Westminister Company Case Study

Question 1: what impact would the three new alternatives have on transfer and
customer freight costs? Why?
Three new alternatives are:
1. POS driven data down to the SKU level to allow for reliable and real time inventory,
replenishment (stock transfers) and production data rather than relying on forecasts
2. Order cycle times are being shortened. Orders will be 3 times per week rather than
three
a. Direct Store Delivery to increase
b. Consolidation of products from the three companies to simplify into one
delivery rather than being split into three deliveries for one order
3. Pricing will be built by value adds for the customer – for example customising pallet
configurations and display equipment rather than solely on traditional revenue
methods of order fulfilment

The three alternatives suggested by CEO Wilson McKee will have significant impacts on
transfer and customer freight cost specifically, the reduction of direct, indirect, and fixed
costs. The new creation of Point of Sales (POS) information system will modernized
Westminster Company’s manufacture process by manufacturing quantities of goods based
on replenishment demands and not forecasted sales; which can be erroneous and costly.
The implementation of the point of sale system will reduce excess waste, inventory
redundancy, and reduced cost of storage. Customer freight cost will see improvements as
deliveries rotations will be improved by more frequent deliveries with consolidated truck
loads.

It is clear that Westminster is strategizing a leaner supply chain model. This means they are
attempting to implement Just-In-Time principles to build a more responsive and agile supply
chain. While this strategy has many advantages, it clearly drives up the price of transfers
and customer freight costs. Strategy point 1 alludes to the fact that their current system of
order fulfilment and intra company transfers was built on forecasting and assumption based
anticipatory ordering. This means that stock was transferred into warehouses with no actual
demand triggering that stock movement. In general terms, there is no time pressure for
these movements, and stock is transferred in bulk. Although the freight profile is generally
LTL (Less-Than-Truckload) movements, when there is more stock in the truck and the route
can be booked in advance, this is far cheaper than ad hoc transport arrangements with
unknown volume.
In regards to final mile transport, prices will again rise due to the ad hoc nature of the
orders. However, there is a silver lining for this strategy. Generally when companies
adopt a JIT supply chain model they adopt a decentralised warehousing strategy. Having
a decentralised warehousing strategy means having more warehouses closer to the final
customers. Having 70% of all orders coming from only 10% of customer’s means
Westminster can choose to contract smaller warehouses in strategic locations close to
customer bases. This means that the final mile transport from warehouse to shop (in line
with the proposed ‘Direct Store Delivery’ strategy) will not be long journeys in terms of
distance, and therefore transport will be cheaper.

An additional cost saving to Westminster if they implement the proposed changes is

through the consolidation of orders which are procured from a mixture of Company A, B
and C. Previously, the order would come into westminsters system, and the relevant
products from companies A B and C would be picked and transported individually. In the
new model, the order would be combined into one single order to make it easy for the
end customer, only getting one delivery- not 3. This means that transport costs are
consolidated into one cost instead of 3- meaning a substantial saving. Warehouse
consolidation will reduce inventory carrying cost, improve customer service levels, and
increase order fill rates however, at the heart of these improvements would be
technological improvements implemented by the inventory information systems. Another
benefit of consolidated deliveries is less wear and tear on delivery assets such as
forklifts, trucks, and garage doors.