Network Design in the Merger of Whirlpool and Maytag

DCVelocity wrote an article on the merger of Whirlpool and Maytag.  You can see from the quote below that the network design portion of the study was expected to deliver $40M in savings.  Network design was an important part of the overall merger of these two firms.  They needed to get this part right to deliver on the savings.

The following is a quote from the article explaining some aspects of the network design:

“Another early initiative was to provide the real estate department with information about the location and size of each existing facility. This was completed by the end of April and allowed for modeling of an optimized distribution network. The real estate department then began the work of disposing of facilities that were slated to close and acquiring new facilities in areas where it fit the network model. “Their job was to find the most efficient facility that would get us as close as possible to our network optimization,” says Iddings.

Big-time savings
The overall goal for any acquisition is to gain competitive advantage. Whirlpool’s acquisition of Maytag was no exception. Management’s main objective was to create a stronger, leaner company from the two units. There was obvious duplication in nearly every area of the two companies. Not only did they have similar product lines, but they also had the same basic distribution configuration—each had manufacturing operations that shipped from factory distribution centers to regional DCs, then on to local DCs. Streamlining these operations and eliminating redundancy could offer the kind of savings that made the merger very attractive.

Senior management had committed to the investment community the huge goal of $400 million in savings over the first three years, 2006 to 2008.

“That would be achieved from savings in procurement, manufacturing, and logistics,” says Gorbett. “We targeted $40 million of savings in freight and warehousing costs alone for each of those years. That aggressive target galvanized everyone into action, as we organized and immediately began to identify where we could achieve those savings.”