Whirlpool Europe

About Whirlpool Corporation:

1989: Whirlpool entered European Markey by buying a 53% stake in the appliance division of Dutch based Philips Electronic for $ 470 million .Formed a joint venture firm named Whirlpool International BV (WIBV).

1990: Added the whirlpool brand name to the Philips product line.

1991: whirlpool bought the rest of the Philips stake (47%) for $ 600 million to become the sole owner of Whirlpool International BV.

1991-1999: WIBV developed three pan European brands to differentiate its product line. Whirlpool, Bauknect, and Ignis. Regional brands like Laden which was sold exclusively in France were also created.

MARKET SHARE - 13%.

Value Chain Analysis of Whirlpool Europe

Manufacturing through 11 plants, 10 in Europe and 1 in Africa.

Typical flow of goods:

FROM

Point of Origin: One of the Manufacturing Units.

TO

Contact Point 1: One of Two central distribution Centres.

TO

Contact Point 2: One of 12 regional Distribution Centres

AND FINALLY TO,

Customer:

A) Who purchased stand alone appliances for their homes

B) Contractors who purchased built in appliances for new home construction or kitchen remodelling.

CRITICAL SUCCESS FACTORS FOR THE SEGMENT

1) PRODUCT AVAILABILITY.

2) PRICE

3) PRODUCT AVAILABILITY.

KEY ISSUES FACED BY WHIRLPOOL EUROPE

RATIONALE FOR INSTALLING THE ERP SYSTEM

1) SKU'S: Company's multinational presence resulted in multiple stock keeping units (SKU's) for the same model. In total whirlpool Europe manufactured 6900 SKU's.

2) TOO MANY INDEPENDENT SYTEMS: WIBV operated many stand alone information systems, developed by individual plants, distribution centres or sales office specifically to meet their business requirements.

3) COMPLEX SUPPLY CHAIN: Because there were so many systems for each function, it was a very cumbersome to actually monitor the movement of the inventory. For eg. Sales organizations had to access as many as 13 independent inventory systems to view inventory across the supply chain.

4) PRODUCT AVAILABILITY: WIBV estimated that out of 100 times its distribution centres could match the demands of the customers only 79 times the lack of immediate availability resulted in lost sales.

5) DELIVERY TIME: WIBV was unable to satisfy the required delivery time of the most lucrative of the customer segment, kitchen remodelling. To take advantage of this growing segment WIBV would have to deliver its appliances within 10 days of being ordered by the contractor.

BENEFITS SOUGHT THROUGH IMPLEMENTATION OF ERP

1) IMPROVE PROFITABILITY: By improving product availability to 92% and realize an increase in unit sales equal to 25% of the product availability.

2) REDUCE DAYS SALES OF INVENTORY (DSI): the company sought to reduce its DSI by 12 days for each wave.

3) ELIMINATION OF SHIPPING ERRORS: WIBV estimated that up to 3% of the goods returned by the customers would be eliminated by implementing the ERP system.

4) OVERHEAD REDUCTIONS: WIBV estimated that with the ERP implementation it would be able to cut down significantly on such costs as employee headcount, warehouse space, and bad debts.

5) INTEGRATION: Integration with the suppliers and to increase the inventory visibility across the supply chain.

6) CUSTOMISATION: Be able to build products to specific orders from the customers.

METHODOLOGY USED

In appraising the investment in the ERP system, the following methodology has been used:

INCREMENTAL FIGURES: Only the incremental figures which are incidental to the implementation of the ERP system are taken into account while calculating the NPV. For example the incremental revenue figure is arrived at by first finding out the incremental units sold (TABLE 4) and then multiplying the incremental units sold for each wave by the respective price per unit (TABLE 13).

Similarly for finding out the cost of goods sold (COGS), only the incremental units sold are calculated. This is done by multiplying the incremental units sold by COGS per unit. (TABLE 13)

PER UNIT FIGURES (TABLE 13)

1) PRICE PER UNIT figures have been calculated by the following formula:

Revenue / Units Sold

Care has been taken to add the inflation figure of 4% over the base year's number to arrive at the successive per unit figures for each wave.

2) MARGIN PER UNIT figures have been calculated by the following formula:

Margin / Units Sold

Care has been taken to include the margin improvements over the years (TABLE 11)

3) COGS PER UNIT figures have been calculated by subtracting price per unit figures with margin per unit figures for respective waves and years.

Price per Unit - Margin per Unit

By subtracting the price per unit figure with the margin per unit figure, the analysis has made sure that it captures the effect of the inflation and the margin improvements over the years.

CHANGE IN WORKING CAPITAL (TABLE 22): for analysing the viability of Project Atlantic, only the incremental units sold are taken into consideration.

In the absence of any data from the case regarding the accounts receivable and accounts payable, the analyses has assumed that inventory is the only constituent of the working capital.