United Technologies Keeps Risks To A Minimum

In addition, Open Ratings' Data Fusion service provides companies with data-management tools to help them improve the quality of their master data records and build a single view into supplier and customer relations. It also offers analytics that, for example, compare suppliers' past and projected performance. Intelligence tools identify patterns and trends and predict the operational and financial health and quality performance of suppliers.

"When we looked at the extent of our global supply chain, that we had to deal with tens of thousands of sites and that we had to have a lean supply chain, we realized we needed a technology solution," says Ken Marcia, United Technologies' director of supplier development. "A lot of companies out there report on [suppliers'] past, but Open Ratings is truly a predictive technology with pattern recognition. I'm not aware of any other company today that has this massive database and can also provide us with predictive risk tools," he says.

Implementing a supply risk-management system isn't an overnight job. United Technologies has spent more than three years working to get all its suppliers included in the Open Ratings system. Before 2004, the database covered only United Technologies' suppliers in North America and parts of Europe. Last year, 18,000 of its suppliers were in the database; today, all 23,000 are included, and the system monitors 80% of the company's global supply base. United Technologies continues to expand the system to sites around the world, and 1,400 employees responsible for monitoring and managing suppliers can access it. These employees each receive, on average, one or two E-mails a week alerting them of risks.

The system is working. Back in the summer of 2003, a small aerospace machining supplier in the Northeast was in high-growth mode, having secured new business from United Technologies' aerospace division. At the same time, the supplier was no longer going to receive any raw materials from United Technologies and was going to have to directly source its own supplies. The changes, which required new machinery and supplier contracts, pushed the supplier beyond its limits, and it overextended itself financially, causing temporary cash-flow problems.

"Open Ratings sent us a financial alert, and we immediately initiated contact with the president and CEO [of the supplier] to find out what was going on," Singer says. Once the problems were identified, United Technologies worked with the supplier, as well as its raw-materials supplier. The alert and subsequent fix were vital to United Technologies' business, Singer says.

Singer and colleague Marcia admit that not all United Technologies' suppliers were pleased to learn that they would be formally assessed and regularly monitored through the Open Ratings service. "We've gotten the full rainbow of reactions from our supplier base about this kind of surveillance," Singer says. "But we hold our suppliers to the same manufacturing goals as we do our own factories, and our message has been pretty consistent. We try to encourage them to take action themselves."

In fact, United Technologies steps up and helps suppliers when it can. That's what it did for Wellman Dynamics, a division of Fansteel Inc. The maker of castings and complex components for helicopters, jet engines, and other aircraft has been a supplier to the company for three decades. United Technologies' Pratt & Whitney aircraft-engine and Sikorsky helicopter divisions make up nearly 34% of Wellman Dynamics' business, says Dave Leitten, Wellman's president and general manager.

Back in mid-2003, Fansteel filed for bankruptcy after it was charged with violating environmental regulations. The Open Ratings service alerted United Technologies. "There was some risk at Wellman Dynamics, because we were owned by Fansteel," Leitten says. The company didn't dump Wellman Dynamics because of the potential risks; instead, it worked out new payment plans. When Wellman Dynamics scored less than an optimal rating on an assessment of the condition and maintenance of its tools, United Technologies sent one of its own managers to Wellman Dynamics to help it improve its total preventive-maintenance operation. "This guy rolled up his sleeves and helped us clean the equipment and develop a checklist for a total preventive-maintenance program," Leitten says.

All in all, United Technologies' system for assessing and managing supply-chain risks has had a positive impact on Wellman Dynamics. The supplier can access United Technologies' Open Ratings system via the Web, perform assessments on itself, get results, and even find information on where it can get help to improve. "Generally, you'll see this stuff, and everybody is skeptical. Here is the newest mousetrap," Leitten says. "But you'd be foolish not to participate. I've always been a strong proponent of continuous improvement. There isn't anything you can't do better."

United Technologies' supply risk-management system and strategy can't prevent a hurricane or a bankruptcy or even a late delivery. But the system gives the company the all-important heads-up that something's coming and enables it to act accordingly.