Supply Chain Management at Whirlpool - Term Paper Example

? Supply Chain Management: Whirlpool Summary The home appliance manufacturing industry is worth over 17 billion US dollars in the US employing over 50 thousand people. The products of the industry include dishwashers, freezers, washing machines, ovens, air conditioners, clothes dryers, laundry equipment, and others (Snyder and Duarte, pp. 17-24). With the advent of IT, the competitive pressures on the four big players of the world, LG, GE, Whirlpool and Electrolux have increased. Whirlpool has a history of over a decade where it has established its brand name and expanded in many countries. Integration of IT in business has led to many cost advantages for the organization. In fact, much of the innovation and increased communication amongst the employees of the organization is because of IT. It has streamlined the processes and help the organization in achieve its goal of “every home, everywhere” (Snyder and Duarte, pp. 20-25). Although, supply chain management has been an issue for the organization. During 2000, a famous joke in the home appliance industry of US was that whirlpool ranked fifth amongst the four top home appliance manufacturers in terms of delivery of performance. Amongst the recommendations for the organization, focusing on customer needs, imitating or beating the competition and building partnerships are the obvious solution. Industry The household or home appliance manufacturing industry is an important industry for the US and many developing countries since their contribution to the GDP and employment is significant (Snyder and Duarte, pp. 30-32). According to the statistics of the year 2011, the home appliance manufacturing industry of the US was estimated to have earned revenue of over 17 billion US dollars, employing over 50 thousand people. The products of the industry include dishwashers, freezers, washing machines, ovens, air conditioners, clothes dryers, laundry equipment, and others (Snyder and Duarte, pp. 30-32). The industry has been facing many problems in the past few years because of the recession, depressing conditions in the housing market, declining consumer confidence, tight liquidity, and high unemployment. During the period of 2006-2011, the industry has actually shrunk by 5.5 percent. Although, it expects that in the near future, if the housing market witnesses a boom, so would the home appliance industry (Woods and Mattern, pp. 85-86). Over the past couple of decades, information technology has completely changed the landscape of the industry and the competitive forces acting on it. The bargaining power of the buyers has increased because now they have better information about the products, prices and their characteristics thus; they can play competitors for each other. The US home appliance industry is a highly concentrated industry with the four top players, Whirlpool, LG, GE, and Electrolux claiming more than 90 percent of the market share (Marquardt, p. 52). The advent of IT has only intensified this rivalry because it has broadened the scope of competitors in terms of their geographical operations. LG and Electrolux would not have been active players in the home appliance industry of US if it were not for the globalized market place created by the use of IT. Suppliers also now have more options and better knowledge thus increasing the threat of their forward integration and bargaining power. The threat of substitutes and new entrants appear to be largely unaffected (Palvia, Palvia, and Zigli, pp. 324-325). Company With a history of over a century, Whirlpool Corporation has established itself as a leading player in the industry. It does not only operate in the US industry but it is a worldwide and global player. One of the biggest achievements in this regard is the fact that Whirlpool has devised a mechanism to keep their IT budgets and costs down over a long term. Whirlpool has developed its expertise in leveraging the SAP NetWeaver in such a way that it is now able to develop its capabilities and keep the costs down. The fact is that integration of IT in the business model has brought all the departments of the organization closer than ever. Communication amongst the departments has improved, in fact, now the employees of Whirlpool, whether they are from Germany, India, Brazil, US or any other geographic region, are able to label themselves as a part of one global team. Credit in this regard goes to extensive use of ERP across the organization, which streamlines and integrates the information coming from different external and internal sources and makes it easier to access information coming from different departments (Handfield and Nichols, pp. 55). Whirlpool and use of IT to gain competitive advantage Whirlpool strongly believes that IT has played an important role in helping them to achieve their mission of “every home, everywhere”. The focus of Whirlpool has been simple, which is to use the IT capabilities to differentiate the products and services from that of competitors and instill efficiency by freeing up resources and decreasing costs (Snyder and Duarte, pp. 30-32). The company benefited with IT by standardizing its management reporting and analysis processes all over the world consolidated SAP Netweaver infrastructure, which would reduce expenses of different systems and then consolidating them. This move has allowed the corporation to decrease their IT spending by 5-8 percent which is also fifth year in the row. Furthermore, the capital spending by the organization has also decreased by 15 percent. On the other hand, the output of the company has been increasing. More importantly, Whirlpool believes that SAP NetWeaver, in itself is a funding initiative (Palvia, Palvia, and Zigli, pp. 324-325). Actually, one of the biggest reasons behind the growth of Whirlpool has been its many acquisitions over the past few decades. Quite understandably, with every acquisition, Whirlpool found itself with a legacy system. However, while replacing the legacy systems with SAP NetWeaver, Whirlpool realized that the net result was costs, both in form of costs and time. Whirlpool reaps significant cost advantages by retiring those legacy systems and according to one estimate; Whirlpool has saved almost 6 percent on a yearly basis during the period of 2004-2008, primarily because of their IT capability (Woods and Mattern, pp. 85-86). Important here to note is that when other organization who want to leverage IT would invest heavily in the technology and the systems but Whirlpool on the other hand, takes a different approach. It believes in spending more on the people who are responsible to run, maintain, or interpret the results from those machines. Whirlpool, over the years, has created a culture where people share with each other whatever they have learned, apply their knowledge in business situations, and constantly strive for innovation (Handfield and Nichols, pp. 55). Whirlpool’s bottom line with the use of IT is to constantly decrease costs and help them to differentiate themselves from their competitors. Therefore, Whirlpool does not stress on conducting all the IT functions in house, in fact, after making thorough assessments, Whirlpool decided to outsource the maintenance functions because it believed that this would provide a better cost benefit ratio (Roche, pp. 149-152). The use of IT has also helped the organization in terms of innovation and coming up with new ideas as well. It was in the year 1999 when Nancy Synder, the director of strategy and deployment, received an assignment from the CEO of the company, David Whitman, who asked Synder to look for innovative and creative product ideas from the employee force of over 60000 people. Observers believe that much of the progress and success that Whirlpool achieved after that was a result of those innovative practices (Trent and Roberts, pp. 96). This explains why the organization has set the target of 1 billion US dollars from innovation every year. These innovative practices started with a simple approach of meetings but from the year 2002, the organization has created blogs, emails, sites and other virtual discussion forums on the internet where employees post their ideas and discussion takes place about the new product ideas (Palvia, Palvia, and Zigli, pp. 324-325). Case Issue Whirlpool has had an interesting history with their supply chain management practices. In fact, to be precise, the company always has had a problem, and a big problem with supply chain. During 2000, a famous joke in the home appliance industry of US was that whirlpool ranked fifth amongst the four top home appliance manufacturers in terms of delivery of performance. Everyone in the organization, right from the chief executive to the first line sales people, knew that it was supply chain of the organization that was holding them back. In fact, the sales people would even call the function as “sale disabler” because every now and then they would lose their customer due to unavailability. The organization even decided to store greater finished goods inventory, in fact, highest in the industry, yet the problem remained there. Indeed, the problem compounded because now they were dealing with not lost sales but also with high storage costs (Woods and Mattern, pp. 85-86). Recommendations Looking at supply chain with the perspective of the company and the suppliers is too narrow to survive. Great companies always look at their supply chain with the perspective of the customers and their needs. For example, a study from Boston Group revealed that although, delivering fast is important but what is more important is “delivery with integrity”. This refers to delivering when promised to deliver and not a minute after that. Sale staff may overstate their expectations to the customers in an attempt to book sales but the long-term result of the same is always undesirable (Handfield and Nichols, pp. 55). Over the years, many organizations have found themselves in the trap where they spend too much of their resources on achieving perfection. The fact is that companies do not need to be “perfect”; they just need to be the “best” out the competition so that the customers choose them. All Whirlpool needs to do here is to outclass the competition and the same can only be done by understanding their weaknesses, gaps and shortcomings. Whirlpool should put in extensive effort to study the supply chain models of their rivals especially GE and LG and simply outclass them. There is no rocket science in the fact that supply chain always depends greatly on partnerships. Consider the example of Honda, Suzuki, and Toyota. One of the few reasons why these Japanese manufacturers were able to capture so much share of the US automotive market was because they had better partnerships with their suppliers than that of Ford, GM, and Chrysler. Rather than pushing them for results, threatening them, and playing them for each other, Japanese companies would focus on building long-term relationships. They would have separate departments, even in the early 1980s to deal with their suppliers. They would constantly work with them to ensure that they could grow along with the company. Update After the acquisition of Haytag by Whirlpool in the year 2005, the supply chain problems of the organization have compounded. With every new acquisition, Whirlpool has to start over with working on the supply chain. With the researches done in the year 2010 revealed that despite the recession, the buying behaviour of customers regarding home appliances was changing. Rather than waiting for the old appliances to wear out completely, customers were looking for new appliances on a periodic basis to upgrade their lifestyle. Therefore, the new challenge for the organization is to get the appliance to the customer in less than 48 hours. References Handfield, Robert B., and Nichols, Ernest L. Supply Chain Redesign: Transforming Supply Chains into Integrated Value Systems. FT Press, 2002. Marquardt, Michael J. Building the Learning Organization: Achieving Strategic Advantage through a Commitment to Learning. Nicholas Brealey Publishing, 2011. Palvia, S., Palvia, P., and Zigli, Ronald. The Global Issues of Information Technology Management. Idea Group Inc (IGI), 2008. Roche, Edward Mozley. Managing Information Technology in Multinational Corporations. Barraclough Ltd, 2010. Snyder, Nancy Tennant., and Duarte, Deborah L. Unleashing Innovation: How Whirlpool Transformed An Industry. John Wiley and Sons, 2008. Trent, Robert J., and Roberts, Llewellyn R. Managing Global Supply and Risk: Best Practices, Concepts, and Strategies. J. Ross Publishing, 2009. Woods, Dan., and Mattern, Thomas. Enterprise SOA: Designing IT for Business Innovation. O'Reilly Media, Inc, 2006. Read More