Whirlpool Europe Harvard Case Solution & Analysis

Introduction

Whirlpool is a world known company of home appliances and is the market leader in the industry of home appliances.Italso has asignificant market share in the industry. For the purpose of getting a higher market share and to maintain competitiveness over its competitors within the industry, Whirlpool is considering changing its processes in order to perform its business operations more effectively than its competitors. For this purpose, the management of the Whirlpool Europe is considering the installation of the ERP system throughout all its manufacturing units in the world.

Benefits and Costs of the ERP Investment

Like Whirlpool,every multinational firm is adopting modern manufacturing systems in order to achieve the required targets of sales, reducing costs, improving operation and getting a competitive advantage.

Whirlpool is operating in the business of home appliance and its manufacturing units are found in many countries of the world.Therefore, there is a desire to improve the operations and information processes within the all production units of the Whirlpool in Europe and the other countries where its manufacturing units are found.

 ERP is software with the ability to control all the operations and processes of the organizations even they are operating in different regions of the country or the world with accuracy and effectiveness.

Whirlpool is currently operating in such a market where it is considered as a market leader in the industry.In addition, Whirlpool is operating in the business of home appliances. Therefore, there is a desire to maintain its competitive advantage over the other companies and its competitors in the industry.

It is expected that by implementing ERP the product’s availability will increase about 92%.With efficient and timely flow of information, its inventory will reduce to about 12 days of the sale, which will ultimately reduce the demand of working capital required to run the daily operations of the company.

Implementing ERP is a very expensive process and it involves cost initially. It requires approximately more than 24 million dollars to purchase and run the equipment during first four years of the installation. Apart from this,it also needs heavy initial investment, approximately$900 million for the purchase of licenses for the software.

According to the estimates Whirlpool needs about 50 employees, along with the consultants hired from outside to train the employees. Hiring of the employees and consultants to train the employees also involves a very significant cost. It involves a significant pay to employees hired to run the ERP and a very large amount of fee for the consultants to operate the ERP and train its employees to operate ERP.

The consultant fee of$600 million per year is expected to be needed for the first five years in order to run or operate the ERP system and it is expected that its cost will increase with the $600 million in subsequent years after its installation.  In addition to this,$100,000 are also needed for the year 2000 for the purpose of maintenance and in subsequent its amount will increase by 100,000 each year till 2004 and will remain 400,000 till the sale of the license.

Implementation of the ERP system involves high initial cost. It requires high running and maintenance cost also in the subsequent years after the installing of the ERP system, but it is expected that the installation of the ERP system will reduce the need of the workforce and it will also help to decrease the cost which incurs prior to the implementation of the ERP system in the form of salary of reduced work force.

Apart from that, there are numbers of cost savings will occur with the help of implementing ERP. It will reduce the number of purchase returns from customer by improving the processes; it will reduce the demand of warehouse space and the list of many more costs, which could be saved by implementing ERP.

It is also expected that the calculation of the NPV on incremental revenues and costs, which would result due to the installation of the ERP system will be 15 million dollars that clearly justifies the cost associated with the ERP system.

Calculating Cash Flows that Occur Beyond the Forecast Period

As Whirlpool is operating in the modern industry and in the era of the technology in which technology is rapidly. With the passage of the time old technology is replaced with the new one. Whirlpool is operating in such an industry where it has big competitors, therefore in order to main its competitiveness over its competitors Whirlpool has to get equipped with the modern techniques and soft wares and should establish a system to be up to date with the technology...........................

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