Michigan-based Whirlpool, which manufactures washing machines, KitchenAid mixers and other home appliances, has seen a surge in demand for its products since the beginning of the pandemic, reports The Wall Street Journal (April 22, 2021). At the same time, the company is facing a strained supply of key components, including microchips from China and Taiwan. It is also running low on plastic as a result of a winter storm in Texas.
While other industries have responded to the shortages by slowing down production— car makers, for example, have cut output or idled factory lines amid the lack of chips—Whirlpool is changing over its production lines more often, depending on which parts are available.
“We look at what is coming in a shipment and what we have on the production schedule,” the CFO said, adding that the company usually has visibility into its production plan 4 weeks in advance. At the moment, the schedule for some items is about 4 days out. “You don’t want to flex them as often as we are,” he said, referring to the company’s factories. “This isn’t ideal.”
Constantly changing which products are being made brings inefficiencies and added costs. Reduced visibility into a company’s production schedule also causes problems. Whirlpool expects its supply chain issues to continue for most of the year. It sources its materials from several thousand suppliers around the world, but holds lower inventories because of high consumer demand and restricted access to components. The average order backlog is 5-6 weeks at the moment, higher than the 2 weeks backlog with which Whirlpool usually operates.
The company in recent weeks raised sale prices for its products by 5-12% to compensate for increased raw material costs, particularly for steel and plastics. Raw materials usually make up 60-65% of cost of products sold at the firm.
Classroom discussion questions:
- The Japanese have made scheduling enhancements by using level schedules (see discussion on page 653, Figure 16.7, and OM in Action box on page 657). Does this seem a feasible alternative for Whirlpool?
- Should Whirlpool consider reducing its variety of product choices, at least during this time of strained supplies?