Whirlpool CFO Faces Higher Costs as Component Shortages Force Production Line Shifts

Date: Friday, April 23rd, 2021
Source: The Wall Street Journal

Whirlpool Corp.’s finance chief is looking to offset cost increases caused by a shortage of microchips and plastic, which is forcing the appliance maker to switch over its production lines more frequently.

Benton Harbor, Mich.-based Whirlpool, which manufactures washing machines, KitchenAid mixers and other home appliances, has seen a surge in demand for its products since the beginning of the pandemic. At the same time, the company is facing a strained supply of key components, including microchips from China and Taiwan. It is also running low on plastic as a result of a winter storm in Texas, which negatively affected the chemicals industry.

While other industries have responded to the shortages by slowing down production—large U.S. car makers, for example, have cut output or idled factory lines amid the lack of chips—Whirlpool is changing over its production lines more often, depending on which parts are available, Chief Financial Officer Jim Peters said Wednesday.

“We look at what is coming in a shipment and what we have on the production schedule,” Mr. Peters said, adding that the company usually has visibility into its production plan four weeks in advance. At the moment, the schedule for some items is about four days out, he said.

“You don’t want to flex them as often as we are,” Mr. Peters said, referring to the company’s factories. “This isn’t ideal.”

Constantly changing which products are being made brings inefficiencies and additional costs, Mr. Peters said. He declined to provide an estimate of the increase in costs, but said reduced visibility into the company’s production schedule also causes problems. “You wouldn’t want to do this in a normal environment,” Mr. Peters said, adding that Whirlpool expects its supply-chain issues to continue for most of the year. Last year, the company was struggling with a lack of wiring harnesses.

Whirlpool, which sources its materials from several thousand suppliers around the world, holds lower inventories because of high consumer demand and restricted access to components. The average order backlog is about five to six weeks at the moment, higher than the two weeks backlog with which Whirlpool usually operates.

The company in recent weeks raised sale prices for its products by 5% to 12%, depending on the market, to compensate for increased raw material costs, particularly for steel and plastics, Mr. Peters said.

The cost of products for Whirlpool sold rose to $4.21 billion during the first quarter, up from $3.62 billion in the prior-year period. Raw materials usually make up 60% to 65% of cost of products sold, Mr. Peters said.

Mr. Peters said he is keeping track of the cost increases at Whirlpool and is looking for ways to keep them under control. “You want to understand how much of these costs might come from within,” he said, pointing to potential inefficiencies in the production process.

Whirlpool last year cut $500 million in costs, partly through temporary measures such as furloughs.

The company’s management has been executing well amid the difficulties in its supply chain, said David MacGregor, chief executive at Longbow Research LLC, a research firm. “There is just very limited visibility,” Mr. MacGregor said.

Whirlpool on Wednesday reported net sales of $5.35 billion for the first quarter, up 23.9% from the previous year. Net earnings rose to $433 million, compared with $154 million a year earlier.


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