November 14, 2013

SUPPLY CHAIN MANAGEMENT - WHIRLPOOL

1. INTRODUCTION

“Logistics is the most challenging of all business processes due to its extreme cross-functional, nature and this challenge increases exponentially in a global environment.”
                                    -J. Paul Dittmannn, Vice-President, Whirlpool 1997 

Whirlpool was founded in 1911 by three brothers - Frederick, Louis and Emory Upton. Their company, then called Upton Machine Corporation (Upton), was set up at St. Josephs, Michigan, USA. In the 1980s, Whirlpool expanded into markets in Europe, Mexico, India, Canada, China, South Africa, Argentina, and Brazil. In 1987, Whirlpool and Sundaram-Clayton of India formed TVS Whirlpool Limited to make compact washers for the Indian market (Whirlpool Corporation acquired majority ownership in 1994). 


Today Whirlpool Corporation is headquartered in Michigan, United States and is the world's leading manufacturer and marketer of major home appliances having an annual sale of more than $19 billion in 2011. There are 68,000 employees and 66 manufacturing and technology research centres around the world. Whirlpool was ranked as No. 1 in Fortune Magazine’s 2011 World’s Most Admired Companies list in the Home Equipment, Furnishings industry. It was also named as 2009 Top Companies for Leaders list, becoming ninth in North America and 15th globally.


2.SUPPLY CHAIN ISSUES AT WHIRPOOL

Whirlpool’s supply chain encompasses more than 40 manufacturing facilities supplied from 7,000 different suppliers from every corner of the world. These facilities import as well as export products to separate regions and delivered to about 30,000 retailers worldwide. Besides retailers, the company also delivers products to builders and directly to consumers’ houses. Whirlpool has 2.2 to 2.5 million units in inventory at any given time.

While the Whirlpool brand has long been associated with reliable household appliances, its supply and delivery performance in 2000 was far from being reliable. The unfortunate irony of the situation is that availability was low even while total inventory levels were often too high. These inconsistencies were frustrating to retail partners and customers. It was clear to executive leadership that these supply chain management issues had to be fixed.
Thus some of the issues can be short-listed as:

  • Oversupply in distribution channel. 
  • Slow response to non-standard orders (waiting time of 5 to 10 days for retailers.)
  • Inadequate Inventory for some SKU’s leading to stock outs.
  • Excess inventory which were transferred forcefully to distributors.(Almost 15 temporary buildings for stockpiles) 
  • Lack of communication between ordering and manufacturing  units
  • Large number of forecasting errors  led to increased storage cost (result = locking of working capital)
  • The increasing paperwork caused increase in operational costs and issues with vendors
  • Too many 3PL’s resulted in transactional and adversarial relationships. (Issues included contract variations with no common metric to measure and check distribution)
  • Vendors started demanding to publish all trade item information to the global data pool for product information.

3. TURNAROUND OF WHIRLPOOL

Whirlpool used a three tier method to obtain insights in supply chain. The first step was Understanding End Customer needs. The major needs that were identified by the customers were 
a) Delivery on promised time
b) Delivery with integrity
c)     Faster delivery time  
In order to achieve the goals in Supply Chain Management, Whirlpool started using various restructuring initiatives. Some of them have been discussed below:

3.1 CPFR IMPLEMENTATION:


“We want to get the right product to the customer when they expect it. While that is a simple set of outcomes, it is an incredibly complex set of activities that have to be orchestrated all the way to
our suppliers.”
                    -Reuben Slone, Vice-President of Supply Chain, Whirlpool 2003

In 2009, Whirlpool was facing forecast accuracy and demand variability challenges. Benchmarking best practices in forecasting led Whirlpool and some of its key trade partners to believe that CPFR offered a significant opportunity for improvement in the area of forecasting. The desired state was to have Whirlpool or trade partners host a collaboration hub that would act as a single point of storage for all forecast related data which is shared between both companies within a very secure environment.
Before the implementation of CPFR, the forecast error was 70% which dropped down to 11%. Whirlpool and its trade partners saw a reduction in weekly order variability due to improved forecasting and a less reactive stance by trade partners to take corrective action in order variability. A forecast mismatch alert system was set up which allowed improved accuracy by analysing the causes and making creative action plans.


3.2 ELECTRONIC DATA INTERCHANGE (EDI):
By early 1999, whirlpool adopted EDI to enhance the efficiency of its supply-chain further and cut down on its expenses. It launched a scheme called the Easy EDI, using which the company and its 600 suppliers could reduce paper work. EasyEDI, as per the management at whirlpool, was aimed at achieving two benefits:

  • Eliminating paper work of Whirlpool’s 300 smaller suppliers, and
  • Reducing operational costs for its data interchange thereby saving upto $600,000 a year.

EDI initiatives at Whirlpool prompted its small and medium sized suppliers to use the system. Later by 2000, Whirlpool started offering the service to 300 of its largest suppliers.

3.3 I2 SUPPLY CHAIN COLLABORATOR
Whirlpool initially used mails for communication with its trade partners where numerous forecast-related documents were sent to its key trade partners via e-mail. This led to confusion about which documents were the most current. Whirlpool selected i2 Suplly Chain Collaborator software to solve this issue of version control. The most current version of any file was now located in the secure, shared files section, easily accessible by any planner from either the Whirlpool or partner viewpoint. This ensured that the same data is being used for planning/forecasting purposes by both Whirlpool and its trade partners.  i2 Suplly Chain Collaborator allowed Whirlpool to migrate from a monthly alignment of forecasts to a weekly alignment, improving overall accuracy levels. In addition, the forecasting performance also improved because there was less room for human error.


3.3 OTHER E-INITIATIVES


Online Shopping: 
In early 2000, Whirlpool in order to develop its electronic supply chain initiatives set up an electronically-enabled organizational initiative and developed Internet enabled home appliances. The company also developed a site called WhirlpoolWebWorld.com, setting up a Business-to-business link. WhirlpoolWebWorld procurement let Whirlpool purchase all the items it required through a common online catalog from its suppliers. It also enabled all its retailers around the world to order from Whirlpool.
Demand Management:
Whirlpool also wanted to improve its demand management system. Earlier, it used old techniques like spreadsheets and home grown systems to determine demand. But those systems could not accurately manage the various inputs and consumer variables. After a careful review, the management decided to use the I2 Demand Planner to track demand in 1997. 

Move towards Outsourcing:
By early 2000, the company decided to revamp its entire distribution strategy. It decided to have its private fleet managed by a third party. Penske took over the Quality Express network. This outsourcing to Penske brought several benefits to Whirlpool. Whirlpool concentrated on the manufacture of white goods, while Penske’s Quality Express network took care of the logistics. Towards end of 2001, Whirlpool started a new website that tracked real-time information on customer orders. The company hoped this initiative would reduce the number of phone queries it received and improve customer service.

3.4 EFFECT OF INITIATIVES:

The e-initiatives taken up by Whirlpool immensely improved its supply chain operations. Some of the benefits of implementing e-initiatives have been noted below:

  • Product availability at Whirlpool increased in the range of 90 to 95 per cent
  • Inventories were reduced by 15 to 20 per cent 
  • 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
  • Improved relations with suppliers
  • Increase in customer service levels

In order to maintain quality in its logistics processes, Whirlpool used the Malcolm Balridge Award Quality Criteria. The efficiency of the entire process was measured in terms of the quality, cost and cycle time. Whirlpool constantly tried to update and adapt to the latest best practises, ideas and innovations. The restructures operations yielded considerable benefits to Whirlpool. As per reports, this led to a $4.8 million reduction in standing inventory in Australia alone over just seven months! Whirlpool also reduced its annual inventory by about $250 million a year and to deliver products in 48 to 72 hours. Whirlpool also saved about $100 million a year because of improved efficiency in the new distribution system in 2005-2006.Ordering and delivery functions of Whirlpool used to be located in separate divisions, complicating coordination and resulting in costly mistakes when Whirlpool made too much of a certain product.41 out dated warehousing sites were replaced with 10 huge regional distribution centres that used high-tech warehouse management systems and upgraded vehicles that could handle a variety of products.

REFERENCES
  • http://www.whirlpoolcorp.com/about/history.aspx
  • 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 was submitted by Ananya Mishra. Ananya is a B.Tech in Computer Science and Engineering from Institute of Technical Education and Research, Bhubaneshwar. She has 36 months of work experience in Infosys Limited as Senior Systems Engineer. She is a movie buff ( Bollywood of course!!) and loves cooking. She is  also interested in reading sci-fi and thriller novels. She may be reached at pgp12061.ananya@iimraipur.ac.in

1 comment:

  1. hello!! Very interesting discussion glad that I came across such informative post. Keep up the good work friend. Glad to be part of your net community.
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