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Johnson & Johnson Healthcare consumer packaged goods giant Johnson & Johnson's (J&J;) European operations were comprised of 12 distribution centers in seven countries. The company's initial analysis showed there was little or no consolidation among facilities. The facilities had high operational costs (U.S. $10 million+), but transportation costs were relatively low (U.S. $6 million+). The distribution centers were geographically located to help meet the specific needs and service expectations of their European customers. Since J&J; is always on the lookout for ways to streamline and improve its supply chain practices, it was very interested in ways to improve its manufacturing and distribution activities in Europe An initial result of applying the network optimization software was a reduction in the number of distribution centers from 12 to 2. Although this scenario was accompanied by increases in the transportation costs to customer locations, overall systems costs decreased by U.S. S7 million. Given the strategic importance of maintaining acceptably high levels of customer service, however, it was important to incorporate the requirement of retaining reasonable customer service levels (i.e., one-day service for some customers, with two-day service for others) into the formulation of the network optimization model. In addition, it also was necessary for the model to consider factors such as the expense of long-term leases, etc. Subsequently, a network optimization model that responded to the issues discussed above was developed and utilized. The end result included a reduction in the number of distribution centers from 12 to 5, which translated into a decrease in facility costs from U.S. S10.1 million to U.S. $3.9 million. Although transportation costs increased slightly-from U.S. $6.6 million to U.S. $7.6 million, the overall network experienced a system savings of approximately U.S. S5 million. At the same time, the optimized network was able to meet customer service objectives such as those outlined above CASE QUESTIONS 1 What factors help to explain why J&J; historically had as many as 12 distribution centers in Europe? 2. What steps in the logistics/supply chain network design process discussed in this chapter would have been most relevant to the task faced by J&J; in Europe? 3. Are there other factors that the network optimization study should have considered? 4. This case study focuses on the shipments from distribution centers to customer locations. What factors on the supply side, or inbound-to-DC-side, would be relevant to the analysis that was conducted?

Explanation / Answer

1. The factors that help to explain the existence of 12 distribution centers in Europe are:-

(a) Johnson & Johnson one of the giants in the Healthcare and Pharmaceutical products always focused on customer service by meeting the service expectations of clients who are widely spread in Europe.

(b) The geographical location of the distribution centers were as such to cater the needs of the customers and as Johnson & Johnson deals with healthcare which makes fast delivery a basic need.

(c) In order to improve its supply chain practices and the distribution customs the number of distribution centers were more considering the area.

2. As mentioned, that the transportation cost in Europe was relatively much low compared to the operational costs which the company had to pay in order to ensure smooth functioning of the distribution centres, therefore reducing the number of distribution factors was the best way discussed here in order to maximize the profit and minimize the expenses of the organization.

3. There are some other factors which the model should have considered while implementing the process, firstly as the company deals with healthcare and pharmaceutical products, therefore the customers expectation of fast delivery is very much justified. Secondly, a brand like Johnson & Johnson is a household name therefore instead of possessing 12 large distribution centres it can formulate a method which will have small distribution centres which will have low operational cost and the customer expectations can also be catered.

4. Supply of the products from inbound to DC can be improved by various factors, firstly, instead of large distribution centres if there are small distribution centres, it can possess the products with high demand in the warehouse stock which will save transport cost and improve customer service. Secondly, the turn around time should be less for example a product once delivered to a particular shipment location should be attended with in a particular time frame which can be an hour or so and this will reduce the overall time required in order to complete the process.

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