Westminster Company Logistics

Case Summary
The case study entails a supply chain analysis of Westminster Company, which is one of the largest world’s largest producer of health care consumer products. The pharmaceutical company established in the early 20th century currently operates across the United States, Latin America, Europe, and the Pacific Rim. The Company owns three major manufacturing subsidiaries and eight distribution centers with products spanning across drugs (20%), mass merchandise (25%) and grocery products (37%). Westminster Company faces the challenge of maintaining an efficient logistics and supply chain system in face of a competitive market. The decentralized three subsidiaries adopt a decentralized management system which arguably encourages self-ownership, responsibility which motivates entrepreneurial management.
Logistics system is a critical aspect of a business to thrive. Logistics system ensures that inventory is stocked in the retailers’ shelves whose delay yields a constrained relationship between the manufacturer and the retailer. Currently, Westminster Company adopts a decentralized distribution network that entails the three autonomous subsidiaries using their standalone distribution centers to deliver inventory. Leong (2012) cautions inefficiency of decentralized distribution systems as it negatively affects profitability due to excessive fixed operating cost. Hence, Westminster Company doesn’t adopt direct shipments. Consequently, Westminster Company reports mostly less-than-truckload increasing the cost of shipment. Given the evolution of supply chain systems and increasing pressures from both the competitors and customers, it’s essential for Westminster Company to reevaluate its logistical management system to ensure efficiency.
Accordingly, Westminster Company commissioned a study to establish customer overview, and other operational management changes critical to the pharmaceutical firm’s success. The research established that in addition to the largest customers driving the significantly increased domestic sales, a majority of the domestic sales were from 10% of their customers. The research findings identified intensified competition from private-label companies that adopt integrated logistics and are cost-efficient. Additionally, the study identified customers were becoming more specific with logistics requirement. The fundamental customers are increasingly demanding efficient planning, collaboration in the supply chain, adopting information technology systems and order fulfillment. Lastly, the study observed that given the core customers derive higher profit margins from Westminster, adopting advanced integration would be a competitive edge.
Proposed Alternatives
To address the research findings a proposed overhaul of the supply chain structure has been identified inevitable. The overhaul would entail three potential changes; introduction of POS (Point of Sale) driven systems, higher degree customization and reduction in cycle time. The proposed changes respond to the rapidly evolving technology that has enabled inventory tracking that ensures increased delivery rate. The proposed changes will significantly affect the freight cost by reducing fixed, direct and indirect cost.
One of the proposed alternatives entails production based on the data-driven forecast as opposed to the traditional anticipatory production. Logistic information including warehousing and transportation play an imperative role in ensuring the flow of inventory along the supply chain. Introducing data-driven POS information system ensures efficient flow of inventory and earnest replenishments as customers could transmit information about product sales (Walters 2010). Subsequently, production and inventory replenishment would be informed by data from the stock keeping unit (SKU) transmitted on a daily weekly schedule by customers. A POS system enables accuracy in demand forecasting subsequently minimizing wastage, promotes lean production and reduced warehousing cost. Enhancing the company’s logistical system with data-driven POS system production would meet customers’ requirement.
A second proposed alternative entails reducing the order cycle which would triple the weekly deliveries to customers. The proposed change would entail integrated shipments to larger customers from the three subsidiaries. While the change would simplify procurement practices, it would as well reduce the transportation cost since low quantity truckloads and private parcels the distribution centers currently face would be addressed. Lastly, the change would result to increase in direct store delivery (DSD) demand which implied increased direct shipment from the manufacturer to the retailer.
The third proposed alternative includes the adoption of logistics technologies that ensure Westminster Company adheres to specific requirements by customers while reducing cost. Meeting customer needs requirements enhances relationship which ensures sustained business. The change entails integrated value added services such as the use of industry standards in bar codes, and integrated paperless transactions. Adopting automated systems such as RFID on cartons and unit loads would replace paperwork which is time-consuming and prone to error. Bower et al (2007) support the adoption of an automated identification system as it reduces the cycle time which subsequently increases delivery. Hence, as opposed to the traditional pricing system that reflects logistical order fulfillment, handling, and transportation, the proposed change would incorporate value-added services in prices.
Incorporating the proposed changes would engage the three subsidiaries, a higher degree of customization and a supply chain task force that ensures that customers’ value is maximized while the total cost of implementation is minimized. To ensure maximum efficiency, the company would need to allocate managers to systematically monitor the distribution network. The managers would be engaged in monitoring packaging, handling, storage, warehousing, and retail outlets. Since the redesign cuts across major segments of each of the subsidiary, getting a buyin by in from the employees is essential.
Logistical System Design
Currently, Westminister adopts a decentralized distribution network that entails the flow of goods from manufacturing plant to a distribution center and then to a customer which limits economies of scale. Ballou (2004) identified such a decentralized distribution network as inefficient increasing the logistical. Therefore, redesigning the current decentralized warehouse network to a consolidated warehouse system is essential. A reevaluation of the supply chain practices would ensure timelier, accurate and efficient delivery of inventory. Redesigning the distribution network to adopt a consolidated warehouse system would enable Westminster Company to enjoy economies of scale. The redesign would see some of the redundant distribution centers (DC) shut down; Los Angeles Company C DC, New Jersey Company A DC, and New Jersey Company C DC leaving five operational distribution centers. The shutdown would result in $3321, 000 total savings by Westminster which as a profitability implication. The savings would be realized from reduced handling, storage, carrying, fixed and transportation cost. Leong (2012) argues that a vital component if ensuring optimal delivery is a mixed integer linear programming that presents information on the primal location and optimal size and number of the warehouse.
Warehouse network consolidation presents immediate and cost-effective outcomes. A consolidated system ensures optimization of logistical assets, minimizes overstocked warehouse and reduces ineffectiveness of inaccurate manufacturing data. System consolidation presents the advantage of economies of scale in transportation since trucks would be easily tracked across the supply chain. Such an approach not only lowers the customer freight cost but as well reduces the transfer costs. A reduction in duplication of trips would reduce the inventory carrying a cost. As well Westminster Company would experience enhancement on order fill rates given that inventory would be disbursed from fewer stowage locations. As well, system consolidation would considerably reduce the number of freight transfers required to fulfill customer demands. With a consolidated system, economies of scale would be realized as larger volumes of shipments would be realized, implies fewer shipments. An additional advantage of a consolidated warehouse system is increased resilience to market shocks that result in a surge in customer demands.
However, a consolidated system is not without intrinsic costs. Although a consolidated system would reduce the transportation cost, it may as well have a counteractive effect of increased freight cost. A consolidated warehouse pauses risk of reduced customer service due to longer time leads as inventory has to be grouped and assembled to enhance fill rates. A consolidated system would result in an increased distance with some customers who would prefer the proximity to the store. Moreover, the increased distance between the customer and the distribution centers would imply increase cost of transportation and increased delivery days.
Westminster would consider public or private warehouse. While owning a private warehouse allows flexibility, stability, and control, Westminster would incur a fixed investment to put up a consolidated warehouse that would negatively impact the company’s bottom line. Adopting a public warehouse overcomes the fixed investment challenge presented by the private consolidated warehouse. Moreover, the multiple users in a public warehouse present share scale economies. However, a public warehouse presents additional third-party cost increasing administrative cost (Bowersox et al 2007).
While the redesign of the warehouse network seeks to realize reduced cost and increased efficiency, focusing on customer satisfaction is essential. Reducing the cycle time, and integrating mixed shipment reduces the procurement logistics which with efficient planning enhances customer satisfaction (Walters 2010). Performance consideration would be essential for each of the output from the different manufacturing unit. For the mass merchants, for example, ensuring higher customization in receptiveness in manufacturing, responsiveness and product development launch would be paramount.
Conclusion
It’s evident that integrating the proposed alternatives for the larger customers would yield significant cost savings which would increase Westminster’s competitive in the pharmaceutical industry. A redesigning of the warehouse network to promote shipment consolidation would yield significant effiency in inventory handling and reduced storage cost. Providing a nimble and agile supply system would reposition Westminster as a strong competitor in the industry. Hence, implementing the proposed changes coupled with a consolidated warehouse network is ideal for Westminster Company.


References
Bowersox, D.J., Closs D. J., and Cooper M. B. (2007). Supply Chain Logistics. Management. (2nd ed.), McGraw-Hill/Irwin, NY, pp.410.
Leong, W.T. (2012). Principles of Supply chain Management. Mason. OH: South Western
Walters, D. (2010). Global Logistics – New Direction in Supply Chain Management. Philadelphia: Kogan Page Limited.