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Utc Case Summary

United Technologies Corporation implemented a Supplier Development Initiative to strengthen relationships with key suppliers and develop a cost-effective supply chain. As part of this, UTC worked closely with Dynamic Gunver Technologies, a major supplier, providing workshops and assistance to improve quality and reduce costs. However, over time tensions emerged as DGT began competing for business in UTC's aftermarket and demanding price reductions. UTC reflected on lessons from this experience and the challenges of developing suppliers through a long-term initiative.

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Himanshu Bhandari
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640 views

Utc Case Summary

United Technologies Corporation implemented a Supplier Development Initiative to strengthen relationships with key suppliers and develop a cost-effective supply chain. As part of this, UTC worked closely with Dynamic Gunver Technologies, a major supplier, providing workshops and assistance to improve quality and reduce costs. However, over time tensions emerged as DGT began competing for business in UTC's aftermarket and demanding price reductions. UTC reflected on lessons from this experience and the challenges of developing suppliers through a long-term initiative.

Uploaded by

Himanshu Bhandari
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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UNITED TECHNOLOGIES CORPORATION: SUPPLIER DEVELOPMENT INITIATIVE

CASE CHART

 The case is about a Supplier Development Integration Program which United Technologies
Corporation undertook to strengthen relationship with key suppliers
 The major objective was to develop a productive and cost effective set of reliable supply
chain partners
 The key qualities that were considered in the relationship were: long term commitments,
confidential information sharing, cooperative continuous improvement efforts & risk and
rewards sharing
 Dynamic Gunvar Technologies (DGT) has been identified as a key supplier to UTC’s P&W.
Management at both companies were concerned about meeting long term objectives. But,
recently there has been stress into their relationships as clearly both forms did not share the
same vision for their future as supply chain partners

United Technologies Corporation:


 Global revenues of $24.1 billion from its four major businesses i.e. Carrier Corporation, Otis
Elevator, Pratt and Whitney and Flight System
 Severe price and cost cut pressure because of the internet boost, mega-data storage and
retrieval systems, and email communication because of which the consumer today, is far
more educated about availability of products and competitive products.
 Cost control had become major focus and very aggressive cost targets has been in place at
UTC. Restructuring and reengineering process has been done which has resulted in
improvement in cost, quality, lead-time reduction and lesser environmental impacts.
 UTC focused on seamless procurement process and improving quality, reducing cost and
facilitate the transfer of skills and capabilities to suppliers. Integration process began at the
commodity class level where UTC developed its sourcing strategy. It evaluated suppliers
based on two dimensions: their impact on UTC’s business and how difficult it was for UTC
to obtain supply
 Important performance matrix were cost performance, financial stability and risk, capacity
capitalisation, competition, design capability, materials and subcontract management, and
continuous improvement implementation
 UTC’s Supplier Development Process consisted of following seven steps:

Dynamic Gunver Technologies (DGT):


 Projected $100 million revenue in calendar year 2000.
 It had recently signed a 20 year agreement with a major customer
 Its relationship with Rolls-Royce was a major turning point. Rolls Royce shared 30% of the
annual saving plus in addition to invitation to DGT to participate in internal leadership
development session and other similar projects which help in improving delivery reliability
through improve manufacturing flexibility. DGT had been hoping for similar involvement
with P&W which was its largest customer

Relationship between P&W and DGT:


 Many problems faced by Gunver before merger with Dynamic: It had significantly increasing
overhead which resulted in substantial recurring delivery problems and lost visibility of
actual part manufactured cost. Gunver’s performance slipped in recent years.
 On the other hand Dynamic was very price competitive by minimising overhead cost and had
demonstrated good performance in quality and on-time delivery. It kept low holding
overhead cost in line with the increasing sales. By leveraging its expertise and knowledge
gained form UTC, Dynamic won many bids from major clients including Allied Signal, General
Electric etc.
 P&W helped Gunver at many instances when it was experiencing difficulties during 1995 and
was about to file for protection from creditors. It offered substantial assistance in form of
workshops on Kaizen process improvement, lean manufacturing and UTC’s Ace program for
improving quality. This resulted in enhanced productivity of Gunver
 UTC become dependent on DGT for its broad range of products applications. Soon, when
absolute dollar value of sales to P&W and percentage of UTC purchases to total digital sales
declined, stress entered in their long relationship. Both companies negotiated a long-term
agreement with aggressive cost saving goals long which was in favour of P&W’s self-interest.
However, there were many opportunities for DGT to improve its quality and cost position
 DGT’s management expressed that P&W was becoming difficult to work with demanding
immediate cost reductions and focusing only on the short-term
 It saw Material Requirement Planning (MRP) as an area that could be improved upon.
P&W’s bi weekly updates of committed orders where often incomplete in all time periods
beyond the closest two-week period which affected DGT’s production scheduling and
product delivery. Better information flow would have allowed DGT material Management to
provide better planning and higher delivery reliability. Planning and commitment where at
the top of DGT priorities in considering a new relationship with UTC. In-fact these issues
were more important than price and volume commitments
 In the economies of Jet engines majority of profit came from selling of spare parts. This
attracted DGT in the aftermarket which was eager to gain of piece of the spare part
business. Aftermarket was major source of revenue for P&W. This resulted in tension
between the two companies
 P&W started losing revenue to DGT in the aftermarket to the US government. DGT was
motivated by the revenue potential and the opportunity to seek new business. It also saw
this market as a hedge to offset the potential loss of P&W purchases due to scheduling
difficulties

Moving Forward:
 Efforts to improve supply relationship. Main focus was on meeting aggressive cost targets.
Both companies agreed to meet every two weeks or as necessary to review progress and to
provide a formal monthly update. It had become clear that DGT was trying to capture more
of the value chain and that P&W considered DGT’s main relationship to them as a supplier of
parts. Beyond the misalignment of roles was the concerned that DGT slowly was becoming a
competitor
 Given the challenges UTC reflected on its supplier development programme. Noting the
complexity of the processes they wondered about the patience needed to see
improvements in suppliers selected for the program improve and customer satisfaction and
developing a cadre of loyal and capable suppliers
 To be sure, these issues very complex, the actual development process time was time
consuming and outcomes were not always as expected

UTC wondered what had been learn from its experience with DGT

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