It's 2011... Stop Doing it Wrong!

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Sourcing is incredibly important when considering the need to keep costs in line. Introducing a competitive environment to your company spend and understanding the supply market for everything your company needs to operate is valuable and necessary. For your engineered to order direct materials though, the traditional strategic sourcing methodology for supplier discovery needs to go the way of the Dodo bird.

The availability of a globally responsive supply base with open capacity makes traditional supplier discovery redundant. Defining your requirements completely has much more value than spending a ton of time and resources searching the web for suppliers who may or may not be qualified and may or may not respond to your requirements.

Ask yourself these key questions:

  • How much time and how many resource hours is your organization spending on supplier discovery?
  • Are your engineers sourcing or developing the new projects that are the lifeblood of your business?
  • When was the last time your sourcing team achieved savings substantially greater than their projections or targets?

The speed of business has changed. If your organization isn't poised to take advantage of new tools and leverage cutting edge methodology then you are falling behind. Whirlpool Corporation, which has a very advanced supply chain, is in danger of falling into this trap.

The article says:

Whirlpool Corp.'s fourth-quarter earnings rose 80 percent, mostly because its costs fell and it enjoyed a tax benefit, but the world's biggest appliance maker said it is now raising prices to help deal with higher raw material costs.

The need for price hikes was echoed by Swedish home appliance maker Electrolux AB earlier on Wednesday, when that company reported that its fourth-quarter net income rose 2 percent.

Price hikes to offset rising material prices? Really? That's one way to go, but what is the unintended consequence? Higher prices could possibly lead to reduced sales in a still skittish retail environment. Reduced sales leads to lower earnings and all of a sudden Whirlpool has a much different problem than they do right now.  It is the reactionary standard operating procedure of an inflexible supply chain.

The smart move is to fully investigate the engineered to order components that go into Whirlpool appliances.  Machined parts, precision sheet metal fabrications, weldments, molded plastics and metal castings are all HUGE opportunities for driving cost savings in 2011.  Coming out of the recessionary cycle the surviving manufacturing base is hungry and has capacity.  Whirlpool's brand power would generate a substantial response from a global supply base with a desire to win a new customer.  If Whirlpool was flexible enough they could drive enough money out of their engineered to order supply chain to offset the raw material increases they are suffering currently, avoid raising prices and maintain market leadership in the hugely competitive space of home appliances while their competition struggled with raw material pricing.

Or they could just raise prices.

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