Whirlpool Corporation’s Supply Chain Management

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The challenges faced by Whirlpool Corporation. The drivers for change to the supply chain

Following the acquisition of Maytag in 2006 and the financial crisis of 2008-2009, it became clear to the Whirlpool Corporation’s top-managers that both of these developments called for many readjustments to be applied to the Company’s logistical paradigm. The reason for this was that Whirlpool’s restructuring and the post-crisis economic realities in America resulted in affecting the Company’s competitive stance – hence, requiring Whirlpool to invest in increasing the effectiveness of its supply chain. Two of the main drivers for change, in this respect, were following.

Transformation of purchasing behavior, on the part of the targeted consumers

Whereas most of such consumers used to plan to buy home appliances well ahead of time, they now tend to choose in favor of acquiring a particular appliance while driven by the essentially impulsive considerations (the so-called ‘distressed buy’). As MacMillan noted, “Instead of mulling the purchase of say, a new washer, and dryer over a long period… a majority of customers had begun to act more quickly, buying new machines because the old ones broke down” (2008, para. 3). This is exactly the reason why, as of today, Whirlpool applies much effort into ensuring that just about every product delivery takes place within the time-frame of 48 hours.

Strengthening of competitive pressures

Since, unlike its main competitors, Whirlpool decided to retain most of its US-based production lines, the Company is not in the position to save on labor costs. This undermines Whirlpool’s competitive stance rather substantially and presupposes that one of the ways to address the situation, is ensuring that the Company’s currently deployed logistical strategy is maximally efficient – especially given the outcomes of internal audits, conducted before the organizational change in question. As Whirlpool’s Vice-President Brian Hancock pointed out, “The cash-flow was probably $200-$300 million out of whack from what we wanted it to be” (Staroxman, 2010, 00.01.17). As of today, it can be safely confirmed that the Company did succeed in reaching this particular objective.

The benefits of change to the supply chain

Among the main benefits, brought about by the undertaken change, can be named the following.

Increased market-responsiveness

By the year 2009, Whirlpool had closed down 100 out of its 184 facilities, with the remaining ones having been consolidated into 10 major regional distribution hubs. In its turn, this resulted in increasing the logistical soundness of Whirlpool’s functioning, as a commercial entity strongly affected by the fluctuations of demand in the home appliance market, “The lesser the number of stages in the supply chain, the better you are in terms of responsiveness to the customer demand” (MacMillan, 2008, para. 11). Given the earlier mentioned purchasing trend in the home appliance market, the implementation of this specific logistical initiative does appear to have been thoroughly justified.

Improved systemic integrity

The concerned restructuring also allowed Whirlpool to improve the systemic integrity of its operations, in the sense of making it much easier for senior managers to come up with the discursively justified and timely network coordination decisions. The logic behind this suggestion is quite apparent. At a time of economic recession, the qualitative trends in the locally bounded home-appliance markets become more or less unified, which in turn presupposes a lesser need for Whirlpool to pay attention to the regional specifics of consumer demand.

Consequently, this naturally required the consolidation of the Company’s operational infrastructure to make it much more manageable, as a spatially stable logistical system (Sáenz & Revilla, 2014). As a result, Whirlpool is now in a much better position to address the objectively predetermined needs of the targeted clientele, as compared to what it used to be the case before the Company’s merger to Maytag. The additional benefit, in this respect, can be named the fact that by deciding to downsize the number of its facilities, Whirlpool was able to achieve a significant reduction of the affiliated operating costs.

Increased warehouse efficiency

The new logistic model, adopted by Whirlpool, calls for keeping a low level of inventory. As a result, the Company was able to reduce the amount of storage-related costs and to provide its regional managers with the powerful incentive to apply an extra effort in making sure that the sold appliances are delivered to customers as fast, as possible.

Whirlpool’s strategy regarding their supply chain

Whirlpool’s current strategy, regarding its supply chain, is concerned with the creation of some objective preconditions for its logistics infrastructure to provide utmost efficiency – something that is expected to result in cutting the operational costs and consequently, in making the Company much more competitive. To illustrate the validity of this suggestion, we can refer to the main principles of Whirlpool’s currently deployed logistical strategy, among which the most notable are:

Centralization/Vertical integration of management

The fact that Whirlpool decided to reduce the number of its facilities across the US while hoping that it will help it to sharpen the firm’s competitive edge, implies the Company officials’ awareness of the full scope of potential benefits, which the implementation of such an initiative usually brings.

As Bhatnagar and Chee-Chong (2009) pointed out, “By switching from a decentralized distribution/supply system with several warehouses… to a centralized system with a new distribution… it is possible to achieve better coordination between its inventory, backorder, and freight costs” (p. 205). In the aftermath of having been reorganized logistically, Whirlpool was able to increase sales, as the Company that provides the industry’s shortest lead-times.

Low inventory

Ever since the time of its merger with Maytag, Whirlpool has remained committed to exploiting the advantages of the low inventory approach to addressing logistical challenges. That is, unlike many of its competitors, the Company does not face the necessity to spend money on ensuring the availability of some low-turnover products for consumers. The adoption of such a logistical strategy by a manufacturer/distributor is especially justified through the period of economic recession, when consumers tend to grow increasingly price-sensitive, on one hand, and less concerned with seeking ‘perceived value’ in goods and services, on the other.

Technological intensity

The earlier mentioned logistical reorganization of Whirlpool could only be achieved by the mean of integrating hi-tech solutions as an essential part of the Company’s corporate philosophy. This has been effectively accomplished by the time all ten distribution centers became fully operational.

After all, the very functioning of these centers is made possible by Whirlpool’s willingness to rely on the latest technologies, within the context of how it goes about addressing the question of “how do we get visibility to those (delivery) orders and how do we turn them very quickly so that our trade partners do not have to carry as much inventory?” (Staroxman 00.02.31). As practice indicates, this did help to bring Whirlpool to a whole new competitive level.

Demand, capacity, scheduling, and inventory challenges. Recommendations on increasing the speed of response to customers

Even though Whirlpool’s logistical restructuring did prove beneficial, the Company continues to experience many challenges on the way of trying to remain highly competitive. For example, the worsening of the economic situation in America presupposes that, as time goes on, the demand-fluctuations in the country’s market of home appliances are going to become ever more unpredictable. As a result, the Company’s current approach to logistics (which takes for granted people’s high buying power) may prove not being conceptually adequate.

Another pressing challenge has to do with the fact that maintaining Whirlpool’s regional distribution centers fully operational is an extremely resource-consuming task – the hubs’ sheer size alone predetermines such as a state of affairs. The continual expansion of the Company’s network of regional distribution centers is likely to prove somewhat problematic, as well, due to the applicable legal regulations, “The (registration) process… for a facility that’s maybe a million or 2 million square feet can take a long time” (MacMillan, 2008, para. 7). In its turn, this implies that Whirlpool may never cease reassessing the circumstantial appropriateness of its currently utilized logistical strategy.

As far as ensuring the Company’s scheduling integrity (speedy responses to customers) is concerned, nothing can come in handier than the newly emerged technologies of relevance. Therefore, it will be thoroughly logical to assume that, as time goes on, the representatives of Whirlpool’s ‘research and development’ department are going to be endowed with ever more executive powers. The full soundness of this suggestion can be shown, regarding the well-established fact that the centralization of logistical infrastructure can only prove gainful if conducted in a scientifically sound manner (Prajogo, Oke & Olhager, 2016).

References

Bhatnagar, R., & Chee-Chong, T. (2009). Role of logistics in enhancing competitive advantage. International Journal of Physical Distribution & Logistics Management, 39(3), 202-226.

MacMillan, D. (2008). A merger with Maytag further complicated Whirlpool’s efforts to manage the supply chain. Brian Hancock talks about the challenge.

Prajogo, D., Oke, A., & Olhager, J. (2016). Supply chain processes. International Journal of Operations & Production Management, 36(2), 220-238.

Sáenz, M., & Revilla, E. (2014). Creating more resilient supply chains. MIT Sloan Management Review, 55(4), 22-24.

Staroxman. (2010). The issue Whirlpool cleans up its supply chain [Video file]. Web.

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