Supply Chain plays an important role in any company’s growth and sales. In fact supply chain has become one big differentiator among the companies. By making a turnaround in supply chain Whirlpool could increase profits and reduce costs. In this article it is critically analysed how the turnaround in supply chain could bring turnaround in the company by use of five step process for supply chain excellence.
The five step process for supply chain excellence:
1. Right leaders - Hire and groom talent with the unique skills needed to build and run your supply chain.
2. Select and apply the right technologies, from forecasting systems to carbon footprint management.
3. Eliminate crippling cross-functional disconnects such as SKU proliferation and obsolete inventory.
4. Collaborate with external suppliers and customers.
5. Implement a disciplined management process to sustain success.
Situation of the Company in the year 2000
1. Supply chain in the company proved to be sales disablers as the products were not available to the customer though it was in the inventory.
2. More finished goods were there in the inventory tying too much capital in it.
3. Only 87% of the product was available to the customers.
4. Failure of newly implemented ERP. Previously Whirlpool was shipping 70,000 appliances a day. But after the implementation of new ERP, company was able to ship only 2000 products.
These were the problems that the company was facing at that point of time which needed immediate attention to reduce the costs, improve the performance, retain the market share and increase the profits.
Devising the strategy
Whirlpool responsibility of today is to maintain the performance of the supply chain. In 2001, they focused only on North America and the guy responsible for it is very new to the supply chain organisation. Their sales were raised to record level in 2000 with the launch of many innovative products. They were success in many things except only one thing holding them back i.e WHIRLPOOL SUPPLY CHAIN.The fixing the problem of the supply chain is a mandate. At the top level, it’s a very simple formulation “Getting the right product to the right place at the right time - all the time”.They sell those appliances in 100 countries, through retailers big and small and to the construction companies and developers that build new homes.Their Approach to the world class in “Supply chain performance” i.e Supply chain strategy starts with the Last link i.e the customer and proceed backwards.
Understanding Customer Needs:
The top line finding of the study undergone from Boston consulting group is that “Delivery with integrity”. i.e Ability to deliver it fast is important but as important as your ability when you said you would.
“Give a date, Hit a date” is what they are asking for.
Identifying Trade Partner’s Priorities:
Moving upstream, we needed to understand the direct customers better and also study many sub-divisions from contract distributors to single-family-home Builders.Finally they discovered 27 different dimensions, along which our performance was being judged, each varying in importance according to the customer.
Bench-marking the Competition:
Customer’s expectations are dependent upon what others in our industry are doing. They quickly staked out the areas where a relatively small investment would yield supremacy.
Their ultimate plan is “Meet or beat the competition in most areas, at minimum cost.
Building for the Future:
Identifying the probable range of future operating scenarios based on industry, economic and technological trends.
Selling the revolution:
Whirlpool had a careful balance between seeking their guidance and selling your vision i.e between the internal and the external customers. They were involved in consensus-building namely nemawashi (literally means “Root binding”).Here from the project management standpoint, it was important to break out each component of the plan into the stand-alone initiative, Justified by its own business case.From the competitor analysis, they charted their current position against the number one competitor in each dimension in order to understand the gap between them.
Sales and Operational Planning Process:
Whirlpool involves a Systemic approach of plan involving all the departments. CPFR – Collaborative Planning, Forecasting and Replenishment. It is a Web based tool to share forecasts and collaborate on exceptions.Project Management Office was to ensure the completion of projects on time and Performance metrics to keep everything on track.I2 supply chain collaborator ensured that the same data is being used for planning/forecasting purposes by both Whirlpool and its trade partners.
Engaging Talent
Whirlpool gave Heavy emphasis on people’s project management skills – Disciplined planning & Execution, a model developed by Project Management Institute (PMI).Hiring top notch people in business and information systems side in order to fill out their project management task. Involving industrial experts in Supply chain advisory board for challenging the creativity .
Plan to sell/Build to Order
The Most important notion is that certain High-Volume SKU should never be out of stock. Running out of them has a disproportionately negative impact on customer’s perceptions. Whirlpool formulating a supply chain strategy that allows them to identify these SKUs across all of their trade partners in all channels and to ensure that the replenishment system of their regional warehouses keeps them in stock. This constitutes the “Plan to sell “Part of the program.This constitutes the “Plan to sell “Part of the program.The small Volume SKU’s should be of pure PULL Basis and the service level is set by the SKU’s.Whirlpool continues to develop new Web-based tools. Recently, they’ve been focused on system-to-system transactions, in which their system talks directly to a customer's system for purposes of transmitting orders, exchanging sales data, and even submitting and paying invoices.
Implications of Supply Chain Turnaround
The supply chain turnaround in whirlpool has made the company reap significant benefits by impacting upon the various financial aspects of the company and resulted in increased shareholder value by reduction in cost and increased efficiency in the supply chain. The following figure shows a schematic diagram of the various implications of the supply chain turnaround that resulted in profit and increased customer value.
Impact on cost of lost sales
The more collaborative supply chain enabled the supply chain to function smoothly reducing the breakdown of the chain. As the supply chain was effective and functioning at its best the product availability was improved to 96% from the meagre 87% that was in the year of 1998-99. This increased the availability of the product in the market and prevented the loss of sales due to stock outs.Further the implementation of the Made to Stock and Build to Order the company was able to tune its production based on the movement of the stock in the market. The products which are of more demand are made and stocked while the slow moving stock were produced only based on the customer orders. By the implementation of the build to order the company was able to reduce the markdown occurring in the slowing moving stock and reduced the cost of lost sales.The combined effect of the increase in sales revenue and reduction in the cost of lost sales made the company to generate more revenue by serving its customers in a really good manner.
Impact on the Fixed Costs
The company reduced its fixed costs directly by outsourcing the logistics to Penske Logistics a third party logistics company. By doing so their working capital locked up in the form of assets like trucks, warehouse, etc. has been reduced and were ready for investment in other areas. Also the third party logistics provider gave the company knowledge in terms of tracking the package and delivering it economically and efficiently to the customers. Further the company was able to reduce the inventory cost y investing more on supply chain technologies which fetched quicker returns and were very much helpful compared to other physical assets.The improved technological linkages in the chain and reduced physical assets lead to the saving of fixed costs.
Impact on Variable Costs
The company reduced the variable costs by reducing the shipping, expediting and purchasing costs. The company also reduced the transportation and warehousing costs by responding to the customers in an efficient and effective manner. By outsourcing their logistics and warehousing and by accurately forecasting the demand through CPFR and sales and operations planning the company was in a position to reduce its variance in the demand forecast thereby reducing the variable costs involved. Carrying inventory cost was also reduced by focussing more on efficient transhipment and reduced lead times. Thereby reducing the goods to get accommodated in warehoused leading to increased costs.The combined effect of reduction of costs both fixed and variable lead to a lot of cost savings t the company. Whirlpool saved around $100 million in the supply chain turnaround process.
Impact on Assets/Investments
The overall effect of outsourcing and improving the production cycles etc. resulted in freeing a lot of working capital that was locked up as inventories, logistics assets and warehouses. Whirlpool after the implementation of newer systems was in a position to reduce the inventory turnover cycles which increased the working capital available for the firm to invest. Further the outsourcing of the logistics resulted in the reduction in logistics asset cost. On the whole the capital locked up in the form of assets was freed up and was ready for investments.
Impact on Economic profit and Shareholder Value
As the supply chain turnaround had a direct implication on reduction of costs and increased sales revenue. The increase in sales revenue was also due to the prevention of loss of sales in due to unavailability of the product and due reduction in the possibility of markdowns. Thus increased sales and decreased costs resulted in increased profits which in turn resulted in increased shareholder value. Thus Whirlpool was able to turnaround the organisation by making its supply chain more efficient through proper collaboration between its suppliers.
Results of the Supply chain turnaround:
The key results of the supply chain turnaround in Whirlpool were as follows,
• Product availability at Whirlpool increased in the range of 88 to 95 per cent
• Inventories were reduced by 15 to 20 per cent (Saved $100 million)
• Lead times became as low as five days.
• Forecasting errors were reduced by 50%
• Warehouse and transportation costs saving rose up to 5%
• Improved quality of goods delivery and integrity (Saved $100 million)
• Improved relations with suppliers
• Increase in customer service levels
• No. 1 in Fortune Magazine’s 2011 World’s Most Admired Companies
Whirlpool involves a Systemic approach of plan involving all the departments. CPFR – Collaborative Planning, Forecasting and Replenishment. It is a Web based tool to share forecasts and collaborate on exceptions.Project Management Office was to ensure the completion of projects on time and Performance metrics to keep everything on track.I2 supply chain collaborator ensured that the same data is being used for planning/forecasting purposes by both Whirlpool and its trade partners.
Engaging Talent
Whirlpool gave Heavy emphasis on people’s project management skills – Disciplined planning & Execution, a model developed by Project Management Institute (PMI).Hiring top notch people in business and information systems side in order to fill out their project management task. Involving industrial experts in Supply chain advisory board for challenging the creativity .
Plan to sell/Build to Order
The Most important notion is that certain High-Volume SKU should never be out of stock. Running out of them has a disproportionately negative impact on customer’s perceptions. Whirlpool formulating a supply chain strategy that allows them to identify these SKUs across all of their trade partners in all channels and to ensure that the replenishment system of their regional warehouses keeps them in stock. This constitutes the “Plan to sell “Part of the program.This constitutes the “Plan to sell “Part of the program.The small Volume SKU’s should be of pure PULL Basis and the service level is set by the SKU’s.Whirlpool continues to develop new Web-based tools. Recently, they’ve been focused on system-to-system transactions, in which their system talks directly to a customer's system for purposes of transmitting orders, exchanging sales data, and even submitting and paying invoices.
Implications of Supply Chain Turnaround
The supply chain turnaround in whirlpool has made the company reap significant benefits by impacting upon the various financial aspects of the company and resulted in increased shareholder value by reduction in cost and increased efficiency in the supply chain. The following figure shows a schematic diagram of the various implications of the supply chain turnaround that resulted in profit and increased customer value.
Impact on Sales Revenue
The sales revenue of whirlpool got increased as the company was able to deliver on the time specified by them to the customer. As we have already noted that the customer was not delighted by quicker delivery rather than by delivery at the specified time which delighted the customer. By proper collaboration in the supply chain using i2 supply chain collaborator they were capable of reducing the lead time.Further, the forecast accuracy was also improved through CPFR and the variances in the forecast were reduced. This further prevented the loss of revenue through mark down and stock out situations.
Impact on cost of lost sales
The more collaborative supply chain enabled the supply chain to function smoothly reducing the breakdown of the chain. As the supply chain was effective and functioning at its best the product availability was improved to 96% from the meagre 87% that was in the year of 1998-99. This increased the availability of the product in the market and prevented the loss of sales due to stock outs.Further the implementation of the Made to Stock and Build to Order the company was able to tune its production based on the movement of the stock in the market. The products which are of more demand are made and stocked while the slow moving stock were produced only based on the customer orders. By the implementation of the build to order the company was able to reduce the markdown occurring in the slowing moving stock and reduced the cost of lost sales.The combined effect of the increase in sales revenue and reduction in the cost of lost sales made the company to generate more revenue by serving its customers in a really good manner.
Impact on the Fixed Costs
The company reduced its fixed costs directly by outsourcing the logistics to Penske Logistics a third party logistics company. By doing so their working capital locked up in the form of assets like trucks, warehouse, etc. has been reduced and were ready for investment in other areas. Also the third party logistics provider gave the company knowledge in terms of tracking the package and delivering it economically and efficiently to the customers. Further the company was able to reduce the inventory cost y investing more on supply chain technologies which fetched quicker returns and were very much helpful compared to other physical assets.The improved technological linkages in the chain and reduced physical assets lead to the saving of fixed costs.
Impact on Variable Costs
The company reduced the variable costs by reducing the shipping, expediting and purchasing costs. The company also reduced the transportation and warehousing costs by responding to the customers in an efficient and effective manner. By outsourcing their logistics and warehousing and by accurately forecasting the demand through CPFR and sales and operations planning the company was in a position to reduce its variance in the demand forecast thereby reducing the variable costs involved. Carrying inventory cost was also reduced by focussing more on efficient transhipment and reduced lead times. Thereby reducing the goods to get accommodated in warehoused leading to increased costs.The combined effect of reduction of costs both fixed and variable lead to a lot of cost savings t the company. Whirlpool saved around $100 million in the supply chain turnaround process.
Impact on Assets/Investments
The overall effect of outsourcing and improving the production cycles etc. resulted in freeing a lot of working capital that was locked up as inventories, logistics assets and warehouses. Whirlpool after the implementation of newer systems was in a position to reduce the inventory turnover cycles which increased the working capital available for the firm to invest. Further the outsourcing of the logistics resulted in the reduction in logistics asset cost. On the whole the capital locked up in the form of assets was freed up and was ready for investments.
Impact on Economic profit and Shareholder Value
As the supply chain turnaround had a direct implication on reduction of costs and increased sales revenue. The increase in sales revenue was also due to the prevention of loss of sales in due to unavailability of the product and due reduction in the possibility of markdowns. Thus increased sales and decreased costs resulted in increased profits which in turn resulted in increased shareholder value. Thus Whirlpool was able to turnaround the organisation by making its supply chain more efficient through proper collaboration between its suppliers.
Results of the Supply chain turnaround:
The key results of the supply chain turnaround in Whirlpool were as follows,
• Product availability at Whirlpool increased in the range of 88 to 95 per cent
• Inventories were reduced by 15 to 20 per cent (Saved $100 million)
• Lead times became as low as five days.
• Forecasting errors were reduced by 50%
• Warehouse and transportation costs saving rose up to 5%
• Improved quality of goods delivery and integrity (Saved $100 million)
• Improved relations with suppliers
• Increase in customer service levels
• No. 1 in Fortune Magazine’s 2011 World’s Most Admired Companies
Key lessons learnt from Whirlpool’s Supply Chain turnaround
• Start with customer and work backward – Most of the firms have only the supplier side under control but it is more necessary to keep the demand side also under control for an effective supply chain. So while beginning to integrate the supply chain the integration should always begin from the customer side proceed backeards.
• Implementation of technology is the last step in supply chain transformation- Many firms consider the investment in technology as the solution for all the problems they face. But that is not the case technology can only be a back bone to support the flow of information. In order to eliminate the problems the company should get its processes right and then uses the technology to support its processes leading to the development of a flexible operating system.
• Chief Information Officer and Chief Procurement Officer must be on the same page about major technology issues- This is necessary because until the processes are not clearly understood by the CIO he will not be in a position to provide the CPO with the right information system that can integrate and support all the processes in the system.
• Develop clear, written goals and obtain up-front buy-in from all other major internal players – So that all the stakeholders involved knows exactly what the organization is moving towards and can help n flawless execution of the activities.
• Involve suppliers early in network design – Start with customer and work backward
• Implementation of technology is the last step in supply chain transformation
• Chief Information Officer and Chief Procurement Officer must be on the same page about major technology issues.
• Develop clear, written goals and obtain up-front buy-in from all other major internal players.
• Involve suppliers early in network design - So that their views are also considered and the need for modifications in the middle of the implementation di not arise from the suppliers end.
References
• “Leading a supply chain turnaround”, an HBR article by Reuben C Slone
• “On-demand Supply Management: World Class Strategies, Practices, and Technology” By Douglas A. Smock, Robert A. Rudzki, Stephen C. Rogers
• http://www.icmrindia.org/casestudies/catalogue/Operations/Operations%20at%20Whirlpool- Operations%20Management %20Case%20Study.htm
• http://www.information-management.com/issues/20030701/7013-1.html
• www.wikipedia.com
• www.scribd.com
• “Operations a Whirlpool”- Poornima Pillai, ICMR Hyderabad, 2004
• “Leading supply Chain Turnaround’- Howard Business Case
• “CPFR at Whirlpool Corporation: Two heads and an exception engine” – N Sagar
This article is written by Vanamamalai R. Vana holds a B.E in Mechanical Engineering. His interests lie in reading and drama.Vana also enjoys playing Volleyball. Reach Vana at pgp13058.vanamamalai@iimraipur.ac.in
