Westminster pharmaceuticals : Continuing with the current arrangement as is

Westminster Company is one of the world's largest manufacturers of consumer health products; its distinctive name and company logo are recognized throughout the world. Originally founded as a family$-$owned pharmaceutical supply business in $1923,$ the company's corporate headquar$-$ ters are still located in a scenic town of $60,000$ people in the northeast United States. Westrnin$-$ ster also 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 sales divisions$-$each of which manufacture and distribute its own product line. Decentralized divisional management is a proud historical tradition at Westminster. According to President Jonathan Beamer. it is a process that requires and encourages responsibility and self$-$ownership of the work process and provides the key component of corporate success. Westminster's products are marketed through a network of diverse retailers and wholesalers. Trade Class as a percent of sales is $37$ percent grocery, $31$ percent drug, $21$ percent mass merchandise, and I I percent miscellaneous.

Westminster Today

Pressure from domestic and global competitors, as well as large domestic Westminster cus$-$ tomers, has recently forced the company to reevaluate its current distribution practices. In par$-$ ticular, attention has focused on the changes which will be required to effectively compete in the marketplace of the twenty$-$first century.

Westminster just concluded several months of extensive research which focused on customers' primary logistics concerns for the future. The research findings addressed a variety of issues, but two key topics were identified: customer composition and customer service requirements.

The most significant trend with regard to customer composition over the past decade has been the evolution of the company customer base into either very large or very small accounts. This development is expected to continue at a comparable pace in the foreseeable future; how$-$ ever, the major shift in the mix of accounts is not expected to dramatically alter the historical composition of product sales. Approximately $50$ percent of domestic consumer sales volume is concentrated within $10$ percent of Westminster's customers. What may affect the composition of product sales to large retail accounts is the rapid growth of private$-$label nonprescription drugs and consumer health products. Cost$-$efficient private$-$label manufacturers offer large retail accounts higher profit margins, willingness to quickly change or customize products, and the ability to appeal to increasingly price$-$conscious consumers. Specifically, the private$-$label health and beauty aids business totaled sales of $$3$ billion in $2000.$

Research findings have confirmed top management's belief that these large accounts gener$-$ ally possess an intense commitment to increasing their firm's logistics efficiency. To maintain and increase the percentage of sales volume Westminster derives from these important customer accounts, the company has identified several key customer service concerns. These concerns specifically address the second issue of customer service requirements. Company research has also concluded that the formulation of supply chain partnerships between Westminster and its large customers has now become a competitive necessity. In many instances, powerful retailers now demand such arrangements and oftentimes have the leverage to dictate the conditions of the arrangements. Westminster will have to maintain considerable flexibility to accommodate dif$-$ ferent solutions for a variety of large, powerful customers. Ideally, Westminster would like to establish a position of leadership within these partnership arrangements where practical.

Westminster is well aware that successful retailers and wholesalers are heavily focusing strategic effort on more timely, efficient, and accurate inventory positioning. Many large firms have identified supply chain management techniques as a primary tool in achieving successful inventory management and improving overall financial performance. "I visualize three impor$-$

tant changes for our operations with rezard to large accounts," says Alex Coldfield, Westmin$-$ ster vice president of logistics$.$ "First, traditional inventory replenishment procedures will be re$-$ placed by POS driven information systems. Customers will transmit daily or biweekly product sales movement to us in order to ensure timely inventory replenishment and allow production to be scheduled according to sales$-$driven forecasts rather than marketing forecasts. We will also establish and utilize customer support 'work$-$teams' that operate on$-$site with key customer ac$-$ counts to better manage ordering and distribution. Second, order cycle times will have to be re$-$ duced from current levels. Large accounts will increasingly demand tw