Executive Briefings

Whirlpool Discovers That 'One Size Doesn't Fit All'

The home-appliance giant needed a way to satisfy valued customers in its niche markets, even though they account for a relatively small percentage of sales.

Manufacturers understandably focus their efforts on the fastest-moving products. But niche markets matter, too.

With annual sales of $21bn, Whirlpool Corp. claims the title of the world’s leading manufacturer and marketer of home appliances. Its high-profile brands include KitchenAid, Maytag, Amana and Jenn-Air, with a presence in nearly every country.

An operation of such vast scope must necessarily serve a diverse range of customers. Areas that generate the biggest sales are going to command most of the company’s attention. But there are niche markets to be served as well, and those customers didn’t feel that they were receiving the proper level of attention.

The senior leadership of Whirlpool’s integrated supply chain sat down with niche marketers to hear out their frustrations. “They were getting the short end of the stick – and we were feeling it in our numbers,” said Aesha Browne, Whirlpool’s manager of supply and logistics.

Sellers of Whirlpool’s low-velocity products – often consisting of specialty items with higher price points – explained their plight. Their customers, they pointed out, had a different style of purchasing than those of the mass segments. They were interested in acquiring full suites of matching appliances, not just individual replacement units.

That’s a promising source of sales for Whirlpool. Still, the specialized market was falling victim to Whirlpool’s high-velocity distribution model, whereby models that failed to meet certain sales thresholds were not being stocked at regional distribution centers. Because low-velocity models only deployed to the RDCs at the time an order was placed, delivery was taking much longer than for mass products. The wait was so long, in fact, that some specialty customers balked at buying from Whirlpool at all.

Regional tastes in models also took second place to high-velocity markets. So a customer whose preferences reflected those of a certain area of the country might easily be convinced by a sales associate to go with a competitive brand.

Niche-market buyers don’t want to wait for their orders any longer than mass-market customers. Whirlpool had to find a way to serve their needs in a manner that made economic sense.

A Multidisciplinary Review

Whirlpool reviewed its fulfillment strategy across multiple disciplines of the company: market management, finance, inventory management, logistics, order fulfillment, merchandising, demand planning and supply planning.

Having limited resources with which to address the problem, the company initially decided to focus on the U.S. market, and the areas of inventory deployment and logistics management. (Manufacturing was left out of the evaluation, said Browne, because the scope of the effort couldn’t accommodate it.) A multidisciplinary project team set out to examine the entire product-distribution network, covering 10 main RDCs and three modes of transportation: over the road, boxcar and intermodal.

Some tweaking of inventory deployment was the result, by way of a 12-week trial involving three RDCs. Whirlpool compared the history of suite sales with those for individual appliances, to come up with a new stocking logic that minimized lead-time variation between the two. Sales history was combined with competitive flooring data at retail points, to allow for the strategic deployment of preferred appliances by region.

Whirlpool shortened the transportation journey as well. Using weekly sales data as a guide, it created a distribution path for niche items that bypassed the mixing center, or larger RDC, and went directly to the one at final destination. Trucks were loaded with a combination of high- and low-volume SKUs in mixed trailerloads, so that the latter might take advantage of the former’s expedited treatment.

In the process, Whirlpool created a separate inventory-management segment for the niche market. Niche products were given stocking-logic parameters that were based on SKUs within that category, instead of on mass business volume.

Browne admitted to some reluctance on the part of managers to effect the change. “Concern started creeping up,” she said. “Naysayers said this is not going to work.” They were worried about the loss of efficiency for high-volume deliveries, as well as the additional complexity, time and labor involved in mixing different types of products within the same truckloads. They were also skeptical that sales would increase for the niche market as a result.

Indeed, the “countermeasures” that Whirlpool deployed did appear to be adding SKU complexity, inventory and other costs to the distribution network. Given the relatively low level of sales for niche products, a substantial payback wasn’t assured.

In the end, however, the fears expressed by some internal managers weren’t borne out. On the contrary, the company saw a significant improvement in product availability, coupled with a reduction in both lead time and lead-time variation.

Product availability increased by 10 percent within special suites, 20 percent within the regional customization network, and 40 percent within direct-ship activities.

A Surpassing Result

Overall availability for niche customers actually surpassed that of mass customers by 1 percent, Whirlpool said. “This was a significant achievement,” the company noted, “considering niche availability was historically 10 percent lower than mass availability.”

Additional results included a 25-percent reduction in lead time with the direct-ship initiative, and up to 80 percent in overall lead-time variation with special suites, when taking in account the most extreme examples of customer orders saddled with variable delivery dates.

The three RDCs involved in the trial were “ecstatic,” said Browne. Year-over-year sales at two of them rose 10 percent. At one of the locations, the boost was sufficient to qualify 10 lower-volume models for regular stocking at the RDC, based on the company’s established thresholds. (Browne noted that while the increase in sales can’t be tied directly to the project, “we can still say we helped in some ways.”)

The benefits reverberated throughout the organization. According to Whirlpool, its market managers are reporting increases in trade customer confidence, leading to higher sales. The results were so impressive, in fact, that the company’s logistics and inventory-management units are considering extending the techniques to other business segments.

Whirlpool’s lesson: When it comes to order fulfillment and inventory stocking strategies, one size doesn’t fit all. Had the company relied solely on high-level metrics, the opportunity for improvements within the niche sector wouldn’t have been evident.

As it stands, “the enhancements that were made to the distribution strategy have helped the supply chain to deliver a superior level of service, and create great momentum for this particular business segment,” Whirlpool said.

As Browne pointed out, “nothing is free.” Safety stock levels, in-transit inventory and inventory carrying costs have risen as a result of the new strategy. Given the fact that the niche market occupies a relatively small portion of Whirlpool’s overall business, however, an incremental sales increase of less than 1 percent in that category can offset the additional costs.

On the plus side, Whirlpool has received positive customer feedback, while experiencing improved product availability and reduced lead-time variation. “In the end,” said Browne, “the benefits outweigh the costs.”

Click here to view the video 

Resource Link:
Whirlpool Corp.

Manufacturers understandably focus their efforts on the fastest-moving products. But niche markets matter, too.

With annual sales of $21bn, Whirlpool Corp. claims the title of the world’s leading manufacturer and marketer of home appliances. Its high-profile brands include KitchenAid, Maytag, Amana and Jenn-Air, with a presence in nearly every country.

An operation of such vast scope must necessarily serve a diverse range of customers. Areas that generate the biggest sales are going to command most of the company’s attention. But there are niche markets to be served as well, and those customers didn’t feel that they were receiving the proper level of attention.

The senior leadership of Whirlpool’s integrated supply chain sat down with niche marketers to hear out their frustrations. “They were getting the short end of the stick – and we were feeling it in our numbers,” said Aesha Browne, Whirlpool’s manager of supply and logistics.

Sellers of Whirlpool’s low-velocity products – often consisting of specialty items with higher price points – explained their plight. Their customers, they pointed out, had a different style of purchasing than those of the mass segments. They were interested in acquiring full suites of matching appliances, not just individual replacement units.

That’s a promising source of sales for Whirlpool. Still, the specialized market was falling victim to Whirlpool’s high-velocity distribution model, whereby models that failed to meet certain sales thresholds were not being stocked at regional distribution centers. Because low-velocity models only deployed to the RDCs at the time an order was placed, delivery was taking much longer than for mass products. The wait was so long, in fact, that some specialty customers balked at buying from Whirlpool at all.

Regional tastes in models also took second place to high-velocity markets. So a customer whose preferences reflected those of a certain area of the country might easily be convinced by a sales associate to go with a competitive brand.

Niche-market buyers don’t want to wait for their orders any longer than mass-market customers. Whirlpool had to find a way to serve their needs in a manner that made economic sense.

A Multidisciplinary Review

Whirlpool reviewed its fulfillment strategy across multiple disciplines of the company: market management, finance, inventory management, logistics, order fulfillment, merchandising, demand planning and supply planning.

Having limited resources with which to address the problem, the company initially decided to focus on the U.S. market, and the areas of inventory deployment and logistics management. (Manufacturing was left out of the evaluation, said Browne, because the scope of the effort couldn’t accommodate it.) A multidisciplinary project team set out to examine the entire product-distribution network, covering 10 main RDCs and three modes of transportation: over the road, boxcar and intermodal.

Some tweaking of inventory deployment was the result, by way of a 12-week trial involving three RDCs. Whirlpool compared the history of suite sales with those for individual appliances, to come up with a new stocking logic that minimized lead-time variation between the two. Sales history was combined with competitive flooring data at retail points, to allow for the strategic deployment of preferred appliances by region.

Whirlpool shortened the transportation journey as well. Using weekly sales data as a guide, it created a distribution path for niche items that bypassed the mixing center, or larger RDC, and went directly to the one at final destination. Trucks were loaded with a combination of high- and low-volume SKUs in mixed trailerloads, so that the latter might take advantage of the former’s expedited treatment.

In the process, Whirlpool created a separate inventory-management segment for the niche market. Niche products were given stocking-logic parameters that were based on SKUs within that category, instead of on mass business volume.

Browne admitted to some reluctance on the part of managers to effect the change. “Concern started creeping up,” she said. “Naysayers said this is not going to work.” They were worried about the loss of efficiency for high-volume deliveries, as well as the additional complexity, time and labor involved in mixing different types of products within the same truckloads. They were also skeptical that sales would increase for the niche market as a result.

Indeed, the “countermeasures” that Whirlpool deployed did appear to be adding SKU complexity, inventory and other costs to the distribution network. Given the relatively low level of sales for niche products, a substantial payback wasn’t assured.

In the end, however, the fears expressed by some internal managers weren’t borne out. On the contrary, the company saw a significant improvement in product availability, coupled with a reduction in both lead time and lead-time variation.

Product availability increased by 10 percent within special suites, 20 percent within the regional customization network, and 40 percent within direct-ship activities.

A Surpassing Result

Overall availability for niche customers actually surpassed that of mass customers by 1 percent, Whirlpool said. “This was a significant achievement,” the company noted, “considering niche availability was historically 10 percent lower than mass availability.”

Additional results included a 25-percent reduction in lead time with the direct-ship initiative, and up to 80 percent in overall lead-time variation with special suites, when taking in account the most extreme examples of customer orders saddled with variable delivery dates.

The three RDCs involved in the trial were “ecstatic,” said Browne. Year-over-year sales at two of them rose 10 percent. At one of the locations, the boost was sufficient to qualify 10 lower-volume models for regular stocking at the RDC, based on the company’s established thresholds. (Browne noted that while the increase in sales can’t be tied directly to the project, “we can still say we helped in some ways.”)

The benefits reverberated throughout the organization. According to Whirlpool, its market managers are reporting increases in trade customer confidence, leading to higher sales. The results were so impressive, in fact, that the company’s logistics and inventory-management units are considering extending the techniques to other business segments.

Whirlpool’s lesson: When it comes to order fulfillment and inventory stocking strategies, one size doesn’t fit all. Had the company relied solely on high-level metrics, the opportunity for improvements within the niche sector wouldn’t have been evident.

As it stands, “the enhancements that were made to the distribution strategy have helped the supply chain to deliver a superior level of service, and create great momentum for this particular business segment,” Whirlpool said.

As Browne pointed out, “nothing is free.” Safety stock levels, in-transit inventory and inventory carrying costs have risen as a result of the new strategy. Given the fact that the niche market occupies a relatively small portion of Whirlpool’s overall business, however, an incremental sales increase of less than 1 percent in that category can offset the additional costs.

On the plus side, Whirlpool has received positive customer feedback, while experiencing improved product availability and reduced lead-time variation. “In the end,” said Browne, “the benefits outweigh the costs.”

Click here to view the video 

Resource Link:
Whirlpool Corp.