How a Quality Initiative Changed -Whirlpool's Supply Chain
For over 30 years, Stanley Engineering Components (SEC), a division of the Stanley Works, had been manufacturing oven-door-latching mechanisms for the range-appliance industry. (The oven-door-latching mechanism locks an oven door during the self-cleaning cycle in both gas and electric ranges.) Its customers viewed SEC as a low-cost supplier of customer-designed stamped metal assemblies. In this capacity, SEC provided little input with respect to the designing, manufacturing, and marketing of their customers' end products. The largest of SEe's customers was the range-appliance division of the whirlpool Corporation, the world's leading manufacturer and marketer of appliances. SEC has been a supplier of oven-door latches to Whirlpool for more than 20 years. In early 1993, Whirlpool notified its existing and potential suppliers that it was instituting a new quality initiative, based on total quality management (TQM) principles. that directly affected its customer-supplier relationship. It now wanted its suppliers to be business partners, as compared to the existing customer-supplier arrangement in which price was the primary criterion for purchase. Whirlpool now. asked potential suppliers to provide extra value-added services and encouraged them to (a) become partners who were to be. experts in Whirlpool's business, (b) participate in customer-supplier teams. and (c) learn .about the needs of Whirlpool's customers. As business partners, Whirlpool wanted its suppliers to follow its strategy. which was to deliver world-class products that exceeded customer expectations. An important part of this strategy was Whirlpool's commitment to continuous quality improvement. Whirlpool was able to achieve this strategy by leveraging its suppliers' technical expertise. To accomplish this, its su pliers had to be flexible to change and proactive to the continuous quality improvement of their products. In addition, Whirlpool's suppliers had to be able to produce consistently high-quality products at lo~ cost, while providing additional services, which included free consulting, as well as other initiatives to decrease product cost
and increase product quality. Another of Whirlpool's goals was to decrease its number of suppliers. Therefore. in addition to the oven-door-Latching mechanism, Whirlpool encouraged SEC to develop a program to manufacture oven-door hinges, as this additional product was viewed as a natural extension to SEe's product line because a hinge is also a stamped metal assembly. If SEC supplied both of these products, Whirlpool could reduce its number of suppliers. SEC had to make many changes within its organization in order to meet these new requirements. For example, SEC was now expected to initiate cost saving and quality improvement programs that extended far beyond SEC's own products. In addition. SEC had to assume significant risks. Its previous method of doing business. although far from risk-free, was in a stable environment, and SEC knew what was needed to complete successfully: low-cost pro uses. On the other hand, supplying Whirlpool under its TQ\1 meant competing in a highly uncertain environment that presented a significant ri k of failure. If SEC was not able to meet Whirlpool's requirements, then Whirlpool would not consider it as a potential supplier. Losing Whirlpool's business would result in a 20 percent loss in sal s along with high sunk costs, which could ultimately mean business failure for See. all of its existing and future customers would also have to accept this new way of doing00 business, because SEC was not willing to operate two separate business structures. SEC consciously chose TQM a a competitive advantage and therefore assumed the risk of losing
those customers who-did not endorse TQM principles. In this respect, SEC consideredWhirlpool's demands as an opportunity to force itself to change and to adopt TQM practices. SEC also realized that Whirlpool was not going to lead it through the TQM process; SEC would have to develop this on its own. SEC also needed to change its business philosophy from being just a low-cost supplier. to that of being a concerned business partner. To accomplish this, SEC began considering all aspects of the final product, not just those pertaining to the components it supplied. SEC
showed its willingness to change in many ways. Perhaps the most striking example was SEC using its own personnel to co-develop a latch and a hinge with Whirlpool even though there was no guarantee that SEC would get Whirlpool's business. SEC personnel became free internal consultants to Whirlpool in order to demonstrate that they were committed to becoming a business partner. Whirlpool expected its suppliers to provide a sustainable. competitive advantage that was consistent with its strategy, although Whirlpool did not provide any leadership to SEC. It simply imposed its demands. Developing a strategy for achieving Whirlpool's goals rested solely with the supplier. By not providing any detailed plans. Whirlpool left the strategic planning and implementation up to SEe. Whirlpool also wanted SEC to help predict consumer preferences. It therefore sought SEe's opinions, suggestions, and solutions to problems about many aspects of its products, most of which did not relate to SEe's components. Again SEC was expected to play the role of free consultant. even before it established formal agreements with Whirlpool. One of Whirlpool's key strategic thrusts was to "effectively manage the selected technology base that emanates from the suppliers." To meet Whirlpool's objectives, SEC had to communicate Whirlpool's needs to all of SEe's employees and suppliers. Whirlpool demanded high-quality. low-cost, timely products, and SEC had to comply with these demands.
Whirlpool stated that its chosen suppliers would be the best in their class and their goals would be in line with Whirlpools' goals. . In early 1995.the buyers atWhirlpool accepted SEe's design proposals for the latch and hinge assemblies and awarded SEC the contract for these components. SEC started shipping small quantities of latches and hinges early in the spring of 1996. In mid-1996, Whirlpool awarded SEC a contract to supply smoke eliminators and venting tube assemblies. Since SEC first starting shipping components under its new supplier program. Whirlpool has
awarded SEC $S million in additional yearly business. At the same time, others suppliers lost this $S million in busi-iess. 0By adopting TQ\1. SEC became a successful competitor. Between 1993 and 1997 SEC sales toWhirlpool increased 12S percent, and its productivity increased by 76 percent. Over the same period, its sales to other customers (originally non- TQM customers) increased 2S percent. For SEe. implementing TQM, although ri'k~ and painful. was a success. SEC realized that it must solve problems immediately aI1LIprovide the best possible design and quality at a competitive price. As a supplier. SEC needs to constantly initiate new technology idea-. as suppliers to organizations that u-,e TQ\l principles must always be ready to change and be on the alert