Faced with intense competition, increasing expectations from customers, reduced product life cycles, and localized geographic markets, Whirlpool Corporation (a Fortune 500 manufacturer of appliances) realized that the need to achieve a competitive advantage from its sourcing and material efforts was greater than ever. Part of the strategy to achieve this advantage involved pursuing an alliance with a key steel supplier. Steel is a major component used across all of the company’s finished products (such as washing machines, dishwashers, refrigerators, and others). The purchasing managers at Whirlpool faced a number of questions with regard to their purchasing strategy:
•What do we need to do to be competitive?
•Who is best suited to be the primary steel supplier?
•What do we need to know, and how do we get the information required to answer this question, especially with regard to our organizational culture, technological roadmap, and where both organizations are moving in the long term? •How do we implement a strategic alliance?
•How do we establish a strategic alliance in terms of confidentiality agreements, termination agreements, and negotiation strategies? •How do we provide the supplier with evaluations to ensure that this alliance continues, with regard to continuous performance, goal achievement, and commitment? •What do we do if we do not meet our objectives—change the situation or simply terminate the agreement?
Whirlpool realized it needed to reduce the number of steel suppliers it used and locate a supplier with a common desire to enter into a longer-term alliance. Whirlpool’s organizational goals were to leverage the selected supplier’s technical capabilities through early supplier involvement, day-to-day redesign support, and process improvement. At the same time, top executives realized that in order to obtain these benefits, it was important that the supplier partner perceive value in the relationship. While all of this was occurring in 1984 at Whirlpool, the management team at Inland Steel was considering a different set of questions. Four vice presidents of marketing at Inland Steel, an integrated steel producer located in the same geographic region as Whirlpool, were reviewing their market strategies and the recent changes that had occurred in their strategic alliances. They had made the decision to reduce their customer base, and were forming a new management plan. This was part of Inland’s Customer Relationship Management strategy, which entailed reducing their customer base in order to serve only their preferred customers that would yield the highest long-term profitability for the company. This strategy was a direct result of Inland Steel’s total quality management program, which dictates that to delight the customer, one must identify key markets and focus on those markets. A major component of this market strategy was to approach key customers with the idea of entering into long-term agreements. In doing so, Inland Steel realized that the best opportunity for reducing costs was to become involved early in new product design with key customers. However, to achieve this objective, the vice presidents realized that significant capital investment would be required to update Inland Steel’s facilities with state-of-the-art steel processing technology to align technologies with key customers. In some cases, this involved some degree to risk, as aligning capital investments with specific key customers could “shut out” new business with other potential customers. However, the management team reached a consensus that the only way to succeed in the current market structure was to reduce costs through early involvement in customer new product designs, and to back this up with capital investments in design capabilities and new facilities. Meanshile, Whirlpool executives were mulling over whether Inland Steel was the...