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What should be the process of an investment decision, such as ERP in Whirlpool Europe, has?
1. Is it an inevitable investment? 2. What are the obvious benefits? What are the obvious costs for the project? 3. Are there any benefits? Or costs not mentioned in the case for the project? 4. Discount cash flows evaluation 5. What are the evaluation criteria appropriate for the investment decision?
Is it an inevitable investment?
Is there any concern that the firm would not go ahead with the plan? Would it be possible that the firm give up the project because of negative NPV? What factors in addition to benefit/cost would affect decision?
What are the sources of (obvious) benefit for adopting the ERP?
Inventory reduction (one-time, non-taxable):
when you reduce inventory; it is similar to sell off some of inventory for cash, and brings the firm cash inflow. (but it is a one-time event; cash flow will turn to zero when inventory reduces to its target level)
Additional sales units due to product availability. (persistent and taxable) Increased margin. (persistent and taxable) Cost savings due to reduced size of staff (order desk, finance, warehouse space, bad debt expense, and information systems)
What are the costs associated with the implementation for the ERP?
On going operational
On going operational License maintenance
What potential benefits and costs are not mentioned in the case?
Benefits not mentioned in the case basically qualitative factors
Better decision and more flexibility in future
What are the benefits mostly likely to happen as expected? (what may not?)
Inventory reduction Additional sales units due to product availability. Increased margin. Cost savings due to reduced size of staff
What are the cost mostly likely to overrun than that expected ?
Capital expenditure (equipment and software license) Implementation cost
Employees Consultants Task forces
On going operational
On going operational License maintenance
What were not considered but should be positive for adding ERP?
Better information generating process, that means better decision. More flexible expansion strategies, for example, channel business, in future. (real option) Others?