This case study examines the supply chain and logistics challenges facing Westminster Company, one of the world's largest producers of healthcare consumer products. Operating across multiple continents through three decentralized subsidiaries and eight distribution centers, the company struggles with inefficiencies including excessive fixed costs and less-than-truckload shipments. The paper evaluates three proposed improvements—POS-driven demand forecasting, reduced order cycle times, and integrated logistics technologies—and recommends consolidating the existing warehouse network to achieve economies of scale, reduce redundant distribution centers, and better meet evolving customer requirements in a competitive pharmaceutical market.
This case study presents a supply chain analysis of Westminster Company, one of the world's largest producers of healthcare consumer products. The pharmaceutical company, established in the early twentieth century, currently operates across the United States, Latin America, Europe, and the Pacific Rim. Westminster owns three major manufacturing subsidiaries and eight distribution centers, with products spanning drugs (20%), mass merchandise (25%), and grocery products (37%). The company faces the challenge of maintaining an efficient logistics and supply chain system in a highly competitive market. Its three subsidiaries operate under a decentralized management system, which encourages self-ownership and responsibility and motivates entrepreneurial management.
An efficient logistics system is critical to business success. It ensures that inventory is stocked on retailers' shelves; delays in replenishment strain the relationship between manufacturer and retailer. Westminster currently adopts a decentralized distribution network in which each autonomous subsidiary uses its own standalone distribution centers to deliver inventory. Leong (2012) cautions that decentralized distribution systems negatively affect profitability due to excessive fixed operating costs. As a result, Westminster does not adopt direct shipments and consequently reports mostly less-than-truckload consignments, increasing the cost of shipment. Given the evolution of supply chain systems and growing pressures from both competitors and customers, it is essential for Westminster Company to reevaluate its logistical management system.
Accordingly, Westminster commissioned a study to establish a customer overview and identify operational management changes critical to the firm's success. The research found that a majority of domestic sales were driven by just 10% of customers, with the largest customers accounting for significantly increased domestic revenues. The study also identified intensified competition from private-label companies that adopt integrated logistics and operate more cost-efficiently. Customers were found to be increasingly specific in their logistics requirements, demanding efficient planning, supply chain collaboration, information technology integration, and reliable order fulfillment. Finally, the study observed that Westminster's core customers derive higher profit margins from their relationship with the company, meaning that advanced integration would represent a meaningful competitive edge.
To address the research findings, an overhaul of Westminster's supply chain structure was identified as inevitable. The overhaul would entail three potential changes: introduction of a Point of Sale (POS)-driven system, a higher degree of customization, and a reduction in order cycle time. These proposed changes respond to the rapidly evolving technology landscape that has enabled real-time inventory tracking and increased delivery rates. Together, they would significantly affect freight costs by reducing fixed, direct, and indirect expenses.
The first proposed alternative involves shifting from traditional anticipatory production to data-driven, demand-responsive production. POS information systems play an imperative role in ensuring the efficient flow of inventory along the supply chain, as customers can transmit real-time product sales data to the manufacturer (Walters, 2010). Production and inventory replenishment would then be informed by stock-keeping unit (SKU) data transmitted on a daily or weekly schedule by customers. A POS-driven system enables greater accuracy in demand forecasting, minimizes wastage, promotes lean production, and reduces warehousing costs. Enhancing Westminster's logistical system with POS-driven production would directly meet customers' evolving requirements.
The second proposed alternative involves reducing the order cycle, which would triple weekly deliveries to customers. This change would entail integrated shipments to larger customers from all three subsidiaries simultaneously. While it would simplify procurement practices, it would also reduce transportation costs by addressing the low-quantity truckloads and private parcels that currently characterize distribution center operations. This change would also result in increased direct store delivery (DSD) demand, implying greater direct shipment from manufacturer to retailer.
The third proposed alternative involves adopting logistics technologies that allow Westminster to meet specific customer requirements while reducing costs. This entails integrated value-added services such as industry-standard bar codes and paperless transactions. Adopting automated identification systems such as RFID on cartons and unit loads would replace time-consuming, error-prone paperwork. Bowersox et al. (2007) support the adoption of automated identification systems on the grounds that they reduce cycle time and subsequently increase delivery rates. Rather than using a traditional pricing system that reflects only logistical order fulfillment, handling, and transportation, the proposed change would incorporate value-added services directly into pricing structures.
Incorporating these changes would engage all three subsidiaries, require a higher degree of customization, and necessitate a supply chain task force to ensure customer value is maximized while total implementation costs are minimized. To ensure maximum efficiency, the company would need to assign managers to systematically monitor the distribution network, with responsibilities covering packaging, handling, storage, warehousing, and retail outlets. Since the redesign cuts across major segments of each subsidiary, securing employee buy-in is essential.
"Consolidated warehouse design, cost savings, and scale economies"
"Drawbacks of consolidation and public vs. private warehouse options"
Integrating the proposed alternatives for larger customers would yield significant cost savings, increasing Westminster's competitiveness in the pharmaceutical industry. Redesigning the warehouse network to promote shipment consolidation would deliver significant efficiency gains in inventory handling and reduce storage costs. Providing a nimble and agile supply system would reposition Westminster as a strong competitor in the industry. Implementing the proposed changes in conjunction with a consolidated warehouse network is therefore the ideal path forward for Westminster Company.
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