The cash flows related to this project would only occur beyond , if the company does not plan to abandon the project in favor of some other advanced system which might be available at that point in time. The company would have to incur certain costs in order to ensure proper implementation and functioning for the ERP system. So, the incorporation of cash flows beyond depends upon the accuracy with which these cash flows can be forecasted. Moreover, the company may incorporate major changes in the ERP system itself which may require significant investment. Thus, we choose to ignore it in tax calculation. Whirlpool Europe Overview of Case:
Would you recommend the proposed ERP investment? To improve the operating effectiveness and efficiency, the top manager of Whirlpool had determined to introduce a ERP system and expected it would decrease the operating cost. Moreover, the company may incorporate major changes in the ERP system itself which may require significant investment. At the same, few concerns also exist regarding the implementation of project Atlantic. The most obvious factor would be the continuation of the project Atlantic beyond the year As the product availability increases, the units sold increase and consequently revenues and gross margins rise.
Whirlpool Europe Erp Case
The system has to be implemented over several processes across several countries, and therefore, customization might be required to integrate the system with every process. Since the incremental revenues comes in the year soon after the Wave West implementationthe revenues for are taken as base year and are assumed to remain the same for To simplify, tax will be calculated based on the following formula: At the same time, the employees may resist the change as they have to acquire new skills and might consider their own position in danger.
Which of the three different benefits Whirlpool is expecting from the new system matters most for the value of the project? The accuracy with which the cash flows after can be forecasted will also influence the decision to incorporate these cash flows in the analysis. 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.
Note studt you need to forecast cash flows into DSI is an inverse measure of inventory turnover, and tells us how long inventory is stored before it is sold on average. Even if the actual results slightly differ from the projections, project Atlantic would still remain profitable, hence the investment is recommended.
It is about how you come up with those numbers and how solid you analgsis defend your calculations. The reason for this declining trend is that project has promised to increase product availability and reduce DSI inventory upto a certain limit.
The margin increases in Exhibit 5 are the percentage point increases to the profit margin percentage as of To simplify analysis, suppose there is no residual value left after equipments life time come due. Interpreting the Case Exhibits? In the short-term, the company can expect the existing business conditions to prevail, or the company has the information to predict the hanges in business environment.
Currently, the company operates stand-alone information systems in each of these plants, distribution centers, and sales offices. What are the after-tax cash flows for the proposed ERP investment from through ?
Revenue will increase over the analyzis of availability. Make sure that you address all the case questions. This leads to high unnecessary inventory, and in some cases, stock outs. It is assumed the revenues and corresponding gross margins will remain stagnant in the status quo. Note that the total savings are displayed in Exhibit 6.
Thus for Wave West, the project will reduce its DSI to 42 days in37 in33 in and will remain consistent till See Exhibit 1.
The result is shown as follows: Moreover, reduction in inventories frees additional warehouse space that can be discarded or used for other purposes. With the ERP system, the firm expects to have the product available for 92 out of customers who whirlpooll for it.
Therefore, it is advisable to restrict our analysis to the years for which we sufficient knowledge to authentically forecast cash flows. Do not forget to account for the increase in profit margins as well as detailed in Exhibit 5!
A major concern is regarding the accuracy of the forecasts. The payback period for the project is 3. Make sure that the write-up allows the reader to identify your analysis and conclusions quickly.
The margin in Exhibit 3 is the dollar amount left anqlysis deducting costs of goods whrilpool COGS from revenues.
The percentages should be interpreted as the fraction of the total expected gain that is added any given year. The reason is that it is relatively harder to stucy the business environment of the appliance industry in the long run.
Just in Time JIT manufacturing which requires efficient information exchange with suppliers. What are your major concern s?