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Republic of the Philippines

University of Batangas
Graduate School
Hilltop, Kumintang Ilaya Batangas City

Case Analysis
Emerson Electric Company ACP Division:
The Fan Subpack Sourcing Decision

PhDBM 713: Environment of Business

In partial fulfilment of the requirements for the degree of

Doctor of Philosophy in Business Management

Submitted to:

Dr. Eden Babasa Sia


Submitted by:

Robert John R. Perez

Student, PhDBM

July 2018



Emerson Electric (Emerson) is a diversified global technology company engaged

In designing and supplying a range of electrical, electromechanical, and electronic

products and engineering services for commercial, industrial, and consumer markets. The

company operates in the US, Europe, Asia and Latin America. It is headquartered in Saint

Louis, Missouri and employs about 129,000 people.

Ken Powers decided it was time to make a recommendation regarding the sourcing

of the Emerson “1895” ceiling fan subpacks for the upcoming 1988 fiscal year. The choices

had narrowed down to four basic options, each with both short and long-term implication

for Emerson Electric Company’s ACP (Air Comfort Products) Division.

The ceiling fan was characterized as seasonal and mature. This description was a

drastic change from just a few years earlier, when demand was such higher and more

consistent over the year. The market has surged during the oil shocks of the 1970s as

people began to use ceiling fans to circulate air and cool their homes and offices in an

energy efficient manner.

ACP marketed two ceiling fan lines under the Northwind and 1895 brand names.

These fans came in a variety of sizes ranging from 36 – 56 inches. All fans sold by ACP

had features that made them superior to most fans sold in the United States, including

heavy duty motors for longevity, zinc hanging system for extra safety and aluminum motor

covers and 5 ply wooden blades for quietness.

Emerson implement a move strategy and redesign existing product lines and

create new products to meet the world market requirements while maintaining domestic

market dominance. The goal of the company is to increase the share of new products

sales to 20% of the total sales goal of 15% growth, it has to implement cost cutting program
to protect profitability through reduce wages and salaries and use low performance

product line.


Emerson has been in business since 1890, originally incorporated as Emerson

Electric Company. Today, Emerson employs 133,000 people in over 70 countries. Its 2015

revenue was $22.3 billion. Emerson is a Fortune 150 company and is listed on the New

York Stock Exchange as EMR. Its headquarters is in St. Louis, MO. Emerson Company

has 200 manufacturing location worldwide and 76 of them locate in 15 countries outside

US. In 1986 according to Forbes magazine’s industry analysis, 83% of the Emerson

Products held the no. 1 or 2 positions in their domestic markets.

Emerson is composed of five primary business segments: Network Power,

Process Management, Industrial Automation, Climate Technologies, and Tools and



Vertiv, formerly the Emerson Network Power, is an original equipment

manufacturer and a data center management services provider. This business segment

manufactures, installs and maintains a wide range of environment control systems and

power reliability systems, primarily for data centers, telecommunication companies and

other high-reliability networks. Its products include uninterruptible power systems and

inbound power systems to protect systems from power spikes, brownouts and blackouts.

They also provide both hardware and software data center monitoring and control


Process Management

Emerson Process Management provides hardware and software technologies,

project management and engineering services to industries including oil and gas, pulp and

paper, pharmaceuticals and food and beverages. Its technology includes process
management systems, plant processing controls, measurement and chemical analysis

systems for liquids and gas. Its process control systems, combined with wireless tools for

workers, allow companies to monitor equipment remotely while also tracking the location

of mobile workers.

Industrial Automation

Emerson Industrial Automation provides a wide range of integrated solutions to

manufacturers across the world. A few of its many products include motors, alternators,

fluid control systems, plastic joining equipment, metal welding equipment, pulleys,

bearings, sprockets, etc. Clients include automobile manufacturers, food processors,

textile and petrochemical manufacturers and the oil and gas industry.

Climate Technologies

Emerson Climate Technologies provides heating and air conditioning products and

services in the industrial, commercial and residential markets. Its technology can also be

found in refrigeration systems in trucks and supermarkets around the world.

Commercial and Residential Solutions

Emerson Commercial and Residential Solutions makes a wide range of tools,

storage products and appliances for residential, healthcare, food services, and

commercial applications. Products range from pipe wrenches to wet/dry vacuums and

from closet organizers to medication carts used in hospitals.


There are four alternatives that would be feasible in sourcing the 1895 model fans.

All the alternatives involving a vendor switched assumed that a “running” change was

possible; that is either building inventory to a level high enough to last until the alternative

source was producing acceptable subpacks or continuing orders with the current vendor

on an “as-needed” basis. Current seasonal inventory levels were sufficient for 6 months

of wholesaler orders.
The four alternatives were as follows:

1. Continue with the Current Taiwanese Vendor:

The established source for 1895 subpacks was Lao Chiang Plating Industries of

Taichung was a large city located on the western coast relatively near the international

shipping harbor of Keelung. This location has helped in its development as an industrial

exporting center.

Like many of the exporting companies in Taiwan, Lao Chiang was family owned,

controlled, and managed. Although many of the managerial tools common in American

companies were not used, this lack of sophistication and control had not severely hindered

the company’s growth. Taiwanese labor and tooling cost were much lower than the

American costs, which enabled Lao Chiang to undercut American bids for the subpacks


2. Change to Alternative Taiwanese vendor:

Another Taiwanese vendor has shown keen interest in supplying subpacks to

ACP. It’s a much more vertically integrated and centralized company with an automated

plating line. Currently running well below its capacity – has sufficient capacity for subpack


3. Integrate the Assembly process in America:

Unused space in available in ACP factor in Tennessee cost could be possibly

lower. Transportation cost savings. Material cost in US and Taiwan are roughly the same

and US labor cost is about 3 – 4 times of Taiwan cost.

4. Establish Sourcing in Mexico:

US labor cost is about 9 times of Mexico’s labor cost. Mexico workers paid in peso

and ACP has to purchase peso at government – controlled exchange rate which can be

very different from the market rate because of the inflation rate wages were subjected to

Cost Analysis for Sourcing Alternatives

Emerson Electric Company’s ACP Division


Emerson Electric Company – ACP division should continue with the current

Taiwanese vendor. The quality problems alone are not serious enough to justify switching

to an unproven vendor.

Whether you’re sourcing abroad, or from a manufacturer down the street, similar

issues with product quality, shipment delays, cost and safety concerns, etc. still apply. To

mitigate the quality risks and cost involved in sourcing, there are five actions that have

been proven successful throughout the three decades of experience we have working with

clients and suppliers around the world.

1. Audit Potential & Existing Suppliers

To help ensure that potential or existing suppliers deliver high-quality products,

operate efficiently, and support continuous improvement, process surveys and factory

audits are performed. From supplier capability and qualification to process control and

quality system audits, there are a wide range of options. More specific audits incorporate

standards such as the ISO series, TS 16949 specifications for the automotive industry,

social accountability, sustainability, C-TPAT for security, AS 9100 for aerospace and many

others. Requirements for audits do vary based on many factors. Two commonly performed

general system audits include:

Supplier Capability & Qualification – Auditors survey potential suppliers and

provide feedback regarding general operations, quality systems, qualifications and

capabilities. This critical information aids in determining if the supplier is a viable source

and potential partner.

Supplier Process Control & Quality System – Auditors evaluate all

manufacturing process control systems for existing or new suppliers. Audits cover several

areas, including evaluations of management, quality control methods, non-conforming

materials, production, corrective action and inspection and test equipment.

2. Develop Product Criteria/Specifications – Know Your Product

A good plan is only as good as its foundation, so comprehensive and detailed

product specifications are critical to success. An important component of product quality

is knowing your product. And, that requires detailed product specifications that identify

exactly how the item(s) should turn out. What characteristics of the product are required

for it to “meet or exceed expectations?”

Product specifications should include defect details with classifications that later

link to accept/reject determinations during QC checks. They also clarify the acceptable
quality levels and expectations for the supplier. Each defect noted is generally classified

as major, minor or critical.

3. Test Products

Product testing has multiple applications, from determining if the specifications are

being met to troubleshoot various issues. Using applicable regional and/or industry

related standards to measure the product’s properties and evaluate performance provides

assurance of quality throughout the production process. Used as a proactive strategy,

applicable product testing can avoid costly delays and rework down the line.

4. Inspect Throughout Production

Controlling quality by utilizing product inspections throughout the production cycle

reduces sourcing risks and cost. Inspections can be conducted at any point throughout

the production process, with the maximum benefit observed when strategically employed

at the beginning (first-article), in-process (30% -50% complete) and pre-shipment (100%

produced and at least 80% packaged). The idea is to identify, contain and resolve issues

as quickly as possible.

5. Focus On & Support Continuous Improvement (Kaizen)

Define, evaluate, implement, document and review results. Strategically planned

continuous improvement initiatives result in the following:

* A decrease in costs due to less reworking, consequently producing less scrap.

* An improvement in cycle time due to less time being spent on correcting

mistakes, and more time being spent on value added activities.

* An improvement in productivity due to less time being spent on reworking


* Improved relationships with suppliers (partners).

* An overall improvement in service.

* An overall improvement in cost


Emerson Electric company should:

 Get more feedbacks from customers:

The way of getting feedback from customers plays an important role in improving

the business. To deliver the good user experience to the customers they should first listen

to what your customers are saying. They can help to innovate a new product and provide

better customer service. In this way, the company can offer more value to the customers.

The more information you get from the customers, the better they can perform.

When they have more accurate information from the customers it will put them ahead of

all the competition in the market. With customers feedback they can reduce the churn rate

of the customer and increase the customer satisfaction.

 Work more with suppliers and distributors

A key element of success in a manufacturer-distributor relationship is for both

parties to be on the same page as to whether the relationship is strategic or tactical. This

will set the expectations for the type of support both parties give to this relationship.

A strategic relationship requires closer collaboration from both the manufacturer

and the distributor in the form of marketing, branding, and product development. In a

strategic relationship, a distributor doesn’t just push product, they also provide feedback:

customer feedback and insights, possible product improvements, and new products to

meet demand identified in the market. The distributor is essentially the expert on the

customer, while the manufacturer is the expert on designing, developing, and producing

the product.

In a strategic relationship, broader long-term goals are being met. Maybe the

manufacturer-distributor relationship allows the manufacturer to introduce product into

new markets. Maybe the distributor can expand into carrying new types of offerings. In
either case, there is a benefit to one or both parties that extends beyond simply selling

more product.

A tactical relationship is more limited. Tactical manufacturer-distributor

relationships tend to be mainly about increasing sales. Manufacturers build the product,

distributors handle the logistics and marketing involved in getting those products into the

hands of customers. The software industry refers to its distributors as “box pushers,” and

while this is an unfair characterization of what software distributors do, it does shed light

on how a tactical distribution relationship might be perceived from the manufacturer end.

A tactical relationship is easier to replace, so both parties will likely want to look at how to

make the relationship more strategic, else they face the possible loss of a significant

source of revenue.

It pays to invest time in building good relationships with your key suppliers. If you

can save money or improve the quality of the goods or services you buy from your

suppliers, your business stands to gain.

Hints on dealing with your suppliers:

 Meet your contacts face-to-face and see how their business operates. Understanding how

your supplier works gives you a better sense of how it can benefit your business.

 Meet the people who'll be managing your account and make sure they can be easily

contacted. Ask about their plans for development or expansion. Will this affect the goods

or services they're providing to you?

 Help your suppliers by placing orders in good time, being clear about deadlines and paying

on time. See the page in this guide on how you can help your key suppliers.

 Keep an eye open for any opportunities you can pass their way -in a good customer-

supplier relationship they'll do the same for you.

 Make your business important to your suppliers and they will work harder for you. Some

suppliers may offer better deals if you promise to use them exclusively.
 Reengineer product to use more universal parts and accessories

Product Re-engineering focuses on modification of an existing product, sometimes

through reverse engineering. The objective of re-engineering a product is to optimize its

performance by adding new functionalities and taking advantage of emerging

technologies. The re-engineering effort can be for a new business need, upgrading legacy

applications or for keeping pace with competitors. With the help of our re-engineering

services we help the customers to fix the issues with previous software development.


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