The Wall Street Journal has an interesting article today about a major overhaul of the distribution system at Whirlpool. (“Whirlpool Cleans Up Its Delivery Act”, WSJ, Sep 23rd).
The article describes the improvement effort:
Mr. Hancock undertook a four-year, $600 million program to build a state-of-the-art distribution system from scratch. The effort took on greater dimensions after the company acquired Maytag Corp. in 2006. And Whirlpool ended up with too much capacity as its sales tumbled amid the recession. But the effort is already producing results, allowing Whirlpool to reduce its annual inventory by about $250 million a year and to deliver products in 48 to 72 hours (g.a: down from 5-10 days). Whirlpool is also saving about $100 million a year because of improved efficiency, the company says, a big boost for its efforts to trim costs during the economic slowdown.”
The recession is clearly forcing firms to improve their efficiency. We have already read at the beginning of the month (“Productivity gains in 2Q due mainly to cost cuts”, AP, sep 2nd) that companies managed to boost their workers’ productivity and their own profits in the spring mainly by slashing costs and capping their employees’ pay. The case of whirlpool is somewhat different:
Whirlpool’s logistics makeover shows how a recession can leave the biggest, best capitalized companies better positioned than ever to scoop up both market share and profits as the economy rebounds. At Whirlpool, where sales have fallen about 20% in the past year, the logistics revamp is one of the few areas that hasn’t suffered cuts.”
The article also outlines many of the steps taken to improve the distribution system, and then one I would like to mention is improving coordination:
The company’s ordering and delivery functions used to be located in separate divisions, complicating coordination and resulting in costly mistakes when Whirlpool made too much of a certain product.
As we preach in our course, improvement requires a cross functional view of the organization.