This case study highlights Whirlpool Corporation - Europe plans to evaluate project Atlantic, with emphasis on capital budgeting. Project Atlantic is an investment in an enterprise resource planning (ERP) system that would streamline business processes across all European regions and reorganize the information flow throughout the company. The objective of the case is to determine whether or not Whirlpool Corporation should adopt a planned ERP project in Europe – project Atlantic.
Whirlpool & Project Atlantic
Whirlpool is worldwide leader in the home appliances industry, with a 13% share of Europe’s market. Whirlpool Europe manufactured products based on sales budgets or forecasts and then held them as finished goods inventory. Whirlpool Europe operations were carried through a discrete/disparate stand alone systems, localized to meet individual plant, distribution centers, or sales offices business process. In essence Whirlpool was not operating on global common business processes, with transparent flow of information across business units which was often inconsistent, irreconcilable and required redundant work to achieve goals.
Hence, to respond to rapidly changing consumer needs and be competitive in the market, it was realized that such processes & systems would not support company growth, and the company would need a global integrated system. Therefore Whirlpool Corporation planned and conceptualized ERP implementation globally, named project Atlantic.
Project – Atlantic is an ERP project that potentially will bring savings across many functions by providing improved operative effectiveness and efficiency in Whirlpools sales & marketing, operations, supply chain, logistics, finance and human resources. This project is planned out in a phased approach i.e. Wave (North, South, West and Central).
Goals & Objectives
Whirlpool’s strategic goal/objective is to efficiently support its business processes across its vertical functional and horizontal business units by establishing global common business processes and maintain a low Total Cost of Ownership (TCO) of its IT systems.
Financial: Integrated financial information.
•Visibility of data worldwide.
•Increasing unit sales by 25%.
•Gross Margin increase of .25% by the end of year 2
•Reduction of month / year end close procedures.
•Accurate recording and reporting of worldwide fixed assets
•Integrated customer order information
•18% reduction of FTEs (Full Time Employees) in Order Desk employees •15% reduction of FTEs in Finance.
•15% reduction (7,200 m^2) in warehouse space @ $40 /m^2
•Improve DSI from current 51 days to 39 days within each wave
Supply Chain: Worldwide visibility of inventory volumes. This visibility would: •Allow sales easy access to inventory chain
•Improve the distribution process
•Increase product availability from 79% to 92%.
•Lower inventory levels.
Manufacturing: Improved manufacturing processes
•Planning cycle time reduction and more effective capacity utilization
Based on analysis, it is evident from case that Whirlpool has only two choices. These choices are either a) to install the SAP R/3 ERP system or b) do nothing. No other choices were identified or researched. Whirlpool made several intuitive assumptions when creating the business model for the Atlantic ERP application. These assumptions were created through the development of theoretical models based on maybe a bit ambitious expectations. These assumptions included:
•DSI reduction in each wave from 51 days to between 29 and 37 days. •25% increase in unit sales.
•Product availability increase from 79% to 92%.
•Gross Margin increase of .25% (year 2), accounting for correction of lost, incomplete, or dated information The capital budgeting analysis of Project Atlantic yielded the following results: •NPV (Net Present Value) = $23,600.00
•IRR (Internal Rate of...