The Challenges Faced by Whirlpool and Drivers for Change to the Supply Chain
Before Whirlpool merged with Maytag, the company focused mainly on its brand and products. However, the merge made the company’s management alter the supply chain to meet changes in the marketplace. According to MacMillan (2008), “merge with Maytag further complicated Whirlpool’s efforts to manage the supply chain” (para. 1). Besides, Whirlpool needed to change its supply chain long before the merge as the company “realized annual sales of approximately $19 billion, had 70,000 employees, and maintained 69 manufacturing and technology research centers around the world” in 2008 (Kluyver, 2010, p. 50). Thus, late start of the change in the supply chain was challenging for Whirlpool because as the merge demanded various other issues to be handled.
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Moreover, the need for the new supply chain derived from the fact that consumers’ behavior changed as well. People got used to utilizing home appliance every day, so they do not want and need to spend weeks looking for a replacement for their broken devices. Hence, the clients want to get their purchase as soon as possible. In the video for BusinessWeek (n.d.), Brian Hancock, the company’s vice-president in charge of supply chain, says, “The supply chain needed to be able to get that appliance to [the consumer] within 48 hours”.
One of the challenges faced by Whirlpool included massive inventories done by their trade partners, which influenced cash-flow of the company. Moreover, the company had to change the number of their warehouses, uniting them into ten big distribution centers located in different regions.
However, the most critical challenge was to meet their clients’ expectation of 48-hour delivery term. Therefore, Whirlpool needed “changing the way we took orders, optimizing our cash flow, optimizing and consolidating buildings and technology” (BusinessWeek, n.d.). Hence, Whirlpool had to optimize their software and technologies to be able to deliver their goods to the suppliers and trade partners fast.
The Benefits of Change to the Supply Chain
Although the process of supply chain optimization was challenging, it created some additional benefits for Whirlpool. One of them was operational cost savings. After the merge with Maytag, Whirlpool had over 150 buildings, and “buildings that we both had needed to be consolidated, the technologies that we had needed to be optimized and combined, and…the cash flow was probably about 200 to 300 million [dollars] out of whack from what we wanted it to be” (BusinessWeek, n.d.). As a result of the optimization and creation of ten large regional distribution centers, “60 million dollars of operational costs” were saved (BusinessWeek, n.d.).
According to Caniato, Ruggero, and Kalchschmidt (2013), companies that extend “their operations globally obtain potential relevant advantages such as lower sourcing costs and access to broader markets” (p. 285). Hence, changes in the supply chain gave Whirlpool a solid competitive advantage by reducing the costs, enabling the company to provide faster delivery and satisfy clients’ high expectations.
The Whirlpool’s Strategy
The merge with Maytag extended “Whirlpool’s portfolio of innovative, high-quality branded products and services” (Kluyver, 2010, p. 51). Hence, the new global platform “offered a significant competitive advances, but only if the individual operations and resources were working in concert with each other” (Kluyver, 2010, p. 51).
However, the challenge of the new strategy was in ensuring effective integration of the two businesses including their marketing strategy, supply chains, inventory and delivery schemes, and manufacturing facilities. Therefore by “linking the regional organizations through Whirlpool’s common systems and global processes, the company could speed product development, make purchasing increasingly more efficient and cost effective” (Kluyver, 2010, p. 51). However, the marketplace also changed and not just integration but also “revamping its supply chain” was needed (BusinessWeek, n.d.).
Furthermore, new global strategy included altering Whirlpool’s procurement, namely, “procurement had to go global first, followed by technology and product development” (Kluyver, 2010, p. 51). Therefore, the number of regional manufacturing facilities had to be reduced to create “truly global platforms – products that share common parts and technologies but offer unique and innovative features and designs that appeal to regional consumers’ preference” (Kluyver, 2010, p. 51). Thus, by eliminating almost a half of its merged manufacturing facilities Whirlpool did not just cut costs but also developed global supply chain.
The Demand, Capacity, Scheduling and Inventory Challenges
According to Honga and Leeb (2013) one of the supply chain optimization models is “the coordination of inventory replenishment and shipment scheduling” (p. 275). Thus, this model suggests consolidating several orders into one big order. As a result, the company decreases “per unit dispatch costs due to transportation economies of scale” (Honga &Leeb, 2013, p. 275). However, this model provokes challenge with “the inventory holding cost since the inventory level increases while small orders are consolidated” (Honga &Leeb, 2013, p. 275). Therefore, optimization of demand, capacity, scheduling, and inventory should be done simultaneously.
Thus, after the merge with Maytag, one of the top priorities for Whirlpool was the elimination of unnecessary buildings to reduce costs and refine inventory and shipment schedule. Hence, the company’s management had to understand, “where should our facilities be, what type of inventory strategy should we have, and how will we use them to optimize the delivery for our trade partners” (BusinessWeek, n.d.). The final decision to eliminate about 100 of the buildings can seem “counterintuitive for a company to reduce its total number of facilities after it becomes much larger” (MacMillan, 2008, para. 13).
However, analytics agree that “this strategy is a sound one; allowing Whirlpool to become nimbler because the lesser the number of stages in the supply chain, the better you are in terms of responsiveness to the customer demand” (MacMillan, 2008, para. 13). Moreover, all the facilities had to be “eco-friendly”, “we had to optimize our employees’ downtime” and provide the best equipment for them as well (BusinessWeek, n.d.). Hence, optimization of the manufacturing facilities and warehouses led to cost saving for Whirlpool enabling the company to spend the saved assets for the further development of new technologies.
Besides, the strategy had to be designed to optimize ordering, inventory and delivery processes. Namely, optimization in the ordering system turned to enhancing “visibility of the orders to turn them very quickly” (BusinessWeek, n.d.).
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Moreover, the new strategy demands 48 hours delivery terms because customers do not spend much time in the marketplace anymore. Thus, Whirlpool had to alter its software and technologies to evolve its cooperation with suppliers and trade partners. Moreover, manufacturing facilities have to acquire new strategy “schedule actualization literally to the day, to make sure [retail partners] know exactly what’s coming off that line” (BusinessWeek, n.d.). Thus, such strategy ensures that suppliers can deliver goods within 48 hours without having a lot of inventories posing cash-flow problems.
How the Company Might Increase Its Speed of Response to Customers (Delivering the Product within 48 Hours)
Changes in the consumers behavior in the market of home appliance resulted in the fact that customers spend only “7 days in the marketplace” to replace their broken devices with the new ones (BusinessWeek, n.d.). Thus, use of new software and new technologies for fast delivery service is vital for Whirlpool. The concept of ‘schedule actualization’ will undoubtedly increase Whirlpool’s speed to response to customers needs. However, there are other models that can allow the company to deliver their products within 48 hours.
For example, Honga and Leeb (2013) offer a “single-item inventory system where shipments are consolidated to reduce the transportation cost… where the delivery, ordering, and pricing policies are optimized all together” with the use of “time-based policy” (p. 283). Therefore, consolidation system allows determining “the optimal price, the optimal inventory replenishment quantity, and the optimal dispatch cycle length” (Honga & Leeb, 2013, p. 283). Thus, this system improves speed and decreases costs for inventory and shipment.
Moreover, Ulku and Bookbinder (2012) examined different pricing schemes for suppliers. They suggested “four easy-to-use temporal pricing schemes, and derive the corresponding optimal length of shipment consolidation cycles and the prices” (Ulku & Bookbinder, 2012, p. 110). Namely, dependence on the logistics market parameters ensures that “charging according to an order’s time of arrival is not necessarily the best pricing scheme” (Ulku & Bookbinder, 2012, p. 110).
Therefore, the idea of optimizing the pricing and transportation systems for the third party logistic (3PL) providers can enable Whirlpool to use 3PL providers for delivering goods within 48 hours to the regions where the company does not have direct logistic providers.
BusinessWeek. (n.d.). The issue Whirlpool cleans up its supply chain [Video]. Web.
Caniato, F., Ruggero, G., & Kalchschmidt, M. (2013). The effect of global supply chain configuration on the relationship between supply chain improvement programs and performance. International Journal of Production Economics, 143(2), 285–293.
Honga, K., & Leeb, C. (2013). Optimal time-based consolidation policy with price-sensitive demand. International Journal of Production Economics, 143(2), 275–284.
Kluyver, C. (2010).Fundamentals of global strategy: A business model approach. New York, NY: Business Expert Press.
MacMillan, D. (2008). The issue Whirlpool cleans up its supply chain. Bloomberg. Web.
Ulku, M. A., & Bookbinder, J. H. (2012). Optimal quoting of delivery time by a third party logistics provider: The impact of shipment consolidation and temporal pricing schemes. European Journal of Operational Research, 221(1), 110–117.