Electrolux Networks With China Sourcing to Support International Trade

In this age of global supply chains, it is necessary the logistics and procurement organizations work hand in hand to support each other.

Global sourcing of products in a low-cost region is a waste, if the logistics cost or process to get the company products out of that region counterbalance the product cost savings. Global sourcing requires an in-depth analysis of a company's logistics set-up—and that's exactly what consumer appliance giant- Electrolux has done.

When Hans Straberg was the CEO of Sweden-based Electrolux in 2002, the company was dealing with severe competition and price pressure in its primary markets. Straberg lay down four chief priorities for the company i.e. brand building; product growth based on buyer insight; internal talent development; and improvement in operational efficiency to reduce costs. Thus, global sourcing of materials to support those industrial unit goods came into view as Electrolux planned to give importance and put their stake on low cost countries like China. Consumer products maker Electrolux thus began a major manufacturing shift to low-cost regions including Mexico and Eastern Europe and establishing new production capacity in Asia.

But, the increased global sourcing would tend to increase the company's on the whole logistics costs, so to make sure those costs were managed effectively, Francois Van Caeyzeele –the purchasing head of Electrolux instigated a deep-dive project to review the company's logistics net in Asia. Leading that deep-dive was Mr. Amit Kumar, who was the head of logistics services for Asian Global Sourcing and International trade. Kumar moved to Shanghai, China in 2004, from his post in Europe to begin scrutinizing everything that went in and out of the Asian region.

Kumar told the purchasing department that they started doing a routine checking exercise for the logistics spend in that region. What was moving from where to where? They had the suppliers control logistics and minor notice was paid to what the real cost was for logistics and the management of the shipments for B2B International trade.

The pricing factor was taken into account only in phase two. Kumar made an excellent choice for the project because of his backdrop in procurement as well as his vast experience and work knowledge in a Global Sourcing. The Company targeted several major factories in the Asian region, charting the logistics network and lowering the freight cost from the part cost. Two issues stood to notice at the end of the project that the company's container fill rate was much lesser than was expected and many of the suppliers were transporting via shipment to Electrolux in parallel lanes using various logistics providers at varied rates.

So there was an obvious situation for establishing consolidation positions in China suppliers. Accordingly all suppliers in a particular region were brought together as one committed factory manufacturers and goods were shipped to the destinations.

This enhanced container fill rates and let Electrolux select the logistics providers it needed in various area. Electrolux used a standardized assessment table to sort out logistics service providers with deep emphasis on an international level, global sourcing, management and innovation.