When the Supply Chain Supports the Brand

[From iSource Business, December 2002/January 2003] If you build a better mousetrap, consumers will beat a path to your door to buy it. But then what? If the average mousetrap has a life span of 15 or 20 years, that leaves a lengthy gap between opportunities to sell into the same household and dim prospects for growth once the market has reached saturation and everyone owns more mousetraps than mice.

Such is the dilemma facing manufacturers in the $106 billion global appliance market these days: better quality has resulted in high saturation rates and low replacement rates. In fact, although the industry is currently shipping 300 million units annually on a worldwide basis, growth driven by replacement is languishing at about 2 percent per year for the industry as a whole, hardly the kind of results that excite Wall Street.

This conundrum has not bypassed Benton Harbor, Mich.-based Whirlpool Corp. The world's top appliance manufacturer, with 65,000 employees producing 11 major brand names in 13 countries, generated revenues of $10.3 billion last year from sales in more than 170 countries around the globe. To maintain its No. 1 spot, a few years ago the company began a major initiative to build its revenues, in part by bringing innovative products to market, but also by having its suppliers support the company's brand offering.

And that's where Milton Young comes in. Young is global director for strategy and planning within global procurement operations at Whirlpool, charged with designing and implementing strategies and processes to ensure the company's operations remain competitive, while at the same time cutting costs and improving customer service. A broad purview, but then Young brings a broad, atypical background to his supply chain position. With two degrees in chemical engineering and an MBA from Northwestern University, he was a development engineer at General Motors and spent six years in the finance organization at Exxon before joining Whirlpool's finance group. Young subsequently moved over to product development, working on laundry technology, before joining the global procurement group two years ago.

iSource Business recently caught up with Young at the ProcureCon conference on strategic sourcing organized in Phoenix by Worldwide Business Research. We asked Young about Whirlpool's vision for developing its supply chain and about the supply chain's role in supporting demand-driven growth.

iSource: Where is it that Whirlpool is taking its supply chain over the next few years?

Young: Last year I took our senior procurement leadership through a scenario planning exercise. We asked what the future might look like for our procurement organization. We plotted that future along two axes: the first, what we do, moving from the traditional buying to value chain management; the second, what we support, moving from traditional products like washers, dryers and refrigerators to innovative products.

Today we are focused on buying for traditional products: we're product- and volume-oriented, distant from the customer, focused on price or best value. Yes, we get global leverage, but at times we operate in functional silos. We're concerned with near-term priorities, we have lots of fixed assets, and we're commodity focused.

As we move toward value chain management, our people need to focus more on total cost and revenue, speed, and fulfillment. We need to have a near- and medium-term focus and be more demand-driven. As we move toward buying for innovative products, we need to become more brand- and consumer-oriented. We need to manage different kinds of business relationships, because if you look at some of the products that we're coming out with, we're no longer buying components or raw materials, we may be integrating content or integrating services into products that we offer. We need to have a total value orientation cost is important, but the first person to market captures most of the margin, and we should be willing to put up with a little higher cost if we can capture the margin and establish a dominant position.