For appliance maker Whirlpool Corp., energy-conservation and sustainability programs have never been just a marketing ploy. The company's history of environmental activism dates back to the 1970s, when it was one of the first businesses to set up an office of sustainability (the office focused on product development). Whirlpool was also an early champion of Energy Star, a U.S government- backed program launched in 1992 to encourage the design and manufacture of energy-efficient products; today, 590 of Whirlpool's products qualify for the Energy Star label. And in 2003, the company made a public pledge to reduce its emissions of greenhouse gases worldwide.
It's hardly surprising, then, that when it went to redesign its supply chain in the summer of 2005, Whirlpool took the opportunity to raise its eco-profile. Given the company's support for energy conservation in product development, says Brian Hancock, vice president of Whirlpool's North American regional supply chain, it was natural for Whirlpool to take the same approach to redesigning its supply chain. "Environmentalism has been built into our company fabric," he says, "and the supply chain is an extension of one of the best corporate cultures [where sustainability is concerned]."
Still, this would be a formidable undertaking for a company of Whirlpool's size and scale. With annual sales of around $19 billion, Whirlpool is the worldwide leader in the global home appliance market, selling refrigerators, washing machines, dryers, and other appliances around the world under such brand names as Whirlpool, Maytag, KitchenAid, Jenn-Air, Amana, Brastemp, and Bauknecht. Its supply chain network today includes 20 plants in North America, 11 in Europe, three in Latin America, and six in Asia. Whirlpool's distribution network consists of plant warehouses or factory distribution centers (DCs), regional distribution centers, and local distribution centers. (The latter are sites that Whirlpool uses to deliver its products directly to consumers, since many retailers have shifted that responsibility to the appliance maker.)
Time for an overhaul
The redesign itself—Whirlpool's first major supply chain overhaul in 20 years —was prompted by growth in both its product portfolio and its "contract" business —sales to builders or companies that sell to builders. The project took on even greater importance and urgency when the Benton Harbor, Michigan-based manufacturer acquired rival appliance maker Maytag in 2006.
"The growth in our contract business and the acquisition [of Maytag] triggered a fullscale network redesign," says Hancock. "We had changed our products. We wanted to [rethink] how we deal with high-volume and low-volume SKUs (stock-keeping units)."
As for the redesign's objectives, Whirlpool's overarching goal was to create a network that would ensure swift deliveries to customers —a process complicated by the expansion of its product offerings in recent years. But that was just the beginning. The company also wanted a distribution model that would allow it to consolidate shipments of slower-moving stock-keeping units while providing a free flow of high-volume SKUs. In addition, Whirlpool wanted to take advantage of time-saving techniques like cross docking at its regional distribution facilities. On top of that, the appliance maker was looking to make its network as cost effective and as energy efficient as possible.
In the end, the redesign team came up with a strategy that would not only meet the company's cost and service objectives, but would also be environmentally sustainable, with energy-efficient warehouses and cleaner equipment. Although the plan required an investment in new buildings and equipment, it is expected to produce considerable savings over time. "In the long term, it's the low-cost solution," says Hancock. "And that's what makes it good for business and the environment. That's what sustainability is all about."
Greener, cleaner buildings
Although Whirlpool has completed its supply chain redesign plan, the actual work won't be finished until sometime next year. Part of the holdup has been the construction of new facilities. The acquisition of Maytag forced Whirlpool to look at ways to rationalize its plant and distribution network. One result of the review was the decision to consolidate buildings and replace older distribution centers with new, energy-efficient facilities.
The new distribution centers will conserve electricity by using energy-efficient lights, skylights (in some locations), and motion sensors to turn lights on and off automatically. By adopting more energy-efficient practices, Whirlpool will also reduce emissions of the greenhouse gases that many scientists believe contribute to global warming. "That all adds up to a lower carbon footprint," says Hancock.
By the end of this year, Whirlpool will have added 10 new energy-efficient regional distribution centers in North America to replace older facilities. It will also have cut the total number of buildings in half. In fact, when the Maytag network integration is completed, Whirlpool will end up with 17 percent fewer factory distribution centers, 33 percent fewer regional DCs, and 32 percent fewer local DCs.
A breath of fresh air
Whirlpool is looking at more than just its buildings in its drive to go green. It's also swapping its internal-combustion-powered industrial clamp trucks for cleaner electric models. As of this writing, the company had replaced 105 of its internal-combustion trucks with electric units.
Today, electric models are in use in all 25 of Whirlpool's worldwide factory distribution centers. The company is currently in the process of replacing the trucks at its regional distribution centers with electric models as well, an effort that won't be completed until the end of this year. (The local distribution centers, which generally do not use lift trucks, are unaffected by the conversion.)
By Whirlpool's calculation, the switch to electric forklifts has already resulted in a significant reduction in greenhouse gas emissions. The company estimates that replacing the internal-combustion models has kept 12,643 tons of carbon dioxide and 208 tons of nitrogen oxides from entering the atmosphere.
Although the new trucks have done much to curb pollution, Hancock says, Whirlpool's decision to use electric models was actually motivated by a desire to reduce noise and product damage. The forklifts Whirlpool uses are equipped with big clamps to pick up items like refrigerators and stack them as many as five high. When an operator of an internal-combustion-powered lift truck would deploy the clamp while pressing down on the gas pedal, the clamp would sometimes damage the side of a refrigerator. "There was an increase in clamp pressure as the gas pedal [was] pushed," Hancock explains. "That's not the case with electric trucks. We get a more level and even clamp, which we feel helps [reduce] damage."
The push for full loads
Just as Whirlpool has been analyzing its distribution network for ways to save energy, it has also been examining its transportation operations for opportunities to reduce its carbon footprint. As oil prices have skyrocketed over the past three years, the company has come up with several innovative strategies for cutting transportation costs and at the same time, reducing greenhouse gas emissions.
For example, Whirlpool has made a concerted effort to ship products in full truckloads rather than in multiple less-than-truckload shipments. Using full truckloads wherever feasible creates efficiencies that reduce fossil-fuel consumption, noise, and traffic congestion.
Moving products in full truckloads may be cost effective and eco-friendly, but it's not always easy to do. That's especially true now that more retailers are turning over the responsibility for customer deliveries to Whirlpool. And because of the bulky nature of large appliances, Whirlpool often finds that shipments "cube out" (fill up the trailer) before they "weigh out" (reach the maximum weight capacity allowed for road travel). Even so, the company is currently moving more than 63 percent of its consumer products via full truckloads.
At the same time, the company has begun stepping up its use of rail transportation, which is both cheaper and more fuel-efficient (and therefore greener) than highway transport. For example, the appliance maker is now using rail to transport refrigerators from Mexican plants to U.S. regional distribution centers. As it does with trucking, Whirlpool seeks to fill up the intermodal containers and railcars it uses for shipping.
Fuel-saving incentives Many times, rail is not an option, however, leaving Whirlpool with no choice but to use trucks. In its dealings with U.S. carriers, Whirlpool has initiated several programs to encourage greater fuel economy.
To begin with, it has developed a fuel surcharge policy that provides incentives to carriers to boost fuel efficiency —and conversely, penalizes them for poor fuel utilization. Whirlpool determines the mileage for each trip and then pays its carriers a fuel surcharge based on a set rate of six miles per gallon, regardless of the truck's actual mileage per gallon. On a 330-mile trip, for example, Whirlpool will pay surcharges on 55 gallons of fuel —the amount a truck that gets six miles per gallon needs for the journey. If the truck gets just 5.5 miles per gallon and the carrier ends up using 60 gallons of fuel for the trip, the carrier can only collect fuel surcharges on 55 gallons.
"Current engine technology says a truck should get six miles a gallon," says Hancock. "This makes the carrier responsible for having trucks with the right engines. This fuel surcharge method [provides an incentive for] carriers to maximize fuel efficiency and minimize empty miles."
Whirlpool has had this fuel surcharge arrangement in effect for the past three years with its 50 primary motor carriers as well as its 250 secondary carriers. "In the beginning, there was some pushback from the carriers," says Hancock, "but we haven't had any pushback in the last couple of years." Although the sixmile standard applies to fuel surcharges only in the United States, Whirlpool does have a similar program in Europe.
To further encourage fuel economy among its carriers, Whirlpool has also been promoting the practice known as "drop and hook." In a drop-and-hook operation, the carrier drops off a fully loaded trailer in the warehouse yard and then hauls away an empty one. The primary advantage of drop and hook is that it eliminates the need for the truck to sit in the yard with its engine idling while it waits for the trailer to be unloaded. In some cases, Whirlpool even provides trailers to carriers to facilitate the practice. The company uses drop and hook in its U.S., Canadian, and Mexican operations —and to a limited extent, its European operations.
Whirlpool also helps its carriers "triangulate" shipments in order to make the best use of their assets. In triangulation, carriers deliver an outbound load to a Whirlpool customer, and then arrange loads that will bring them back to the starting point with no empty moves. For example, a trucking company might move a shipment from a Whirlpool facility in Ohio to Memphis, Tennessee; pick up a load from another shipper and haul it to Atlanta; and then take a load in Atlanta from a third company and bring it to Ohio in time to pick up another of Whirlpool's outbound loads.
Along with its other transportation programs, Whirlpool has enlisted in the SmartWay Transport Partnership, an initiative by the U.S. Environmental Protection Agency (EPA) and the freight industry to increase energy efficiency while reducing greenhouse gases and air pollution. In signing up for the program in 2007, the company committed to using more energy- efficient practices in its warehouses and to shipping at least 50 percent of its product volume with carriers that participate in the program. "The carrier actually signs up with the EPA, and we agree to use those approved carriers," says Hancock. "The program is trying to get the carriers and the industry to work on sustainability."
A long but worthwhile journey
When Whirlpool completes its network redesign next year, its supply chain will be considerably greener than it was just three years ago. As a result, Whirlpool stands to realize big savings in energy and transportation costs (not to mention, increased consumer goodwill).
Yet Whirlpool has found that it isn't always easy being green. In fact, Hancock advises others considering a similar program to steel themselves for a long journey. Just putting the infrastructure in place isn't enough, he says. You also have to keep an eye on things and make sure your suppliers are meeting your demands for eco-friendly goods and services. "Once you start changing the infrastructure of your supply chain, you need to be persistent in [monitoring] what types of trucks you use, what types of carriers you use, and the type of lighting [you use] in the warehouse," he says. "It's a long-term commitment."