Background of the Case
Globalization and the internationalization of business brings a number of opportunities to the companies, which, at the same time, come with the challenges to deal with governance structures and keeping the business operations under control, given the growing complexity of the business in general. Whirlpool Corporation is the leader in the global home appliance industry. During its over 100 years history the company have experienced tremendous growth, applying different strategies, from organic expansion to Merger and Acquisition (M&A) strategies, resulting in building a wide portfolio of brands, such as Brastemp, Whirlpool, KitchenAid and Maytag among others, outlining the focus on a diverse customer segment and personalization of the strategy on the geographical scale, where company is represented by one or many of the brands. The case dwells upon the background challenges in the supply chain management (SCM), which Whirlpool faces with after the acquisition of Maytag back in 2005. While the supply chain is the core focus of the risk management and change management strategies at times of acquisitions, the example of Whirlpool outlines how the accurate and strategic handling of the issues can benefit the company (Davies, 2006).
Analysis of the Case
Challenges of the Company
The acquisition of Maytag brought a number of advantages, such as the immediate growth in market share on the domestic market, expansion of presence in emerging economies and operational benefits, such as more advanced technologies and wider infrastructure to support the operations of the business. At the same time, Whirlpool realized that in order to ensure smooth and effective merger of the companies, it will need to address the major challenges: management of the order, sales, and cash flow along with the required focus on governance and corporate culture alignment. Tthe company's focus on product and brand left behind the supply chain and the system in place were outdated (McMillan, 2008). One of the major tasks at this stage was to consolidate the newly announced SCM strategy with an integration of Maytag, which would double the costs and will require realignment and upgrade of the systems on the upstream of the operations. Another challenge was to manage the diversity of the SCM systems across the partnership base, where most of the partners held the high level of safety stock, building upon SCM costs. Finally, Whirlpool customer knowledge base outlined the need to address the challenges in downstream logistics, where the major accounts expected 48 hours delivery from Whirlpool.
Drivers for Change in Whirlpool Supply Chain
Given the complexity of the task, the company needed to address the change quickly and effectively. While the M&A strategy allowed strengthening the position of the company in the global market, the failure to conduct the integration process of Maytag along with the effective implementation of the new SCM strategy could result in major losses for the organization. The core driver for change, therefore, was the realization that Whirlpool has to optimize the cost of transition to an SCM-focused company and with the doubling of the costs, based on the acquisition of the Maytag, the change management was critical to the process. The alignment of the upstream operations, aiming at overall cost reduction of storage and distribution operations of the company, improvement of the forecasting and planning across the integrated SC, reduction of the physical infrastructure from 184 multifunctional facilities to only 84 and the consolidation of the stock and distribution operations in only 10 regional distribution centers are some of the results of the changes, driven by the above objectives.
Benefits of Change to the Supply Chain
Whirlpool reached an overall saving of USD 60 million, by conducting the SCM changes. This freed up internal capital for reinvestment in software and physical improvement of the supply chain and helped the organization to ensure that it could better position itself with regards to addressing the needs of the clients on the downstream. Furthermore, the integration of the systems with Maytag and their upgrade brought significant improvement in the order management, stock control and reduction of the safety stock levels, which were traditionally high among the Whirlpool partners as well as the overall visibility of the supply chain across internal and internal stakeholders through the back-end integration process. The decision to consolidate the major outsourced logistics operation with one supplier, Penske Logistics, Whirlpool benefited from quality and service alignment and long-term improvement in cost structure, based on system integration and planning.
One of the major steps within the SCM strategy is the standardization of the systems, which resulted in a number of short-term wins and long-term benefits. The implementation of the systems was done in phases and Whirlpool managed to reduce the forecasting errors in 50% and the inventories of the finished goods went down by 20%. At the same time, back-end system integration also allowed optimizing the logistics operations, bringing a total of 5% saving on warehouse and transportation costs. Finally, the company exceeded its product availability target, raising the number from 83% to 97% within the five years of implementation (Whirlpool, 2015).
Whirlpool Strategy with Regard to the Supply Chain
The changes in the corporate strategy and the change of focus from product and brand to the supply chain management demonstrated that Whirlpool recognized the importance of building on cost-effective strategy and the development of the internal capabilities and skills to differentiate its product in the competitive and constantly evolving market. The report, published by Penske Logisitcs (2016) illustrates the evolution of the SCM strategy throughout the past decade. It is evident that Whirlpool focused on SCM years before the acquisition of Maytag when the company announced the plans to streamline its logistics operations and invested in the construction of new regional distribution centers. The strategy with regards to the supply chain was based on two pillars: improvement of the overall visibility and cost-reduction on both, upstream and downstream of the operations. Whirlpool set a number of goals to achieve these strategic goals, such as improvement of the order response time, reduction of the total physical assets and integration of the back-end systems, leading to optimization of safety stock and Jut-in-Time (JIT) delivery with most of the upstream suppliers. Additionally, the strategy focused on the reduction of complexity in terms of outsourced operation, evident from the consolidation of logistics function with the single supplier.
The time demonstrated the effectiveness of the strategy and outlined the future direction. The next step in Whirlpool's SCM strategy was to adopt a more customer-centric strategy, involving benchmarking with the major rivals and focusing on addressing the needs and desires of the downstream partners. With the main challenges being to leverage the SC in order to maximize cost-savings and integrate partners operations, the company consolidated the Regional Distribution Centers (RDC) and Local Distribution Centers (LDC), determined optimal fleet and operating network and co-located these centers between Maytag and Whirlpool to increase product availability and fill rates (Penske Logisitcs, 2016).
Demand, Capacity, Scheduling and Inventory Challenges
Whirlpool is one of the companies with the most developed Supply Chain in the industry. One of the important concerns of the organization is related to building a customer-centered SCM system, where the demand forecasting is essential. Whirlpool recognized the need to address the changing environment, where the clients demand 48 hours delivery. Whirlpool was traditionally focused on brand and product strategies, building on the international presence and growing its sales volume at a rapid pace. With the changes in external environment, the company recognized the need to address the complexity and the lack of system integration on the back-end to improve the demand forecasting and reduce the overall cost of the SC. Until 2000, Whirlpool was using an outdated demand planning system, when the company started the phase implementation process of the new SCM strategy. As part of the changes, the company started to use industry benchmarking and the integrated system TradeMatrix Collaborative Planning for customer demand planning. This enabled stronger bonds with the major accounts and cost reduction through the elimination of waste from the process.
Capacity management issues constituted one of the important concerns of the company, especially when it comes to the product availability and storage costs within the supply chain. SCM strategy addressed these issues through capacity consolidation of Maytag and Whirlpool products in LDC and RDC, reducing the total physical capacity by 100 facilities and bringing USD 60 million savings. Capacity planning was linked to the major issues in the inventory, where the partners used to keep high levels of safety and regular stock to ensure product availability. Given the lack of integration on the back-end, this inventory strategy was important for each of the partners but built up the total SC costs for Whirlpool. By consolidating the stock of Maytag and Whirlpool and upgrading the systems, enabling total integration across the supply chain, the company managed to reduce the stock by 20% and ensure 48 hours delivery to the client from its RDC (Whirlpool, 2015).
Scheduling is another important element of the SCM strategy. With the implementation of the new SCm, Whirlpool builds the strategic partnership with a unique logistics provider, who enabled better scheduling and downstream logistics by optimizing the transportation routes,fleet composition and operating network and fleet utilization (Penske Logistics, 2016).
Recommendation for Improvement in Responsiveness
Given the 48 hours delivery demand, the company could implement the postponement strategy, finalize the assembling of appliances at RDC facilities and building on a higher availability of the products. Minnich and Maier (2001) argue that managing demand uncertainty is the key to improving the responsiveness of the company and making the SCM more effective. With that in mind, another recommendation is to improve the customer marketing research and further focus on the customer centered approach and industry benchmarking, which will eliminate the demand uncertainty and allow better purchasing planning on the upstream as well. Finally, the responsiveness on the downstream is linked to the organizational effectiveness in replenishment and order fulfillment on the upstream of the SC (Herausgeber, 2011). By continuous integration of the system and integrated training across the supply chain, Whirlpool will be able to achieve better lead times with suppliers and improve the feedback structure.
References
Davies, A. (2006). Best Practice in Corporate Governance: Building Reputation and Sustainable Success. (2nd Ed). London: Gower Publishing.
Herausgeber, W.K. (2011). International Supply Chain Management and Collaboration Practices. Koln: Josef Eul Verlag Gmbh.
Rushton, A. & Walker, S. (2007). International Logistics and Supply Chain Outsourcing: From Local to Global. London: Kogan Page Publishing.
McMillan, D. (2008). The Issue: Whirlpool Cleans Up Its Supply Chain. A merger with Maytag further complicated Whirlpool's efforts to manage the supply chain. Brian Hancock talks about the challenge. Bloomberg [Online]. Retrieved from http://www.bloomberg.com/news/articles/2008-10-24/the-issue-whirlpool-cleans-up-its-supply-chainbusinessweek-business-news-stock-market-and-financial-advice
Penske Logistics (2016). Whirlpool Corporation - The Evolution of a Supply Chain. Supply Chain 24/7. Retrieved from http://www.supplychain247.com/paper/whirlpool_corporation_the_evolution_of_a_supply_chain
Whirlpool (2015). Whirlpool Annual Report 2015. Retrieved from http://files.shareholder.com/downloads/ABEA-5DXEK8/2490380340x0x879363/40D015BC-1873-46FD-BE50-88113B2751AA/Whirpool_2015AR.pdf
Minnich, D. and Maier, F.H. (2001). Supply Chain Responsiveness and Efficiency – Complementing or Contradicting Each Other? International Univeristy in Germany [Online]. Retrieved from http://www.systemdynamics.org/conferences/2006/proceed/papers/MINNI308.pdf.
