WHIRLPOOL EUROPEHarvard Business School Case N9-202-017Case Software 2-202-711 (3rd edition; Revised 5/20/02)

Copyright © 2001 by the President and Fellows of Harvard College

This case was prepared solely as the basis for class discussion. Cases are not intendedto serve as endorsements, sources of primary data, or illustrations of effective or ineffectivemanagement.

Location ProductsAmiens France Washers and DryersNorrkoping Sweden Microwave OvensPoprad Slovakia WashersNeunkirchen Germany DishwashersSchorndorf Germany WashersCassinetta Italy Refrigerators and Cooking AppliancesNaples Italy WashersSiena Italy Chest FreezersTrento Italy Refrigerators and FreezersIsithebe South Africa Refrigerators and Freezers

Source: Company documents.

Exhibit 1Whirpool Europe's Manufacturing Sites

Wave West Wave Sout Wave Central Wave NorthBelgium Italy Czech Republic DenmarkFrance Portugal Hungary FinlandNetherlands Spain Poland IrelandPlus: Warehouse Slovakia NorwayMgt and Physical Dist. Sweden

United Kingdom

Source: Company documents.

Exhibit 2A Project Atlantic Implementation Groupingsa

aAustria, Germany, and Switzerland were not part of Project Atlantic.

West South Central NorthStart Date: May-99 May-00 Mar-01 Jan-02End Date: Apr-00 Feb-01 Dec-01 Aug-02

Source: Company documents.

Exhibit 2B Wave Implementation Schedule

Wave DSI Units SoldWest 45 73.5% 2,271,139 477,784 58,859South 51 83.1% 1,415,949 283,549 46,241Central 67 76.8% 977,665 185,625 43,678North 55 83.2% 1,443,156 280,901 29,818

Source: Company documents.

Exhibit 3 1997 Data for Whirlpool Europe

Product Availability

Revenue (000s US$)

Margin (000s US$)

Improvements by Year by WaveWave 2000 2001 2002 2003 2004 2005West 25% 40% 35%South 35% 40% 25%Central 40% 40% 20%North 40% 40% 20%

Source: Company documents.

Exhibit 4 Improvements in DSI and Availability by Year and Wave

Margin Improvements by Year by Wave

2000 2001 2002 2003 2004 2005West 0.06% 0.25% 0.25% 0.25% 0.25% 0.25%South 0.00% 0.10% 0.25% 0.25% 0.25% 0.25%Central 0.00% 0.00% 0.13% 0.25% 0.25% 0.25%North 0.00% 0.00% 0.00% 0.13% 0.25% 0.25%

Source: Company Documents

2000 2001 2002 2003 2004 2005West 0.06 0.25 0.25 0.25 0.25 0.25South 0.00 0.10 0.25 0.25 0.25 0.25Central 0.00 0.00 0.13 0.25 0.25 0.25North 0.00 0.00 0.00 0.13 0.25 0.25

Exhibit 5 Margin Improvements by Year by Wave

2000 2001 2002 2003 2004 2005

Order Desk Headcount 0 190 411 442 474 506

Finance Headcount 81 135 216 324 405 405

Warehouse Space 18 72 155 230 274 288

Bad Debt Expense 102 512 922 1,024 1,024 1,024

Information Systems 420 840 840 1,280 1,280 1,280

621 1,749 2,544 3,300 3,457 3,503

Source: Company Documents.

Exhibit 6 Forecasted Other Expense Savings by Year (000s US$)

2006 2007

537 569

405 405

288 288

1,024 1,024

1,280 1,280

3,534 3,566

One measure of evaluating investment in project Atlantic is by calculating NPV. If the NPV of Investment in project Atlantic is > 0 then we can invest in it.For calculating NPV of the project we need to find the expected CF from the project.Expected CF from the project can be found by taking the difference of expected CF without the project and expected CF with the project

Forecasted Income Statement for West WaveAssuming Exhibit 3 is valid for 2000 and subsequent years

Year2000 2001 2002 2003 2004

# of Units sold 2271139 2271139 2271139 2271139 2271139revenue/sales 477784000 477784000 477784000 477784000 477784000margin/profit 58859000 58859000 58859000 58859000 58859000cogs 418925000 418925000 418925000 418925000 418925000cogs/unit 184.45590516 184.45590516 184.45590516 184.45590516 184.45590516price/unit 210.37197635 210.37197635 210.37197635 210.37197635 210.37197635margin/unit 25.916071187 25.916071187 25.916071187 25.916071187 25.916071187margin % of revenue 12.319165146 12.319165146 12.319165146 12.319165146 12.319165146DSI 45 45 45 45 45Inventory in $ 51648287.671 51648287.671 51648287.671 51648287.671 51648287.671

Forecasted Income Statement for South WaveYear

2000 2001 2002 2003 2004# of Units sold 1415949 1415949 1415949 1415949 1415949revenue/sales 283549000 283549000 283549000 283549000 283549000margin/profit 46241000 46241000 46241000 46241000 46241000cogs 237308000 237308000 237308000 237308000 237308000cogs/unit 167.59643179 167.59643179 167.59643179 167.59643179 167.59643179price/unit 200.25368145 200.25368145 200.25368145 200.25368145 200.25368145margin/unit 32.657249661 32.657249661 32.657249661 32.657249661 32.657249661margin % of revenue 16.307939721 16.307939721 16.307939721 16.307939721 16.307939721DSI 51 51 51 51 51Inventory in $ 33158104.11 33158104.11 33158104.11 33158104.11 33158104.11

Forecasted Income Statement for central WaveYear

2000 2001 2002 2003 2004# of Units sold 977665 977665 977665 977665 977665revenue/sales 185625000 185625000 185625000 185625000 185625000margin/profit 43678000 43678000 43678000 43678000 43678000cogs 141947000 141947000 141947000 141947000 141947000cogs/unit 145.18981451 145.18981451 145.18981451 145.18981451 145.18981451price/unit 189.86564928 189.86564928 189.86564928 189.86564928 189.86564928margin/unit 44.67583477 44.67583477 44.67583477 44.67583477 44.67583477margin % of revenue 23.53023569 23.53023569 23.53023569 23.53023569 23.53023569DSI 67 67 67 67 67Inventory in $ 26056024.658 26056024.658 26056024.658 26056024.658 26056024.658

Forecasted Income Statement for North WaveYear

2000 2001 2002 2003 2004

# of Units sold 1443156 1443156 1443156 1443156 1443156revenue/sales 280901000 280901000 280901000 280901000 280901000margin/profit 29818000 29818000 29818000 29818000 29818000cogs 251083000 251083000 251083000 251083000 251083000cogs/unit 173.98188415 173.98188415 173.98188415 173.98188415 173.98188415price/unit 194.64354512 194.64354512 194.64354512 194.64354512 194.64354512margin/unit 20.661660971 20.661660971 20.661660971 20.661660971 20.661660971margin % of revenue 10.61512775 10.61512775 10.61512775 10.61512775 10.61512775DSI 55 55 55 55 55Inventory in $ 37834424.658 37834424.658 37834424.658 37834424.658 37834424.658

Forecast With ERPWest Wave

Year2000 2001 2002 2003 2004

# of Units sold 2306866.95 2364031.68 2414050.81 2414050.81 2414050.81revenue/sales 485632478.19 498748071.2 509300783.43 509300783.43 509300783.43margin/profit 60117246.477 62688468.73 64014856.558 64014856.558 64014856.558cogs 425515231.72 436059602.47 445285926.87 445285926.87 445285926.87cogs/unit 184.45590516 184.45590516 184.45590516 184.45590516 184.45590516price/unit 210.51603248 210.97351463 210.97351463 210.97351463 210.97351463margin/unit 26.06012732 26.517609468 26.517609468 26.517609468 26.517609468margin % of revenue 12.38 12.57 12.57 12.57 12.57cogs % of revenue 87.62 87.43 87.43 87.43 87.43DSI 42.00 37.20 33.00 33.00 33.00Inventory in $ 48963396.526 44442238.936 40258727.635 40258727.635 40258727.635

south waveYear

2000 2001 2002 2003 2004# of Units sold 1415949.00 1429218.20 1444382.99 1453860.99 1453860.99revenue/sales 283549000 286548590 290109610.32 292013300.9 292013300.9margin/profit 46241000 47016719.922 48036174.403 48351386.341 48351386.341cogs 237308000 239531870.1 242073435.92 243661914.56 243661914.56cogs/unit 167.59643179 167.59643179 167.59643179 167.59643179 167.59643179price/unit 200.25368145 200.4932421 200.85365969 200.85365969 200.85365969margin/unit 32.657249661 32.896810309 33.2572279 33.2572279 33.2572279margin % of revenue 16.31 16.41 16.56 16.56 16.56cogs % of revenue 83.69 83.59 83.44 83.44 83.44DSI 51.00 46.80 42.00 39.00 39.00Inventory in $ 33158104.11 30712579.508 27855025.503 26035108.679 26035108.679

central waveYear

2000 2001 2002 2003 2004# of Units sold 977665.00 977665.00 997014.62 1016364.24 1026039.05revenue/sales 185625000 185625000 189621187.62 193605604.47 195448543.59margin/profit 43678000 43678000 44864819.909 46039869.052 46478124.319cogs 141947000 141947000 144756367.71 147565735.42 148970419.27cogs/unit 145.18981451 145.18981451 145.18981451 145.18981451 145.18981451price/unit 189.86564928 189.86564928 190.18897402 190.48840655 190.48840655margin/unit 44.67583477 44.67583477 44.999159509 45.298592039 45.298592039margin % of revenue 23.53 23.53 23.66 23.78 23.78cogs % of revenue 76.47 76.47 76.34 76.22 76.22DSI 67.00 67.00 62.20 57.40 55.00Inventory in $ 26056024.658 26056024.658 24668071.429 23206227.981 22447597.424

North WaveYear

2000 2001 2002 2003 2004# of Units sold 1443156.00 1443156.00 1443156.00 1458420.15 1473684.30revenue/sales 280901000 280901000 280901000 284285528.82 287647656.5margin/profit 29818000 29818000 29818000 30546843.246 31253285.348cogs 251083000 251083000 251083000 253738685.58 256394371.15cogs/unit 173.98188415 173.98188415 173.98188415 173.98188415 173.98188415price/unit 194.64354512 194.64354512 194.64354512 194.92704405 195.18946935margin/unit 20.661660971 20.661660971 20.661660971 20.945159902 21.207585198margin % of revenue 10.62 10.62 10.62 10.75 10.87cogs % of revenue 89.38 89.38 89.38 89.25 89.13DSI 55.00 55.00 55.00 50.20 45.40Inventory in $ 37834424.658 37834424.658 37834424.658 34897758.948 31891245.07

One measure of evaluating investment in project Atlantic is by calculating NPV. If the NPV of Investment in project Atlantic is > 0 then we can invest in it.

Expected CF from the project can be found by taking the difference of expected CF without the project and expected CF with the project

Calculation of additional units In case it is given that erp increases gross marginGross margin=sales-cogs The gross margins can increase by either increasing sales or by reducing cogs

Year .As cogs is direct attributable cost so it cannot be decreased without decreasing the no of units produced2005 Therefore the increase in margin is due to additional units produced as the

2271139 firm would not want to increase price due to competetion etc.477784000 Addn units calculation 2000 2001 2002

58859000 Pre-erp units 2271139 2271139 2271139418925000 P-erp availability 0.735 0.735 0.735

184.455905165 target availabity 0.920 0.920 0.920210.371976352 % I^ in availability 0.252 0.252 0.25225.9160711872 additional sales 0.250 0.250 0.25012.3191651458 % Improvement 0.250 0.400 0.350

45 add units in year 35727.95 57164.72 50019.1351648287.6712 add cumulative units 35727.95 92892.68 142911.81

Inventory savingsReduction in DSI by ERP 12.00 12.00 12.00% Improvement 0.25 0.40 0.35Net DSI reduction 3.00 4.80 4.20cmulative dsi 3.00 7.80 12.00

Year new DSI 42.00 37.20 33.002005

1415949 Addn units calculation 2000 2001 2002283549000 Pre-erp units 1415949 1415949 1415949

46241000 P-erp availability 0.831 0.831 0.831237308000 target availabity 0.920 0.920 0.920

167.596431792 % I^ in availability 0.107 0.107 0.107200.253681453 additional sales 0.250 0.250 0.25032.6572496608 % Improvement 0.000 0.350 0.40016.3079397212 add units in year 0.00 13269.20 15164.80

51 add cumulative units 0.00 13269.20 28433.9933158104.1096

Inventory savingsReduction in DSI by ERP 12.00 12.00 12.00% Improvement 0.00 0.35 0.40Net DSI reduction 0.00 4.20 4.80

Year cumulative dsi 0.00 4.20 9.002005 new DSI 51.00 46.80 42.00

977665185625000 Addn units calculation 2000 2001 2002

43678000 Pre-erp units 977665 977665 977665141947000 P-erp availability 0.768 0.768 0.768

145.189814507 target availabity 0.920 0.920 0.920189.865649277 % I^ in availability 0.198 0.198 0.19844.6758347696 additional sales 0.250 0.250 0.25023.5302356902 % Improvement 0.000 0.000 0.400

67 add units in year 0.00 0.00 19349.6226056024.6575 add cumulative units 0.00 0.00 19349.62

Inventory savingsReduction in DSI by ERP 12.00 12.00 12.00% Improvement 0.00 0.00 0.40

Year Net DSI reduction 0.00 0.00 4.802005 Cumulative DSI 0.00 0.00 4.80

1443156 new DSI 67.00 67.00 62.20280901000

29818000 Addn units calculation 2000 2001 2002251083000 Pre-erp units 1443156 1443156 1443156

173.981884148 P-erp availability 0.832 0.832 0.832194.643545119 target availabity 0.920 0.920 0.92020.6616609708 % I^ in availability 0.106 0.106 0.10610.6151277496 additional sales 0.250 0.250 0.250

55 % Improvement 0.000 0.000 0.00037834424.6575 add units in year 0.00 0.00 0.00

add cumulative units 0.00 0.00 0.00

Inventory savingsReduction in DSI by ERP 12.00 12.00 12.00% Improvement 0.00 0.00 0.00

2005 Net DSI reduction 0.00 0.00 0.002414050.81 cumulative dsi 0.00 0.00 0.00

509300783.429 new dsi 55.00 55.00 55.0064014856.5578445285926.871184.455905165 Sum of all waves without ERP210.973514633

26.517609468 2000 2001 200212.57 # of Units sold 6107909.00 6107909.00 6107909.0087.43 revenue/sales 1227859000 1227859000 122785900033.00 margin/profit 178596000 178596000 178596000

40258727.6349 cogs 1049263000 1049263000 1049263000inventory 148696841.1 148696841.1 148696841.1

2005 Sum of all waves with ERP1453860.99

292013300.902 2000 2001 200248351386.3412 # of Units sold 6143636.95 6214070.87 6298604.42243661914.561 revenue/sales 1235707478 1251822661 1269932581.4167.596431792 margin/profit 179854246.48 183201188.7 186733850.87200.853659692 cogs 1055853232 1068621473 1083198730.533.2572278996 inventory 146011950 139045267.8 130616249.22

16.5683.4439.00 Incremental Cash flow from ERP

26035108.6791

2000 2001 2002# of Units sold 35727.95 106161.87 190695.42

2005 revenue/sales 7848478.1949 23963661.21 42073581.3691026039.05 margin/profit 1258246.4772 4605188.652 8137850.8693

195448543.59 cogs 6590231.7177 19358472.56 33935730.546478124.3187 inventory -2684891.145 -9651573.336 -18080591.872148970419.271 working capital for inventory -2684891.145 -6966682.192 -8429018.5353145.189814507 negative cash flow from inventory means that cash has gone out from business for inventory190.48840654645.2985920393 also FCF= NI+NCC-WC+Int(1-t)+capex

23.78 so we need to find NCC,CAPEX76.22 capex and NCC55.00 1999 2000 2001

22447597.4244 capex of equipment 4300000 8600000 6900000capex of software license 600000.00 300000.00

total capex 4900000 8900000 6900000depreciation+amortization 980000 980000

2005 17800001481316.38

289137357.17131415143.2285 Total Dep+Amortization 980000 2760000257722213.942173.981884148 operating expenses195.189469347 Expenses 1999 2000 200121.2075851984 current employees 2250000 2250000 2250000

10.87 consultants 3511200.00 1663200.00 1293600.0089.13 Task force 300000 60000043.00 manage&maintenance 600000 1200000 1800000

30361795.0672 License maintenance 100000 200000Total expenses 6361200 5513200 6143600forecasted savings 621000 1749000operating expenses net 6361200 4892200 4394600

FCF and NPVExpenses 1999 2000 2001revenue 0 7848478.195 23963661.214(cogs) 0.00 6590231.72 19358472.56(Operating expenses) 6361200 4892200 4394600(depreciation) 0 980000 2760000EBIT -6361200.00 -4613953.52 -2549411.35

-2544480 -1845581.409 -1019764.5392EBIAT -3816720.00 -2768372.11 -1529646.81plus NCC 0 980000 2760000 minus Working Capital inventry 0 -2684891.145 -6966682.1915minus Capex 4900000 8900000 6900000FCF -8716720.00 -8003480.97 1297035.38Discount factor at 9% 1 0.917 0.842Discounted cash flow -8716720 -7339192.048 1092103.7922PV of all DCF 23877808.296

PV of forecasted cash flows from ERP = 23.8 million

taxes@40%

In case it is given that erp increases gross marginThe gross margins can increase by either increasing sales or by reducing cogs .As cogs is direct attributable cost so it cannot be decreased without decreasing the no of units producedTherefore the increase in margin is due to additional units produced as thefirm would not want to increase price due to competetion etc.

2003 2004 20052271139 2271139 2271139

0.735 0.735 0.7350.920 0.920 0.9200.252 0.252 0.2520.250 0.250 0.2500.000 0.000 0.000

0.00 0.00 0.00142911.81 142911.81 142911.81

12.00 12.00 12.000.00 0.00 0.000.00 0.00 0.00

12.00 12.00 12.0033.00 33.00 33.00

2003 2004 20051415949 1415949 1415949

0.831 0.831 0.8310.920 0.920 0.9200.107 0.107 0.1070.250 0.250 0.2500.250 0.000 0.000

9478.00 0.00 0.0037911.99 37911.99 37911.99

12.00 12.00 12.000.25 0.00 0.003.00 0.00 0.00

12.00 12.00 12.0039.00 39.00 39.00

2003 2004 2005977665 977665 977665

0.768 0.768 0.7680.920 0.920 0.9200.198 0.198 0.1980.250 0.250 0.2500.400 0.200 0.000

19349.62 9674.81 0.0038699.24 48374.05 48374.05

12.00 12.00 12.000.40 0.20 0.004.80 2.40 0.009.60 12.00 12.00

57.40 55.00 55.00

2003 2004 20051443156 1443156 1443156

0.832 0.832 0.8320.920 0.920 0.9200.106 0.106 0.1060.250 0.250 0.2500.400 0.400 0.200

15264.15 15264.15 7632.0815264.15 30528.30 38160.38

12.00 12.00 12.000.40 0.40 0.204.80 4.80 2.404.80 9.60 12.00

50.20 45.40 43.00

Year2003 2004 2005

6107909.00 6107909.00 6107909.001227859000 1227859000 1227859000

178596000 178596000 1785960001049263000 1049263000 1049263000

148696841 148696841.1 148696841.1

Year2003 2004 2005

6342696.19 6367635.15 6375267.221279205218 1284410284 1285899985.1

188952955 190097652.57 190259510.451090252262 1094312632 1095640474.6

124397823 120632678.81 119103228.81

Year2003 2004 2005

234787.19 259726.15 267358.2251346217.62 56551284.422 58040985.091

10356955.2 11501652.565 11663510.44640989262.43 45049631.856 46377474.645-24299017.9 -28064162.29 -29593612.29-6218425.98 -3765144.435 -1529450.0024

negative cash flow from inventory means that cash has gone out from business for inventory

capex and NCC2002 2003 2004 2005 2006 2007

4100000

4100000 0 0 0 0 0980000 980000 980000

1780000 1780000 1780000 17800001380000 1380000 1380000 1380000 1380000

820000 820000 820000 820000 8200004140000 4960000 4960000 3980000 2200000 820000

2002 2003 2004 2005 2006 20072250000

739200.00600000 600000 300000

2400000 3000000 3000000 3000000 3000000 3000000300000 400000 400000 400000 400000 400000

6289200 4000000 3700000 3400000 3400000 34000002544000 3300000 3457000 3503000 3534000 35660003745200 700000 243000 -103000 -134000 -166000

2002 2003 2004 2005 2006 200742073581.37 51346217.622 56551284.422 58040985.091 58040985.09 58040985.0933935730.50 40989262.43 45049631.86 46377474.64 46377474.64 46377474.64

3745200 700000 243000 -103000 -134000 -1660004140000 4960000 4960000 3980000 2200000 820000

252650.87 4696955.20 6298652.57 7786510.45 9597510.45 11009510.45101060.3477 1878782.0787 2519461.0262 3114604.1785 3839004.18 4403804.18

151590.52 2818173.12 3779191.54 4671906.27 5758506.27 6605706.274140000 4960000 4960000 3980000 2200000 820000

-8429018.54 -6218425.982 -3765144.4345 -1529450.002 0 04100000 0 0 0 0 0

8620609.06 13996599.10 12504335.97 10181356.27 7958506.27 7425706.270.772 0.708 0.65 0.596 0.547 0.502

6655110.192 9909592.1628 8127818.3829 6068088.337 4353302.93 3727704.54754