Whirlpool Europe: Case 2
Whirlpool Europe’s implementation of an enterprise resource planning (ERP) system is a positive business investment. One of the biggest challenges that Whirlpool Europe faces is a disconnect in the information systems. This disconnect has led to a decrease in product availability, loss in sales, and an unreasonably high inventory. A new system will allow Whirlpool Europe to improve operating effectiveness and efficiency. The cost of implementation of the ERP is quite substantial. However, the benefits do outweigh the costs when net present value is calculated and compared. Once the ERP system is implemented, sales offices will be able to view inventory across the entire supply chain to determine what products will be available and which need to be built specifically to the needs of the customers. Additionally, there will be a decrease in lost revenue as a result of shipping errors. This ERP system can be implemented in four different geographic phases, over a period of five years.
There are a large number of benefits associated with the implementation of the ERP system. There will be a forecasted reduction of 12 days of sales inventory in each Wave. To determine the cost savings benefit for reduction of sales inventory, first the cost of goods sold was calculated by subtracting the margin from the revenue for each wave. From this number, the inventory value per day was calculated (cost of goods sold/365 x 1000). You must assume that goods are sold every day of the year. | |West |South |Central |North | |Cost of Goods Sold(000's) |418,925.00 |237,308.00 |141,947.00 |251,083.00 | |Inv.value/Day |1,147,739.73 |650,158.90 |388,895.89 |687,898.63 |
Also the number of days of reduction for each phase per each year was determined. | | DSI improvements by year and wave (No. of days) | | | |2000 |2001 |2002 |2003 |2004 | | |West |3 |4.8 |4.2 | | | | |South | |4.2 |4.8 |3 | | | |Central | | |4.8 |4.8 |2.4 | | |North | | | |4.8 |4.8 | |
From this, the inventory value per day is divided the DSI improvements by year.
|Whirlpool's savings due to DSI reduction by Year | | | | | | | | |2000 |2001 |2002 |2003 |2004 | |3,443,219.18 |8,239,818.08 |9,807,969.86 |7,119,090.41 |4,235,263.56 |
This figure is the total benefit of reducing the days of inventory.
Additionally, there will be an increase in product availability by making the supply chain more efficient and by improving inventory management. There will be an increased targeted product availability of 92%. Of this increase, the company would increase unit sales of 25%. This increase in revenue assumes that Whirlpool Europe is able to sell 25% of these additional products. First the percent increase needed to reach 92% is determined. |...
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