The case is about development of long-term supplier relationship to leverage on the synergies

obtained in cost cutting of supply chain leading to profitability if both the companies

About UTC

•UTC was a major organisation with $24.1 billion from its businesses Carrier Corporation, Otis
Elevator, Pratt & Whitney, Flight Systems (Hamilton Sundstrand and Sikorsky Aircraft).

•With consolidation in industry and growth of internet, information was available to all and hence
aggressive cost cutting became the norm in the industry.

•UTC wanted to build close relations with key accounts (suppliers), based on the impact they had on
UTC business and how difficult it was to obtain the supplies.

•They selected their best suppliers based on the quality, cycle time, delivery, reliability and costs.

•If the suppliers didn’t meet the required performance, then they would be downgraded and
upgrading would be a long process.

•Steps involved for developing key suppliers were:

1)Segmenting suppliers based on their strategic importance to UTC and dependability of UTC on the
product or subassembly.

2)Through analysis, they tried to determine whether to invest or nurture.

3)Quantifying evaluation based on metrics like quality, delivery, lead time & cost performance.

4)UTC further narrowed the qualified suppliers to those where a closer relationship would be
beneficial for both.

5)The suppliers were offered long term contracts in exchange for price reductions as well as other
commitments to improve productivity.

DGT and their relations with UTC

•DGT (Dynamic Gunver Technologies) – previously Dynamic Metal Forming and Gunver
Manufacturing, were very good suppliers of UCT for more than 30 years.

•Gunver failed to keep the quality and costs in control as their volumes grew while Dynamic had
remained excellent by minimizing costs and good quality with on time delivery.

•P&W ( a subsidiary of UTC) had helped in growth and development of Dynamic by technical and
financial help even during downturn.

•Both process efficiency and newer technologies helped Dynamic produce quality products at lesser
costs.

•Dynamic started supplying to other competitors of UTC too like Rolls Royce, Allied Signals and
General Electric.

•UTC’s purchases from Dynamic had reduced over time and was forecasted to reduce more.

•Dynamic and Gunver merged in 1999 and DGT was formed which built a long-term relationship (20
yr contract) with Rolls Royce with a contract favourable for both Rolls Royce and DGT.

•P&W hoped to increase its relationship with DGT significantly and also vice versa.
Troubles in contract and negotiation:

•DGT wanted better forecasting system than the current one P&W had.

•Though DGT was happy about the business obtained from the whole of UTC, they were sceptical
about Hamilton Sundstrand and doubts creeped in whether the company doesn’t see them as best
performing or didn’t value their skills and expertise.

•DGT also entered the aftermarket spare part business which was hugely profitable, and UTC didn’t
like to lose control of the same.

•UTC didn’t like the fact that DGT had good relationships with competitors leveraging the
development in process and efficiency obtained through UTC’s help.

•UTC was also concerned that DGT might become a competitor