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Microsoft Word - Whirlpool case assignment Assignment for Whirlpool Europe Case: 1) Read the Whirlpool Europe Case Study. 2) Make a list of all of the benefits that Whirlpool Expects based on the implementation of Project Atlantic at Whirlpool. 3) Using the data in the exhibits, convert each of the benefits into the amount of free cash flow that Whirlpool should expect from each of the benefits listed. 4) Project the estimated cash flows for the analysis you did in question 3 for each of the waves over the years given in the exhibits. 5) Add up all of the expected cash flows by year across all of the waves. 6) Based on your analysis above and the other relevant data in the case, what is the net present value of Project Atlantic? 7) Based on your analysis what recommendations would you make to Whirlpool management? Whirlpool Europe 9-202-017 R E V : D E C E M B E R 1 5 , 2 0 0 3 ________________________________________________________________________________________________________________ Research Associate Aldo M. Sesia, Professor Sudhakar Balachandran of Columbia University, and Professor Richard S. Ruback prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2001 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. S U D H A K A R B A L A C H A N D R A N R I C H A R D R U B A C K Whirlpool Europe By the spring of 1999, Whirlpool Corporation (WHR:NYSE), the worldwide leader in the home appliance industry, had nearly ten years experience selling to the European market and had grown its European market share to a sizeable 13%. Whirlpool Europe’s chief financial officer and its vice president of logistics were evaluating an investment in an enterprise resource planning (ERP) system. Named Project Atlantic, the system would re-organize the information flow in all of Whirlpool Europe. If successful, the project would improve operating effectiveness and efficiency in Whirlpool’s sales and marketing, operations and logistics, and finance areas. The cost of the project, however, would be substantial, and would include the direct costs of the system and the personnel that would be required to complete the complex implementation. Senior management had quantified the costs and benefits, and now needed to evaluate them. Company Background In 1989, Whirlpool Corporation entered the European market, paying $470 million to purchase a 53% stake in the appliance division of Dutch-based Philips Electronics. The companies formed a joint venture firm named Whirlpool International BV (WIBV) and one year later, launched a dual- branding program which added the Whirlpool name to the Philips product lines. In July 1991, Whirlpool purchased Philips’ 47% stake for $600 million to become the sole owner of WIBV. Over time, Whirlpool developed three pan-European brands to differentiate its product line: Whirlpool, Bauknecht, and Ignis. Other regional brands like Laden, sold exclusively in France, were also created. Whirlpool Europe manufactured products based on sales budgets or forecasts, and then held them as finished goods inventory. European manufacturing operated 11 plants, ten located in Europe and one in Africa. Each plant produced a specific product line across all brands. Exhibit 1 provides a plant listing. Unique country requirements, such as language, products attribute preferences, and electrical specifications resulted in multiple stock-keeping units (SKUs) for the same model. In total, Whirlpool Europe manufactured 6,900 SKUs. Orders moved from manufacturing to one of two central distribution centers and then on to one of 12 regional distribution centers before reaching the customer. For the exclusive use of L. Gainski, 2018. This document is authorized for use only by Lukasz Gainski in Strategic Management Control - Spring 2015-1-1-1 taught by Balachandran, University of Illinois at Chicago from January 2018 to July 2018. 202-017 Whirlpool Europe 2 In each major European market, a country sales office—responsible for sales generation and forecasting, order processing and fulfillment, billing and cash collection—was the primary interface with customers. Whirlpool Europe operated many stand-alone information systems that were developed by individual plants, distribution centers, or sales offices specifically to meet their own business requirements. Information could not be easily shared across functions or organizations, and was often inconsistent and irreconcilable. The sales organization, for example, had to access as many as 13 independent inventory systems to view inventory across the supply chain. There were two types of customers: consumers who purchased stand-alone appliances for their homes and contractors who purchased built-in appliances for new home construction or kitchen remodeling. Success in the consumer market depended on product quality, price, and availability. Whirlpool Europe estimated that its distribution centers had the product that matched the customer’s demand 79% of the time. If the product was unavailable, the customer had to either wait or switch to another product. Often, the lack of immediate availability resulted in lost sales. Kitchen remodeling in Europe generally involved the installation of new cabinets along with built-in appliances. Installation often occurred only a few weeks after the kitchen was ordered by the homeowner. Whirlpool estimated that this segment of the market would grow to about 25% of kitchen appliance sales. To supply the built-in appliances to this market, Whirlpool would have to deliver its appliances within ten days of being ordered by the contractor. Under its current inventory and information systems, Whirlpool was unable to reliably satisfy the contractors’ required delivery time. Project Atlantic Description The goal of Project Atlantic was to design and implement an enterprise resource planning (ERP) system that would allow Whirlpool Europe to better serve its consumer market for stand-alone appliances and contract market for built-in appliances and, at the same time, reduce its inventory by 12 days of sales. These competing goals would be accomplished through an information system that would allow a country sales office to view product throughout the supply chain, thereby increasing the efficiency of the distribution process. Project Atlantic was expected to provide some integration with suppliers and to increase inventory visibility across the supply chain. This would enable the company to improve product availability and have a substantially lower inventory level. In addition, the ERP system would allow Whirlpool to build products to specific orders from contractors. Whirlpool Corporation took a phased approach to implementation of its ERP systems, beginning in North America, Brazil, and select central European countries. Project Atlantic would focus on the remaining European countries. With ERP, Whirlpool Europe’s disparate information systems would be retired and replaced with a single computing architecture for all of Europe. The company planned to install a standard or so-called ‘off-the-shelf’ ERP system, without any modifications, requiring the company to change many of its operating processes.1 Employee acceptance of change was therefore critical for success. 1 The company identified seven top-level operational processes, of which 74 sub-processes were determined to be impacted by ERP. For the exclusive use of L. Gainski, 2018. This document is authorized for use only by Lukasz Gainski in Strategic Management Control - Spring 2015-1-1-1 taught by Balachandran, University of Illinois at Chicago from January 2018 to July 2018. Whirlpool Europe 202-017 3 The project would be managed under country groupings called Waves. Exhibits 2A and 2B detail the Wave groupings and implementation schedules. Benefits Working Capital Reduction The company had 51 days sales of inventory (DSI)2. Of the 51 days, approximately eight days were reserved and allocated units, nine were in transit, and three were obsolete. The ERP system would enable Whirlpool to make its supply chain more transparent and efficient, thereby eliminating the reserved, allocated, and obsolete units, and reducing the in-transit time. After a statistical study of its inventory, Whirlpool Europe developed a theoretical model target inventory level of 29 days. Project Atlantic was forecasted to reduce 12 days of inventory in each Wave—over half of the difference between its actual inventory and the theoretical model inventory. Exhibit 3 shows data for 1997 including DSI by Wave. Exhibit 4 details the yearly percent DSI reduction in DSI by Wave. Revenue and Gross Margin Increase A primary goal of the ERP system was to increase product availability by making the supply chain more visible and by integrating sales forecasting and inventory management. The company’s targeted product availability was 92%. The projections assumed that the ERP system and process changes would enable the company to realize an increase in unit sales equal to 25% of the improvement in product availability. Those incremental sales would contribute to increasing the profitability of Whirlpool Europe. Exhibit 3 includes 1997 data on product availability, units, revenue and margins by Wave. Exhibit 4 details the projected timing of the product availability improvements. The company’s ability to evaluate profitability at a product line, account, or order level was hindered by the lack of an integrated information system. Decisions on prices, for example, were sometimes made with incomplete or dated information. By installing ERP, the company forecasted a 0.25% gross margin increase by the second year after implementation. To forecast the impact, the company used 1997 revenue as the baseline to apply the gross margin