Johnson & Johnson

Healthcare consumer packaged goods giant Johnson & Johnson's $($J&J$)$ European opera$-$

tions 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$.$ $$7$ 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

earlier 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$.$

$$10\mathrm{.}1$ million to U$.$S$.$ $$3\mathrm{.}9$ million. Although transportation costs increased slightly$-$from

U$.$S$.$ $$6\mathrm{.}6$ million to U$.$S$.$ $$7\mathrm{.}6$ million, the overall network experienced a system savings of

approximately U$.$S$.$ $$5$ million. At the same time, the optimized network was able to meet

customer service objectives such as those outlined earlier.

CASE QUESTIONS

What factors help to explain why J&J historically had as many as $12$ distribution

centers in Europe?

What steps in the supply chain network design process discussed in this chapter

would have been most relevant to the task faced by J&J in Europe?

Are there other factors that the network optimization study should have considered?

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?