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.

WINNING IN DIVERSE MARKETS THROUGH SUPPLY CHAIN FLEXIBILITY

The following article written by a student of Indian Institute of Management, Raipur has been adjudged the best article in the "Operations" category in an article writing event organised by Shailesh J Mehta School of Management, IIT Bombay.

The ability of an organisation to respond to uncertainty has always been important for success. Due to the increase in the number and the nature of threats that can affect our supply chain, the need to have a flexible supply chain has increased. It is no longer about managing the uncertainty but about managing it better than one’s competitors. In fact, companies should perceive it as an opportunity in disguise.

Here is a list of some practices that a company can adopt to win in diverse markets through supply chain flexibility:-

1. COLLABORATIVE PLANNING, FORECASTING AND REPLENISHMENT (CPFR) – CPFR aims to enhance supply chain integration by supporting joint practices. Information is shared between the components of a supply chain to reduce the inventory and to respond to the changing demand. As Hitachi’s supply chain expanded globally, its value chain became more complex. To respond to this increase in complexity, Hitachi shares accurate and timely information on projected part sales with its vendors to be more able to adapt to the changes in customer demand.

It is not necessary to have expensive IT systems to improve collaboration. Simple moves such as establishing direct communication from planner to planner and running forecasting processes jointly with key suppliers can improve collaboration.

2.  RISK POOLING – It suggests that demand variability is reduced if a company aggregates demand across locations because as demand is aggregated across locations, it is more likely that the increase in demand at one location will be offset by reduction in demand for another location. This leads to reduction in uncertainty in demand which leads to reduction in safety stock and hence to reduction in average inventory.
3. Managers should be able to make supply chain decisions quickly. They should be able to analyse the changes in demand if any and should be able to respond to it quickly. The managers should be able to make sense out of numbers and should know which data to rely on and which data to discard. Such a manager will be able to place frequent but small orders hence reducing average inventory as well. The structure of the system should be such as to allow the different departments to take the necessary decisions as and when required eg. Toyota gives its assembly line workers the authority to halt the production by pressing the emergency button.
4. Use of concurrent processes instead of sequential processes – Use of concurrent processes reduces the dependence of processes on one another in a supply chain. This can speed up processes in case any emergency arises.
5. Reducing risk due to cost fluctuations – Having a mix of short term and long term contracts with the suppliers will help in reducing the risk in supply chain due to cost fluctuations. Outsourcing can also come in handy in case the cost of production of the company increases at certain parts.
6. Converting Stock outs to Back Orders – If it is possible to convert stock outs to back orders, it would take away a lot of pressure from the supply chain. However, it requires an effective supply chain which can ensure delivery of the committed quantity of the products at the committed quality at the committed time. Incentives can also be given to the customers in case they agree to commit to their orders well in advance.
7.  Vendor Management – Several companies develop a network of vendors who are able to supply inventory to them within the stipulated time. These companies work closely with their vendors to develop them and assist them in periodically improving their processes. Maruti develops close relations with its vendors through strategic relationships and providing incentives to them. This also helps in reducing the bargaining power of Maruti’s suppliers as the company maintains and develops a network of suppliers.
8. Use of standardized and generic parts – This will reduce the dependence of production on certain specific parts. In case of any emergency demand, the parts can be bought from other suppliers or the production of these parts can be outsourced to other reliable suppliers who can supply these parts at the desired quality and quantity at the right place and time.
9.  Effective Communication between teams can help to respond to the varying market demand. This will help the procurement department to procure supplies in case of increased demand and will also intimate the sales department to reduce the prices and destock the less sold product. While changing production schedules, the opinion of all the departments need to be taken in consideration to avoid any last minute hassles.
10. Increased Production and Purchasing in low-cost countries – As a company increases its production and purchasing in low-cost countries, it is able to adapt itself to changing prices eg. Husqvarna has a well-developed production base to handle variations in demand related to seasonality and weather conditions. A major reason being that the share of purchases from low cost countries is increasing steadily, and amounted to approximately 23% in 2009.
11. Build models to evaluate the possible alternatives i.e. “What if Analysis”– The Company should build models that are expected to work in case of any deviations in the supply chain. This requires the managers to predict the various ways in which things may go wrong and be prepared for them.
12. Role of Human Resource Department - The workers should be conditioned to be resilient and flexible. The HR department should ensure that the workers have enthusiasm for their work.

References

http://blogs.hbr.org/cs/2007/08/building_a_resilient_supply_ch.html (last accessed on 18 March’ 2011)

http://en.wikipedia.org/wiki/Collaborative_planning,_forecasting,_and_replenishment (last accessed on 18 March’ 2011)

https://www.mckinseyquarterly.com/Building_a_flexible_supply_chain_for_uncertain_times_2330 (last accessed on 18 March’ 2011)

http://www.scdigest.com/assets/newsviews/06-03-08-1.cfm (last accessed on 18 March’ 2011)

http://corporate.husqvarna.com/?p=about&s=strategy&t=supply_chain&afw_lang=en (last accessed on 18 March’ 2011)

Rohit Bhagat has done his B.E. in Electronics and Communication Engineering from Netaji Subhas Institute of Technology, Delhi University and can be reached at jeffhardy_027 @ yahoo . co . in