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Strategic Sourcing At Whirlpool China Finding The Ideal Supplier Case Solution
The selected case is about Whirlpool Corporation, the world-renowned manufacturer in-home appliance market. It is highlighted in the case that company has successfully expanded operations worldwide by focusing on foremost categories of home appliances, which include- dryers, garage organizers, stoves, refrigerators, dishwashers, and counter-top appliances, and has resultantly produced net revenue of eighteen billion dollars in the year 2010. The company has put major emphasizes on products' quality, reliability, and long durability to maximize customers' loyalty. In the face of rigid competition from rivals like General Electric (GE), Electrolux and LG, etc., Whirlpool Corporation has placed a concentration on cost-reduction, innovation, continuous improvement, and productivity to counterbalance high raw-materials cost and to retain its strong market position. The problem identified in the selected case is that Castelletti, head of the company's international procurement office (Shanghai), is being faced with the core challenge of finding a right/optimal supplier in a very short time span to fulfil current consumers’ demand of bringing energy-efficient products.
Following questions are answered in this case study solution
Introduction & Problem Identification
Recommended Action Plan
Case Analysis for Strategic Sourcing At Whirlpool China Finding The Ideal Supplier
Consumers’ demand for energy-efficient products could be analysed through an on-going global trend of energy saving products. This global trend has forced worldwide manufacturing companies in the home-appliance industry to come up with most energy-efficient product solutions. Due to fierce competition in-home appliance market, Whirlpool has also decided to bring a new energy-efficient refrigerator model in a very short time span of six months. In technical terms, this can be done by replacing existing AC motor components with energy-efficient DC motor components. In order to implement this planned change timely, Gianluca Castelletti has been informed by management on April 10, 2011, to find an optimal DC motor supplier in less than 06 months. Delay in delivery of required DC motor components from the supplier side can lead to a slower production process and can ultimately cause delays in the launch of a new refrigerator. During this intensifying competition in-home appliance market, these delivery risks can, therefore, cause a huge loss in terms of sales to Whirlpool China.
In order to avoid negative consequences in the future, management has put greater pressure on the procurement head ‘Castelletti’ to quickly develop an effective sourcing strategy so that right DC motor components could be sourced from the right supplier at the right time. Whirlpool China has made sourcing strategy development (SSD) process to find potential DC suppliers and source the right supplier among them. The process has involved four key steps, which are- (1) internal analysis, (2) external analysis, (3) strategy development, and (4) implementation. Despite the SSD process, Whirlpool China still faced difficulties in finding the right suppliers because of its stringent supplier-selection criteria. Mostly home-appliances suppliers find it difficult to become Whirlpool’s supplier because they have to accept aggressive payment terms and contractual obligations. For instance, warehousing and transportation lead-times are not predetermined during payment agreements, and suppliers usually find it riskier.
During the quality system audit in the selection process, suppliers need to pass different sample tests in order to be qualified for becoming Whirlpool’s supplier, and the minimum passing criteria is 60/100. The long selection process, along with strict criteria of quality assessments, usually becomes a major challenge in front of potential suppliers. After the selection process, suppliers face constant pressure in terms of cost reduction and quality enhancement on a yearly basis as Whirlpool's sourcing department itself faces a challenge of continuous improvement and sourcing performance each year. Suppliers also need to match their technology development with the Whirlpool’s technological evolution to achieve desired corporate objectives.
3. Strategic Alternatives
One alternative is that the international procurement office (IPO) in Shanghai can develop existing suppliers of Whirlpool China. For instance, supplier development engineer (SDE) and supplier quality engineer (SQE) teams can provide technical trainings and required resources to build their capabilities and facilitate them during the whole operational change process in order to eliminate the identified gap. This strategic alternative can be beneficial as supplier sourcing would not be required, and no time will be spent on finding new suppliers. Moreover, existing suppliers have knowledge regarding Whirlpool’s business environment and operational requirements, so no adjustment related issues will be faced by Whirlpool. However, this alternative involves some challenges. Like, management would have to incur huge training and development costs, as existing suppliers of AC motors are found to be incompetent due to their lack of technical knowledge and expertise in developing energy-efficient products. Although the desired competencies can be developed by arranging training sessions, this capability building process may take significant time.
Another alternative is that IPO can source new suppliers of DC motors by using existing supplier selection criteria and SSD process. This alternative can be advantageous for Whirlpool China as a detailed evaluation of internal and external business environments would help the company in selecting the right supplier, whose competencies and capabilities will match the corporate needs. Using the same supplier selection framework can help Whirlpool China in ensuring continuous innovation, best-in-class product quality, reliability, durability, and technological efficiency. However, this alternative has some limitations, as well. The whole process of supplier sourcing may take sufficient time to be completed, and the window of opportunity may get closed in attempting to find the right supplier by using a rigorous supplier selection criterion.
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