[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.
As we move toward doing value chain management for innovative products, we need to be totally customer-oriented. It's no longer enough to have a supply chain that produces a refrigerator. We're producing a KitchenAid refrigerator, or a Whirlpool dishwasher. We must understand how our total supply chain supports that brand offering. We need to be growth-oriented, and we have to worry about short lifecycles so that we can come out with new products and get consumers to buy our brands more often.
Those are the scenarios for the future. Any one of those could happen, but we think that for Whirlpool to be a brand-focused company, we need to be doing value chain management for innovative products.
iSource: You talked about having the supply base support Whirlpool's brand offering. What do you mean by that, and how do you plan to go about doing that?
Young: Our corporate strategy is to be brand-focused and to have brand-focused value creation. If you look at what the brand stands for, Whirlpool stands for innovative solutions, reliability and cutting-edge features. Our supply base needs to understand what the brand stands for so that when we work with them on new products or new features, they understand the components and the types of features that we are looking for and that our consumers want.
Our supply base comes to us with innovations all the time. But what we found was, because we didn't do a good job of communicating our insights into the consumer, they would bring us ideas that were technically sound and that were wonderful innovations but that didn't address consumer needs. So what we had to figure out was how to take our knowledge of the consumer and communicate that to the supply base.
For example, Roper is one of our brands on the value side. Some things that would be great for Roper from a value perspective would not be good for Whirlpool from an innovation perspective. On the other hand, KitchenAid is the gold standard. There are a lot of things that the KitchenAid consumer requires that the Whirlpool consumer may not. If our supply base can understand the differentiations between what our brand consumers are looking for, they can help us tailor those products to better meet those requirements.
iSource: How do you communicate that to the supply base?
Young: First of all, the communications are very different from just "Hi, I'm buying, you're supplying." Now the conversation goes like this: "Here's where we're going as a company. We're developing products that are not only the right price but also the right feature level and the right delivery in terms of when the innovation comes out, because that's what our customers require. You, as a supplier, support Whirlpool in that offering. Part of that is global competitiveness, but you (as a supplier) also bring different types of capabilities to Whirlpool's supply chain. Depending on those capabilities, and depending on what the brand needs, together we may support KitchenAid at a differentiated level than how we support Whirlpool, we support Whirlpool at a different level from Roper, and so on."
That's how that conversation would go. Then we move from talking about the strategies to talking about the different products and the types of consumers they serve. We talk about why a certain level of quality is important, why a type of finish is important or why certain availability is important. A Whirlpool consumer may require a product in 96 hours, and a Roper consumer may be willing to wait a week, but a KitchenAid consumer might require a product in 48 hours. Because if I'm paying $2,000 for a built-in refrigerator, I'm not going to wait six weeks for you to tell me that your supply base doesn't have the capability to fulfill my order quickly.
iSource: When you are looking at investing in e-procurement technologies, are you considering the cost across the entire supply chain?
Young: Yes, we want to make sure we keep the cost as low as possible for the supply base. If they have to pay a lot of money up front to implement a technology, that becomes a barrier to adoption. So if a technology provider says, "We can sell you an application that doesn't cost you anything to adopt because your suppliers are going to have to do it," I'll say, "Hey, for us, that's not a sustainable model." Because if you're selling me one system, and somebody else is selling a different system to another customer, and Joe's Plastic Shop is a common supplier to both of us, we'd be forcing Joe to pay for two different systems. He's not going to do it.
iSource: As you think about the innovations you are putting in place today to support your initiatives, how is it that you ensure that two years down the road the technology you're implementing today will support what you want to do down the road?
Young: We have not been able to take full advantage of all the technology that we have today. Part of that is cultural, part of that is the pace at which technology gets adopted, part of it is competing priorities with the people who need to adopt the technology. So we're really not worried about being left behind from the technology perspective.
Also, a lot of the technology has only been developed in the last three to five years, and moving from an older technology to a newer one takes time. Let's say you want to go from EDI [electronic data interchange] to a Web-based system. We've got EDI hard-coded into our DNA. Our supply base has EDI hard-coded into their DNA. It would take us at least two years before we could build up momentum just because it would take that much to unplug people from what they do and develop the new processes. Then in two years, that particular Web-based system may be replaced with something new.
iSource: It's interesting to hear that you are continuing to invest in innovation despite the down economy.
Young: We're trying to make sure that our investment in innovation is appropriate given the risk and uncertainty we see in the future, plus the opportunity that we see as well. It's important for us to invest in innovation, in training and in building the experiential base now because in two years, if we're firing on all cylinders and demand is going through the roof, we'll be so busy just doing the day-to-day that we won't be able to invest then. Plus, when things get more complicated, you need people with experience, so what better time to give them that experience than now. Also, the innovation we work on today may be the fuel to reinvigorate the slumping economy.
iSource: You don't have a traditional supply chain background. What have you brought with you from your past lives that is most beneficial to you in your current work?
Young: I've been in three large organizations, and being able to understand how to get things done in large organizations is key. But it's also important to know that there isn't just one way of doing things. When you see people, like in Silicon Valley, jump from company to company, they're able to bring different perspectives, different experiences with them. I think that's helped me, coming from Exxon and General Motors and applying my experiences at Whirlpool.
It also doesn't hurt to have a strong grounding in finance so you understand what the cost drivers are and what the benefits are. Then, when I was in the product development organization, I was working with the procurement organization on make-versus-buy, scheduling and so on. So all the supply chain aspects are there, but I see it from a total project picture.