Discussion document on ERP investment decision at Whirlpool Europe
Case 1: Whirlpool Whirlpool’s Dramatic Turnaround through InternationalizationFull description
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CASO AA2Descripción completa
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Diseñe un procedimiento sencillo para el control de la información documentada de la empresa Confecciones S.A., que cumpla con los requisitos de la Norma NTC ISO 9001 en cuanto a la identi…Full description
Descripción: ESTUDIO DE CASO La empresa Confecciones S.A., dedicada al diseño y manufactura de prendas de vestir, ya determinó el mapa de procesos de su actividad económica, siendo estos:
Informe de diseño y control de documentaciónDescripción completa
ESTUDIO DE CASO La empresa Confecciones S.A., dedicada al diseño y manufactura de prendas de vestir, ya determinó el mapa de procesos de su actividad económica, siendo estos:Full description
Descripción: Diseñe un procedimiento sencillo para el control de la información documentada de la empresa Confecciones S.A., que cumpla con los requisitos de la Norma NTC ISO 9001 en cuanto a la identificació...
CASO AA2Full description
Descripción: Chris Wickham
Whirlpool AWE 2214 Programs HUN
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Whirlpool Europe Case Solution
Group AA2 Abhishek Purohit Rohit Pandey Shailesh Bansal Srivatsan CR Vaishnavi Chella
13502 13539 13545 13549 13556
Case objective: Whirlpool entered European Appliance market in 1988 and experienced a 10 year growth. So it now has to decide whether to invest in an ERP system or not by doing cost benefit analysis, incremental cash flows and NPV.
To evaluate such a project NPV analysis would be appropriate. This may require the company to invest for a series of years for its development and implementation Project Atlantic for its implementation has advantages as well as disadvantages. The following are the benefits by the project.
Reducing the Inventory: One time and non-taxable inventory can be reduced to zero level, if cash flow turns zero. This project would make the supply chain of the organization much more transparent and simpler, hence reducing the 51 days sales of inventory to an inventory level of 29 days by forecasting to reduce 12 days of inventory in each wave.
Increase in Sales Units due to product availability: availability: This may be persistent as well as taxable. But for this to be true we shall assume that without the implementation of ERP, the total number of units sold in the future would be constant, i.e., at the same level.
Income Statement for the West Wave Year
2000
2001
2002
2003
2004
2005
2271
2271
2271
2271
2271
2271
Revenue
477784
477784
477784
477784
477784
477784
COGS
418925
418925
418925
418925
418925
418925
Margin
58859
58859
58859
58859
58859
58859
Price per unit
210.38
210.38
210.38
210.38
210.38
210.38
COGS per unit
184.47
184.47
184.47
184.47
184.47
184.47
25.92
25.92
25.92
25.92
25.92
25.92
12.32%
12.32%
12.32%
12.32%
12.32%
12.32%
45
45
45
45
45
45
51648
51648
51648
51648
51648
51648
a) Forecasts without the ERP system Units
Margin per unit Margin percentage DSI Inventory
b) Calculation of additional units Pre-ERP units
2271
2271
2271
2271
2271
2271
Pre-ERP availability
0.735
0.735
0.735
0.735
0.735
0.735
Target availability
0.92
0.92
0.92
0.92
0.92
0.92
Increase in availability
25%
25%
25%
25%
25%
25%
Additional sales
25%
25%
25%
25%
25%
25%
Percentage improvement
25%
40%
35%
0%
0%
0%
Additional units in year
36
57
50
0
0
0
Additional units
36
93
143
143
143
143
12
12
12
12
12
12
25%
40%
35%
0%
0%
0%
DSI reduction in year
3
4.8
4.2
0
0
0
DSI reduction
3
7.8
12
12
12
12
c) Calculation of reduction in DSI Target DSI reduction Percentage improvement
a) Forecasts without the ERP system Units Revenue COGS Margin Price per unit COGS per unit Margin per unit Margin percentage DSI Inventory
b) Calculation of additional units Pre-ERP units Pre-ERP availability Target availability Increase in availability Additional sales Percentage improvement Additional units in year Additional units
1416 0.831 0.92 11% 25% 0% 0 0
1416 0.831 0.92 11% 25% 35% 13 13
1416 0.831 0.92 11% 25% 40% 15 28
1416 0.831 0.92 11% 25% 25% 9 38
1416 0.831 0.92 11% 25% 0% 0 38
1416 0.831 0.92 11% 25% 0% 0 38
12 0% 0 0
12 35% 4.2 4.2
12 40% 4.8 9
12 25% 3 12
12 0% 0 12
12 0% 0 12
c) Calculation of reduction in DSI Target DSI reduction Percentage improvement DSI reduction in year DSI reduction
d) Impact of the ERP system Additional units Additional margin DSI reduction
e) Forecasts with the ERP system Units Revenue COGS Margin Price per unit COGS per unit Margin per unit Margin percentage DSI
Income Statement for the Central Wave Year
2000
2001
2002
2003
2004
2005
978
978
978
978
978
978
Revenue
185625
185625
185625
185625
185625
185625
COGS
141947
141947
141947
141947
141947
141947
Margin
43678
43678
43678
43678
43678
43678
Price per unit
189.80
189.80
189.80
189.80
189.80
189.80
COGS per unit
145.14
145.14
145.14
145.14
145.14
145.14
44.66
44.66
44.66
44.66
44.66
44.66
23.53%
23.53%
23.53%
23.53%
23.53%
23.53%
67
67
67
67
67
67
26056 26056 26056 26056 30713 27855 26035
26056 26035
a) Forecasts without the ERP system Units
Margin per unit Margin percentage DSI Inventory Inventory
26056 33158
26035
b) Calculation of additional units Pre-ERP units
978
978
978
978
978
978
Pre-ERP availability
0.768
0.768
0.768
0.768
0.768
0.768
Target availability
0.92
0.92
0.92
0.92
0.92
0.92
Increase in availability
20%
20%
20%
20%
20%
20%
Additional sales
25%
25%
25%
25%
25%
25%
0%
0%
40%
40%
20%
0%
Additional units in year
0
0
19
19
10
0
Additional units
0
0
19
39
48
48
Target DSI reduction
12
12
12
12
12
12
Percentage improvement
0%
0%
40%
40%
20%
0%
0
0
4.8
4.8
2.4
0
Percentage improvement
c) Calculation of reduction in DSI
DSI reduction in year
d) Impact of the ERP system Additional units
0
0
19
39
48
48
0.00%
0.00%
0.13%
0.25%
0.25%
0.25%
0.0
0.0
4.8
9.6
12.0
12.0
978
978
997
1017
1026
1026
Revenue
185625
185625
189621.19
193605.6
195448.54
195448.54
COGS
141947
141947
144756.37
147565.74
148970.42
148970.42
Margin
43678
43678
44864.82
46039.869
46478.124
46478.124
Price per unit
189.80
189.80
190.12
190.42
190.42
190.42
COGS per unit
145.14
145.14
145.14
145.14
145.14
145.14
44.66
44.66
44.98
45.28
45.28
45.28
23.53%
23.53%
23.66%
23.78%
23.78%
23.78%
67
67
62
57
55
55
26056
26056
24668
23206
22448
22448
Additional margin DSI reduction
e) Forecasts with the ERP system Units
Margin per unit Margin percentage DSI Inventory
Income Statement for the North Wave 2000
2001
2002
2003
2004
2005
1443
1443
1443
1443
1443
1443
Revenue
280901
280901
280901
280901
280901
280901
COGS
251083
251083
251083
251083
251083
251083
Margin
29818
29818
29818
29818
29818
29818
Price per unit
194.66
194.66
194.66
194.66
194.66
194.66
COGS per unit
174.00
174.00
174.00
174.00
174.00
174.00
20.66
20.66
20.66
20.66
20.66
20.66
10.62%
10.62%
10.62%
10.62%
10.62%
10.62%
55
55
55
55
55
55
Year
a) Forecasts without the ERP system Units
Margin per unit Margin percentage DSI
Inventory
37834
37834
37834
37834
37834
37834
b) Calculation of additional units Pre-ERP units
1443
1443
1443
1443
1443
1443
Pre-ERP availability
0.832
0.832
0.832
0.832
0.832
0.832
Target availability
0.92
0.92
0.92
0.92
0.92
0.92
Increase in availability
11%
11%
11%
11%
11%
11%
Additional sales
25%
25%
25%
25%
25%
25%
0%
0%
0%
40%
40%
20%
Additional units in year
0
0
0
15
15
8
Additional units
0
0
0
15
31
38
Target DSI reduction
12
12
12
12
12
12
Percentage improvement
0%
0%
0%
40%
40%
20%
DSI reduction in year
0
0
0
4.8
4.8
2.4
DSI reduction
0
0
0
4.8
9.6
12
Percentage improvement
c) Calculation of reduction in DSI
d) Impact of the ERP system Additional units
0
0
0
15
31
38
0.00%
0.00%
0.00%
0.13%
0.25%
0.25%
0
0
0
5
10
12
1443
1443
1443
1458
1474
1481
Revenue
280901
280901
280901
284285.53
287647.66
289137.36
COGS
251083
251083
251083
253738.69
256394.37
257722.21
Margin
29818
29818
29818
30546.843
31253.285
31415.143
Price per unit
194.66
194.66
194.66
194.95
195.21
195.21
COGS per unit
174.00
174.00
174.00
174.00
174.00
174.00
20.66
20.66
20.66
20.95
21.21
21.21
10.62%
10.62%
10.62%
10.75%
10.87%
10.87%
55
55
55
50
45
43
37834
37834
37834
34898
31891
30362
Additional margin DSI reduction
e) Forecasts with the ERP system Units
Margin per unit Margin percentage DSI Inventory
Incremental Pre-Tax Cash flows:
Units = No of additional units that can be sold due to the implementation of ERP system in all the four waves (West, South, Central and North).
Revenue = Additional revenue due to implementation of ERP system
COGS = Additional cost of goods sold due to implementation of ERP system
Inventory = Reduction in inventory (working capital) cost due to implementation of ERP System. Inventory investment = Difference between current year and previous year inventory cost i.e. Working Capital changes
(+)Depreciation (-)CAPX (-)Working capital Inventory
4900
980
2760
4140
4960
4960
3980
2200
820
8900
6900
4100
0
0
0
0
0
-2685
-6967
-8429
-6218
-3765
-1529
0
0
1250 4
1018 1
7959
7426
Cash Flow
-8717
-8003
1297
8621
1399 7
Discount Factor @9%
1.000
0.917
0.842
0.772
0.708
0.650
0.596
0.547
0.502
Discounted Cash Flow
-8717
-7343
1092
6657
9916
8127
6071
4354
3727
2388 3
NPV Case questions:
1. Are all of the benefits of the ERP investment reasonable? Are the costs reasonable? Yes all of the three benefits of the ERP investment are reasonable. The co st incurred to achieve the three benefits are also reasonable. Because the benefits outperformed cost. 2. What are the after-tax cash flows for the proposed ERP investment from 1999 to 2007?
$45625 3. When valuing the proposed investment, should value be included for possible cash flows that occur beyond 2007? Cash flows can be calculated only till 2007 with the available case data. 4. Would you recommend the ERP investment? The NPV for Project Atlantic i.e. investment in ERP system is calculated to be $23883 (‘000). (‘000). Project Atlantic is highly favourable and Whirlpool should invest in ERP as the NPV is highly positive.
