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Case Solution
Group AA2
Abhishek Purohit
Rohit Pandey
Shailesh Bansal
Srivatsan CR
Vaishnavi Chella
13502
13539
13545
13549
13556
Case objective:
Whirlpool entered European Appliance market in 1988 and experienced a 10 year growth.
So it now has to decide whether to invest in an ERP system or not by doing cost benefit analysis,
incremental cash flows and NPV.
To evaluate such a project NPV analysis would be appropriate. This may require the company to
invest for a series of years for its development and implementation Project Atlantic for
its implementation has advantages as well as disadvantages. The following are the benefits by the
project.
Reducing the Inventory:
One time and non-taxable inventory can be reduced to zero level, if cash flow turns zero. This
project would make the supply chain of the organization much more transparent and simpler, hence
reducing the 51 days sales of inventory to an inventory level of 29 days by forecasting to reduce 12
days of inventory in each wave.
Increase in Sales Units due to product availability:
This may be persistent as well as taxable. But for this to be true we shall assume that without
the implementation of ERP, the total number of units sold in the future would be constant, i.e., at
the same level.
2271
0.735
2001
2002
2003
2004
2005
2271
477784
418925
58859
210.38
184.47
25.92
12.32%
45
51648
2271
477784
418925
58859
210.38
184.47
25.92
12.32%
45
51648
2271
477784
418925
58859
210.38
184.47
25.92
12.32%
45
51648
2271
477784
418925
58859
210.38
184.47
25.92
12.32%
45
51648
2271
477784
418925
58859
210.38
184.47
25.92
12.32%
45
51648
2271
0.735
2271
0.735
2271
0.735
2271
0.735
2271
0.735
Target availability
Increase in availability
Additional sales
Percentage improvement
Additional units in year
Additional units
0.92
25%
25%
25%
36
36
0.92
25%
25%
40%
57
93
0.92
25%
25%
35%
50
143
0.92
25%
25%
0%
0
143
0.92
25%
25%
0%
0
143
0.92
25%
25%
0%
0
143
12
25%
3
3
12
40%
4.8
7.8
12
35%
4.2
12
12
0%
0
12
12
0%
0
12
12
0%
0
12
36
0.06%
3
93
0.25%
8
143
0.25%
12
143
0.25%
12
143
0.25%
12
143
0.25%
12
2307
485632.4
8
425515.2
3
60117.25
210.53
184.47
26.06
12.38%
42
48963
2364
498748.0
7
436059.6
0
62688.47
210.99
184.47
26.52
12.57%
37
44442
2414
509300.7
8
445285.9
3
64014.86
210.99
184.47
26.52
12.57%
33
40259
2414
509300.7
8
445285.9
3
64014.86
210.99
184.47
26.52
12.57%
33
40259
2414
509300.7
8
445285.9
3
64014.86
210.99
184.47
26.52
12.57%
33
40259
2414
509300.7
8
445285.9
3
64014.86
210.99
184.47
26.52
12.57%
33
40259
2001
2002
2003
2004
2005
1416
283549
237308
46241
200.25
167.59
32.66
16.31%
51
33158
1416
283549
237308
46241
200.25
167.59
32.66
16.31%
51
33158
1416
283549
237308
46241
200.25
167.59
32.66
16.31%
51
33158
1416
283549
237308
46241
200.25
167.59
32.66
16.31%
51
33158
1416
283549
237308
46241
200.25
167.59
32.66
16.31%
51
33158
1416
0.831
0.92
11%
25%
0%
0
0
1416
0.831
0.92
11%
25%
35%
13
13
1416
0.831
0.92
11%
25%
40%
15
28
1416
0.831
0.92
11%
25%
25%
9
38
1416
0.831
0.92
11%
25%
0%
0
38
1416
0.831
0.92
11%
25%
0%
0
38
12
0%
0
0
12
35%
4.2
4.2
12
40%
4.8
9
12
25%
3
12
12
0%
0
12
12
0%
0
12
0
0.00%
0
13
0.10%
4
28
0.25%
9
38
0.25%
12
38
0.25%
12
38
0.25%
12
1416
283549.00
237308.00
46241.00
200.25
167.59
32.66
16.31%
51
1429
286548.59
239531.87
47016.72
200.49
167.59
32.90
16.41%
47
1444
290109.61
242073.44
48036.17
200.85
167.59
33.26
16.56%
42
1454
292013.30
243661.91
48351.39
200.85
167.59
33.26
16.56%
39
1454
292013.30
243661.91
48351.39
200.85
167.59
33.26
16.56%
39
1454
292013.30
243661.91
48351.39
200.85
167.59
33.26
16.56%
39
2005
978
185625
141947
43678
189.80
145.14
44.66
23.53%
67
26056
26035
26035
978
0.768
0.92
20%
25%
0%
0
0
978
0.768
0.92
20%
25%
0%
0
0
978
0.768
0.92
20%
25%
40%
19
19
978
0.768
0.92
20%
25%
40%
19
39
978
0.768
0.92
20%
25%
20%
10
48
978
0.768
0.92
20%
25%
0%
0
48
12
0%
0
12
0%
0
12
40%
4.8
12
40%
4.8
12
20%
2.4
12
0%
0
0
0.00%
0.0
0
0.00%
0.0
19
0.13%
4.8
39
0.25%
9.6
48
0.25%
12.0
48
0.25%
12.0
978
185625
141947
43678
189.80
145.14
44.66
23.53%
67
26056
978
185625
141947
43678
189.80
145.14
44.66
23.53%
67
26056
997
189621.19
144756.37
44864.82
190.12
145.14
44.98
23.66%
62
24668
1017
193605.6
147565.74
46039.869
190.42
145.14
45.28
23.78%
57
23206
1026
195448.54
148970.42
46478.124
190.42
145.14
45.28
23.78%
55
22448
1026
195448.54
148970.42
46478.124
190.42
145.14
45.28
23.78%
55
22448
2001
2002
2003
2004
2005
1443
280901
251083
29818
194.66
174.00
20.66
10.62%
55
1443
280901
251083
29818
194.66
174.00
20.66
10.62%
55
1443
280901
251083
29818
194.66
174.00
20.66
10.62%
55
1443
280901
251083
29818
194.66
174.00
20.66
10.62%
55
1443
280901
251083
29818
194.66
174.00
20.66
10.62%
55
Inventory
37834
37834
37834
37834
37834
37834
1443
0.832
0.92
11%
25%
0%
0
0
1443
0.832
0.92
11%
25%
0%
0
0
1443
0.832
0.92
11%
25%
0%
0
0
1443
0.832
0.92
11%
25%
40%
15
15
1443
0.832
0.92
11%
25%
40%
15
31
1443
0.832
0.92
11%
25%
20%
8
38
12
0%
0
0
12
0%
0
0
12
0%
0
0
12
40%
4.8
4.8
12
40%
4.8
9.6
12
20%
2.4
12
0
0.00%
0
0
0.00%
0
0
0.00%
0
15
0.13%
5
31
0.25%
10
38
0.25%
12
1443
280901
251083
29818
194.66
174.00
20.66
10.62%
55
37834
1443
280901
251083
29818
194.66
174.00
20.66
10.62%
55
37834
1443
280901
251083
29818
194.66
174.00
20.66
10.62%
55
37834
1458
284285.53
253738.69
30546.843
194.95
174.00
20.95
10.75%
50
34898
1474
287647.66
256394.37
31253.285
195.21
174.00
21.21
10.87%
45
31891
1481
289137.36
257722.21
31415.143
195.21
174.00
21.21
10.87%
43
30362
Units = No of additional units that can be sold due to the implementation of ERP system in
all the four waves (West, South, Central and North).
Revenue = Additional revenue due to implementation of ERP system
COGS = Additional cost of goods sold due to implementation of ERP system
Inventory = Reduction in inventory (working capital) cost due to implementation of ERP
System.
Inventory investment = Difference between current year and previous year inventory cost
i.e. Working Capital changes
2000
2001
2002
2003
2004
2005
36
106
191
235
260
267
7848.48
23963.66
42073.58
51346.22
56551.28
58040.99
6590.232
19358.47
33935.73
40989.26
45049.63
46377.47
1258.25
4605.19
8137.85
10356.96
11501.65
11663.51
Inventory
-2685
-9652
-18081
-24299
-28064
-29594
Inventory Investment
-2685
-6967
-8429
-6218
-3765
-1529
Units
Revenue
COGS
Margin
1999
4300
600
4900
2000
8600
300
8900
2001
6900
2002
4100
2003
2004
2005
2006
2007
6900
4100
980
980
1780
980
1780
1380
980
1780
1380
820
4960
980
1780
1380
820
4960
1780
1380
820
3980
1380
820
2200
820
820
980
2760
4140
1999
2250
3511
600
6361.2
6361.2
2000
2250
1663
1200
100
300
5513.2
621
4892.2
2001
2250
1294
1800
200
600
6143.6
1749
4394.6
2002
2250
739
2400
300
600
6289.2
2544
3745.2
2003
2004
2005
2006
2007
3000
400
600
4000
3300
700
3000
400
300
3700
3457
243
3000
400
3000
400
3000
400
3400
3503
-103
3400
3534
-134
3400
3566
-166
1999
2000
2001
2002
33936
3745
4140
2003
5134
6
4098
9
700
4960
2004
5655
1
4505
0
243
4960
2005
5804
1
4637
7
-103
3980
2006
5804
1
4637
7
-134
2200
7848
23964
42074
0
6361
0
6590
4892
980
19358
4395
2760
-6361
-2544
-3817
-4614
-1846
-2768
-2549
-1020
-1530
253
101
152
4697
1879
2818
6299
2519
3779
7787
3115
4672
9598
3839
5759
2007
5804
1
4637
7
-166
820
1101
0
4404
6606
4900
Cash Flow
Discount Factor @9%
Discounted Cash Flow
-8717
1.000
-8717
NPV
980
8900
2760
6900
4140
4100
4960
0
4960
0
3980
0
2200
0
820
0
-2685
-6967
-8429
-6218
-3765
-1529
-8003
0.917
-7343
1297
0.842
1092
8621
0.772
6657
1399
7
0.708
9916
1250
4
0.650
8127
1018
1
0.596
6071
7959
0.547
4354
7426
0.502
3727
2388
3
Case questions:
1. Are all of the benefits of the ERP investment reasonable? Are the costs reasonable?
Yes all of the three benefits of the ERP investment are reasonable. The cost incurred to
achieve the three benefits are also reasonable. Because the benefits outperformed cost.
2. What are the after-tax cash flows for the proposed ERP investment from 1999 to 2007?
$45625
3. When valuing the proposed investment, should value be included for possible cash flows
that occur beyond 2007?
Cash flows can be calculated only till 2007 with the available case data.
4. Would you recommend the ERP investment?
The NPV for Project Atlantic i.e. investment in ERP system is calculated to be $23883 (000).
Project Atlantic is highly favourable and Whirlpool should invest in ERP as the NPV is highly
positive.