Whirlpool Europe Hbr Case

WHIRLPOOL Europe HBR CASE - EXECUTIVE BRIEF

Benefits for adopting the ERP:

• Inventory reduction (one-time, non-taxable) - When you reduce inventory; it is common to sell off some inventory for cash, bringing in cash flow. It is a one-time event; cash flow will turn to zero when inventory reduces to its target level.

• Additional sales units due to product availability. (As Shown in Exhibit 4 - persistent and taxable)

• Increased margin. (Persistent and taxable)

• Cost savings due to reduced size of staff (order desk, finance, warehouse space, bad debt expense, and information systems)

• Improvements or reduction of DSO

Are the Costs Reasonable?

Typically, as long as the NPV is positive, costs should be reasonable. However, we have concerns that the NPV is based on projections that may be excessively aggressive and overly optimistic about the benefits of tapping into a new market (i.e. contractors).

The costs associated with the implementation for the ERP:

• Capital expenditure (equipments and software license)

• Implementation cost

– 50 Whirlpool employees @$45,000 a year

– Consultants (19 in 1999, 9 in 2000, 7 in 2001, 4 in 2002) @ $15,400 per month

– Three-person task force begins July 2000 to June 2004. at $600,000 per year

• On going operational

– On going operational

– License maintenance

After-tax cash flows for the ERP investment from 1999 to 2007:

1999 2000 2001 2002 2003 2004 2005 2006 2007

(8,717) (8,028) 1,156 8,379 13,756 13,331 10,110 7,766 7,233

Combined cash flows for the entire projected period are $44,985

NPV is $21,271.70

There is no need to valuate the proposed investment for cash flows beyond 2007 because, in 2004, the incremental operating expense became income and not an expense.

Overall, we recommend the ERP investment based on the favorable NPV and the need for growth. Our major concerns are that this needs to be calculated to infinity and we really don’t have time for that.

Whirlpool is...