The Analysis: Bringing Back-End to the Forefront

Whirlpool's acquisition of Maytag was smooth because the companies integrated supply chains from the start, says expert Kaushik Sengupta

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The 2001 acquisition of computer maker Compaq by larger rival Hewlett-Packard (HPQ) began inauspiciously: The stock price and market capitalization of the combined entity dropped, and the product lines proved difficult to integrate. But the early attention HP gave to integrating Compaq's supply chain into its own helped it eliminate costs and validate the deal over the long term, according to Kaushik Sengupta, professor of business and supply chain management at Hofstra.

"They actually talked about integrating the back end even before the merger was formalized between the two companies," says Sengupta. "And so when the merger actually happened between Compaq and HP, a lot of the integration efforts—the team and the people and so on—were already in place."

Whirlpool also had a decisive plan for back-end integration before it absorbed Maytag—a promising sign for success. "How the two companies merge"and these are two pretty big companies almost of the same size"how they merge and what they do after the merger really becomes important as to how they carry on doing business in the future," says Sengupta.

Fewer Facilities

It may seem counterintuitive for a company to reduce its total number of facilities after it becomes much larger, but Sengupta agrees that this strategy is a sound one; allowing Whirlpool to become nimbler. "The lesser the number of stages in the supply chain, the better you are in terms of responsiveness to the customer demand," he says.

He also points out that Whirlpool enlisted a single logistics provider, Penske Logistics. That will "help them consolidate the partners that they're going to work with in the future," says Sengupta.

While much of Whirlpool's long-term strategic decisions in this merger have been made, such as the number and location of distribution centers, the ultimate success of the integration still hinges on the ability of managers to make good tactical decisions on the fly. "The system needs to be tweaked from time to time depending on how the dynamics of the operation itself changes," says Sengupta.

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