Introduction
Whirlpool Corporation became the world’s largest home appliance builder after merging with Maytag. This merger necessitated various reforms to optimize business operations, particularly, cash flow, technology, and placement of orders. This report discusses the strategies adopted by the giant manufacturer of home appliances in confronting its various challenges. The dossier will also present various recommendations that may be adopted to improve the response to customers’ orders.
The Challenges and Drivers of Change
Whirlpool faced major challenges regarding its operations. The challenges, which may be attributed to the large size of the company, became more complicated after it merged with Maytag (Business Week, 2010). While many of these constraints have been addressed, others are still present. Hence, they continue to affect the company’s operations.
First, Whirlpool faced difficulties in managing sales and cash flow. Whirlpool’s trading partners focused on holding huge inventories, which resulted in disruption of cash flow. Therefore, the company was operating with less than optimum cash flow. Cash flow or liquidity affects the way a business meets its financial obligations. Lack of sufficient liquidity may lead to financial constraints and subsequent insolvency (Wuttke, Blome, & Kennedy, 2012).
Another challenge that constrained Whirlpool’s operations as managing customers’ orders. The company’s management discovered a growing need to meet its clients’ orders within a reasonable period. Whirlpool’s management aspired to deliver orders within 48 hours (Business Week, 2010). Additionally, the technology used to manage inventory had become obsolete over time. Hence, it needed to be optimized to match the inventory needs. Lastly, Whirlpool’s facilities were unstrategically located concerning each other and the market. This case resulted in huge operational costs.
Whirlpool’s drive toward reorganizing its operations resulted from various change drivers. First, consumer behavior had changed to the level of attracting inefficiency in managing orders from customers, as well as restraining cash flow. Therefore, the company was operating short of the recommended cash flow, which motivated the management to look for ways to strategize its supply chain. Additionally, the merger with Maytag further complicated the business operations to the extent of necessitating reforms to integrate the two companies’ strategies. One of the ways to integrate operations was to consolidate the buildings owned by the two companies (Business Week, 2010). There was also a growing need to optimize the technologies used in the supply strategy to promote efficiency.
Benefits of the Change to the Supply Chain
The changes made to Whirlpool’s supply chain resulted in various benefits for the company. First, operation costs were reduced. In 2008, the company’s supply chain Vice President, Brian Hancock, explained that the management had decided to eliminate over 100 buildings from its logistics network. Additionally, the company’s warehouses would be amalgamated into ten regional distribution centers.
This move was estimated to bring down Whirlpool’s operation costs by about $60 million. High operation costs in the supply chain affect a business’s profit margin (Khajavi, Partanen, & Holmström, 2014). Such costs may lead to losses. Khajavi et al. (2014) assert that the strategic location of distribution centers is an efficient way for manufacturers to eliminate excessive operational costs while enhancing responsiveness to customers’ orders. Fewer stages in a supply chain promote responsiveness. The stages lead to improved customer satisfaction (Business Week, 2010).
Whirlpool adopted a strategy that enabled the monitoring of its products at all stages. In turn, the strategy promoted flexibility in meeting customer demand and hence a departure from its previous logistics network strategy, which involved packing its outlets with lots of inventory. On the other hand, the current strategy is focused on supplying products based on demand. Flexibility in the supply network enables a business to address customer demands when they arise (Khajavi et al., 2014). This ability to respond promptly to consumers’ needs gives way to client satisfaction.
The amalgamation of the company’s building has promoted sustainability. Hassini, Surti, and Searcy (2012) define supply chain sustainability as “all parties involved in fulfilling a customer order” (p. 70). Hassini et al. (2012) argue that achieving sustainability in the supply chain involves taking into account all relevant forces that influence decision-making.
In Whirlpool’s case, several achievements have been made concerning sustainability. First, the newly constructed distribution centers are eco-friendly (Business Week, 2010). The concept of ‘green supply chains’ is a relatively recent phenomenon that emphasizes the need for supply chains to exercise minimal impact on the environment (Abdallah, Farhat, Diabat, & Kennedy, 2012). Secondly, the new supply chain at Whirlpool was designed to promote economic sustainability by cutting down operating costs. Thirdly, by striving to meet its customers’ needs, Whirlpool has promoted social sustainability.
Whirlpool’s Strategy concerning its Supply Chain
Whirlpool made various changes in its logistics network. First, changes were made in its inventory. These changes aimed at modifying the inventory to suit the quick demand by customers. The size of the inventory kept in stores was reduced. Instead, the company focused on supplying products as ordered by customers. Secondly, the technology used in the supply chain was optimized to enable faster tracking of deliveries. Also, the company’s facilities were rationalized to reduce operational costs.
This strategy was adopted by reducing the number of the company’s buildings by 100. The distribution centers would then be consolidated and strategically located across ten regions. The move was anticipated to cut the cost of operating Whirlpool’s supply network by $60 million. Another aspect of Whirlpool’s strategy was to integrate Maytag’s systems and its own. The merging of the two large companies had resulted in complicated operations. Harmonizing the systems would facilitate cost-efficiency.
Demand, Capacity, Scheduling, and Inventory Challenges
Changes in customer trends affected the demand for Whirlpool’s products. The new trend was that customers needed a relatively quick response to their orders. On the other hand, Whirlpool’s trade partners had been focusing on stocking their stores with huge amounts of inventory. This situation brought forth a challenge in meeting customer demand because the stores were not necessarily stocked according to customers’ needs. Whirlpool observed this challenge and sought to establish a more efficient strategy that would guarantee dependability. Customers would now have their orders met within 48 hours.
Scheduling was another major challenge at Whirlpool. The company’s management had not put in place a mechanism to monitor stock movement at its stores. According to Bertolini, Ferretti, Vignali, and Volpi (2013), monitoring stock movement helps to not only understand the market demand for a specified product but also prevent overstocking. Failure to match production and supply with demand trends can result in overstocking, hence leading to reduced cash flow. At Whirlpool, failure to adopt a proper strategy for monitoring stock movement resulted in filling up stores with inventory that could not immediately satisfy customers’ needs.
Recommendations
Whirlpool may adopt various strategies to improve customers’ responsiveness. First, Radiofrequency Identification (RFID) can be used to monitor the movement of products in stores. Bertolini et al. (2013) propose the “On-shelf availability” tool for promoting efficiency in responding to customer demand for a particular product. The tool helped stock managers to supply products according to the actual demand. Therefore, it can be adopted for use by Whirlpool in ensuring that inventory matches customer requirements.
Another approach to promoting speedy delivery of customer orders is through adopting an elaborate transport system. For instance, the number of delivery trucks may be increased to ensure that home deliveries are made on time. Thirdly, Whirlpool may create a platform for customers to order products online. Many businesses have adopted online shopping to reach shoppers. Telecommunication gadgets and the internet have improved the ease of shopping online. More customers now prefer to purchase products through the internet. Therefore, Whirlpool can capitalize on this recent trend to guarantee speedy order taking. Combined with speedy transport, online shopping can help Whirlpool to meet its customers’ demand in real-time.
Conclusion
In 2005, Whirlpool discovered that its supply chain strategy did not address the changing customer needs. The company embarked on developing a new strategy that would ensure that customer orders were delivered within 48 hours. The excess stock was removed from the stores to stock inventory according to customer needs. The new strategy seeks to minimize operational costs by reorganizing the supply chain distribution centers. Whirlpool aimed to integrate its systems with those of the then recently acquired company, Maytag. The integration promoted efficiency in supply chain operations.
Reference List
Abdallah, T., Farhat, A., Diabat, A., & Kennedy, S. (2012). Green supply chains with carbon trading and environmental sourcing: Formulation and life cycle assessment. Applied Mathematical Modeling, 36(9), 4271-4285.
Bertolini, M., Ferretti, G., Vignali, G., & Volpi, A. (2013). Reducing out of stock, shrinkage and overstock through RFID in the fresh food supply chain: Evidence from an Italian retail pilot. International Journal of RF Technologies, 4(2), 107-125.
Business Week. (2010). The issue Whirlpool cleans up its supply chain.
Hassini, E., Surti, C., & Searcy, C. (2012). A literature review and a case study of sustainable supply chains with a focus on metrics. International Journal of Production Economics, 140(1), 69-82.
Khajavi, S. H., Partanen, J., & Holmström, J. (2014). Additive manufacturing in the spare parts supply chain. Computers in Industry, 65(1), 50-63.
Wuttke, D. A., Blome, C., & Henke, M. (2013). Focusing the financial flow of supply chains: An empirical investigation of financial supply chain management. International Journal of Production Economics, 145(2), 773-789.