The results of this paper center on the supply chain and logistical functions of an elite pharmaceutical organization in the United States. Westminster Company retains three separate companies, which produce and distribute individualized or differentiated commodities independently.
This paper will discuss the changes being considered within their supply chain structure, which are, the establishing of a solidified warehousing structure, possessing combined shipments to conserve on costs, the incorporation of information technology (IT) to keep up the companies’ inventory using software like enterprise resource planning (ERP), and contain an integrated management supply chain structure.
This paper will discuss which methods inside their supply chain that must be centralized, also the methods that must be de-centralized so that the system is maintained efficiently.
At the conclusion of this paper it will recommend a strategy for possessing a solidified or consolidated warehouse that will be the most efficient for the organization, the positioning or location of an easily accessible warehouse facility by all of the companies’ manufacturing plants (Bowersox, Closs, & Cooper, 2010).
Westminster Company: The Westminster Company is considered to be one of the largest manufacturers of consumer health products in the United States. Westminster owns three subsidiary manufacturing companies which include mass merchandise, drugs, and grocery products.
Due to intense competition Westminster has become concerned with the effectiveness of their current supply chain and logistic capabilities. Westminster evaluated both and the information obtained was useful for the requirements of their customers, and the functioning of their own companies. Due to the geographical positioning of their existing warehouses and manufacturing facilities, Westminster was now posed with a critical question, how to apply a beneficial strategy that will enable them to diminish costs associated with material handling and storage, transportation, and fixed costs.
This paper addresses issues such as, possessing an amalgamated warehouse, and using an amalgamated or consolidated distribution center for the shipping of mixed consignments. This paper will also recommend and provide a viable plan of action. Without an adequate logistic system, the failure of marketing, manufacturing and other functions of the company would be inevitable (Bowersox, Closs, & Cooper, 2010). . It is important for products to be shipped from the manufacturing facilities to warehouses, then to retailers, and then to the customer or consumer.
This paper will identify the effects of 3PL implementation by Westminster Company and the reason it is considered an advantageous strategy. Warehousing, transportation and information systems are key elements to any logistic system. Competitive advantages and the maximizing of profits are direct results of an effective collaborative supply chain logistic system (Bowersox, Closs, & Cooper, 2010). .Impact on transfer and freight cost from Westminster’s three new alternative are: One-information driven system like POS should replace the way Westminster currently handles inventory replenishment.
POS will facilitate in the manufacturing of goods consistent with customer requirements. Forecasting by demand is not always correct, and POS will reduce the need to do so. When one reduces this need it will aid in inventory redundancy, the prevention of excess waste, and a reduction in storage cost. Ideally, Westminster should implement ERP; this will allow management of real-time inventory of Westminster’s various warehouses and plants, and their entire POS system. Customers’ inventory requirements and daily sales can be determined, and shipments can be proportionately prepared by implementing ERP.
This software will allow trucks to be loaded to incorporate the largest number of customers, which will allow for the distribution of a considerable amount of goods in one trip. Since the delivery of these goods is based off customer orders, refusals and returns could be conceivably eliminated. This will aid to prevent waste, which in the long run could become a considerable cost (Bowersox, Closs, & Cooper, 2010).
Two-If Westminster were to use three weekly trailer deliveries from one warehouse instead of one weekly railer delivery from three separate warehouses, transportation cost would definitely increase, but if these three deliveries could include mixed products from all three locations in one trailer, it will bring the increased cost more into balance. Economies of scale can be achieved by having only one trailer moving daily which reduces costs (Bowersox, Closs, & Cooper, 2010). The implementing of DSD will give Westminster an edge competitively, and when considering the main retailers, this service would be ultimately desired.
DSD will dramatically decrease freight cost to customers, and not affect transportation costs of Westminster a great deal. DSD would allow customers to eliminate the transfer of product from their warehouse facilities to their individual stores (Bowersox, Closs, & Cooper, 2010). Three-Westminster is considering warehouse consolidation, so the correct management of inventory is crucial to guarantee proficient operations. To aid in this the implementing of bar-coding, SKU, and RFID systems need to be implemented.
Bar-coding provides manageable stock pulling and monitoring by SKU. RFID tags allow for stock pulling ease, because they can be attached to pallets assigned to Westminster’s larger clients, and the tags attached contain all data for the entire contents of the pallet. The cost of these value added service systems while expensive can be charged back to the customer with little resistance. When value added services are charged back to a company they understand that they are getting what they pay for.
This is true because with customary pricing a single flat rate is charged, which means even if a customer does not need certain parts of the service they are still charged for it (Bowersox, Closs, & Cooper, 2010). Warehouse consolidations impact on inventory carrying costs, customer service levels, and order fill rate are: Taking multiple warehouses and consolidating them allows for a single warehouse for storing of all the individual plants’ products. The storage of these goods joined with a demand based inventory replenishment strategy, will ultimately lead to the costs of inventory, storage and handling to be reduced.
Because of these replenishment strategies inventory levels will never reach overflow to the point of expiration, so overall waste will be reduced. Inventory risk and service costs, cost of storage, and capital cost are comprised to make up carrying cost of inventory, with capital cost being the largest. Consolidation aids in the reduction of costs associated with operations, handling and transportation, it also establishes economies of scales when the overall cost of inventory is reduced.
Labor is a key cost that can also be managed easier with consolidation, which result in larger profit for Westminster (Bowersox, Closs, & Cooper, 2010). With consolidation all products are based in a centralized location, and with the three weekly deliveries, order fulfillment rates and the level of customer service will improve. This is concluded because of the ability to prepare and ship orders fasters. This will also insure a timely delivery of inventory to customers, resulting in a higher level of customer satisfaction (Bowersox, Closs, & Cooper, 2010).
Mixed product will be distributed in fully loaded trailers, which will lead to economies of scope and scale; therefore transportation cost will be reduced. Westminster and customers will benefit from the customers ability to place orders from all three companies and not affect freight costs (Bowersox, Closs, & Cooper, 2010). Third party logistics effect on warehousing, handling, storage, and fixed facility costs are: The total cost of warehousing for Westminster’s three companies was almost twenty-two billion dollars, that is thirty-eight percent of their total logistics cost.
A third party logistics (3PL) provider could absorb these costs and save the company enough money to apply towards the development of an information technology (IT) infrastructure. A strong IT department will play a vital part in running the ERP and inventory integration for all its supply chain members. A 3PL will also eliminate the labor cost associated with the warehousing, and use very qualified individuals to almost eliminate all performance issues, and with a pre signed contract the risk of non performance is reduced (Bowersox, Closs, & Cooper, 2010).
The effects on company cost and performance from consolidated distribution centers’ mixed shipments are: Westminster will not only gain an advantage by doing this, it will also reduce its logistics cost with the delivery of mixed products on one trailer. Opposed to three trailers traveling around the United States, it would only need one, therefore transportation cost are reduced, and then economies of scope and scale will be achieved. Westminster’s transportation cost for their three companies total nearly ten and a half billion dollars. Westminster can reduce that total by nearly one third with distribution center consolidation.
Overall performance and financials will improve because now shipments will be faster while carrying more products. The new IT infrastructure for the consolidate center will provide information instantly, improving performance and efficiency. Immediate demand data will prevent delayed shipments because the plants will manufacture more accurately. The consolidated warehouse acting as a distribution center can now use the cross docking concept where all plants transfer product to it, and then it will ship mixed products to numerous customers