How can we weigh the performance criteria in Exhibit 2?
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Exhibit 2 shows the various performance criteria that can be used to evaluate the potential supplier’s performance. It also provides factors that constitute the mark for each criterion. For instance, potential supplier’s quality should be determined by a range of factors, such as technical and process audits score, evaluated by the qualitative technical assessment. Quality audit scores should also be performed during site visits. Other factors that are crucial to the weighing of the supplier’s quality are PPM, corrective action response rate, and the supplier’s production part approval process.
Secondly, it is important to mark the supplier’s delivery process. This criterion includes looking at the historical performance with regards to Delivery Lead Time. In addition, it is important to take into account the proximity, risk, and capabilities of the supplier’s facilities.
Next, the cost management of the potential supplier is marked by looking at four different features: overall delivered part cost, including lifetime cost of ownership, the cost of expanding or altering the part to fit the end design (% Cost to Target), material cost productivity and the days payable, or the terms of payment for the supplied parts.
As noted in the case study, Whirlpool China values suppliers that have a similar business strategy and vision. The next criterion marks the supplier’s alignment with the corporate strategy. Qualitative alignment tests are used to determine the supplier’s technology roadmap and its commodity management strategy. For existing suppliers, a separate proxy method can be applied to test their general understanding of Whirlpool’s strategy and vision.
The fifth criterion measures the supplier’s capital and tooling costs by evaluating total tooling cost of ownership and tool’s technical lifecycle. The next criteria are equally important to many contemporary businesses: design and technology criterion is weighed by the qualitative innovation score, support and representation are determined using a qualitative management score, whereas manufacturing, which establishes the potential supplier’s manufacturing reliability, is marked using a qualitative manufacturing score.
Another crucial criterion is the potential supplier’s financial stability. It is measured using either the Altman Z-score, balance sheet, growth rate, or current accounts of the supplier. Finally, some commodities might require running additional tests or assessments for the supplier; these are included under the “Commodity – Other” criterion.
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What criteria should be given first priority? Why?
In the case of Whirlpool, design, and technology would be the most important criterion today due to the company’s goal to produce more innovative products to remain in the competitive electronics market. Given the size and scale of the company, the supplier’s manufacturing processes should also be evaluated in detail. Particularly, it would be crucial to make sure that the supplier possesses all the relevant knowledge and experience to accommodate such a large-scale production. Investigating the supplier’s preventive maintenance scheme is also important to minimize the risk of production delays and ensure a continuous supply of tools.
Also, given the fact that the electronics market is highly competitive, it is vital for a large company such as Whirlpool to maintain customers’ satisfaction. Thus, marking the potential supplier’s quality is also essential. Special attention should be paid to the supplier’s corrective action response rate and the audit scores, both regarding the technical processes and tools’ quality.