Describe the challenges faced by the company. What were the drivers for change to the supply chain?
The strong competition in the home appliance market, alongside customers’ increased demand sophistication, created the premises for Whirlpool to change its supply chain structure and organization. Looking at Porter’s five forces framework, the main forces that impacted Whirlpool’s supply chain redesign were the intensity of the industry rivalry and the bargaining power of consumers (Porter, 1985). As the case study informs, Whirlpool Corporation needed to transform its supply chain so that it could better satisfy its customers through improved quality of its products and services (“Whirlpool Supply Chain”, n.d.).
With this market requirement, the company addressed the challenge of remaining the industry’s leader, maintaining its market share while attracting new customers. However, the transformation of its supply chain generated new challenges for Whirlpool, as it acquired Maytag in 2006, in order to attain its supply chain transformation objectives. The acquisition of Maytag implied increased complexity in managing sales, orders, and cash flow (“Whirlpool Supply Chain”, n.d.).
In addition to these aspects, Whirlpool met further challenges as a result of the acquisition of Maytag, such as a costly integration of the organizational processes and complex integration of the workforce (MacMillan, 2008). The pressure to comply with rationalization is yet another challenge for Whirlpool, which needs to align the upstream and downstream manufacturing with delivery and support service, while focusing on reducing costs (Walker, 2016).
What were the benefits of change to the supply chain?
Although the integration of Whirlpool and Maytag was a costly and tedious process, it nevertheless generated benefits for the supply chain. It allowed the company to improve its inventory, delivery and cash flow, which resulted in the optimization of cost and time. As Brian Hancock, Whirlpool’s VP Supply Chain explains, the supply chain change permitted the company to deliver the products to the end customer in a timeframe of 48 hours, which means efficient organization of resources (“The Issue Whirlpool Cleans Up”, 2010). Furthermore, the change in the supply chain resulted in combining Whirlpool and Maytag’s buildings and production centers and closing almost half of them, which meant reducing the manufacturing costs, but also complying to the environmental regulations for the remaining buildings and production centers.
Another benefit that resulted from the supply chain change was the introduction of schedule actualization in the relationship between Whirlpool and its suppliers, which implied the suppliers’ adjustment on Whirlpool’s manufacturing demands. With its supply chain change, Whirlpool remained with a single logistic partner, Penske Logistics, which that the company has the advantage of limiting the time in dealing with more logistic providers, and to develop a single collaboration model that simplifies the work process (MacMillan, 2008). The alignment between upstream and downstream suppliers contributed to a smooth inventory and a successful relationship with the trade partners, which implied maintaining Whirlpool’s products inside the stores for a period of seven days (“The Issue Whirlpool Cleans Up”, 2010).
Although it was a support activity in sustaining the supply chain change, another benefit of this change was the technological development. Hancock indicates that for managing the integration of Whirlpool and Maytag work and production processes, it was necessary to upgrade technology in order to consolidate the systems of two large home appliance organizations (“The Issue Whirlpool Cleans Up”, 2010). This represents a major benefit for the organization because the upgraded technology system comprises the best features from Whirlpool and Maytag’s previous separated systems. The improvements in its technological system allowed Whirlpool to better and faster track its orders, delivery and shipment which (MacMillan, 2008). Like this, the consolidation represents a competitive advantage for Whirlpool, as compared with its competitors, which do not have the advantage of fast shipment tracking that Whirlpool enjoys.
Describe Whirlpool’s strategy in regard to their supply chain
Whirlpool’s supply chain change strategy focused on the optimization of three main pillars, respectively managing sales, orders, and cash flow (“The Issue Whirlpool Cleans Up”, 2010). The company started approaching these areas six months before acquiring Maytag, but the acquisition of one of its main competitors helped Whirlpool to consolidate its strategy. Whirlpool’s supply chain strategy in relationship with managing sales referred to producing as many home appliances as possible, in order to answer clients’ needs of finding the suitable product in a quick time, to replace the old ones that broke, in no more than seven days.
This strategy is known as the just in time approach to inventory, developed for meeting the consumer expectation of buying appliances in several days (MacMilan, 2008). Just in time inventory is an inventory management system whose objective is to dispose of available products in order to meet the realistic demand, but to avoid excessive extra products, as this implies higher costs and longer times from creation to delivery of the products (Romney, Steinbart, Mula et. al, 2012). Therefore, the just in time inventory strategy contributed to managing sales more effectively, by offering customers the possibility to purchase appliances at any given time, while rationalizing the production.
The supply chain strategy also focused on aligning the orders with the inventory. This happened by improving the technology, changing the order process system by integrating Maytag’s system and turning the orders very quickly for avoiding inventory load (“The Issue Whirlpool Cleans Up”, 2010). The goal for the order aspect was to manage to deliver consumer orders within 48 hours. This goal was accomplished by rationalizing Whirlpool’s facilities, from 184 Maytag and Whirlpool buildings to 84 and consolidating 10 major distribution centers that permitted the company to deliver the orders faster to the end customer (“Whirlpool Supply Chain”, n.d.). Furthermore, the decision to adopt a schedule actualization that required suppliers to align their component delivery with Whirlpool’s manufacturing requirements was an important factor that contributed to the effective supply chain transformation.
Finally, the cash flow aspect of the supply chain strategy was approached. In accounting terms, the cash flow implies the alignment of cash inflows with cash outflows (Romney et al., 2012). For Whirlpool, the large piles of inventory resting in retailers’ space for longer than seven days affected the company’s cash flow, as the money for the unsold products were blocked. “200 to 300 million [dollars]” where ineffectively kept in inventory, as Hancock explains (MacMillan, 2008, para 5).
The transformation of the supply chain mitigated this aspect through the just in time inventory management. An important role in managing the cash flow was played by the integration of Maytag’s processes and technologies. The consolidation and optimization of the buildings and the concentration of the end products in only 10 delivery centers contributed to better responding to both retailers and customers’ needs of purchasing home appliances, which resulted into rapid cash.
Therefore, sales management, orders and cash flow where the three main directions that Whirlpool pursued in redesigning its supply chain management. They were approached in an integrated manner, so that each function of the supply chain change plan impacted the other, as they were in an interdependent relationship.
Discuss the demand, capacity, scheduling and inventory challenges. Suggest how the company might increase its speed of response to customers i.e. ensure that the goal of delivering the product within 48 hours is achieved
The main challenge for the demand is that it is difficult to predict. This can leave retailers with insufficient Whirlpool home appliances, being unable to serve customers, who might choose another brand. Chen et al (2009) suggest that an effective solution for solving this challenge is to approach the make to order operation environment, which means that customer selects the desired product in advance, allowing the manufacturer to deliver the product in a timely manner. This situation results in a maximization of the operational profit, because the product spends limited time in capacity inventory and the cash is immediately valorized (Chen et al., 2009).
The make to order strategy also addresses the capacity challenge, because it proposes a solution for the short – term capacity planning (Chen et al., 2009). Nevertheless, in identifying a suitable solution for solving Whirlpool’s capacity problems, the make to order approach would also need to cover that the end products are ready to be delivered to customers. In this context, the make to order approach would need to be aligned with the schedule actualization. This combined tactic would determine Whirlpool to demand its suppliers to provide the needed resources for manufacturing the products in a manner that reflects the consumer demand.
In terms of inventory, the current strategy ensures that there are sufficient products in retailers’ stores to assure customer demand and implicitly the cash flow. However, because demand is unpredictable and could only be managed through make to order operations, this strategy could be also used in better handling the operation. Like this, once the customer places an order, ideally in an electronic format, it must be immediately processed, so that the information reaches the retailer, who needs to check the available products in its inventory and ask for the product if it is not in stock.
Further on, the delivery should be immediately activated, so that the product will reach the customer in less than 48 hours. The application of fines and penalties each time a deadline is not met could be implemented, in order to avoid late delivery (Chen et al., 2009). However, this method would not contribute to creating a harmonious workplace that motivates employees. A more suited approach to assuring timely deliveries would be to reward early deliveries (earlier than 48 hours), as this would increase Whirlpool’s efficiency in delivering.
References
Chen, C.S., Mestry, S., Damodaran, P. & Wang, C. (2009) The capacity planning problem in make – to – order enterprises. Mathematical and computer modeling. 50(9-10): 1461-1473.
MacMillan, D. (2008) The issue: Whirlpool cleans up its supply chain. 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.
Romney, M., Steinbart, P., Mula, J., McNamara, R & Tonkin, T. (2013) Accounting information systems. Australia: Pearson Australia.
The Issue: Whirlpool cleans up its supply chain. Retrieved from https://www.youtube.com/watch?v=U-lFeSxcqao&feature=youtu.be.
Walker, W.T. (2016) Supply chain architecture. Boca Raton: CRC Press.
Whirlpool Supply Chain (n.d.) Course material.
