These forecasts would certainly be affected by the technological advancements in the industry, and as such innovations are unpredictable to a certain degree, the actual results might differ from projections. Furthermore, it is assumed that any sales increase that comes from reducing returned orders is already incorporated in the incremental revenues. With the ERP system, the firm expects to have the product available for 92 out of customers who ask for it. Capital BudgetingThe ERP investment is financially evaluated on the basis of after-tax cash flow estimations for the years Since the incremental revenues comes in the year soon after the Wave West implementation , the revenues for are taken as base year and are assumed to remain the same for
That is, calculate expected cash flows both with the ERP and without the ERP and then analyze the incremental cash flows. The margin in Exhibit 3 is the dollar amount left after deducting costs of goods sold COGS from revenues. Just in Time JIT manufacturing which requires efficient information exchange with suppliers. Considering the industry which Whirlpool is in, it would be recommended not to include the cash flows beyond But before making any final decision, the company needs to evaluate the financial aspects of this significant investment plus take into account qualitative issues that can arise during and after its implementation. The percentages should be interpreted as the fraction of the total expected gain that is added any given year. Estimated capital expense and operating expense from are demonstrated as follows.
The accounting principles require that depreciation expense is recognized with sales generation.
At the same time integrated information flow both internally and with external suppliers would assist studu the implementation of more projects in the future, for e. Moreover, the project also seeks to increase gross margins by whirlpoop certain percentage once the implementation is successfully completed.
It is assumed the revenues and corresponding gross margins will remain stagnant in the status quo. The margin in Exhibit 3 is the dollar amount left after deducting costs of goods sold COGS from revenues. The days in period is since we are looking at annual data forget leap years, for simplicity. Furthermore, the saving interests is not significant.
In aanlysis to meet the demands of the fast expanding, Whirlpool has nlv 10 factories across the Europe and 1 in Africa. Note that the total savings are displayed in Exhibit 6. To simplify, tax will be calculated based on the following formula: As mentioned earlier, the project would help the company to be ccase responsive to the demand through improved information flow which would significantly reduce the inventory as well as stock-out costs, hence increasing the profitability of the company.
Another benefit is the improvement in supplier, manufacturer and customer relationship whirlpiol integrates sales, forecasting and inventory management functions. The cash flows of the company in this industry are highly dependent on the technological developments and the ability of the company to incorporate these developments in their products.
DSI is an inverse measure of inventory turnover, and tells us how ehirlpool inventory is stored before it is sold on average. These changes could be in technology, competition, or economies which make the accuracy of the forecasts doubtful. But before making any final decision, the company needs to evaluate the financial aspects of this significant investment plus take into account qualitative issues that can arise during and after its implementation.
Just in Time JIT manufacturing which requires efficient information exchange with suppliers.
As the company is frequently coming up with improved products, it is difficult to predict the demand pattern of such innovations, thus making it difficult to forecast demand.
The result is shown as follows: There are two types of gross margins that are of interest in these projections. That is, eeurope the margin increase for a certain Wave in is 0.
Whirlpool Europe Erp Case
What are your major concern s? At the same time, as euroep are being manufactured in 11 different countries and distributed through 12 distributors, the absence integrated information system does not allow the sales people to see inventory at plant or distributor level, thus creating difficulty in committing and meeting delivery dates. Interpreting the Case Exhibits?
Moreover, reduction in inventories frees additional warehouse space that can be discarded or used for other purposes. That is, say that the firm currently has a product available for 72 out of customers that ask for it.
Moreover, the company may incorporate major changes in the ERP system itself which may require significant investment. Therefore, it is advisable to restrict our analysis to the years for which we sufficient knowledge to authentically forecast cash flows.
Currently, the company operates stand-alone information systems in each of these plants, distribution centers, and sales offices. Moreover, as the plants do not have information of inventory at distributor level, they may not be able to replenish inventory in time, which leads to product unavailability.
Thus for Wave West, the project will reduce its DSI to 42 days in37 in33 in and will remain consistent till See Exhibit 1. What are the after-tax cash flows for the proposed ERP investment from through ?
Moreover, the employees across countries might need to be trained in order to achieve the desired nppv. It is unclear from the case text exactly what the implication of an increase in product availability means for sales, so let me here explain it in more detail.