Westminster Case Report

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WESTMINSTER CASE STUDY DISTRIBUTION NETWORK DESIGN

JULIANTO HALIM OLUROTIMI OLAOGUN GANESH RAMKUMAR PATRICK TRAIN MATTHEW VIDOTTO CHRISTOPHER WATSON Prof. ANGELO CRUPI SCM 510 MARCH 19th 2014

CURRENT STATE
Westminster Company is a huge global manufacturer of consumer health products whose brand has been recognized all over the world. Their operations consist of three separate but wholly owned companies, which produce and distribute unique product lines. They have been using decentralized management strategy since the beginning, which is historically a successful strategy for them. Their three companies share some of the same customers with each other (Bowersox, 2004).

Today, Westminster is forced to reevaluate their traditional supply chain strategy due to pressure from both their domestic and global competitors, as well as their large domestic customers. Their study of their customers’ current and future supply chain requirements identify two key topics to focus on, which are customer composition and customer service requirements. The trend also shows that their customers have grown into very large accounts. Their research also shows that these large accounts have an increasing commitment to improved supply chain efficiency. They also identifies that more timely, efficient and accurate inventory delivery would be another key to their future success. Three important changes planned for Westminster are the shift from forecast to response based sales information to determine their replenishment and production, the focus on reducing of their order cycle time and the focus on meeting customized specific customer requirements. There will be challenges associated with implementing the new program and processes to meet those objectives (Bowersox, 2004).

PROBLEM STATEMENT
Westminster needs to re-evaluate their traditional supply chain strategy to compete with both their local and global competitors. They also need to find a way to improve supply chain efficiency to satisfy the increasing commitment of their large accounts, as well as to have more timely, efficient and accurate inventory delivery. Another problem to be solved by Westminster would be the challenges associated with implementing the new program and processes to satisfy the three important changes suggested by their vice president, which are the shift from forecast to response based sales information to determine their replenishment and production, the focus on reducing of their order cycle time and the focus on meeting customized specific customer requirements. Hence, they need to utilize the best network design between these three considered alternatives to address all these problems:

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1. Using a more centralized strategy by consolidating the current three distribution systems to a single system serving all three companies, using fewer warehouses than are currently being used. 2. Outsourcing some of their activities by using public or third-party warehousing and thirdparty transportation. 3. Continuing with their current network design (Bowersox, 2004).

ANALYSIS OF KEY ALTERNATIVES
The Vice-President of SCM at Westminster Alex Coldfield aims to influence customer service by implementing a new distribution network alternative. He hopes that by choosing and implementing one of these alternatives, operations will change as a result in three specific areas. These changes will effect key accounts while smaller retailers will operate with the current services.

Consolidate Orders at a Central DC
By consolidating the existing three companies distribution networks into a single network the Westminster may be able to generate some cost savings. The first this option allows is for outbound freight consolidation in Newark and Los Angeles as Company A and C both have distribution centres there and as such shipments from both companies for the same customer may be consolidated in order to maximize cube and decrease the number of trucks sent to the customer decreasing freight costs. Another way in which freight costs may also be decrease is that now that production facilities can ship to any distribution facility shipments can be coordinated so that they are consolidated at the distribution facility that mitigates both inbound and outbound transportation costs the most. Though this network would decrease freight costs due to consolidation it may also increase have a negative effect on transfer costs as now distribution facilities would receive additional freight as plants from all three companies would ship to any distribution centre further complicating freight consolidation and increasing the time and cost with combining shipments. This redesign would improve the service as well as the logistics costs in moving products, with that said it also would take a large capital outlay to redesign the network and as such if the capital outlay is greater than the cost savings this may pass along higher freight costs to the customer.

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Outsource Distribution to a 3PL Company
By outsourcing all of Westminster’s distribution function (for key customers), the company would be able to free up a large amount of capital tied to the current distribution network. This outsourcing model also enables the distribution centre locations to be repositioned to compensate that product from all three companies would be sent to the same centre for distribution. This in turn would allow a third party to minimize transportation costs by scheduling minimal LTL distance and maximize TL moves in addition it would assign production facilities closest to a distribution facility enabling a decrease in transportation costs. The customer freight cost though are tied to the fees charged by the third party logistics company could be less or greater than the current distribution network. Most likely though, outsourcing would lower costs as distribution is not Westminster’s core competency and as such lack the expertise necessary to generate the savings which a third party could.

Continuing with Current Design
This alternative would involve making no changes and would incur no additional cost. Network design would remain as is but minor changes towards process improvement may help meet Westminster’s customer requirements in the short run. However, in order to maintain long-term customer satisfaction and retain their key customers, one of the other two alternatives must be considered.

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ANALYSIS OF KEY ALTERNATIVES
Based on the Westminster’s study and research, consolidating the three distribution centers into a single distribution center is the recommended option. This will reduce cycle time, improve timeliness and attentiveness of the company’s delivery on orders etc. Centralized network design with some of the 3 companies’ warehouses and distribution centers will ensure more efficiency and enable the organization to deliver on customer requirements on time. This will also enable the organization to meet up with the demands of their key customers while offering the highest levels of customer service possible.

The advantages of this consolidation strategy are as follows:  It would enable timely, efficient and accurate inventory delivery since inventory is bought centrally and as such more buying power to acquire more at a lower price. This would give the organization more competitive power to deliver goods on time     Better sharing of information since the organization is no longer competing with each other but are now sharing information to achieve profit as a whole Truck load that carried all customer delivery as oppose to less than truck load that delivered to customers in separate batches Value added services, uniform product identification across the three companies’ products easy identification in the supply chain channel It would reduce transportation costs by increasing TL shipments to key customers while reducing LTL shipments There are however downsides to this strategy:     Smaller retailers may not be willing to initiate close working relationship as the large accounts This is a huge change in the process that can lead to issues Customers that stay close to the old warehouses will lose their quick deliveries as result of the shutting down of some warehouses Coverage of the company’s warehouse span will be reduced since they are closing down some of their sites

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CITATION
Bowersox, Closs, & Cooper. (2004). Supply Chain Management Logistics, 2nd Edition forthcoming. McGraw-Hill.

ANSWERS TO OTHER QUESTIONS
Q1: Consider the two new options under review by the logistics taskforce, how might these options impact transfer and customer freight costs? Why? ( Answered within the case )

Q2: What impact would warehouse consolidation have on inventory carrying costs, customer service levels and order fill rate? Consolidating the three warehouse locations into a single warehouse would have a positive impact on Westminster’s inventory costs, customer service levels, and fill rates. Inventory carrying costs will be decreased within the distribution network since stock would be held only at one location rather than at multiple locations. Costs associated with holding inventory (e.g. obsolescence risks, facility costs, insurance, etc.) would therefore be less. However, in-transit inventory will increase because there will be longer distances between the DC and customers. Longer lead times would result in more goods being in-transit at a given time. Although the safety stock levels will be lower the savings from this may not be large enough to save on total inventory.

Customer service levels would likely increase with DC consolidation because the order fulfillment process as a whole would improve. Westminster would be able to serve three strategic locations from a centralized DC, and the aggregated quantities would reduce variability in demand and in turn reduce forecast errors for that DC. Also, with a centralized DC, Westminster would be able to focus their CSL improvement strategies on that DC in order to improve CSL for their key customers.

Similarly, fill rates would also likely increase since Westminster can focus their efforts in improving fill rate KPIs within one central location serving all their major customers. Less demand variability and greater forecast accuracy would also help improve order fill rates.

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Q3: How might the options under consideration by the task force address customer needs? The first customer requirement involves a change from anticipatory inventory replenishment from forecasts to Point Of Sale driven reactionary replenishment. This information will then feed into production scheduling at the SKU level. Using POS data would be a benefit to any of the proposed options. It would provide the driving information for the supply chain, this would help reduce the bull whip effect and help with inventory planning as actual demand is presented.

The second change is to reduce order cycle times to meet customer demand to receive 3 deliveries per week. There is also customer demand for consolidated orders from the 3 product companies to be shipped directly to store. These direct deliveries can be supported by on-site work teams who are able to provide shelf inventory management in store, store ordering and gather and provide POS data back to the manufacturing node to pull product for shipment. By reducing the number of distribution centers, as proposed in the new layout variable and fixed costs can be reduced allowing for investment into DSD and work teams to be established as a new complete EDI would need to be established for clear visibility across the supply chain and also new value adding services need to be carried out to ensure DSD is efficient. With DSD there are expectations for better sales as stock outs are reduced thanks to the reactionary nature of the distribution and high speed to market. A centralised hub would act as an enabler for achieving economies of scale and variety needed for customers. With the current network LTL shipments are common; therefore DSD would be extremely expensive due to the limited products available. Also the reduced order cycle times would result in many shipments that are not utilizing cube space. The product offering by Westminster is easily stored and has good shelf life; therefore products are suitable for storage and consolidation within a system where distribution is combined rather than separate.

The third change calls for movement to electronic (paperless) transactions by implementing efficient EDI and also for RFID to be utilized to support visibility. This is also a very expensive process and therefore is better suited to a consolidated system where the equipment and technology infrastructure has to be implemented once, rather than in each of the three channels. If the option of third-party public warehousing offers these aspects along with the expertise in maximizing the advantages of EDI/RFID then that is a huge benefit to Westminster.

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