Inventory Management Analysis: Case of Maytag and Whirlpool

Introduction

Every firm requires inventory for the smooth running of the undertakings. So, why is inventory management important? Inventory management serves is an integral part since it links the production process to distribution. There is a transition from production, inventory management, and distribution. The investment placed on stock constitutes the most significant proportion of the working capital of a company. The principal reason for ensuring inventory management practices efficiency is to ensure availability of materials when required to do so. Raw materials, work in progress, and finished products are all parts of the inventory since they carry a significant portion of funds until they leave the firm as purchased goods. Since stocks take a significant proportion of the company's wealth, it is imperative for businesses to ensure efficient and high-standard management of the inventory.

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Type of Inventory Managed

Maytag Corporation is an American manufacturer of home appliances that include washing machines, dryers, refrigerators, and dishwashers (maytag.com, e.d). From 2006, the company was acquired by the larger Whirlpool Corporation during the recessionary period. Whirlpool is an international firm that is involved in mass production and marketing of home appliances. In fact, the company is regarded as the world's largest producer of home appliances with over 60 subsidiaries (Whirlpool.com, e.d). Whirlpool serves as the parent company of several firms including Maytag, Consul, and Amana among many others. The inventory held by the business is large and is aimed at maximizing its returns. In both Whirlpool and Maytag, inventory ranges from raw materials, work in progress, to finished products.

In Maytag appliances, most of the materials used for manufacturing the final products are sheet steel coated with zinc. The supplier brings in the materials as a rolled up sheet and leaves the mandate to cut desired pieces to the company. During such cutting exercises, the materials may be wasted and end up bringing undesirable wastage of the raw materials. The company ensures minimal wastage of the raw materials to maximize the production capacity of the enterprise. Each department in the business is given the responsibility to make sure that the products are manufactured in an efficient manner to reduce the cost of production. If the manufacturing process takes much time, it consumes much of the company's working capital which reduces efficiency. As for the finished products, the company stores them in Whirlpool warehouses and later transports them to the outlets (Whirlpool.co, e.d). Similarly, Whirlpool Corporation also comprises the three forms of inventory namely raw materials, work in progress, and finished goods. The brands associated with the company include Consul, Whirlpool, and Amana among many others. However, in this corporation, the focus tends to be more on improving the means of transferring ownership of the finished products from the company to the consumer. The main aim of the company is to see a reduction in the inventory of finished goods through the establishment of good customer relations.

Analysis of Goods and Services

Whirlpool has several brands of products that it produces and markets that include Whirlpool, Amana, Consul, Bauknecht, Brastemp, Jenn-Air, as well as the others Whirlpool parts marketplace. These brands are available in almost every country in the world. The major concept applied by the company is the i2 demand planner. The management formed an international team to look into the demand of the company's products specifically. The i2 can segment the demand for the firm's products in a manner that it can see the request per region. With such an initiative, the company ferries more goods to areas with high demand for their products. Also, i2 enables the firm to monitor and optimize inventory, and reduce risks and costs associated with running a home appliance business. The concept of i2 is strengthened by enhanced customer relations, planned procurement, and integrated sourcing. Also, i2 enables the company to minimize transportation costs through proper planning and integrated transport selection.

In the late 1990's, Maytag adopted the Lean and six innovative Sigma concept. The combination of Lean and Sigma (Lean Six Sigma) during that time had not been used in the main companies (Weber, 2011). Lean Six Sigma principles aided the company in creating a new production line. The latter was possible through reduction of floor space used by the company's products by one-third. Through the application of the concept, the firm was able to reduce its production costs by more than 55% and hence increased its profit margins (Weber, 2011).

The company had dominated long enough since the 1960s and was among the best manufacturers and sellers of home appliances. However, the popularity of big-box stores among many retailers in the USA brought stiff competition to the company. Maytag had to act to beat the competition and resulted in the introduction of price points and product line concepts. The concept involved pricing premiums and non-price policies which were meant to attract more customers than their competitors (McClusky, 2000). The concepts aimed at ensuring that finished products do not delay within the company but rather reach the intended consumers promptly to guarantee their satisfaction.

Role Played by Inventory

Enhancing the operational efficiency of a company starts by improving the efficacy of processes involved throughout the supply chain. The company must ensure that the period between the manufacture of goods and their arrival to the final consumer is minimized. The company must alleviate total quality management, lean management, and just in time (JIT) to achieve the latter. It is evident from many studies that firms that uphold enhancement of operations through quality management of their inventory gain more returns and have a wider market share. Raw materials have a high correlation with the financial performance of the company while work in progress has an effect on the profits. The finished goods positively correlate with the operating profits of the company. There is a positive correlation between a firm's financial performance and its inventory management methods.

Inventory management process is essential for any business anticipating growth and development. A crucial role that inventory plays in the management of the supply chain in facilitating supply and demand. Supply regards that of raw materials while demand focuses on finished products. Inventory in both Whirlpool and Maytag plays a major role in the management of reverse and forward flows within their supply chain. As well, the inventory of these companies is essential in dealing with downstream client requests and upstream suppliers' exchanges. The demand of the clients and the supply of raw materials must be maintained in a favorable state. The balance is achievable through inventory management tools in companies (Waller, Mathew, & Esper, 2014). The firms have gone a step further and implemented a sales and operations process (S&OP) which helps in marketing and sales forecasting. The S&OP aligns with the manufacturing and other logistics level of a company (Waller et al. 2014). Also, the firms use the point of sale (POS) to bring an adjustment in the management of inventory.

Types of Layouts

The process, product, cellular, and fixed-position layouts are the common types of designs in many firms. The process layout entails a functional group of related activities aimed at achieving a common goal. Product design encompasses how the final commodity is manufactured and all the related activities that enable its production. On the other hand, cellular layout comprises a design that focuses on grouping products that use the same technique in their production. Lastly, fixed-position layout involves the manufacture of goods in one stationery place without any movement which mostly includes production of fragile or too bulky. Companies exhibit differences in operations of these layouts.

At Whirlpool, production is divided into categories two namely intermittent and continuous production. The intermittent systems allow the employees of the company to conduct their activities on a start-to-stop basis (Dessler & Phillips, 2007). The process layout at Whirlpool ensures the brands manufactured in their various subsidiaries are coordinated in a manner that products do not become differentiated. Cellular layout in the company is ensured through maintaining differential activities that are involved in the production of refrigerators, washing machines, cookers, and other appliances. The processes involved in the production of individual elements are different, and inventory of the goods is recorded separately. (Dessler & Phillips, 2007). Most of the processes in Maytag Corporation follow those of Whirlpool since it is owned and controlled by Whirlpool Corporation. There is minimal or no difference in the operations of the two companies. However, it is important to note that the management of the two companies may have different approaches regarding inventory management techniques, but they can work together to maintain a hedge in the market.

Metrics Used in Evaluation of Supply Chain

A firm's management requires adequate visibility and information within the organizations and also in the entire supply chain. For the latter reason, the management must ensure to have the proper metrics to analyze the performance of the supply chain. At Whirlpool, data is used as the primary metric for evaluating performance. More precisely, the company relies on financial data from yearly reports. However, the use of data is viewed as a reactive method whereby the performance evaluated can only be from the past and not an indication of the existing situation. The latter is one reason why companies continue to underperform since they rely on past performance instead of aiming for the future (Gunaserakan et al. 2004).

Another metric used in evaluating the performance of the supply chain is cost. The costs involved in any supply chain include raw material purchase, manufacturing, transportation, storage, and administration costs. The company must look at the actual versus expected costs to ensure that this method is efficient.

Another metric used in the measurement of supply chain performance is quality (Gunaserekan et al. 2004). The quality of the supply chain is indicated by customer satisfaction which is a result of several attributes. Customer satisfaction depends on the quality of goods, whether goods arrive promptly, the price, and accessibility of the products. The company assesses the number of complaints received from the customers to determine their level of satisfaction. Because Maytag Corporation is a subsidiary of Whirlpool, the Whirlpool supply chain management systems are similar to ensure similarity for the achievement of the company's objectives.

Ways of Improving Inventory Management System

As earlier stated, inventory management in supply chain management is vital in determining the success or failure of business. Poor management leads to failure while proper management results in its success. However, even the most brilliant managers still find inventory management a challenging activity due to the many issues surrounding it (Raynor & Ahmed, 2013). Many business operators assume that moving the products faster to the final consumer is an indicator of a good inventory management plan. However, an effective inventory management model starts from how the company acquires its raw materials to how it avails the finished product to the final consumer. A company must have the capability to strike a balance between raw materials, work in progress, and the final products.

For Maytag, the firm may start by ensuring that it can itemize the...