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Microsoft Word - Whirlpool case assignment Assignment for Whirlpool Europe Case: 1) Read the Whirlpool Europe Case Study. 2) Make a list of all of the benefits that Whirlpool Expects based on the...

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Microsoft Word - Whirlpool case assignment

Assignment for Whirlpool Europe Case:
1) Read the Whirlpool Europe Case Study.
2) Make a list of all of the benefits that Whirlpool Expects based on the implementation of
Project Atlantic at Whirlpool.
3) Using the data in the exhibits, convert each of the benefits into the amount of free cash flow
that Whirlpool should expect from each of the benefits listed.
4) Project the estimated cash flows for the analysis you did in question 3 for each of the waves
over the years given in the exhibits.
5) Add up all of the expected cash flows by year across all of the waves.
6) Based on your analysis above and the other relevant data in the case, what is the net present
value of Project Atlantic?
7) Based on your analysis what recommendations would you make to Whirlpool management?

Whirlpool Europe
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R E V : D E C E M B E R 1 5 , XXXXXXXXXX
________________________________________________________________________________________________________________

Research Associate Aldo M. Sesia, Professor Sudhakar Balachandran of Columbia University, and Professor Richard S. Ruback prepared this
case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data,
or illustrations of effective or ineffective management.

Copyright © 2001 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call XXXXXXXXXX,
write Harvard Business School Publishing, Boston, MA 02163, or go to http:
www.hbsp.harvard.edu. No part of this publication may be
eproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.
S U D H A K A R B A L A C H A N D R A N
R I C H A R D R U B A C K
Whirlpool Europe

By the spring of 1999, Whirlpool Corporation (WHR:NYSE), the worldwide leader in the home
appliance industry, had nearly ten years experience selling to the European market and had grown
its European market share to a sizeable 13%. Whirlpool Europe’s chief financial officer and its vice
president of logistics were evaluating an investment in an enterprise resource planning (ERP) system.
Named Project Atlantic, the system would re-organize the information flow in all of Whirlpool
Europe. If successful, the project would improve operating effectiveness and efficiency in Whirlpool’s
sales and marketing, operations and logistics, and finance areas. The cost of the project, however,
would be substantial, and would include the direct costs of the system and the personnel that would
e required to complete the complex implementation. Senior management had quantified the costs
and benefits, and now needed to evaluate them.
Company Background
In 1989, Whirlpool Corporation entered the European market, paying $470 million to purchase a 53%
stake in the appliance division of Dutch-based Philips Electronics. The companies formed a joint
venture firm named Whirlpool International BV (WIBV) and one year later, launched a dual-
anding program which added the Whirlpool name to the Philips product lines. In July 1991,
Whirlpool purchased Philips’ 47% stake for $600 million to become the sole owner of WIBV. Over
time, Whirlpool developed three pan-European
ands to differentiate its product line: Whirlpool,
Bauknecht, and Ignis. Other regional
ands like Laden, sold exclusively in France, were also
created.
Whirlpool Europe manufactured products based on sales budgets or forecasts, and then held them as
finished goods inventory. European manufacturing operated 11 plants, ten located in Europe and one
in Africa. Each plant produced a specific product line across all
ands. Exhibit 1 provides a plant
listing. Unique country requirements, such as language, products attribute preferences, and electrical
specifications resulted in multiple stock-keeping units (SKUs) for the same model. In total, Whirlpool
Europe manufactured 6,900 SKUs. Orders moved from manufacturing to one of two central
distribution centers and then on to one of 12 regional distribution centers before reaching the
customer.
For the exclusive use of L. Gainski, 2018.
This document is authorized for use only by Lukasz Gainski in Strategic Management Control - Spring XXXXXXXXXXtaught by Balachandran, University of Illinois at Chicago from January 2018
to July 2018.
XXXXXXXXXXWhirlpool Europe
2
In each major European market, a country sales office—responsible for sales generation and
forecasting, order processing and fulfillment, billing and cash collection—was the primary interface
with customers. Whirlpool Europe operated many stand-alone information systems that were
developed by individual plants, distribution centers, or sales offices specifically to meet their own
usiness requirements. Information could not be easily shared across functions or organizations, and
was often inconsistent and i
econcilable. The sales organization, for example, had to access as many
as 13 independent inventory systems to view inventory across the supply chain.
There were two types of customers: consumers who purchased stand-alone appliances for their
homes and contractors who purchased built-in appliances for new home construction or kitchen
emodeling.
Success in the consumer market depended on product quality, price, and availability. Whirlpool
Europe estimated that its distribution centers had the product that matched the customer’s demand
79% of the time. If the product was unavailable, the customer had to either wait or switch to another
product. Often, the lack of immediate availability resulted in lost sales.
Kitchen remodeling in Europe generally involved the installation of new cabinets along with built-in
appliances. Installation often occu
ed only a few weeks after the kitchen was ordered by the
homeowner. Whirlpool estimated that this segment of the market would grow to about 25% of
kitchen appliance sales. To supply the built-in appliances to this market, Whirlpool would have to
deliver its appliances within ten days of being ordered by the contractor. Under its cu
ent inventory
and information systems, Whirlpool was unable to reliably satisfy the contractors’ required delivery
time.
Project Atlantic
Description
The goal of Project Atlantic was to design and implement an enterprise resource planning (ERP)
system that would allow Whirlpool Europe to better serve its consumer market for stand-alone
appliances and contract market for built-in appliances and, at the same time, reduce its inventory by
12 days of sales. These competing goals would be accomplished through an information system that
would allow a country sales office to view product throughout the supply chain, thereby increasing
the efficiency of the distribution process. Project Atlantic was expected to provide some integration
with suppliers and to increase inventory visibility across the supply chain. This would enable the
company to improve product availability and have a substantially lower inventory level. In addition,
the ERP system would allow Whirlpool to build products to specific orders from contractors.
Whirlpool Corporation took a phased approach to implementation of its ERP systems, beginning in
North America, Brazil, and select central European countries. Project Atlantic would focus on the
emaining European countries. With ERP, Whirlpool Europe’s disparate information systems would
e retired and replaced with a single computing architecture for all of Europe. The company planned
to install a standard or so-called ‘off-the-shelf’ ERP system, without any modifications, requiring the
company to change many of its operating processes.1 Employee acceptance of change was therefore
critical for success.

1 The company identified seven top-level operational processes, of which 74 sub-processes were determined to be impacted by
ERP.
For the exclusive use of L. Gainski, 2018.
This document is authorized for use only by Lukasz Gainski in Strategic Management Control - Spring XXXXXXXXXXtaught by Balachandran, University of Illinois at Chicago from January 2018
to July 2018.
Whirlpool Europe XXXXXXXXXX
3
The project would be managed under country groupings called Waves. Exhibits 2A and 2B detail the
Wave groupings and implementation schedules.
Benefits
Working Capital Reduction
The company had 51 days sales of inventory (DSI)2. Of the 51 days, approximately eight days were
eserved and allocated units, nine were in transit, and three were obsolete. The ERP system would
enable Whirlpool to make its supply chain more transparent and efficient, thereby eliminating the
eserved, allocated, and obsolete units, and reducing the in-transit time. After a statistical study of
its inventory, Whirlpool Europe developed a theoretical model target inventory level of 29 days.
Project Atlantic was forecasted to reduce 12 days of inventory in each Wave—over half of the
difference between its actual inventory and the theoretical model inventory. Exhibit 3 shows data for
1997 including DSI by Wave. Exhibit 4 details the yearly percent DSI reduction in DSI by Wave.
Revenue and Gross Margin Increase
A primary goal of the ERP system was to increase product availability by making the supply chain
more visible and by integrating sales forecasting and inventory management. The company’s
targeted product availability was 92%. The projections assumed that the ERP system and process
changes would enable the company to realize an increase in unit sales equal to 25% of the
improvement in product availability. Those incremental sales would contribute to increasing the
profitability of Whirlpool Europe. Exhibit 3 includes 1997 data on product availability, units,
evenue and margins by Wave. Exhibit 4 details the projected timing of the product availability
improvements.
The company’s ability to evaluate profitability at a product line, account, or order level was hindered
y the lack of an integrated information system. Decisions on prices, for example, were sometimes
made with incomplete or dated information. By installing ERP, the company forecasted a 0.25% gross
margin increase by the second year after implementation. To forecast the impact, the company used
1997 revenue as the baseline to apply the gross margin
Answered Same Day Apr 10, 2020

Solution

Aarti J answered on Apr 11 2020
143 Votes
Sheet1
    Exhibit 3 1997 Data for Whirlpool Europe
    Wave    DSI    Product Availability    Units Sold    Revenue (000s US$)    Margin (000s US$)
    West    45    73.5%    2,271,139    477,784    58,859
    South    51    83.1%    1,415,949    283,549    46,241
    Central    67    76.8%    977,665    185,625    43,678
    North    55    83.2%    1,443,156    280,901    29,818
    Exhibit 4 Improvements in DSI and Availability by Year and Wave
    Improvements by Year by Wave
    Wave    2000    2001    2002    2003    2004    2005
    West    25%    40%    35%
    South        35%    40%    25%
    Central            40%    40%    20%
    North                40%    40%    20%
    Exhibit 5 Margin Improvements by Year by Wave
        Margin Improvements by Year by Wave
        2000    2001    2002    2003    2004    2005
    West    0.06%    0.25%    0.25%    0.25%    0.25%    0.25%
    South        0.10%    0.25%    0.25%    0.25%    0.25%
    Central            0.13%    0.25%    0.25%    0.25%
    North                0.13%    0.25%    0.25%
    Exhibit 6 Forecasted Other Expense Savings by Year (000s US$)
        2000    2001    2002    2003    2004    2005    2006    2007
    Order Desk Headcount    0    190    411    442    474    506    537    569
    Finance Headcount    81    135    216    324    405    405    405    405
    Warehouse Space    18    72    155    230    274    288    288    288
    Bad Debt Expense    102    512    922    1,024    1,024    1,024    1,024    1,024
    Information Systems    420    840    840    1,280    1,280    1,280    1,280    1,280
    Total    621    1,749    2,544    3,300    3,457    3,503    3,534    3,566
    Answer 2,3and 4:
    BENEFITS
    Revenue and Gross Margin Increase
    I) Increase in Product Availability
                        Improvements by Year by Wave
    Wave    Product Availability    Increase in Prod. Availability    Units Sold    Revenue (000s US$)    2000    2001    2002    2003    2004    2005
    West    73.5%    18.5%    2,271,139    477,784    25%    40%    35%
    South    83.1%    8.9%    1,415,949    283,549        35%    40%    25%
    Central    76.8%    15.2%    977,665    185,625            40%    40%    20%
    North    83.2%    8.8%    1,443,156    280,901                40%    40%    20%
        Unit Price    201.03
    Wave    Additional Products Available
        2000    2001    2002    2003    2004    2005
    West    105040    168064    147056    0    0    0
    South    0    44107    50408    31505    0    0
    Central    0    0    59442    59442    29721    0
    North    0    0    0    50799    50799    25400
    Wave    Additional Products Available (Cumulative)
        2000    2001    2002    2003    2004    2005
    West    105040    273104    420161    420161    420161    420161
    South    0    44107    94515    126019    126019    126019
    Central    0    0    59442    118884    148605    148605
    North    0    0    0    50799    101598    126998
    Wave    Additional Products Sold (Cumulative)
        2000    2001    2002    2003    2004    2005
    West    26260    68276    105040    105040    105040    105040
    South    0    11027    23629    31505    31505    31505
    Central    0    0    14861    29721    37151    37151
    North    0    0    0    12700    25400    31749
    Wave    Additional Revenue from increased sales
        2000    2001    2002    2003    2004    2005
    West    5278997    13725392    21115987    21115987    21115987    21115987
    South    0    2216673    4750013    6333351    6333351    6333351
    Central    0    0    2987374    5974748    7468435    7468435
    North    0    0    0    2553006    5106013    6382516
    Wave    Profit Margin 1997    Pofit Margin Improvement
            2000    2001    2002    2003    2004    2005
    West    0.12    0.0006    0.0025    0.0025    0.0025    0.0025    0.0025
    South    0.16        0.0010    0.0025    0.0025    0.0025    0.0025
    Central    0.24            0.0013    0.0025    0.0025    0.0025
    North    0.11                0.0013    0.0025    0.0025
    Wave    Profit from increased sales
        2000    2001    2002    2003    2004    2005
    West    653495.73    1733402.39    2719562.88    2772352.84    2825142.81    2877932.78
    South    0.00    363710.35    791254.36    1070839.19    1086672.57    1102505.95
    Central    0.00    0.00    706819.73    1428576.32    1804391.49    1823062.58
    North    0.00    0.00    0.00    274323.79    561412.61    717722.06
    II) Increase in Gross Margins
            Additional Profit from Increased Profit Margin on the existing (base) sales
    Wave    Revenue (000s...
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