The Key Problem for Whirlpool and the Elements That Make the Problem More Challenging
According to the case study, the key problem for Whirlpool is launching a new energy-efficient refrigerator model in six months. Whirlpool prides itself on producing reliable and high-quality household electrical appliances with a long life span. The company’s commitment to innovation has positioned itself as the industry leader. Thus, finding the right material is critical in introducing the new product. However, six months is a short period considering the main component required to develop this home appliance should be sourced. However, the company’s strict selection criterion makes it difficult to find the right suppliers in China. (Lockstrom et al., 2012). In most cases, energy-efficient refrigerators require new types of technology known as DC motors to meet current market demands.
The element that makes this problem more challenging is that Whirlpool has a very strict supply quality system for selecting potential and existing suppliers. Therefore, finding a suitable supplier for DC motor parts in less than six months may not be simple. In this case, any obstacle the company may experience in getting these components will likely delay the production of new refrigerator models (Lockstrom et al., 2012). Therefore, if Whirlpool fails to launch this product as scheduled, it may lose its market share to Electrolux, LG, and General Electric, its main competitors.
The Main Strategies That Whirlpool Can Use To Address This Problem
Given Whirlpool’s strict selection criteria, finding the right supplier for the new product is daunting. However, there are some strategies that the company can employ to address this issue. Whirlpool can utilize a global sourcing strategy whereby it looks for the right supplier for DC from global markets outside geolocation boundaries, not just from China. This is because most potential suppliers in China do not usually meet the minimum required score when audited (Lockstrom et al., 2012). Therefore, through its procurement office in Shanghai, the company can reach out to suppliers outside the country as viable alternatives to China factories. In this case, using multiple suppliers can provide Whirlpool with more flexibility. For example, suppose the local suppliers for DC motors fail to meet the company’s quality score of 60/100. In that case, Whirlpool may turn to other suppliers outside China to get the needed quality products.
The company can also consider using existing suppliers for DC motors. In this case, engaging an existing supplier will enable Whirlpool to get a price discount by allowing a single supplier to complete the process. On the other hand, if Whirlpool considers developing its current supplier, it may have more influence over the supplier, which can help the company have some control over the quality of DC motors. It has established business objectives and the minimum requirements that all suppliers must meet.
The Importance of Strategic Sourcing and How Whirlpool Has Addressed It
The strategic sourcing method may enable a company to have a competitive advantage, especially in the home appliances manufacturing sector. In this case, the most noticeable benefit is cost savings. Corporations that source suppliers through this technique and continue to analyze the evolving market are always in a position to achieve high-cost savings. As shown in the case study, strategic sourcing has enabled companies like Whirlpool to align their component sourcing with their primary business goals. This helps it minimize risk and increase efficiency within its supply chain. Analyzing suppliers on more than just their original product cost also means that business objectives can be matched with the suitable potential suppliers to achieve them, increasing value at a low cost.
Whirlpool has addressed strategic sourcing by setting up a global procurement office in China, which has enabled the company to continue sourcing components and supporting its manufacturing operations in Asia. According to the case study, from US 8 billion global direct spend, Whirlpool was able to source over US 1 billion in China in 2010 through its Shanghai-based office. Strategic sourcing has enabled Whirlpool to consolidate its purchasing power and continuously re-evaluate and improve the procuring processes to reduce costs.
The Pros and Cons of Whirlpool’s Global Sourcing Strategy
It is imperative for Whirlpool to continuously acquire and create competencies that help generate a sustainable market advantage over its competitors. Ordinarily, how to source globally is considered a vital strategic decision that is influenced by the capabilities required to compete. Whirlpool has adopted a global sourcing procurement process because the cost of wages for skilled labor is lower overseas (Martin, 2021). This gives the company the cost advantage it needs to operate successfully. This is the cost reduction strategy Whirlpool uses to control the cost of production and maintain its competitiveness in the market. In addition, this procurement strategy also assists the company tap into resources, such as DC motors and other technologies, which may be cheaper abroad but more costly locally.
Global sourcing also has disadvantages that can negatively impact business operations. The complexities of manufacturing in China and other foreign markets exist due to the lack of capable providers and reliable infrastructure (Lockstrom et al., 2012). For instance, while domestic sourcing typically involves few freight modes, global sourcing requires multiple transportation services that can disrupt the production processes in the event of an unexpected delay. In addition, other losses or damages may occur during transit and decrease the company’s output. Another problem of global sourcing is that quality standards may be inconsistent, especially when dealing with various suppliers. Global sourcing is different from domestic manufacturing because Whirlpool may have more influence over suppliers and use this to negotiate for quality improvement.
How Suppliers are Identified, Evaluated, and Selected
All the suppliers must meet specific requirements to manufacture DC motors and other products for Whirlpool. Some of the considerations include meeting Whirlpool’s code of conduct, minimum quality audit score, prototype requirements, guaranteeing continuous innovation in manufacturing or design, and access to VDE, CSA, UL, and other agency approval. In this case, potential suppliers are those who provide products that match or even exceed the company’s set standards. Therefore, Whirlpool usually ensures that suppliers meet certain criteria or requirements rather than buying products or services that those vendors are selling.
The company also uses the Sourcing Strategy Development (SSD) procedure to evaluate and select potential suppliers. The SSD process entails four processes that are critical in sourcing the right supplier for the company. The first step involves conducting an internal analysis where Whirlpool considers the minimum requirements that suppliers need to meet to partner with the company. In this stage, the company evaluates and reviews the performance of the existing supply base to get the best out of the supply pool. The second stage entails performing external analysis by assessing suppliers’ and their competitors’ performances and strategies to assess their competitiveness based on Porter’s Five Forces Model or SWOT analysis.
The third step involves developing a strategy by deciding where the company will source DC motors or other materials while minimizing costs and risks. The negotiations are conducted, and the most potential suppliers are shortlisted. The final step is also known as the implementation stage. During this process, decisions are made regarding suppliers to award the manufacturing contract. The Whirlpool evaluation matrix ensures that only the most qualified suppliers are selected. It also enhances the timely delivery of service to meet its objectives while reducing supply chain costs and risk.
How to Ensure Quality When Dealing with a New Supplier
Whether Whirlpool is sourcing domestically or globally, similar issues with product quality may occur. In this regard, to mitigate the cost and quality risks involved in sourcing, it is essential to perform factory audits. Here auditors are required to evaluate the manufacturing processes for all new suppliers and their quality control methods (Daim & Meissner, 2020). Another option would be to perform tests on samples. Whirlpool can utilize applicable internationally industry-related standards to measure DC motors’ properties and evaluate their performance. This method can give assurance of quality throughout the production process.
The company can also partner with sourcing companies to conduct an onsite quality inspection before DC motors leave the suppliers’ premises. Not to mention, the inspection can be performed at any stage of the production cycle to control quality and minimize sourcing costs and risks. Lastly, Whirlpool’s procurement office in Shanghai can also promote the training development of new suppliers to gain Lean and Sigma competencies. This can help suppliers boost the efficiency and quality of their manufacturing process (Lockstrom et al., 2012). These techniques can ensure that all potential suppliers deliver high-quality products and promote continuous improvement in quality and cost.
References
Daim, T. U., & Meissner, D. (Eds.). (2020). Innovation management in the intelligent world: Cases and tools. Springer.
Lockstrom, M., Thomas C., & Shengrong, Z. (2012) Strategic sourcing at Whirlpool China: Finding the ideal supplier. China Europe International Business School. Ivey ID: 9B12D012.
Martin, L. (2021). International business development: A concise textbook focusing on international B-to-B contexts. Springer Gabler.