In the era of global supply chains, it is imperative the logistics and procurement organizations work more closely to support each other. Sourcing products in a low-cost region is useless if the logistics cost or process to get the products out of that region offset the product cost savings. Global sourcing requires a detailed analysis of a company's logistics network—and that's exactly what consumer appliance-maker Electrolux has done.

When Hans Straberg became CEO of Sweden-based Electrolux in 2002, the company was seeing fierce competition and price pressure in its primary markets. Straberg set four major priorities for the company: brand building; product development based on consumer insight; internal talent growth; and improve operational efficiency to reduce costs.

As part of that last goal, consumer products maker Electrolux began a major manufacturing shift to low-cost regions including Mexico and Eastern Europe as well as establishing new production capacity in Asia. And along with that manufacturing shift, the company planned to put a major new emphasis on low-cost country sourcing of materials to support those factories.

But the increased global sourcing would likely increase the company's overall logistics costs, so to ensure those costs were managed effectively, Electrolux's head of purchasing, Francois Van Caeyzeele, initiated a deep-dive project to review the company's logistics network in Asia. Spearheading that deep-dive was Amit Kumar, head of logistics services for Asia. In early 2004, Kumar moved to Shanghai, China from his post in Europe to begin analyzing everything going in and out of the Asian region.

"We started by doing a spend-mapping exercise for the logistics spend in that region," Kumar tells Purchasing. "What are we moving from where to where? At that time we were having the suppliers control logistics and little attention was paid to what the real cost was for logistics and who was managing the shipments."

Kumar : “We don’t even look at pricing in phase one. We’re only looking at the solution they offer and only in phase two do we look at pricing.”

"So there was a clear case for establishing consolidation points in China," Kumar says. "In the new plan, all suppliers in a certain region send to a consolidation point and we put them into dedicated factory loads and ship them to the destination."

The consolidation points improved container fill rates and let Electrolux select the logistics providers it wanted in various regions. Electrolux uses a standardized evaluation table to review logistics service providers with heavy emphasis on global coverage, global key account management and innovation.

"We don't even look at pricing in phase one," Kumar says of the RFI process for logistics. "We're only looking at the solution they offer and only in phase two do we look at pricing."

By focusing primarily on providers with global scope, Electrolux has to manage fewer, but broader, logistics providers. For example, the company had been working with DHL in Europe but when Electrolux began consolidating to fewer, more global providers, DHL made the most of it and emphasized its global capabilities to become Electrolux's exclusive air courier worldwide.

Electrolux's global logistics center of excellence is in Shanghai. "We maintain a small but strong team of experienced logisticians in our Global Logistics unit as well as in our factories and sales companies," says Kumar. "These individuals interact with the service providers, combining knowledge of Electrolux, our internal logistics experience, and that of the service providers, to build the best possible supply chain."

When it comes to global sourcing, Electrolux does its best not to let logistics issues prevent the company from working with suppliers in new or underdeveloped regions. "If a supplier is really good we will work with them in managing their logistics," Kumar says. For example, if a supplier does not have a presence in the region it's shipping to, such as the U.S. or Europe, Electrolux will bring in a service provider to help the supplier with customs processes and just have the supplier pay the bill.

Kumar's next major challenge is to run through a similar spend mapping exercise with the North American logistics network.