Supply Chain Management in Whirlpool - Research Paper Example

?Supply chain management in Whirlpool The Whirlpool Corporation is the U.S. based manufacturer of home appliances with headquarters in Michigan. Employing more than 80,000 employees, it manufactures and sells a wide range of home appliances under various brand names including Whirlpool, Maytag, KitchenAid, Jenn-Air, Amana, Brastemp, Bauknecht, etc in around 170 countries. (“Whirlpool Corporation”). It has annual sales of over $19 billion, and with its acquisition of Maytag Corporation in 2006, Whirlpool Corporation surpassed Electrolux and became world’s largest home appliance manufacturer. (“Whirlpool Corporation”). Unlike its competitors like Electrolux, LG and General Electric, majority of the Whirlpool's products undergoes some form of manufacturing inside U.S. Although, Whirlpool outsource their operations, it is done minimally, with majority of its manufacturing plants located in North America. Apart from this manufacturing segment of its supply chain, Whirlpool also has a widespread distribution network to supply or reach the product to the intended customer. This distribution network consists of factory based distribution centers or warehouses, from where the finished product reaches the regional distribution centers, and then to the local distribution centers, thus finally reaching retail outlets for the client to buy. (Cookie, 2008). With such extensive operations, Whirlpool had to have an optimized Supply Chain Management (SCM) to satisfy the customers, and emerge successful. Although, in early 2000’s, Whirlpool had problems in managing its supply chain, by implementing effective strategies and importantly by using Information technology (IT) tools, it has been able to strengthen its supply chain. Even after the acquisition of Maytag, Whirlpool continued to improve its supply chain by associating with strong players like Penske Logistics, who brought in more IT tools Porters’ five forces The bargaining power of the buyers has increased because now they have better information about the products, prices and their characteristics because of a lot of exposure about the company and its products through various mediums. In the case of Whirlpool also, the bargaining power of the buyers has accentuated and that is impacting its supply chain. So, to improve its supply chain, Whirlpool decided to first focus on the customer requirements, and then proceed from there, in a backward manner. With that focus, Whirlpool studied customers’ expectation and found they are “asking for accurate promises as a first requirement: "Give a date, hit a date."” (Lee, 2009, p.182). Because of this behavior of the buyers, Whirlpool understood they have to deliver products as soon as possible to the customers. “The supply chain needed to be able to get that appliance to [the consumer] within 48 hours,” (MacMilan, 2008). To fulfill this target, Whirlpool started incorporating technology in an accentuated manner in its supply chain. In that direction, Whirlpool also associated with number of suppliers in its supply chain, thereby increasing the bargaining power of the suppliers as well. Although, Whirlpool did not outsource its manufacturing operations, when it came to supply chain operations, it did not stress on conducting it in-house. After making thorough assessments regarding its extensive operations, Whirlpool decided to outsource the maintenance functions. Historically, its supply chain was divided into three parts, with Ryder Logistics handling supply of raw materials to the manufacturing plants and reaching the finished goods to its distribution centers, while ERX managed its regional distribution centers. (Bowman, n. d). For all these operations, Whirlpool had to supply its fleet of tractors and trailers, as well as manage it. That is when, Whirlpool overhauled its distribution strategy and decided to “transform its private fleet into a dedicated operation managed by an outsider”, with Penske Logistics coming into the picture. (Bowman, n. d). Penske Logistics with a wide range of IT tools is able to effectively manage Whirlpool’s supply chain, thereby increasing its bargaining power. Although, Whirlpool did not face any direct threat of substitutes in its supply chain, it faced some threats due to its merger with Maytag. That is, Maytag was also a sizable company with its separate manufacturing and distribution facilities, and so after its acquisition Whirlpool faced issues in managing those substitute facilities. Any time two large manufacturers like Whirlpool and Maytag merge, one of the many areas that have to be looked at is the supply chain, and so reworking of it can be costly and tedious process. (MacMilan, 2008). Here also Whirlpool using IT tools did an efficient job. As far as Porter’s forces of Competitive rivalry and Threat of New competition is concerned, it did not have major impact on Whirlpool’s supply chain. That is, as supply chains are “inside” part of the organizations, it could have only minimum impact from competitors. But, Whirlpool’s bottom line with the use of IT is to constantly decrease costs and help them to differentiate themselves from their competitors Technology in Supply Chain In any industrial sector, integration of IT into the functioning of the organization will lead to many cost advantages for the organization. In fact, much of the innovation and increased communication amongst the employees of the organization including inside Whirlpool is because of IT. The focus of Whirlpool has been simple, which is to use its in-house IT capabilities as well as sourced IT tools from other players, to differentiate its products from that of competitors, and instill efficiency by freeing up resources and decreasing costs. Whirlpool wanted this best case scenario particularly in its supply chain. “Whirlpool wanted a strategy that can optimize supply-chain performance at minimum cost, and include new e-business technology, processes, roles, and talents to achieve competitive advantage” (Lee, 2009, p.182). Whirlpool started to introduce IT tools in its supply chain from early 2000’s. In January 2002, Whirlpool started using a suite of software products from i2 technologies with the intention to “reduce inventories while sustaining high service levels”. (Lee, 2009, p.182). That early initiative was a success because in a blind Internet survey done in May 2000, it showed that Whirlpool to be the “most improved”, “easiest to do business with” and “most progressive” in the eyes of their trade partners. (Lee, 2009, p.182). Through the 2000s, Whirlpool continued to incorporate various IT tools in its SCM, and when it brought in Penske Logistics, that incorporation of IT tools accentuated further. For example, before its association with Penske, Whirlpool’s IT department was developing customized software for use in hand-held personal data assistants, so that electronic proofs of all the deliveries as well as information on product damages can be collected. With Penske coming on board, that technology, along with the existing warehouse management system of Whirlpool was taken over by Penske. Penske logistics, for its part, brought in four key IT systems to optimize the supply chain of Whirlpool. So, Whirlpool had its disposal a logistics management system (LMS), which can track shipments at the order level on a real-time basis. (Bowman, n. d). Then, it adopted a route optimization system known as Route Assist, which provided the suppliers and the logistic clear routes in the “puzzle” of supply chain. Along with these technologies, Whirlpool adopted communications software from Qualcomm, as well as “Penske’s license for the use of a common-carrier optimization system from ITLS, part of i2 Technologies.” (Bowman, n. d). All these four IT systems were integrated with the Whirlpool’s new Enterprise Resource Planning (ERP) system, which was originally bought from SAP AG. All these technologies provided Whirlpool a good visibility on all its suppliers. “Whalen says Penske helped Whirlpool to cope with the usual start-up problems arising from the massive ERP implementation.” (Bowman, n. d). This way Whirlpool’s adoption of IT enabled it to track raw materials meant for its manufacturing units as well as the finished product, till it reaches the customers. Then importantly, after the acquisition of Maytag also, certain IT systems were reorganized, so there were no disruptions in the supply chain. To ensure swift integration of Whirlpool and Maytag’s operations, several steps were taken including “consolidation of LDC networks, optimizing the routing of RDC shipments, integrating the Hi/Lo network to improve product availability and fill rates, etc.” (“Whirlpool Corporation”). Although, incorporation of IT into Whirlpool as part of its supply chain as well as the integration of Maytag is still an ongoing process, Whirlpool is able to garner optimal benefits, including financial benefits. Whirlpool is able to optimize its product delivery to the customers, and is able to maintain favorable inventory levels. As stated by Lee (2009), its product-availability service level is more than 95%, with its inventory of finished goods dropping from 32.8 to 26 days. More importantly, it also positively reflected on the financial figures, as usage of IT systems in supply chain, lowered Whirlpool’s “working capital by almost $100 million and supply chain costs by $20 million with an ROI equal to 2.” (Lee 2009, p.182). In addition, because of the role of IT systems, Maytag acquisition and the resultant integration also provided good financial benefits to Whirlpool. Whirlpool was able to close some 100 excess facilities and importantly “eliminated about $60 million in operating costs from its supply chain.” (MacMilan, 2008). From the above analysis, it is clear that Whirlpool’s adoption of Information technology in its supply chain has been a successful strategy, providing optimal benefits. References Bowman, R. J. (n. d). Whirlpool: Connecting Pieces of a Big Puzzle. Retrieved from: http://www.supplychainbrain.com/content/nc/sponsored-channels/kenco-logistic-services-third-party-logistics/single-article-page/article/special-issue-global-supply-chain-partnerships-whirlpool-connecting-pieces-of-a-big-puzzle/ Cookie, J. A. (2008). The greening of Whirlpool's supply chain. Retrieved from: http://www.supplychainquarterly.com/topics/Logistics/scq200802whirlpool/ Lee, I. (2009). Selected Readings on Information Technology and Business Systems Management. Idea Group Inc (IGI), MacMilan, D. (2008). The Issue: Whirlpool Cleans Up Its Supply Chain. Retrieved from: http://www.businessweek.com/managing/content/oct2008/ca20081024_801808.htm “Whirlpool Corporation: Evolution of a supply chain.” Penske. Retrieved from: http://www.penskelogistics.com/casestudies/whirlpool2.html Read More