What are the specific requirements relating to Cost Management?

Cost Management

1. Each Supplier is expected to deliver N% Total Cost Productivity yearly, which includes a NET X % cash flowed savings year over year, based on annual purchases. The NET amount will vary from one business product to the next (air treatment vs laundry vs cooking vs refrigeration) due to specific business conditions from one year to the next.
2. X % Net is a subset of N% Total Cost Productivity.
3. X % Net is savings that hit Whirlpool's bottom line; actual dollar savings passed through to Whirlpool. Examples are price (PO) reductions and cash rebate to meet the net %.
4. Each supplier will be required to report its progress in an Excel spreadsheet.
5. Whirlpool will provide each supplier with the plan year's forecast/profit plan volume and cost. This will be used in the calculations for the TCP targets. Due to constant changes in business conditions (i.e. model mix), the forecast/ profit plan numbers will be used unless agreed upon by Whirlpool and the Supplier to use actual shipments; this would be due to extreme business conditions.

X % Net TCP Category

Cost Change Projects:
Net savings will include cost change projects implemented that reduce the price paid by Whirlpool for the component. The supplier will be given credit for the annual savings generated. It will divided by 12 and will start with the first full month of production. It will be carried over to the next year until a total of 12 months of credit is accrued.

Material Price Variance:
Net savings will include reductions in the purchase price paid by Whirlpool due to reasons other than implemented cost change projects. This does not include raw material price decreases where Whirlpool negotiates the price and the suppliers use what Whirlpool specifies. The supplier will be given credit for the annual savings generated. It will divided by 12 and will start with the first full month of production. It will be carried over to the next year until a total of 12 months of credit is accrued. Increases to the purchase price paid should be noted in the Net category and will negatively affect the goal. The supplier will be expected to implement projects to counter balance the increase. It will divided by 12 and will start with the first full month of production. It will be carried over to the next year until a total of 12 months of credit is accrued. An exception to this is when the increase is due to a commodity (like raw material) where Whirlpool negotiates the price and the suppliers use what Whirlpool specifies.

Incentive credits / rebates:
Rebates given to Whirlpool to meet the Net goal will be credited in the Net category. Whirlpool will then expect a PO price reduction equal to this rebate to guarantee the following year's continued price reduction. [Pre-negotiated rebates will be required to secure Whirlpool's business, i.e. rebates that were part of the price package offered to Whirlpool, that made the offer better than the competition, will not be considered NET contribution.]

Payterms:
A positive change (as deemed by Whirlpool accounting methods for cost of money) in Payterms will be counted in NET. The supplier will be given credit for the annual savings generated. It may divided by 12 and spread over 12 months or it can be loaded in as one lump sum of credit in the first month of change.

Whirlpool Freight & Labor Costs:
NET credit can be realized by projects or design changes that reduce Whirlpool's freight costs and/or labor costs.

Carryover:
If the NET category is exceeded in a year, the excess may be granted for carryover into the following year if documented and approved by the Supply Base Manager or Commodity Manager