Design and Operation of Logistics Systems

Savings in logistics cost accrue from reduced inventory levels, making it possible to close facilities, thus, promoting centralisation of distribution. It further reduces the need to keep stock at many warehouses, thus, bringing a shift in the role of such facilities from stock keeping to distribution (Higginson amp. Bookbinder 2005). Management of Gerrard Laboratories was also thinking on the same lines by planning to close Cologne facility not just because it could serve the Cologne warehouse customers from the Brussels plant at Belgium but because the competitor company was serving the European market with fewer warehouses than Gerrard Laboratories. Serving the Cologne customer base from the Brussels plant, the largest and the oldest one, from the management and manufacturing perspective seemed more pertinent as the Brussels manufacturing plant had been producing 25 items out of the total 35 products. The given situation indicates that it is more practical to serve the Cologne area from the Brussels plant. From sales operations perspective also, Gerrard’s 90% customers had been retailers. only 10% formed the industrial customers. Further, there was no seasonal change in the demand of the company products. Hence, it is expected that Gerrard should manage distribution to hospital customers satisfactorily from the Brussels plant. Another aim of distribution centres has been to attend to customer needs, which a great number of researchers have analysed. Increased communication and transportation have further minimised the requirement of warehouses and distribution centres (Higginson amp. Bookbinder 2005). Examining Gerrard on the communication and transportation parameters for client servicing, Gerrard has been handling its logistics functions on traditional practices. Other than its own 4 plants and 14 warehouses, it had been sharing warehousing space of 23 other grocery products and services companies, not wholly occupying the total offered space. So far the practice of one-shot billing system with variable cost of manufacturing coming to 80% of the total cost could be a reasonable ratio but annual or maximum period of 2 years for contract renewal with the warehousing service providers could be the deterrent. it carried the impending risk of increased inventory cost annually. That’s why Gerrard senior management had been focussing more on closing the Cologne facility (Case Study). Financially, it would be a good decision to close the Cologne warehouse as shipments from Netherland to Brussels would not be charged with any additional freight rate. The new weighted-average rates for taking the goods from Brussels plant to the Cologne customers through another trucking company are quite competitive as the trucking company has expressed its desire for reducing the rates for less-than truck loads (LTL). It has offered 100 square meters of its Cologne terminal space for transit storage without charging extra, which is a big plus-point. The local delivery rates for TL per case would come to €0.58 and for LTL only marginally higher. Rate for at least 40% shipped goods would be highly competitive. Gerrard would be in a position to save revenue on this count and also by getting goods delivered via the Netherland without incurring extra cost in comparison to goods delivered v

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