The Strategy of the World's Largest Producer of Bearings Case Study - 10

The Strategy of the World's Largest Producer of Bearings - Case Study Example SKF has been contacted by ITC, its major distributor in the United States in order to participate in a reverse auction by Steelcorps, one of SKF's customers through ITC. The process of procurement will award the lowest bid in terms of price for the raw materials that Steelcorp needs, and with SKF as its major supplier of bearings during the past couple of years, the latter is expected to join the reverse auction.Answering the invitation and participating in the reverse auction is not an easy choice to make for the executives of SKF, however. The executives are on a crossroad between two major decisions: to join or not to join the reverse auction.If SKF joins the reverse auction, it signals the whole industry about the change in its value proposition, which is to deliver excellent services at a premium – a more for more strategy in the value proposition matrix (Fathy & Smithee 1999). If it joins the reverse auction where the winner will be determined based on the lowest price o f the bid, the company becomes inconsistent with its strategy and it blurs what its brand stands for; this is one of the considerations. On the other hand, Steelcorp is one of the company's major source of revenues through ITC, its biggest distributor in the US. ITC relies on SKF with the latter's high mark up an allowance for ITC, as ITC needs the profit margins from the SKF sales to Steelcorp in order to boost its profitability. Because of the recession, SKF's revenue targets are 5% lower than the previous year; dropping the Steelcorp reverse auction will also substantially affect its profitability for the current year. These are the complications.