The Issue: Whirlpool Cleans Up Its Supply Chain

A merger with Maytag further complicated Whirlpool's efforts to manage the supply chain. Brian Hancock talks about the challenge

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Any time two large manufacturers merge, one of the many areas that has to be looked at is the supply chain. On one hand, the merger represents an opportunity to address inefficiencies in the system. Yet when this aspect of the business has been left unexamined and unchanged for a long time, the reworking of it can be costly and tedious. And doing so is demanded just when the company has various other pressing matters to deal with, such as integrating the workforce and cutting costs.

Fortunately for appliance maker Whirlpool (WHR), when it acquired Maytag in 2005 it had already started taking a good hard look at its supply chain. According to Brian Hancock, the company's vice-president in charge of supply chain, the company recognized that its system was out-of-date. "Whirlpool had realized that it had focused on product and brand as a way to go after the marketplace. But as the marketplace had changed, supply chain had been something that we had neglected as a company," says Hancock.

A new consumer mindset was at the root of what Whirlpool saw as a big shift in the appliance industry. Instead of mulling the purchase of say, a new washer and dryer over a long period of time, as had traditionally been the way people shopped for major appliances, Hancock says a majority of customers had begun to act more quickly, buying new machines because the old ones broke down and had to be replaced or even treating them as somewhat discretionary purchases. "The supply chain needed to be able to get that appliance to [the consumer] within 48 hours," he says.

"schedule actualization"

Whirlpool decided that to meet this quicker demand, it would pare back the bulky inventories it formerly delivered to retail partners; consolidate its own warehouses into fewer, larger regional distribution centers; and optimize its technology for faster and more reliable shipment tracking. Hancock terms this last, crucial component "schedule actualization"—knowing the whereabouts of products "literally to the day, to make sure [retail partners] know exactly what's coming off that line." This just-in-time approach to inventory became critical because people buy appliances with the expectation that the store will be able to deliver them in just a couple of days. And being able to meet consumer expectations is critical for the retailers.

Whirlpool's $2.7 billion acquisition of appliance rival Maytag, announced nine months after the new supply chain strategy was put into place, drastically changed the plan's scope. "The complexity was just complicated by a factor of two, because the two companies were about the same size," says Hancock. "The buildings that we both had needed to be consolidated, the technologies that we had needed to be optimized and consolidated, and…the cash flow was probably about 200 to 300 million [dollars] out of whack from what we wanted it to be."

Still, Whirlpool's new campaign to streamline its supply chain helped managers make decisive moves in the integration of the two huge manufacturers. By 2009, Whirlpool will have closed some 100 facilities and completed construction on 10 regional distribution centers. In all, it will have eliminated about $60 million in operating costs from its supply chain.

Hancock only regrets one hiccup in the process: moving too slowly on permits for the new constructions. "The process in some of these larger cities for a facility that's maybe a million or 2 million square feet can take a long time, so I would [have gotten] that started as quickly as possible," he says.

Douglas MacMillan is a staff writer for BusinessWeek in New York.