Executive Summary
Distribution affects a company’s cost and customer satisfaction and drives a firm’s profitability. This article reports a marketing initiative at GlaxoSmithKline (GSK) to redesign its distribution network. In the United States, GSK ships its products to more than 25,000 retail stores, handling more than 80,000 customer orders and 20 million cases of products. Using a nonlinear mixed-integer programming model, the authors develop a distribution network with a dual emphasis on minimizing the total distribution costs and improving the customer service levels. Specifically, they address the following issues: (1) determining the optimal number of regional distribution centers that the firm should operate with, (2) identifying where in the United States the firm should locate these distribution centers, (3) allocating each retailer/customer distribution center to an appropriate regional distribution centers, and (4) determining the total transportation costs and service level for each case. Using this approach, GSK can redesign the distribution network locating the five regional distribution centers in the recommended locations (Collinsville, Tex; Big Pine, Calif.; Shady Dale, Ga.; Lockport, Ill.; Manheim, Pa.). This approach enabled 86.2% next-day service to customers and 97.8% delivery within two days. Currently, GSK is in the process of implementing these changes in their distribution networks. This marketing initiative at the studied firm was able to reduce the total distribution costs by $1.99 million (6%) per year, while increasing the customer on-time delivery by 40.4%.
Biography
Jennifer Shang received her PhD in Operations Management from the University of Texas at Austin. She teaches Operations Management, Simulation, Statistics, and Process and Quality Improvement courses. Her main research interests include multicriteria decision making and its application to the design, planning, scheduling, control, and evaluation of production and service operational systems. She has published in various journals, including Management Science, European Journal of Operational Research, IEEE Transactions on Engineering Management, and International Journal of Production Research. She has won the 2005 EMBA Distinguished Teaching Award and several excellence-in-teaching awards from the MBA/EMBA programs at the Katz Business School.
Tuba Pinar Yildirm is a dual doctoral candidate in Marketing and Industrial Engineering in the Katz Graduate School of Business and Swanson School of Engineering at the University of Pittsburgh. She received her MS in Industrial Engineering at the University of Pittsburgh and her BS in Industrial and Mechanical Engineering fields from Middle East Technical University in Turkey. Pinar is interested in implementation of game-theoretic and stochastic models. Her current research focuses on customer valuation, service systems in the financial industry, customer portfolio optimization, and modeling the bias in the media industry. She has several presentations in Informs Annual Meetings and Industrial Engineering Research Conferences (IERC). She received the IERC Best Paper Award in 2007.
Pandu Tadikamalla is a Professor of Business Administration in the Katz Graduate School of Business at the University of Pittsburgh. He has a BS in Mechanical Engineering from India. He received his MS and PhD in Industrial and Management Engineering from the University of Iowa. He is an associate editor of OMEGA: The International Journal of Management Science. His research interests lie in simulation methodology and statistical techniques, and he has published more than 50 research articles. He teaches courses in Decision Models, Statistical Techniques for Management, Simulation, and Six Sigma. He received several awards for excellence in teaching. He served as the president, chairman, and treasurer of SV Temple in Pittsburgh.
Vikas Mittal is J. Hugh Liedtke Professor in Marketing at the Jones School of Management. Before his appointment at Rice University, he was the Thomas Marshall Professor of Marketing in the Katz Graduate School of Business and an Associate Professor of Psychiatry in the School of Medicine at University of Pittsburgh. Professor Mittal received the O’Dell Award for his article published in 2001 in Journal of Marketing Research. He has also won several awards for teaching excellence. He currently serves on the editorial boards of many journals, including Journal of Consumer Research, Journal of Marketing, Journal of Marketing Research, and Journal of Service Research. He holds a BA in Business Administration from the University of Michigan and a PhD from Temple University.
Lawrence H. Brown is currently Vice President of the North America Supply with GlaxoSmithKline Consumer Healthcare, a $2.1 billion dollar consumer health care company. He is the global manufacturing and supply representative to the North American Leadership Team for Consumer Healthcare and member of the Global Contract Manufacturing Leadership Team. Before joining GlaxoSmithKline, Mr. Brown had held senior-level management positions at ConAgra Frozen Foods, a $1.8 billion division of Con Agra Corp; at Neo Consulting Inc, a sales consulting firm focusing on development of leading edge sales organizational strategies and dynamic sales/business solutions; at Canada Dry & Sunkist Brands with Cadbury Beverages, North America, a $1.0 billion dollar soft drink franchiser; and at All American Bottling Corporation, a top 20, national soft drink bottler and seller of 7UP, Dr. Pepper, RC, Canada Dry, and other nationally known soft drink brands. He holds a BSBA degree from the University of Tulsa. Mr. Brown is currently a member of the CPHA Logistics Steering Committee, NACDS Logistics Board, and Wal-Mart Supply Chain Board.
Journal of Marketing, Volume 73, Number 2, March 2009
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