Executive Summary
Operations management is the process that helps organizations to create comparative advantages by leveraging the effectiveness of their operations. The process of restructuring at Whirlpool was meant to improve productivity, quality of products and improve the profitability of the firm.
This involved automating most of the operations and outsourcing logistics services. The technologies that supported the restructuring process included, EDI, E-partner and demand planner. The benefits of the restructuring included better product visibility and lead time.
Introduction
Operations management is the process of “designing, redesigning and overseeing all the processes” (Barratt, Choli & Li 2010, vol. 29, pp. 329-342) associated with the production of goods and services within a firm. Its role is to promote efficiency by ensuring economical use of resources. It also focuses on promoting effectiveness in regard to business operations.
This enables firms to meet the needs or expectations of the customers. This means that effective operations management can help a company to create competitive advantages. This paper focuses on the operations management at Whirlpool. The company’s initiatives to achieve effective operations management will be illuminated.
Operations at Whirlpool
Inventory Management
This refers to the process of “specifying the size and placement of stocked goods” (Barratt, Choli & Li 2010, vol. 29, pp. 329-342). In the early 1990s, Whirlpool used a demand forecasting package that focused on equal distribution of inventory in all storage units. Due to the inefficiency of this system, the firm adopted a new package in late 1990s that focused on correcting the errors associated with predicting demand.
This was meant to help the firm determine the expected level of demand in order to hold the optimal level of stock. The rationale behind adopting a reliable demand forecaster is that it helps in capacity planning and cost reduction.
For example, after adopting the new system, Whirlpool’s warehouse in Argentina reduced its stock level below 30 days (ICMR Center for Management Research 2004, p. 6). This means that it was able to save on costs associated with the storage of excess goods.
Purchasing Process
This relates to the easy of accessing and buying the goods of a firm. In 2002, Whirlpool introduced an online shopping system through various websites. The system called e-partner enabled the firm’s customers to purchase its products without visiting the stores (ICMR Center for Management Research 2004, p. 6). Besides, the website was used to conduct research on customers’ views about the products.
The firm also introduced a special website for its trade partners in order to synchronize its sales activities with other firms in the supply chain. Consequently, its retailers from different parts of the world were able to order goods directly from its warehouses. The online shopping system helped the company to create competitive advantages since it enhances positive customer experiences.
This is because customers can get instant access to product information on the sales website (Schmetz, Bizzari & Howdyshell 2001, vol. 10, pp. 2-10).
This enables them to save their valuable time. According to the queuing theory, online purchase systems not only reduce the time spent to complete a purchase but also improve the relationships between buyers and sellers. It is for this reason that Whirlpool adopted an online shopping system to “reduce the gap between it and its retailers” (ICMR Center for Management Research 2004, p. 7).
Order Processing
In 1999 Whirlpool automated its order processing activities by adopting the EDI technology. The system was called easy EDI. It facilitated electronic transfer of transaction documents associated with order processing. The use of this system is justified by the fact that it facilitates supplier integration in the supply chain (Charki & Boukef 2009, vol. 4, pp. 8-30).
This is because the suppliers can easily participate in supply chain activities such as confirming orders and arranging for timely shipment. It enabled Whirlpool to benefit from improved synchronization of order processing activities since the system was adopted by all its suppliers.
Besides, the EDI system promotes the transfer of information in a standard format. This translates into improved efficiency and cost reduction. For example, the system enabled the firm to save up to $ 600,000 a year on data transfer costs (ICMR Center for Management Research 2004, p. 6).
Demand Management
Initially Whirlpool used ineffective tools such as spreadsheets to manage its demand. However, in 1997 the firm launched a superior package (demand planner) in order to accurately predict its demand (ICMR Center for Management Research 2004, p. 7). This was based on the fact that production decisions can only be effective if they are informed by accurate and reliable information about demand.
Contributions of the E-Initiatives
E-partner
This initiative was meant to facilitate online shopping. It helped the firm to interact more closely with its retailers and customers. This is because it promotes effective communication through the internet (Martin, Yuling & Jonathan 2001, vol. 22, pp. 43-67). It also enabled the firm’s retailers from different parts of the world to order goods directly from it.
Besides, the system enabled customers from all parts of the world to access the firm’s products. However, the use of e-partner is only limited to customers who are able to access and use the internet. Thus its success will be influenced by the cost and availability of internet technology.
EDI Technology
This technology enabled the firm to save as much as $ 600,000 per year by eliminating the paper work associated with data processing (ICMR Center for Management Research 2004, p. 6). This is because it supports electronic data transfer. Besides, it enabled the firm to significantly improve efficiency in order processing.
The main setback associated with it is that all firms in the supply chain must implement it in order to be used effectively (Charki & Boukef 2009, vol. 4, pp. 8-30). This explains why Whirlpool implemented its use in stages as it waited for all its suppliers to adopt it too.
Demand Planner
The contributions of this initiative included accurate prediction of demand (ICMR Center for Management Research 2004, p. 7). This means that the firm was able to undertake proper capacity planning in regard to production. It also helped the firm to manage feedback from its customers.
This implies that the firm was able to incorporate customers’ suggestions in production and product development. This leads to value addition and customer satisfaction since the goods are produced according to their need. For example, the quality of customer service improved by 10% after introducing the technology.
Importance of Integrating E-Initiatives with other Process
In 2001, the firm developed a website to help in tracking customers’ orders (ICMR Center for Management Research 2004, p. 8). The main advantage of this system is that it facilitated automatic tracking of orders. Besides, it promotes efficiency since information on order status can be accessed instantly. This translates into customer satisfaction.
Whirlpool also developed a software package that enabled it to access information about the delivery status of its products as well as product damage reports. Such information was received through a personal data assistant (ICMR Center for Management Research 2004, p. 8).
Thus it enabled the firm to oversee the transportation of its goods even though its logistics were being handled by a third party. However, the firm had to transfer the technology to its logistics partner, Penske. Such technological transfers are usually associated with challenges such as training staff in order to adopt the new technology (Charki & Boukef 2009, vol. 4, pp. 8-30).
Merits and Demerits of Push and Pool Manufacturing Strategies
Push Strategy
A push manufacturing strategy involves the production of large quantities of goods and then relying on the distribution channel to sale them. Its merits are as follows. First, it enables the firm to utilize its full production capacity (Sharma & Agrawal 2009, vol. 36, pp. 1622-1632).
This is because the level of output is determined by the producer through historic order records rather than actual demand. Second, production at full capacity usually translates into low production costs. This is attributed to the economy of scale associated with mass production. Finally, it enables producers to hold emergency stock.
Its demerits include losses associated with overproduction. This is because the storage cost will be high if the stock can not be cleared in time. Second, it leads to an increase in the time needed to fulfill non-standard orders (Sharma & Agrawal 2009, vol. 36, pp. 1622-1632).
This is attributed to the fact that a push system is supported by a rigid production schedule. For example, Whirlpool spent up to four weeks in order to fulfill non-standard orders when it was using the push strategy.
Pull Strategy
According to this strategy, the level of output is informed by the actual demand. Its merits are as follows. First, it helps in avoiding the losses associated with overproduction.
This is because the firm produces just enough to meet the existing demand thus avoiding unnecessary storage costs (Garaghty & Heavey 2004, vol. 1, pp. 75-90). Second, it helps in reducing the order processing time since the firm is capable of fulfilling non-standard orders easily. Finally, it enables the manufacturer to prioritize its production objectives.
The demerits associated with the pull strategy include difficulty in implementation. It is usually difficult to adjust production capacity on a regular basis as demand changes (Garaghty & Heavey 2004, vol. 91, pp. 75-90).
This explains why Whirlpool had to invest in a hybrid system that accommodates both push and pull strategies. Second, firms using the pull strategy can not hold safety stock. Thus they can not fulfill emergency orders. Finally, it leads to under-utilization of the production capacity if the demand is low. This translates into a reduction in returns on investment.
Whirlpool’s Outsourcing Initiatives
The firm’s outsourcing initiatives began in early 2000 when it decided to outsource logistics services. The outsourcing involved contracting Penske to handle its warehousing and transportation needs (ICMR Center for Management Research 2004, p. 8). In order to achieve this, Penske took over ERX as well as Quality Express which were responsible for Whirlpool’s warehousing activities.
Whirlpool tracked the transportation of its goods through portable personal data assistants. It also developed a website to help its customers track their orders. The rationale behind outsourcing the logistics services was to improve efficiency in the supply chain. Thus it had adequate time to focus on the production of its products.
Conclusion
The above discussion indicates that effective management of various business operations helps in creating competitive advantages. The process of restructuring operations at Whirlpool was informed by the need to improve efficiency, reduce operation costs and to create value to customers.
This was achieved by automating most processes. Besides, the firm outsourced its logistics operations (ICMR Center for Management Research 2004, p. 8). The technologies used by the firm in its restructuring process included EDI, e-partner and demand planner. These initiatives led to an improvement in the firm’s product visibility and lead time.
References
Barratt, M, Choli, T & Li, M 2010, ‘Qualitative case studies in operations management: trends, research outcomes and future implications’, Journal of Operations Management, vol. 29, no. 4, pp. 329-342.
Charki, M & Boukef, N 2009, ‘Looking to adopt the global data synchronization standard’, Journal of Management Information System, vol. 4, no. 1, pp. 8-30.
Garaghty, J & Heavey, C 2004, ‘A comparison of push, pull and CNWIP/ pull production inventory control policies’, International Journal of Production Economics, vol. 91, no. 1, pp. 75-90.
ICMR Center for Management Research 2004, Operations at Whirlpool, ICMR Center for Management Research, Nagarjuna Hills.
Martin, D, Yuling, Y & Jonathan, P 2001, ‘Internet technology use across the food industry supply chain’, Transportation Journal, vol. 22, no. 3, pp. 43-67.
Schmetz, D, Bizzari, A & Howdyshell, C 2001, ‘Business-to-business online purchasing: suppliers’ impact on buyers’ adoption and usage intent’, Journal of Supply Chain Management, vol. 10, no. 2, pp. 2-10.
Sharma, S & Agrawal, N 2009, ‘Selection of a pull production control policy under different demand situations for a manufacturing system by AHP algorithm’, Computer and Operations Research, vol. 36, no. 5, pp. 1622-1632.