Whirlpool Europe: Case Report
Financial Management fin855
Whirlpool Europe Case Report
Date: March 2nd, 2015
The benefits proposed in the case are all reasonable. Half reduction in potential optimal DSI improvement is neither too optimistic, nor too conservative. The forecasting on profit margin is based on sales increase. As a benefit resulted from economies of scale enhance, but not from products upgrading, the limited .25% gross margin improvement is quite reasonable. Together with that, if the ERP system can be effective as expected, we do have reason to expect to improvement on sales and gross margin. The benefit improvement analysis is really comprehensive to include also internal changes such as employee elimination and related savings.
Although they all seem reasonable, I do have doubt about the cost saving on warehouse. Based on my calculation, referring to Exhibit 3 – second bottom line, the change of working capital is not that considerable due to the increase of sales volume. Thus, the estimation on cost saving on warehouse might be a little bit aggressive in my point of view. Since I have no inside information, I would accept all the estimations and assumptions provided by the case.
The after-tax cash flows for the proposed ERP investment from 1999 through 2007 is shown in Exhibit 1. Detailed calculations are included in Exhibit 2 – 4. Followings are some calculation process:
All expenses that are depreciable are included in Exhibit 2. They are: Software Licenses, Capital Expenditures, and Licenses Maintenance. I included Licenses Maintenance expenses as capital expenditure in the rationale that these are the expenses needed to keep Software Licenses works, and does contribute to future operations and create economic value to the company. Depreciation and amortization schedules for tax and reporting purpose are assumed to be same, which is 5-year-straight-line method. At the bottom of Exhibit 2, Total Capital Expenditures and Total Depreciation for ERP project is calculated
Whirlpool Europe Case Report
Date: March 2nd, 2015
The benefits proposed in the case are all reasonable. Half reduction in potential optimal DSI improvement is neither too optimistic, nor too conservative. The forecasting on profit margin is based on sales increase. As a benefit resulted from economies of scale enhance, but not from products upgrading, the limited .25% gross margin improvement is quite reasonable. Together with that, if the ERP system can be effective as expected, we do have reason to expect to improvement on sales and gross margin. The benefit improvement analysis is really comprehensive to include also internal changes such as employee elimination and related savings.
Although they all seem reasonable, I do have doubt about the cost saving on warehouse. Based on my calculation, referring to Exhibit 3 – second bottom line, the change of working capital is not that considerable due to the increase of sales volume. Thus, the estimation on cost saving on warehouse might be a little bit aggressive in my point of view. Since I have no inside information, I would accept all the estimations and assumptions provided by the case.
The after-tax cash flows for the proposed ERP investment from 1999 through 2007 is shown in Exhibit 1. Detailed calculations are included in Exhibit 2 – 4. Followings are some calculation process:
All expenses that are depreciable are included in Exhibit 2. They are: Software Licenses, Capital Expenditures, and Licenses Maintenance. I included Licenses Maintenance expenses as capital expenditure in the rationale that these are the expenses needed to keep Software Licenses works, and does contribute to future operations and create economic value to the company. Depreciation and amortization schedules for tax and reporting purpose are assumed to be same, which is 5-year-straight-line method. At the bottom of Exhibit 2, Total Capital Expenditures and Total Depreciation for ERP project is calculated