and used in Cessna, Eclipse and Embraer planes. UTC programs helped to reduce parts count on the engine by 50%, reduce the number of suppliers from 110 to 25 and cut assembly time from eight days to eight hours.
Elements of Excellence
Involve suppliers early
Evaluate suppliers on Lean, among other criteria
Help suppliers develop themselves
The goals of 3P
Deliver customer required design quality.
Reach production volume for expected demand.
Hit target date of market availability.
Attain target cost.
Supplier tool reduces risk for UTC
While UTC works closely with suppliers, it is no guarantee that the supplier will be successful in the marketplace and continue to be financially healthy. To monitor suppliers' financial performance, UTC uses an online tool that sends up early warning signs if a supplier starts to get into financial hot water.
UTC uses a risk management tool called SBManager, developed by Open Ratings, a Dun and Bradstreet company.
Leon Veretto: "Operations Transformation Leader teams are skilled in Lean and they work with a supplier's specific issues."
“It is a pattern-recognition model,” says Leon Veretto, director of operations analysis. “It looks at past bankruptcies of suppliers and the events that lead up to the bankruptcies and patterns them in terms of three months before and six months before. It analyzes the types of things that were happening with the supplier.”
He says UTC monitors 25,000 suppliers with this tool. “When a supplier starts replicating a pattern that is consistent with other companies that have gone bankrupt, it gives you an early alert,” says Veretto. “It gives you a heads-up months before there is an issue and you can intervene.”
Intervention can involve talking with the suppliers about the financial issues and helping the supplier correct them or dropping the supplier from a project.
UTC has used the tool to prevent delay of launching of a new product.
Scott Singer, director of supplier management, said a couple of years ago a new supplier was selected because the supplier had a new high-speed machining technology for helicopter frames. “We had selected this supplier because the supplier was new and had differentiated itself with the technology,” he says.
“Things started to go badly with the supplier and the tool alerted us that the supplier was in financial trouble. It gave us a six to eight week advantage over other customers of this supplier to take corrective action,” he says. UTC found another source and the supplier went bankrupt.
Jim Lawton, vice president of marketing for Open Ratings in Waltham, Mass., says about 40 companies use SBManager and it has a success rate of 92% at predicting bankruptcies of companies six months ahead of time.
He says the tool identifies supplier problems, such as failing to pay their own suppliers, legal issues and problems meeting government and environmental regulations.