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Strategic Sourcing at Whirpool China: Finding the Ideal Supplier
OPER-4116EL: Purchasing & Sourcing Management
Dr. Amirmohsen Golmohammadi
Group Members:
Tyson Marsolais, Shane Poitras, Cameron Ortiz-Cinanni
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What is the key problem for Whirlpool in this case and what elements make the problem
more challenging for Whirlpool?
The key problem for Whirlpool, in this case, is finding the right supplier for DC motors
in less than six months, while ensuring the supplier can meet the established requirements and
creditability of Whirlpool.
There are three main key challenges for Whirlpool in this case that made things more
difficult. Firstly, Whirlpool's suppliers had a difficult time accepting the challenging payment
terms. Because Whirlpool is one of the largest companies in the world, their requests from
suppliers were very aggressive. In the case, it states that “ Whirlpool's procurement teams
privileged the consignment stock process, any agreed-upon payment terms started when parts
were withdrawn from Whirlpool's components warehouse, located in every whirlpools factory.”
beyond that there were certain transportation times and other payment terms that were practically
impossible for suppliers to meet, given that they weren’t necessarily predeterminable.
Secondly, another challenge is that to create new energy-saving appliances successfully,
suppliers had to test these products which were time-consuming and long term. New projects had
to be provided with samples and application tests, which made the whole process a long one.
Lastly, improving the technology while keeping costs low on appliances is another
roadblock towards a solution for Whirlpool's main challenge. Because of the fact that new
energy-saving technology is more expensive and harder to create, meant keeping costs as low as
previous, was virtually impossible.
What are the main strategies that Whirlpool can use to address this problem?
The main strategy to solve the problem, in this case, is to find a suitable supplier for the
required DC motor parts in order to create new energy-efficient products. This strategy started by
issuing a Sourcing Strategy Development (SSD) process which is made up of four important
steps for sourcing the best and most suitable suppliers. The steps consist of, Internal analysis,
External analysis, Strategy development, and finally, implementation. Step 1 of an internal
analysis was important to be able to allocate resources and responsibilities of global and regional
activities. Furthermore, Step 2 was looking at the completion and evaluation of the supplier
industry as well. A SWOT analysis was helpful in completing Step 2. Next, Step 3 was later used
to create the sourcing strategy through Porter's Five Forces Model. Lastly, Step 4, is where the
implementation takes place. The plans were put into place and feedback from suppliers and
partners may occur here.
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What is the importance of strategic sourcing and how Whirpool has addressed it?
Strategic sourcing is a way to develop channels of supply that consider all ongoing
activities within the company to secure the best possible cost, rather than looking for the best
cost individually. This allows a company to combine their purchasing power to achieve the
lowest possible cost and risk across the supply chain. While this process is long-term it has a
lasting impact on a company and how they conduct their business in the future, as long as they
re-evaluate sourcing activities, analysis of the market as well as make sure business goals are in
accordance with requirements with suppliers (D2l.laurentian.ca, 2022).
Whirlpool addressed this by creating a very restricted supply quality system, which goes
by Whirlpool’s Supplier Quality System. Based on past experience most Chinese suppliers, even
those used by competing brands, couldn't reach the lowest required score on the supply quality
system (60/100). To ensure that these practices remained rooted within Whirlpool's competitive
strategy they follow a restricted Six Sigma program (Six Sigma is a method that provides
organizations tools to improve the capability of their business processes)(ASQ, 2022).
Whirlpool’s system was mainly aimed at improving the quality and efficiency of its technology
and business processes and products. This allowed Whirlpool the ability to recognize when
suppliers developed distinct cost advantages so they could provide the resources to close the gap
within a set time frame.
Another way Whirlpool has addressed this is by putting boots on the ground visiting new
and existing suppliers. Supplier Quality Engineer (SQE) and Supplier Development Engineer
(SDE) teams travel from supplier to supplier ensuring development by providing training and or
coaching for those working on projects. This way Whirlpool can keep eyes and ears within their
supply chain regardless of where that is and can act accordingly to opportunities and challenges
respectively.
What are the pros and cons of Whirlpool's global sourcing strategy?
Global sourcing strategies can become a difficult process for a variety of reasons
including, transportation delays, lack of technology, capacity of foreign resources, culture and
language differences, quality assurance, political and economic stability, and proper inventory
management systems, to name a few. With the understanding of such constraints and barriers,
Whirlpool established an international procurement office in Shanghai. This venture for
Whirlpool provided a global sourcing strategy that allowed them to support their own
manufacturing operations in Asia, as well as provide support for any other operation in the world
that sourced components from Asia.
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With that being said, this global sourcing strategy has come along with a long list of
advantages which include, decreasing the company’s transportation delays, decreasing culture
and language differences, offering manufacturing support, increasing market share, reducing
capital investment, increasing Whirlpool’s production flexibility, as well as gain the ability to
focus on core competencies. Although there have been many advantages to Whirlpool’s global
sourcing strategy in China, there are also some disadvantages that come along with it. The
disadvantages include the inconsistencies with quality and reliability, lack of capable service
providers, shortcomings in both transportation and IT infrastructure, as well as high rates of
damage/loss in transportation.
How are suppliers identified, evaluated, and selected? What do you think of the
company’s evaluation matrix?
To find suitable suppliers, Whirlpool used a Sourcing Strategy Development (SSD)
process, which included four steps for sourcing the right suppliers. The steps included were Step
1: internal analysis, Step 2: external analysis, Step 3: strategy development, and Step 4:
implementation. This process allowed Whirlpool to simultaneously identify, evaluate, and
ultimately help select a suitable supplier throughout the entirety of the SSD process. Key
elements that were used throughout the entirety of the supplier selection process include the
must-meet criteria mentioned in the following question, the SSD process, a SWOT analysis, as
well as Porter’s Five Forces Model to analyze competitiveness. Based on a supplier's
performance within the mentioned key elements, ultimate supplier selection would also come
down to the suppliers' acceptance of the following Whirlpool criteria, aggressive payment terms,
a long sample-testing process, as well as the supplier continuously challenging themselves in
terms of cost and quality improvement.
Reflecting on Whirlpool’s evaluation matrix, I think that it is a very thorough evaluation
matrix that helps unveil ample amounts of useful information when it comes to supplier
selection. The only downside to the evaluation matrix is the vast amount of time required to
complete such an elaborate evaluation, as well as the very strict selection criteria that Whirlpool
has enforced that come along with it.
How do you ensure quality, especially when dealing with a new supplier?
Suppliers to Whirlpool have to undergo the four-step process aforementioned, this
includes having the proper infrastructure and chains to supply both land and air transportation
(the basic needs of Whirlpool's supply chain). Furthermore, suppliers must undergo a long
sampling and project testing to keep quality at its best throughout all stages of the supply chain.
Whirlpool also has a supplier checklist and must meet the following criteria to become
considered as a supplier, they are as follows:
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Whirlpool code of conduct and other requirements;
Minimum quality audit score;
The best total cost of ownership and manufacturing efficiency;
Continuous innovation in design and manufacturing for best-in-class quality and
technology;
- Structured project tracking, design reviews with management tollgates, utilizing design
and process
- FMEA, fault tree analysis, reverse engineering and other tools where applicable; and
- Access to UL, CSA, VDE and other agency approval.
The following requirements were dependent on the commodity analyzed:
- Laboratory capability for engineering conformance and reliability testing.
- Prototype capabilities.
By following these requirements Whirlpools is ensuring that sourcing in China remains viable
for the business practices.
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References
D2l.laurentian.ca. (n.d.). Retrieved February 11, 2022, from
https://d2l.laurentian.ca/d2l/le/content/147365/viewContent/1264446/View
What is Six sigma? ASQ. (n.d.). Retrieved February 11, 2022, from
https://asq.org/quality-resources/six-sigma
What is strategic sourcing and why is it important? Rebound Electronics. (2022). Retrieved
February 13, 2022, from
https://reboundeu.com/blog/what-is-strategic-sourcing-and-why-is-it-important/