$6.$ Western Pharmaceuticals $($A$)$

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Following a merger with Atlantic Medical, Western Pharmaceuticals evaluates a definite overlap in distribution systems. To pursue supply chain network redesign, Western must conduct a total cost analysis.

Read the Western Pharmaceuticals $($A$)$ case and answer the following questions.

Western Pharmaceuticals $($A$)$

George Castro had a lot to be proud of$.$ His company, Western Pharmaceuticals, had just merged with the largest producer of over$-$the$-$counter $($OTC$)$ cold remedies on the East Coast. The merger with Atlantic Medical should guarantee coast$-$to$-$coast market penetration for both Western$$s upset stomach products and Atlantic$$s cough syrups. George had been selected to serve as CEO of the newly formed United Pharmaceuticals and was rapidly becoming recognized as being one of the top Mexican American business leaders in the country.

History

Western Pharmaceuticals had been founded by George$$s grandfather in post$-$World War II Los Angeles. Tony Romero$$s reputation for hard work combined with his strong pharmaceutical background made the introduction of his first antacid tablet an unqualified success in the booming downtown area. The company grew quickly and soon became the largest producer of antacid tablets in central and southern California.

George$$s father, Rudy, married into the Romero family in $1961.$ Although not a pharmacist, Rudy received a degree in urban planning from Pepperdine University. After many heated discussions with his new son$-$in$-$law, Tony acted on Rudy$$s advice to expand the company outside of the now congested Los Angeles city limits$.$ Tablet production would now take place in tiny Ontario, some distance to the east of LA$.$ The urban site, conveniently located in proximity to several major freeways and a railhead, would now serve only as a distribution center.

Rudy$$s suggestion to separate production and distribution worked. Ontario offered markedly lower rent and labor costs than Los Angeles, but was close enough to the city to prevent any significant inconveniences. Additionally, allowing the Los Angeles site to focus only on distribution led to significant economies. Western Pharmaceutical flourished.

Upon his father$-$in$-$law$$s recommendation, Rudy enrolled in business school and received his MBA from Cal$-$State Los Angeles in $1968.$ Rudy was subsequently appointed executive vice president of Western and quickly focused on expanding and diversifying the company. Aside from seeking new products, Rudy recognized the importance of a viable distribution system to market penetration. A second distribution center was constructed in Indianapolis, and Western Pharmaceuticals became the market leader of Nevada and Arizona by mid$-1991.$ By $1992,$ Western had a dominant position in the Northwest, Utah, Idaho, and New Mexico, and was making significant inroads in Colorado. Upon Rudy$$s recommendation, Tony pursued the acquisition of Central Solutions, a small Midwestern firm that manufactured liquid antacids. Although Central was a struggling company, its acquisition allowed Western Pharmaceutical to diversify into the liquid market. More importantly, Western obtained distribution centers in Nebraska and Nevada. Midwestern market share and profits followed.

George started working part$-$time as a warehouseman in the Los Angeles distribution center in $1998.$ After graduating from UCLA in $2002,$ George worked as a production manager at the Ontario site. By the time George earned his MBA in $2006,$ Western Pharmaceuticals had conquered the majority of the West and Midwest and was now eyeing the South. In $2008,$ Western opened its newest distribution center near Atlanta$$s inner beltway. Construction of the Atlanta site made access to the South and Southeast significantly more efficient, and market share increased accordingly.

By $2016,$ Western Pharmaceuticals was recognized as a $$cash$-$cow$$ in the stomach upset industry. No longer an innovator, Western had well$-$recognized products that retained their market share through creative and aggressive marketing campaigns. Rudy, now president of the company, was content to leave the company in its current state. This led to some amount of disagreement between him and his son. George, always the $$go$-$getter,$$ had developed an aggressive reputation within the company and frequently encouraged his father to tackle the East Coast.

George became the president of Western Pharmaceuticals after his father$$s retirement in mid$-2017$ and immediately began his pursuit of the East Coast. Atlantic Medical offered everything that he felt Western needed in order to guarantee its continued success. First, the company offered cold remedies, something that Western had considered but never pursued. Second, the company had key East Coast distribution centers in Mechanicsburg, PA$,$ and Atlanta, GA$.$ George was convinced that the successful merger of the companies would guarantee nationwide success in the OTC market for antacids and cough syrups.

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