" How I Saved $100 Million on the Web."

We look at some things that don't directly generate revenue: warranties, sales orders, how many people are using electronic forms versus paper forms. But revenue growth, inventory turnover, customer satisfaction -- those are the core metrics. Eventually, our competitors will start figuring all of this out, and they'll get some of the same benefits. Our success comes from moving fast and with the right priorities.

How are you applying the Web to other parts of Carrier's operations?

Another area where our Web strategy has had a major impact is cost reduction. We're moving our purchasing online with the help of FreeMarkets Inc. Because of this new, Web-based procurement system, there are costs that we had last year that we won't have this year -- and those savings are going straight to the bottom line.

We buy more than 100 million motors each year. A few years ago, when I was running our Asian operations, we tried to set up an auction in which motor suppliers would submit competitive bids for Carrier's business. We worked really hard and ended up qualifying 20 vendors in Asia. And when it was all over, we saved about 5% on our buy over the previous year.

We decided to do an auction again, this time with an online bidding process managed by FreeMarkets. Right off the bat, we expanded the number of qualified vendors from 20 to 68. Then, over a two-day period, we ran a series of competitive-bidding events. By using the Net, we were able to have lots of suppliers bidding in real time from several countries, including China, Korea, Malaysia, and Thailand. We simply couldn't consider that kind of thing before we started using the Web. And this time around, we saved 16% on the cost of components that used to cost us a total of $70 million a year.

We're doing that kind of thing over and over now. This approach doesn't really work with a strategic supplier -- a supplier that's embedded in your operation. But if there are several vendors to choose from, and if there are other vendors that you may not even be aware of until you do this kind of thing, then you can get huge benefits. We average a 15% saving when we do one of these online bidding events.

How long can you continue to wring those kinds of savings out of the system?

We're learning new things every day. For example, we saved 48% on the cost of our customer-service call center. In our case, customer service is a seasonal business (people call us when it's hot outside), and by opening up our contract to competitive bidding online, we found a call center that also had a seasonal business -- except that its heavy-volume period happens to be the other season. We filled its gap in capacity, and the savings got passed back to us. We're doing the same kind of thing with real estate, with tax-preparation services, and with the consultants who conduct our employee-evaluation process.

We are even organizing competitive-bidding events for our suppliers' suppliers. One of our compressor suppliers buys plastic components that go into its compressors, which then get sold to us. We helped that company put together an online bidding event, with the goal of generating savings at the next layer down. That helps us by taking costs out of the entire system.

How do your suppliers react when you tell them that they will have to bid online for Carrier's business?

We've been open with them since we began moving in this direction four years ago. We've said, "This is what we're doing. You are our assets. You need to change with us, because we're in this together." When you have a clear strategy and you communicate it, and then ask people to fill in the blanks and the details, that wipes out a lot of fear. People realize that there's a lot more opportunity than threat.

Did suppliers look at you like you were crazy when you started talking about all of this four or five years ago?

Back in 1996, we didn't use the term "B2B," or "e-commerce," or anything like that. We just started thinking about how to Web-enable our relationships. We're usually the first company to go to our suppliers and say that we want to put them on a Web-based procurement system. We give them instant transparency: Once we get a supplier on board, its people can see our daily production schedules. They say, "Oh, that's neat. I really like that." When their second-biggest customer comes along and says, "We'd like you to use our Web-based purchasing system," they say, "We're already using Carrier's system, and we don't want to juggle two." So first-mover advantage with suppliers is a big deal -- which is why we have a target of Web-enabling 50% of our purchases by the end of 2000.

How will achieving that goal improve your financial results?