Running Head: PA 2: Case Study – W-G-P Chemical Company 1

PA 2: Case Study – W-G-P Chemical Company

Miguel Moreno Alcántara

Westcliff University

Professor Jason Gateas

Dec. 01, 2018

PA 2: Case Study – W-G-P Chemical Company 2

PA 2: Case Study – W-G-P Chemical Company

Introduction

W-G-P Chemical Company is a manufacturer providing 129 packaged agricultural

chemicals for its customers (Bowersox, Closs, & Cooper, 2002). Products are categorized into

two groups – Prevention and Support (or category A and B, respectively) – according to their

sales patterns and distribution requirements. Although its distribution systems have been shown

to be effective historically, W-G-P is faced with problems of customer dissatisfaction and

inability to fulfill certain requirements. In this paper, the distribution costs will be calculated and

their relevance to the distribution review process will be examined. Secondly, the firm’s

distribution network will be shown and explained. Furthermore, alternative methods of

distribution will be suggested and analyzed. Finally, the rationale for early order program,

customer pickup policies and use of public versus private warehouse facilities will be discussed.

Distribution Costs and Distribution Review

Total distribution cost is defined as the sum of all distribution expenses, including

inventory carrying cost. Given that the annual inventory cost rate is 18% (Bowersox et al., 2002),

the annual inventory carrying cost is, therefore, ($ 90.0 Million x 18% =) $ 16.2 million. As

such, the total distribution cost equals the sum of all figures listed in Table 4 besides “Average

Inventory Level”, in addition to inventory carrying cost, and is determined to be $ 33.2 million.

The distribution cost per pound, cubic food, case, line, and order are shown in the table below.

Unit Annual Sales, 1997 Cost per Unit ($/unit)

Weight (lb.) 242,717,768 0.14

Cubic Feet 26,887,513 1.23

Cases 2,912,753 11.40

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Product Lines 25,392 1,307.50

Orders 19,139 1,734.68

These calculated figures are undeniably important for the distribution system review as

they provide quantitative measures of cost-effectiveness and serve as key performance indicators

(KPIs) for cost-optimization (Fancello, Schintu, & Serra, 2018). Using these measures, W-G-P

can evaluate where cost savings can be made and what strategies need to be implemented in

order to improve current results. Furthermore, comparisons can be made against industry

standards and competitors. This should always be advised as maintaining competitive advantage

should be a priority for the firm.

Distribution Pattern and Rationale

The distribution network is mapped out in the figure shown below (Bowersox et al.,

2002; Wikimedia, 2018). (Notation: W*: in-transit warehouse; W: warehouse (numbers in

brackets denote the number of warehouses in that state); MP: manufacturing plant)
PA 2: Case Study – W-G-P Chemical Company 4

W(1)

W(1)
W(1)

W(1) W(1)
W(1)
W(2) W(2)
W(2)
W(1)

W(1)
W* W(2)
W(1) W(1) W(1)
MP
W(1) W* W(1)
W(2)
W(2)
W(4) MP
W*
W(1)

From the map shown above, the reason for the distribution pattern becomes more

obvious. By having the majority of its manufacturing plants and distribution centers in the

Midwestern states, W-G-P has easy access to major transportation routes and can, therefore,

provide on-time delivery for key markets, provided that sales in certain Midwestern states are

accounted for 80 percent of annual revenue (Bowersox et al., 2002). One can also see that the

majority of the warehouses are located with easy accessibility to water through which the bulky

agricultural products can be efficiently transported.

Alternative Distribution Methods

It was stated in the case study that the company could not fulfill many customer

requirements and products were returned (Bowersox et al., 2002). Given the products’ highly
PA 2: Case Study – W-G-P Chemical Company 5

variable need and the dependency on the intensity of rainfall, the firm can increase the safety

stock level according to historical climate data (Bashiri, Badri, & Talebi, 2012). Even though this

adjustment may incur additional inventory costs, the profitability it products can offset this

investment. The frequency of periodic inventory review should also be adjusted in the event of

heavy rainfall as the replenishment cycle may promptly shorten and product needs may increase

significantly.

Rationale for Operation Strategies

1. Early Order Program

The early order program is a promotional sales strategy through which customers can

receive discounted pricing for orders placed at least 90 days prior to estimated application dates

(Bowersox et al., 2002). As was pointed out in the case study, this program allows W-G-P to

schedule shipments at its own convenience in order to save transportation cost; additional

discounts will also be provided if the orders are picked up by customers since it will provide the

firm with even more savings on transportation. In addition, it allows for shipment consolidation

as dealers order in advance and W-G-P can, therefore, maximize truckload when possible,

further reducing transportation cost.

2. Customer Pickup Policies

It is said that dealers will be given discounted pricing if they schedule to pick up their

orders, given that it is still cheaper than W-G-P’s transportation cost (Bowersox et al., 2002).

Furthermore, oftentimes dealers request expedited shipments from the firm during sales period

through which additional costs incur for W-G-P. However, this can be partially prevented (or

reduced) through this pickup policy. If the shipment responsibility falls on the dealers, the firm

can effectively cut down its transportation cost.

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3. Use of Public versus Private Warehouse Facilities

W-G-P contracts public warehouses and distribution centers to support their inventory

and distribution requirements (Bowersox et al., 2002). Such decision is proven to be successful

given the high stock turnover rate, seasonal demand for products, and transportation rates.

What’s more, utilization of public facilities reduces overall fixed cost as well as lessens the

responsibility of managing inventory and minimizes capital investments on private warehousing

(Batarlienè and Jarašūnienè, 2017).

Conclusion

In this paper, the total distribution cost was first determined and its relevancy to the

distribution review was elaborated. Not only can it be used as quantitative measures for

improvement, specific distribution costs can also be used as comparisons against those of

industry rivalry. Secondly, the distribution pattern of W-G-P was plotted and its rationale was

explained: the strategic placement of its warehouses and distribution centers greatly facilitated

transportation of goods and better, faster service for target markets. Thirdly, it is recommended

that W-G-P should increase inventory review frequency in the event of heavy rainfall and adjust

safety stock level accordingly. Finally, the rationale of three operational strategies was analyzed:

1) early order program offers transportation cost savings and shipment consolidation; 2)

customer pickup policies provide additional reduction in transportation costs; and 3) the use of

public warehouse facilities requires less fixed costs as well as capital investments.
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References

Bashiri, M., Badri, H., & Talebi, J. (2012). A new approach to tactical and strategic planning in

product-distribution network. Applied Mathematical Modeling Vol. 36, 4 (2012); 1703-

1717.

Batarlienè, N., & Jarašūnienè, A. (2017). “3PL” service improvement opportunities in transport

companies. Procedia Engineering 187 (2017); 67-76.

Bowersox, D. J., Closs, D. J., & Cooper, M. B. (2002). Supply Chain Logistics Management.

Boston: McGraw-Hill.

Fancello, G., Schintu, A., & Serra, P. (2018). An experimental analysis of Mediterranean supply

chains through the use of cost KPIs. Transportation Research Procedia 30 (2018); 137-

146.

Wikimedia. (2018). Blank US Map. Retrieved from

https://commons.wikimedia.org/wiki/File:Blank_US_Map_(states_only).svg