Network Modeling For Pharma

How Do We Improve Our Market Share Through Better Distribution Network Design?

There was recently a joint venture between two companies that make a variety of biological and pharmaceutical products both domestically and internationally. Due to the strict temperature control and governmental regulations, the products needed to be shipped with special packaging as well as adhere to tight delivery schedules.

Products were delivered to customers from three large distribution facilities located throughout the United States as well as other facilities in Europe and South America. Interested in improving their market share by improving their delivery performance to customers, the company wanted to investigate alternative methods of transportation as well as how many distribution facilities were really needed and where those facilities should be located.

The Modeling Process

Data was gathered on current customer demand, forecast information, shipping policies and rates, as well as product dimensions and warehousing information.

The first step in the modeling process was to develop a baseline run that accurately represented the current environment in which to test all subsequent model runs in terms of costs and delivery performance to the customer.

The model scenarios tested included changing the modes of transportation used to deliver to customers,

changing the number of facilities by combining existing locations, adding additional facilities and performing center of gravity runs to determine the optimal cities for the distribution locations.

A New Configuration

After numerous model runs, it was determined that the current modes of transportation were appropriate for the operation, but due to changes in customer demand and the product mix offered the current locations were not located in the optimal places.

The original configuration was designed to support a product line that was being phased out and was being utilized sub-optimally to deliver a new product line. There were multiple locations that could be consolidated into a single facility to save on warehousing and transportation costs as well as reduce inventory levels. Another facility was moved to a more optimal region to both reduce transportation costs and improve customer delivery performance.

By consolidating facilities and moving closer to the final customer, the company was able to reduce their total supply chain costs by approximately 10% and deliver over 85% of their products within two days without utilizing expedited transportation.