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SCM IN-CLASS CASE: “GERRARD LABORATORIES” Paul McNaughton, director of distribution services for Gerrard Laboratories, a wholly owned subsidiary of the worldwide Thomson Pharmaceutical group of companies, was under strong pressure from top management to reduce the number of field warehouses that the company maintained throughout Europe. Top management believed that the company could manage on fewer distribution facilities without hurting sales operations. They were concerned about Gerrard having more warehouses than the parent company even though the parent carried more products at a high unit-sales volume. They were also disturbed by the fact that Gerrard’ main competitor had fewer warehouses giving the same European market coverage. At the beginning of 2007, Gerrard Laboratories had 37 field warehouses, of which 33 were public, i.e. rented from a third party, possibly with other tenants. Four warehouses were owned by the parent company, but contractual arrangements with them paralleled those with public warehouses. In addition to the 37 field warehouses, Gerrard owned four plant warehouses which served the field warehouses and customers located in areas where these plant warehouses were situated. By March 2007 McNaughton was faced with the decision to phase out the public warehouse at Cologne, Germany, and serve the customers in the area directly from the main plant warehouse at Brussels, Belgium. The contract with the Cologne warehouse was up for renewal in mid-April. Thomson Pharmaceuticals Gerrard was part of a group of companies that was controlled by Thomson Pharmaceuticals. Although the parent corporation specialized in a variety of prescription drugs, the products of the subsidiary companies ranged from food items to consumer sundries. Each subsidiary operated as an autonomous corporate entity with its own set of executive officers and was relatively free to set its own policies in marketing, research, and manufacturing activities. Control by Thomson took the form of broad inter-corporate policies and close monitoring of significant investment decisions. Background on Gerrard Laboratories Product Lines. Gerrard and its major competitor enjoyed about 75 percent of the nutrient and dietary-food market, with Gerrard’s share of the total market approximately 40 percent. The company manufactured 35 variations of one basic mixture of raw materials, and product differences were determined primarily by additives and calorie content. Finished products came in both a liquid concentrate and a powder packed in cans of various sizes. The Brussels plant, which was the largest and oldest of the company’s four plants, produced 25 items of the product line. Each of the other plants manufactured as many of 12 of the products. Sales Operations.
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This note was uploaded on 10/01/2010 for the course BAFT mba12ehtp taught by Professor Angwi during the Spring '10 term at Télécom Paris.

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