Westminster Company's logistics system: supply chain challenges and strategic alternatives

¶ … Westminster Company case study to analyze the firm's logistics. Aspects like supply chain, cost factors, and design of the company's logistics system will be discussed. Risk definitions are also included among other aspects evaluated in the paper.

Instituted in the year 1923, Westminster Company is among the largest 'consumer healthcare product' producers. The company, its logo, and the merchandise it produces, are renowned locally, and worldwide. The firm's active living groups comprise a healthcare center, residential living, and support services. Westminster has offices in Latin America, Pacific Rim, and Europe, as well.

With globalization and market expansion, the firm is now faced with fresh challenges with regards to customer satisfaction (Case Study Images Provided by Customer). Consequently, three alternative strategies may be applied to deal with this issue, namely, Point of Sale (POS) information system, individual customer specifications, and reduction of order cycle duration. The following question will have to be addressed: What are the effects of each of these strategies on customer freight and transfer costs? And what are the justifications behind these effects?

Case Summary

International and local competitive pressures, as well as an extensive local customer base, have of late, forced Westminster Company to reexamine their existing supply chain system. Focus is particularly on modifications demanded by the customer base, and other current operational practices that the firm's administration believes must be altered for successfully conducting business in modern-day markets (Case Study Images Provided by Customer). The company, after completing a study on present and future supply chain requirements of customers which lasted several months, unearthed two key aspects - customer service demands and composition of customer base. Ultimately, it can be concluded from the findings of this study that an assessment of the company's supply chain system is required. The current system requires modifications for the firm to recover and continue a steady business.

Westminster Company has an interesting distribution network. Every company has its own manufacturing unit and distribution facilities. All manufacturing units manufacture what they call 'stock-keeping units', delivered on a nation-wide basis. The manufacturing units direct finished goods via a distribution facility, finally delivering it to retailers or end customers (Case Study Images Provided by Customer). Finished goods can be shipped to all regions of the nation by the distribution facility; however, normally customer segments are supplied company products by the nearest distribution facility. Transfer shipments often take care of delivering assorted products to customers.

Cost Factors and What Is Impacted By Them

The cost factors include the warehousing process, with its mixed shipments (for cost-effectiveness), IT incorporation for inventory-keeping using enterprise resource planning (ERP) software, as well as integrated system for effective management of supply chain. Methods of transportation and shipments will be affected (Writer Thoughts).

Alternatives/Transportation

Westminster Company needs to take into account three alternative strategies with regards to logistical modifications. The first alternative would be merging the company's warehouses; another, utilizing public warehouses; and lastly, the third possible solution could be making use of private warehouses. Each alternative comes with its advantages and shortcomings. They must all be looked into before coming to a final decision on which warehousing practice will work best for Westminster (Case Study of Westminster). Warehouse consolidation would profit the firm through transportation economies, as movement of goods from and to distribution centers would become simpler, resulting in lower customer freight and transfer costs. Consolidating warehouses also significantly influences transportation costs. First of all, the carrying cost of inventory would decrease because of using improved facilities, and reduced duplication of effort. An improvement would also be seen in fill rates, as inventory distribution can take place from fewer storage locations (Case Study of Westminster). Furthermore, a significant decrease in the total freight transfers required for meeting consumer demand would be seen. Thus, the consolidation alternative would cause enormous cost savings.

Public warehousing constitutes the second option available to Westminster. The primary benefit of this kind of warehousing is absence of fixed investment. Performance quality is also substantially high in this case. However, this system also comes with its drawbacks, the first being that significantly high variable costs are incurred (Case Study of Westminster). Moreover, in case of bulk products, high handling and storage costs are incurred.

Private warehousing is the third alternative. This kind of warehousing is best suited to goods whose sales are uncertain. This option, however, wouldn't work well for Westminster's merchandise, as healthcare products have all-year-round demand.

Impact of Inventory and Warehouse Costs/Transportation on Warehouses

The cost associated with holding goods in inventory is referred to as inventory carrying cost, expressed in terms of product value percentage/unit time. It signifies opportunity cost of money, as well as cost of capital, storage, material handling, obsolescence, taxes and insurance (Westminster Customer Composition and Customer Service). Consolidating warehouses would reduce cost of carrying inventory, as lesser inventories would be held in a central warehouse, in comparison to one that is regional.

As fewer warehouses exist to cater to markets, consolidated warehouse access to large portions of the consumer base becomes crucial. Further, for counterbalancing distances between these warehouses and markets, an effective option would be to directly ship goods from main storage areas to end customers (Westminster Customer Composition and Customer Service). Several firms, however, have successfully achieved prompt product delivery, while at the same time, minimizing their transportation costs. The firm, Stora Enso is a fine example of such companies- it enhanced its level of customer service, and timely goods delivery, because of greater control on its supply chain, mainly by way of consolidation.

Customer Service and Cost Impacted

Cost calculations are carried out for all companies before and after consolidation. An estimation of costs after consolidation is made. Cost of inbound shipping would rise marginally as a result of longer shipping distance to consolidated warehouses, while outbound shipping would cost lesser because of scale economies arising out of consolidation of shipment. Estimations made are as follows are (Westminster Customer Service and Customer Composition):

Rise in cost of inbound shipping by 3%.

Reduction in cost of outbound shipping by 6%

Reduction in fixed cost of warehousing by 25%

It is asserted that for the remaining customer base, i.e. small retailers, goods would be supplied in future, in the same way they are supplied currently. Even though several customers might not be keen on close associations, they are very much eligible to high basic service standards seen in companies today (Case Study Images Provided by Customer). The key priority will be purchase price, with regards to this customer segment, though they may experience increased pressure concerning reduced cycle times and better fill rates.

Logistics System Design

The program, Strengthening Pharmaceutical Systems (SPS), aims at capacity building in developing nations, for efficient management of every facet of pharmaceutical facilities and processes. SPS concentrates on better control in pharmaceutical sector, reinforcing pharmaceutical management structures and financing processes, improving proper use and access to medication, and checking antimicrobial resistance (Bhattarai, 2011). SPS has worked in Karnataka State since December of 2009. Through financial backing by the United States Agency for International Development's (USAID's) Indian Mission, SPS supports the Karnataka State AIDS Prevention Society (KSAPS), as well as other local units in handling issues pertaining to managing of antiretroviral therapy (ART) drugs.

The SPS software is well-structured, and has a sound control procedure. It efficiently delivers information on medicine status, to determine the amount of drugs to redistribute among ART facilities, or 'push'/deliver from central level (Bhattarai, 2011). Because this software is generic, and not created particularly for ARV drugs, it can be used to manage other drugs and healthcare supplies as well; therefore, use of the software is possible across diverse vertical healthcare services in the state of Karnataka (like malaria, tuberculosis). On the other hand, as Logistics Management Information System (LMIS) isn't made specifically to handle medicines, it has to be revised to make it suitable to employ in specific ARV drugs management. This wide-ranging system has numerous beneficial functions, but is not currently being utilized to its whole potential. For instance, the program's disposal system, transfer module and indenting module aren't being utilized. An effectively functioning LMIS, which is a sub-program in pharmaceutical management information system (PMIS), is essential in effectual medicines management (Bhattarai, 2011). LMIS design must take into consideration every aspect of pharmaceutical management. However, in spite of its shortcomings, this is the logistics model required by Westminster. An overall effective system, it can successfully facilitate Westminster's return to efficient operation. Packaging and labeling won't significantly be impacted by this modification.

Key Measurements and Risks

Key measurements which will be in place are point of sale (POS) information system, individual customer specifications, and reduction of order cycle duration. Risks to the firm will come from very high investments in technology- returns from this new technology may not be sufficient (Westminster Company Case Study). Frequent handling of orders can lead to rise in the number of workers required at the warehouse. Small quantities, on the other hand, would make it difficult to attain scale economies.