Panel D: Calculation of Additional Page C14- 9
Units
Pre-ERP units [23] = [1] 978 978 978 978 978 978
Pre-ERP Availability [24] = Exhibit 3 0.768 0.768 0.768 0.768 0.768 0.768
Target Availability [25] = Case data 0.92 0.92 0.92 0.92 0.92 0.92
*[27]*[28]
Panel E: Calculation of Inventory
Savings
Target DSI Reduction [30] = Case data 12 12 12 12 12 12
Percentage Improvement [31] = Exhibit 4 0% 0% 40% 40% 20% 0%
DSI Reduction in Year [32] = [30] * [31] 0 0 4.8 4.8 2.4 0
DSI Reduction [33] = Cumulative [32] 0 0 4.8 9.6 12 12
Increase in Availability [26] = ([25]-[24])/[24] 19.79% 19.79% 19.79% 19.79% 19.79% 19.79%
Additional Sales [27]= Case 25.00% 25.00% 25.00% 25.00% 25.00% 25.00%
Percentage Improvement [28] = Exhibit 4 0% 35% 40% 25% 0% 0%
Additional Units [29] = [23}*[26]* 0 0 19 19 10 0
4. North Wave
Source/Formula 2000 2001 2002 2003 2004 2005
Panel A: Base Case (Without ERP)
Units [1] = Exhibit 3 1443 1443 1443 1443 1443 1443
Revenue [2] = Exhibit 3 $280,901 $280,901 $280,901 $280,901 $280,901 $280,901
Cost of Goods Sold (CGS) [3] = [2] – [4] $251,083 $251,083 $251,083 $251,083 $251,083 $251,083
Panel B: Impact of ERP
Additional Units [11] = [29] 0 0 19 19 10 0
Additional Margin [12] = Exhibit 3 0.00% 0.00% 0.00% 0.13% 0.25% 0.25%
DSI Reduction [12A] = [33] 0 0 0 4.8 9.6 12
Panel C: Forecast with ERP
Units [13] = [1] + [11] 1443 1443 1443 1458 1474 1481
Revenue [14] = [13] * [17] $280,900 $280,900 $280,900 $284,233 $287,739 $289,106
Cost of Goods Sold (CGS) [15] = [13] * [18] $251,082 $251,082 $251,082 $253,692 $256,476 $257,694
Margin [16] = [13] * [19] $29,818 $29,818 $29,818 $30,541 $31,263 $31,412
Price/unit [17] = [6]*(1 – [20]) $194.66 $194.66 $194.66 $194.95 $195.21 $195.21
CGS/unit [18] = [6] $174.00 $174.00 $174.00 $174.00 $174.00 $174.00
Margin/Unit [19] = [17] – [18] $20.66 $20.66 $20.66 $20.95 $21.21 $21.21
Margin Percentage [20] = [8] + [12] 0.1062 0.1062 0.1062 0.1075 0.1087 0.1087
Days Sales Inventory (DSI) [21] = [9] – [12A] 55 55 55 50.2 45.4 43
Inventory [22] = [21]* [15]/365 $37,834 $37,834 $37,834 $34,891 $31,901 $30,358
Whirlpool Europe Case (Dr. C. M. Chang)
Page C14-10
Margin [4]= Exhibit 3 $29,818 $29,818 $29,818 $29,818 $29,818 $29,818
Price/unit [5] = [2]/[1] $194.66 $194.66 $194.66 $194.66 $194.66 $194.66
CGS/unit [6] = [3]/[1] $174.00 $174.00 $174.00 $174.00 $174.00 $174.00
Margin/Unit [7] = [4]/[1] $20.66 $20.66 $20.66 $20.66 $20.66 $20.66
Margin Percentage [8] = [7]/[5] 10.62% 10.62% 10.62% 10.62% 10.62% 10.62%
Days Sales Inventory (DSI) [9] = Exhibit 3 55 55 55 55 55 55
Inventory [10] = [3]*[9]/365 $37,834 $37,834 $37,834 $37,834 $37,834 $37,834
Panel D: Calculation of Additional Page C14-11
Units
Pre-ERP units [23] = [1] 1443 1443 1443 1443 1443 1443
Pre-ERP Availability [24] = Exhibit 3 0.832 0.832 0.832 0.832 0.832 0.832
Panel E: Calculation of Inventory
Savings
Target DSI Reduction [30] = Case data 12 12 12 12 12 12
Percentage Improvement [31] = Exhibit 4 0% 0% 0% 40% 40% 20%
DSI Reduction in Year [32] = [30] * [31] 0 0 0 4.8 4.8 2.4
DSI Reduction
Target Availability [25] = Case data 0.92 0.92 0.92 0.92 0.92 0.92
Increase in Availability
Additional Sales [27]= Case 25.00% 25.00% 25.00% 25.00% 25.00% 25.00%
Percentage Improvement [28] = Exhibit 4 0% 0% 0% 40% 40% 20%
Additional Units [29] = [23}*[26]* 0 0 0 15 15 8
Page C14-12
(Dr. C. M. Chang)
2000 2001 2002 2003 2004 2005
Panel A: Forecast Without ERP
Units 6108 6108 6108 6108 6108 6108
Revenue $1,227,859 $1,227,859 $1,227,859 $1,227,859 $1,227,859 $1,227,859
Panel B: Forecast with ERP
Units 6,144 6,214 6,299 6,343 6,368 6,375
Revenue $1,235,707 $1,251,823 $1,269,933 $1,279,205 $1,284,410 $1,285,900
CGS $1,055,853 $1,068,621 $1,083,199 $1,090,252 $1,094,313 $1,095,640
Margin $179,854 $183,202 $186,734 $188,953 $190,097 $190,260
Inventory $146,012 $139,045 $130,616 $124,398 $120,633 $119,103
Panel C: Incremental Cash Flows
From the ERP System
Units 36 106 191 235 260 267
Revenue $7,848 $23,964 $42,074 $51,346 $56,551 $58,041
CGS $6,590 $19,358 $33,936 $40,989 $45,050 $46,377
Margin $1,258 $4,606 $8,138 $10,357 $11,501 $11,664
Inventory Reduction with ERP ($2,685) ($9,652) ($18,081) ($24,299) ($28,064) ($29,594)
Working Capital Reduction ($6,967) ($8,429) ($6,218) ($3,765) ($1,529)
Whirlpool Europe Case – Income Statement
CGS $1,049,263 $1,049,263 $1,049,263 $1,049,263 $1,049,263 $1,049,263
Margin $178,596 $178,596 $178,596 $178,596 $178,596 $178,596
Inventory $148,697 $148,697 $148,697 $148,697 $148,697 $148,697
Page C14-13
(Dr. C. M. Chang)
Source/Formula 1999 2000 2001 2002 2003 2004 2005 2006 2007
Incremental Operating Expenses
Whirlpool Employees [1] = Case data 2250 2250 2250 2250
Consultants [2] = Case data 3511 1663 1294 739
Whirlpool Europe Case – Incremental Operating Expenses
Ongoing Operational [3] = Case data 600 1200 1800 2400 3000 3000 3000 3000 3000
License Maintenance [4] = Case data 100 200 300 400 400 400 400 400
Task Force [5] = Case data 300 600 600 600 300
Implementation Costs [6] = [1]+[2]+[3]+ 6361 5513 6144 6289 4000 3700 3400 3400 3400
Other Expense Savings [7] = Exhibit 6 621 1749 2544 3300 3457 3503 3534 3566
Incremental Operating Expenses [8] = [6] – [7] 6361 4892 4395 3745 700 243 -103 -134 -166
Page C14-14
Capital Investment and Depreciation
(Dr. C. M. Chang) (1000$)
1999 2000 2001 2002 2003 2004 2005 2006
Investment
Capital Equipment 4,300 8,600 6,900 4,100
Depreciation
1999 Assets 980 980 980 980 980
2000 Assets 1780 1780 1780 1780 1780
2001 Assets 1380 1380 1380 1380 1380
2002 Assets 820 820 820 820 820
Total Depreciation 980 2760 4140 4960 4960 3980 2200 820
Whirlpool Europe Case
Software Licenses 600 300
Total Capital Expenditures 4,900 8,900 6,900 4,100 0 0 0
Page C14-15
(Dr. C. M. Chang)
Case 1- Inclusive
1999 2000 2001 2002 2003 2004 2005 2006 2007
Revenue 7,848 23,964 42,074 51,346 56,551 58,041 58,041 58,041
CGS 6,590 19,358 33,936 40,989 45,050 46,377 46,377 46,377
Operating Expenses 6,361 4,892 4,395 3,745 700 243 -103 -134 -166
Cash Flow
Depreciation Add-back 980 2,760 4,140 4,960 4,960 3,980 2,200 820
EBIAT -3,817 -2,768 -1,529 152 2,818 3,779 4,672 5,759 6,606
Net Cash Flow –3,817 -1,788 1,231 4,292 7,778 8,739 8,652 7,959 7,426
Discount Factor 1 0.917 0.842 0.772 0.708 0.65 0.596 0.547 0.502
Discount Cash Flow -3,817 -1,640 1,037 3,313 5,507 5,680 5,157 4,354 3,728
Sum of DCF 23,319
Savings Through Inventory
-2,685 -6,967 -8,429 -6,218 -3,765 -1,529 0
Discounted Inventory Savings 0 -2,462 -5,866 -6,507 -4,402 -2,447 -911 0
Sum of Inventory Savings 22,596
Investment
Minus Capital Expenditures 4,900 8,900 6,900 4,100
Discounted Capital Investment 4,900 8,161 5,810 3,165
Sum of Capital Investment (P) 22,036
NPV (= -P + Sum of DCF ) 23,879 (positive)
Whirlpool Europe Case – NPV Evaluation
Inventory Investment Avoidance
Taxes at 40% -2,544 -1,846 -1,020 101 1,879 2,519 3,115 3,839 4,404
Page C14-16
(Dr. C. M. Chang)
Case 2 – Without Additional Units
1999 2000 2001 2002 2003 2004 2005 2006 2007
Revenue 327 1,705 2,532 3,234 3,612 3,612 3,612 3,612
CGS 0 0 0 0 0 0 0 0
Operating Expenses 6,361 4,892 4,395 3,745 700 243 -103 -134 -166
Cash Flow
Depreciation Add-back 980 2,760 4,140 4,960 4,960 3,980 2,200 820
EBIAT -3,917 -3,327 -3,270 -3,212 -1,456 -955 -159 928 1,775
Net Cash Flow -3,917 -2,347 -510 928 3,504 4,005 3,821 3,128 2,595
Discount Factor 1 0.917 0.842 0.772 0.708 0.65 0.596 0.547 0.502
Discount Cash Flow -3,917 -2,153 -429 717 2,482 2,603 2,278 1,711 1,302
Sum of DCF 4,593
Savings Through Inventory
Inventory Investment Avoidance -2,046 -6,139 -9,413 -8,594 -4,911 -1,637 0
Discounted Inventory Savings -1,877 -5,167 -7,269 -6,088 -3,192 -976
Sum of Inventory Savings 24,569
Investment
Minus Capital Expenditures 4,900 8,900 6,900 4,100
Discounted Capital Investment 4,900 8,165 5,808 3,166
Sum of Capital Investment (P) 22,036
Whirlpool Europe Case – NPV Evaluation – Cash Flow without Additional Units
Taxes at 40% -2,544 -2,218 -2,180 -2,141 -970 -636 -106 618 1,183
Page C14-17
(Dr. C. M. Chang)
1999 2000 2001 2002 2003 2004 2005 2006 2007
Revenue 0 0 0 0 0 0 0 0
CGS 0 0 0 0 0 0 0 0
Operating Expenses 6,361 4,892 4,395 3,745 700 243 -103 -134 -166
Cash Flow
Depreciation Add-back 980 2,760 4,140 4,960 4,960 3,980 2,200 820
EBIAT -3,817 -3,523 -4,293 -4,731 -3,396 -3,122 -2,326 -1,240 -392
Net Cash Flow -3,817 -2,543 -1,533 -591 1,564 1,838 1,654 960 428
Discount Factor 1 0.917 0.842 0.772 0.708 0.65 0.596 0.547 0.502
Discount Cash Flow -3,817 -2,332 -1,291 -456 1,107 1,195 986 525 215
Sum of DCF -3,868
Savings Through Inventory
Inventory Investment
Avoidance
-2,046 -6,139 -9,413 -8,594 -4,911 -1,637 0
Discounted Inventory Savings -1,876 -5,169 -7,267 -6,085 -3,192 -976
Sum of Inventory Savings 24,569
Investment
Minus Capital Expenditures 4,900 8,900 6,900 4,100
Discounted Capital Investment 4,900 8,161 5,810 3,165
Sum of Capital Investment (P) 22,036
Whirlpool Europe Case – NPV Evaluation – Cash Flow Without Additional Units and Additional Margin
Case 3 – Without Additional Units and Additional Margin
EBIT -6,361 -5,872 -7,155 -7,885 -5,660 -5,203 -3,877 -2,066 -654
Taxes at 40% -2,544 -2,349 -2,862 -3,154 -2,264 -2,081 –1,551 -826 -262
EBIAT -3,817 -3,523 -4,293 -4,731 -3,396 -3,122 -2,326 -1,240 -392
Page C14-18
(Dr. C. M. Chang)
1999 2000 2001 2002 2003 2004 2005 2006 2007
Revenue 0 0 0 0 0 0 0 0
CGS 0 0 0 0 0 0 0 0
Operating Expenses 6,361 5,512 6,144 6,289 4,000 3,700 3,400 3,400 3,400
Cash Flow
Depreciation Add-back 980 2,760 4,140 4,960 4,960 3,980 2,200 820
EBIAT -3,817 -3,895 -5,342 –6,257 -5,376 -5,196 -4,428 -3,360 -2,532
Net Cash Flow -3,817 -2,915 -2,582 -2,117 -416 -236 -448 -1,160 -1,712
Discount Factor 1 0.917 0.842 0.772 0.708 0.65 0.596 0.547 0.502
Discount Cash Flow -3,817 -2,673 -2,174 -1,634 -295 -153 -267 -635 –859
Sum of DCF -12,507
Savings Through Inventory
Inventory Investment
Avoidance
–2,046 -6,139 -9,413 -8,594 -4,911 -1,637 0
Discounted Inventory Savings -1,876 -5,169 -7,267 -6,085 -3,192 -976
Sum of Inventory Savings 24,569
Investment
Minus Capital Expenditures 4,900 8,900 6,900 4,100
Discounted Capital Investment 4,900 8,161 5,810 3,165
Sum of Capital Investment (P) 22,036
Whirlpool Europe Case – NPV Evaluation Without Additional Units, Additional Margin and Expense Savings
Case 4 – Without Additional Units, Margin and Expense Savings
Taxes at 40% -2,544 -2,597 -3,562 –4,172 -3,584 -3,464 -2,952 -2,240 -1,688
EBIAT -3,817 -3,895 -5,342 –6,257 -5,376 -5,196 -4,428 -3,360 -2,532
Page C14-19
without added Sales units (Dr. Caarl Chang)
Inventory Before ERP 1999 2000 2001 2002 2003 2004 2005
West $51,648 $51,648 $51,648 $51,648 $51,648 $51,648
South $33,158 $33,158 $33,158 $33,158 $33,158 $33,158
DSI Without ERP
West 45 45 45 45 45 45
South 51 51 51 51 51 51
Total DSI 218 218 218 218 218 218
DSI Improvements
West 3 8 12 12 12 12
South 0 4 9 12 12 12
Central 0 0 5 10 12 12
Total DSI Reduction 3 12 26 38 46 48
DSI with ERP In Place 215 206 192 180 172 170
Added Sales Units
Reduction in Inventory $2,046 $8,185 $17,598 $26,192 $31,103 $32,740
Whirlpool Europe Case – Working Capital Reduction due to Reduced Inventory,
Central $26,056 $26,056 $26,056 $26,056 $26,056 $26,056
North $37,834 $37,834 $37,834 $37,834 $37,834 $37,834
Total Inventory $148,696 $148,696 $148,696 $148,696 $148,696 $148,696
Page C14-20
1999 2000 2001 2002 2003 2004 2005 2006
Working Capital Savings $2,046 $6,139 $9,413 $8,594 $4,911 $1,637 $0
Present Value for Reduced Working Capital
Discount Factor 1 0.917 0.842 0.772 0.708 0.65 0.596
Discounted $1,877 $5,167 $7,268 $6,088 $3,192 $976
Page C14-21
(Dr. C. M. Chang)
Cases Total Capital Cash Flow from Working Capital NPV
Investment Operation Reduction due to
and Expenses Inventory
1. NPV (all inclusive) –
Page 14
($22,036) $23,319 $22,596 $23,879
2. No added sales units –
Page 15
($22,036) $4,593 $24,569 $7,126
Results Analysis Impact
Expenses Savings $8,639
Margin Improvement $8,461
Added Sales Units $16,753
Basic Gain $11,817 Synergy
Total Gain $33,853
(Difference between Cases 2 and 1,
$18,726 – cash flow; $1,973 working capital)
Whirlpool Europe Case – Summary (1000$)
(Difference between Cases 4 and 3)
(Difference between Cases 3 and 2)
3. No added units and
margin -Page 16
Expenses Savings –
Page 17