Westminster Company is one of the world’s largest manufacturers of consumer health products.
Their distinctive name and company logo are recognized throughout the world. Originally founded as a
family-owned pharmaceutical supply business in 1923, the company has expanded, by virtue of
aggressive new product development, into a global
Case 4
Westminister Company Profile
provider of health care consumer products. Westminster maintains regional offices in Europe, Latin America
and the Pacific Rim to support overseas manufacturing and distribution.
Westminster’s domestic operations consist of three separate but wholly owned companies that each
manufactures and distributes unique product lines. Decentralized management has been a proud historical
tradition at Westminster. According to President Jonathan Beamer, the policy of maintaining unique and
independent companies encourages responsibility, self-ownership of the product development and marketing
process and provides the incentive for entrepreneurial management. Westminster’s products are marketed
through a network of diverse retailers and wholesalers. Trade class as a percent of sales is 37 percent grocery,
20 percent drug, 35 percent mass merchandise and 8 percent miscellaneous. All three companies sell and
distribute products to several of the same customers.
Westminster Today
Pressure from domestic and global competitors, as well as large domestic Westminster customers has
recently forced the company to reevaluate their traditional supply chain practices. In particular, attention has
focused on the changes that customers are demanding as well as other operational modifications in current
practice that management feels are required to effectively compete in the 21st century marketplace.
Westminster just completed several months of extensive study focusing on their customers’ current and
future supply chain requirements. The findings addressed a variety of issues, but two key topics were
identified: (1) customer composition and, (2) customer service requirements.
The most significant trend with regard to customer composition over the past decade has been the growth
of key customers into very large accounts. Mass merchants now account for 35 percent of total corporate
sales volume and have become the fastest growing category of trade. All three companies sell to this
category of trade. This trend is expected to continue into the foreseeable future. The major shift in the mix of
accounts is not expected, however, to dramatically alter the historical composition of product sales.
Approximately 70 percent of domestic consumer sales volume is concentrated with 10 percent of
Westminster’s customers. What may affect the composition of product sales to large retail accounts, however,
is the rapid growth of private-label nonprescription drugs and consumer health competitors. Cost-efficient
private-label manufacturers offer large retail accounts higher profit margins, and willingness to provide
private labeled products. The private-label health and beauty aids business sales exceeded $5 billion in 2008.
The second research conclusion confirmed senior management’s belief that these large accounts have an
increasing commitment to improved supply chain efficiency. To maintain and increase the percentage of
sales volume Westminster generates from these important customer accounts, management has identified
several key customer service improvements. These improvements specifically address the second issue of
customer service requirements. Company research has also concluded that the formulation of supply chain
collaborations between Westminster and its large customers has now become a competitive necessity. In
many instances, powerful retailers demand such collaboration and oftentimes have the leverage to dictate
relational arrangement. Westminster will have to maintain considerable flexibility in order to develop unique
supply chain solutions for a variety of large, powerful customers. Ideally, Westminster would like to establish
a position of leadership within these collaboration arrangements.
Westminster’s management is well aware that successful retailers and wholesalers are focusing strategic
effort on more timely, efficient and accurate inventory delivery. Many large firms have identified their supply
chain management capabilities as a primary
strategy to achieve successful inventory management and improving overall financial performance. “I
visualize three important changes for our operations with regard to large accounts,” says Alex Coldfield,
Westminster Vice-President of SCM:
First, traditional inventory replenishment procedures must be replaced by POS driven information systems. Customers
have the ability to transmit daily or biweekly actual product sales at the SKU level in order to ensure timely inventory
replenishment and allow production to be scheduled according to response based sales information rather than forecasts.
We will also establish and utilize customer support “work-teams” that operate on-site with key customer accounts to
better manage ordering and distribution.
Second, order cycle times can be reduced from current levels. Large accounts will increasingly demand three rather than
one delivery per week. In addition, many large accounts want to simplify their procurement practices and are questioning
why we cannot provide integrated deliveries of merchandise from our three consumer product companies when cost
reductions are achievable. The demand for direct store delivery (DSD) may also significantly increase. A long term goal
is to arrange a mix of products from all Westminster companies delivered on a single trailer to key customers, perhaps
direct to retail. The long term has become now.
Third, products will increasingly have to meet specific customer requirements, such as assembly of individual store
customized pallets, and customer specific inner packs and display units. Bar codes will have to utilize industry standards
such as UCC 128 and there will be increased demand for RFID capability on unit loads and master cartons. Invoicing and
payment, particularly with regard to promotional allowances and discounts, must increasingly move toward paperless
transactions. Our pricing will evolve to reflect value added services as provided, rather than purely traditional logistical
order fulfillment, transportation and handling.
For the balance of Westminster’s customers, the smaller retailers, service will be provided much as it is
today. Although other customers may not be willing or able to initiate close working relationships, they are
entitled to a high standard of basic service that provides timely and consistent performance. For these
accounts, purchase price will remain the priority, although there will be some increased pressure for
improved order fill rates and decreased cycle times. Traditional purchase order invoicing and payment will
also remain the rule.
In response to the issues raised by company research, CEO Wilson McKee directed the company’s
executive management committee to organize a supply chain taskforce. The taskforce, to include top-level
managers from each company, has been directed to identify changes necessary within the three domestic
sales’ supply chain practices and operational network that will achieve improved distribution performance
and responsiveness.
As a framework to guide the integrative redesign McKee decided to seek recommendations around the
eight key processes that link a firm into a supply chain structure with customers and suppliers. McKee
remembered a framework he was introduced to at a leadership seminar he attended the previous year. A
speaker on supply chain strategy highlighted a set of “Eight Supply Chain Processes” (see Table 1) as a
requisite for supply chain excellence. McKee then thought about the performance gaps that existed between
present-day and the idealized processes, as well as the measures he proposed to achieve operational
integration.
Clearly McKee’s initiatives, if implemented correctly, would enhance demand planning and strengthen
relationships with customers and channel partners. Moreover, the initiatives also would improve the
timeliness and attentiveness of how Westminster fills and delivers its orders. However, implementing the
new processes would be no mean feat, and would represent a paradigm shift from an anticipatory mode,
based on forecasts to a more customer-responsive based operation.
TABLE 1 Eight Supply Chain Processes
The program would require buy-in from the top down to the delivery truck drivers. Furthermore, thinking
in terms of key organizational processes, spanning across all divisions and departments, was a significant
departure from the autonomous way Westminster companies had operated in the past. Nevertheless, McKee
was steadfast in his belief in the new processes, and was eager to deal with the challenges associated with
implementing his new program.
Westminster’s Distribution Network
Table 2 outlines Westminster’s existing distribution network for the three domestic consumer sales
companies. Each company consists of a number of company-owned and operated manufacturing plants and
distribution facilities. Table 3 presents a number of key demand and inventory statistics for the facilities.
Each manufacturing plant produces stock-keeping units (SKUs) unique to that particular facility. All
SKUs are distributed on a national basis. Due to significant capital outlays and fixed costs associated with
each manufacturing plant, the supply chain taskforce has already eliminated the possibility of relocating any
manufacturing facilities from their present locations.
Manufacturing plants route products through a distribution center before final delivery to a retail or
wholesale customer. Any distribution center may be utilized within its own company. Distribution centers
may ship product to any region of the country; however, customers are typically serviced by the closest
distribution center based on Westminster’s regional boundaries. Transfer shipments between distribution
centers are frequently made to achieve an assortment of products for customer shipment.
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Most shipments from manufacturing plants to distribution centers are delivered via motor carrier on a
truckload basis. Air freight is sometimes utilized for emergency shipments from plants and between
distribution centers before delivery to customers. Most shipments between distribution centers and customers
are delivered by motor carrier on a less-than-truckload basis and vary in size from a few pounds to nearly
truckload quantities. Table 4 shows the three domestic sales companies’ shipments by typical weight brackets
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and the number of bills of lading issued within each bracket. The first weight bracket (0–70 pounds)
represents shipments typically delivered by small parcel carriers; the majority of these shipments represent
order fulfillment of back ordered SKUs. Approximately 47 to 50 percent of all shipments are 500 pounds or
less.
TABLE 2 Westminster Company Facility Locations
TABLE 3 Westminster Customer Demand (2003)
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TABLE 4 Shipment Profiles
Distribution center locations are based both on market and production factors. The majority of distribution
centers are strategically located throughout the country to service geographic territories that contain the
strongest demand for Westminster products. Demand patterns for consumer products follow major
population centers and are generally consistent across the country for all three companies. Most distribution
centers were originally located near manufacturing plants to reduce transfer transportation costs. Demand
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patterns for consumer products follow major population centers and are generally consistent across the
country for all three companies.
TABLE 5 Westminster 2003 Distribution Costs ($000,000)
Table 5 lists the current system’s transportation and warehousing costs for each of the three companies.
Freight rate classification for product shipments is different for each of the three companies. Company A
freight has a rating of class 60; Company B freight has a rating of class 70; and Company C freight has a
rating of 150. In general, these ratings reflect the relative expense of moving products based on density and
value. Transfer freight costs are based on truckload rates from the manufacturing plants to the distribution
centers. Customer freight costs are based on less-than-truckload shipments from distribution centers to retail
and wholesale customers. Average number of days’ transit time from the distribution centers to the customer
is the shipment time from the point an order leaves the distribution center’s loading dock until it reaches a
customer. Any potential systems redesign must consider the effect of labor costs.
Questions
1. What impact would the three new alternatives have on transfer and customer freight costs? Why?
2. What impact would warehouse consolidation have on inventory carrying costs, customer service levels,
and order fill rate?
3. How are warehousing costs affected by the decision to use third party or private warehouse facilities?
What effect would this have on handling, storage, and fixed facility costs?
4. What effect would shipping mixed shipments from consolidated distribution centers have on individual
company cost and performance?
5. Evaluate the eight supply chain processes in terms of customer classification and degree of
centralization/decentralization of required functionality (use the matrix below).
6. Given all available information briefly describe the logistical system design you would recommend for
Westminster’s integrated consumer products.
https://jigsaw.brytewave.com/api/v0/books/0077769120/print?from=444&to=449 Page 11 of 12
Use for question 5 above