Western Pharmaceutical is a drug company that has an extended company- Western Pharmaceutical B. It is located in Los Angles and headedby GeorgeCastro, who in this case has rooted for a merger between WesternPharmaceutical andrenowned over the counter pharmaceutical company, AtlanticMedical. The main aim of the merger is to help Atlantic Medicine’s cough syrup and WesternPharmaceuticalStomachUpset to penetrate the coast-to-coast drug market. The two companies have merged to form the United Pharmaceuticals. Notably, with both companies enjoying initial success in their previous markets, the merger promises valuable market success in the west and coast region.
However, the merger poses new inventory challenges whereGeorge has to determine the company’s inventorycapability regardingthe refined supply chain. The merger requires the companies to modify its inventory management system to accommodate the two distinct entities systems. In this regard, the company wants to conduct a comprehensive inventory analysis but has limited information because of the subsequent shift to the Enterprise Resource Planning system and the merger on the whole.The followinganalysis will be conducted based on Bowersox et al. (2013) spreadsheet.
The Issues Addressed
The Fill rate of each Product
The fill rate is best calculated by multiplying servicelevel and demand quantity to project the merger’s sales rather than the demand. The technique will be used to calculate a weighted service level. First, the weighted sales for every DC product combination are represented by the AM, AO, and AM columns. Secondly, the AQ column representsthe DC sales total quantity,while the AR column represents DC demand. Finally, the column AR and AQ represent the average service percentage.The columns AW, AV, and AU are adopted in computing the comparable service analysis, which will give the variance valuefor astandard cost and unit regarding the effect it has on the outcomes across the DCs and products. Basing on the standard cost, the AX column stands for the existing inventory. Using the given methodology, the calculated value and units for the fill rates percentages are 96.31 and 96.1. Taking into considerations the individualproducts, it can be assumed that a portion of the observed substances are under stocked while the others are marginally overstocked.
Average Inventory Levels and Safety Stock
The second question is best answered using the columns between AZ and BK. The columns BA, BB, and AZ, are used to find the f (k) value for every DC product combination as illustrated by the order quantity and the calculated 95% fill rate. Columns BE, BD, and BF are used to calculate the required base for the required safety stock. Similarly, the columns BI, BJ, and BH are used to calculate the DC inventoryproduct average which is essentialfor providing a service level of 95%. Adopting a standard cost formulae, column BK is used to calculatethe average inventory dollars by converting the aggregate units. Notably, it is important to note that the analyticalinventorytechnique needs $7.5 million to get a 95% fill rate, yet the available situation provides a yield of 96 plus percentservice only using twice the current inventory.
The Inventory Carrying Cost
The columns BX and BM is used in developing the solution to this answer where one has to undergo a similar process as the safety and average inventory, however, in this case, it is at a level of 99% fill rate. The charts indicate that the merger has eight distribution centers, which would narrow downto sevencenters when we incorporatethe AtlantaDistribution Centre.Column BX and BK are used to calculate the needed inventory to increase the company’s service. The columns BZ through to CD are used to conduct marginanalysis, by comparing the excess inventory cost and the additional sales marginal distribution. At ninety-nine percent level, the CA column forms the comparable sales service, while the CB column is considered the incremental margin between CA and BZ level of service that is required to boost the service to a 99% level from the initial 95%. The required inventoryincrementto achieve this level is found in column CC, also referred to as the carrying cost. Similarly, the contribution increment is represented by column CD.According to this approach, a positive value justifies the need for an additional inventory; while on the other hand, a negative value does not justify the need for additional inventory. On this case, the general result is positive which calls for an increase in the service level for a majority of the inventory items.
Conducting the cost Analysis
The process requires a general analysis of the spreadsheet to ascertain if the merge would be profitable in the long term. The columns CF to CU provide the needed data for consolidation. Each product review cycleis represented by column CF while CI and CG demonstrate the two to four weeks product reviewing for the usedyearly sales. The average inventory value for the second and fourth weeks review are represented by columns CJ and CH respectively,which have unique review cycle. Therefore, to calculatethe N analysis square root, one has to separatethe two columns. First, the standarddeviation combinationfor C is calculated to combine the distribution centers. Column CLand CM representsthe demandstandarddeviation ofD and the combined deviation respectively.Likewise, Column CN represents the replenishment order quantity that is also the cumulative value of each order. According to the service objective, the 95% fill rate is the standard deviation of C and the combined order quantity.Furthermore, columnCG represent result inventory calculated from the safety stock and replenishment order quantity. The calculated safety stock based on the SD of C andvalue of K is represented by column CR. The column CT showsthe corresponding inventory valuesum the distribution centers. Therefore, the aggregate inventory values are closely related based on the comparison results of the three and single distribution centers.
Based on the inventory analysis, the merger between the Atlantic Medical and Western Pharmaceutical is profitable if done in a concise manner. Moreover, even if the management closes or merges some of its distributioncenters, it still stands to make significant cost savings. Despite the inevitable service load increase, mergingWestern Pharmaceutical and Atlantic Medicalis profitable in the long term. The projected inventory analysis shows that combining the two unique distribution centers guarantees the coast to coast market penetration.
Bowersox, D. J., et al. (2013). Western Pharmaceuticals (A &B). Integrated Logistics for Supply Chain Management, 453-457: New York, N.Y: Mc Graw-Hill.