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Case 10: Customer Service at Woodson Chemical Company
From the perspective of Melinda Sanders, the problems of Woodson Chemical Company (WCC) were straightforward and easily identifiable. Solutions, however, appeared to be far more difficult and complex. Sanders had just turned 29 years old and was in her sixth year of employment with WCC. After graduating from a top university in the western United States with an MBA in marketing, she had steadily progressed through a series of positions in marketing, sales, and distribution operations. Her current position is lead distribution planner in the Chemicals and Performance Products Division of WCC North America.
The most recent WCC North America customer service report revealed that “customers continually give the company average-to-poor marks in customer service performance. In particular, customers express extreme dissatisfaction with the order-information process.” Sanders was of the opinion that the more WCC sales and distribution systems were expanded, the more management and communication bottlenecks seemed to be created. She was also well aware that the issue of order information status was problematic throughout all of WCC’s North American operations. Each division had been hard at work over the past 18 months developing and instituting a variety of software packages aimed at improving its service performance. During a recent meeting with Barry McDonald, WCC North America Chemical and Performance Products Director of Customer Service, Sanders had been given a copy of a report regarding projected directions and importance ratings of customer service requirements in the chemical industry. The report stated:
customers specifically desire instantaneous access to real-time order information status. This information accessibility is necessary throughout the supply chain?from the customer’s initial inquiry to production status, shipment loading, and arrival at the final destination. A critical goal is to be able to both commit and monitor inventory from the point in time an order is placed. While the goal of integrated logistics is a major goal for many chemical companies, efforts are frequently being hindered by inadequate information systems and organization structural design.
Woodson Chemical Company
WCC was founded in 1899 by Alexander Woodson. The company originally was located in southeast Texas; in the early 1960s the corporate headquarters were moved to St. Louis to capitalize on the city’s central geographic location. Approximately one-third of WCC’s business is conducted overseas. Most arrangements are wholly-owned subsidiaries; there are few industrialized countries in the world where WCC does not have some manufacturing or sales presence. WCC North America, a wholly-owned subsidiary of Woodson Chemical Company, is the sixth largest chemical company in North America, and produces a diversified range of chemicals used as raw materials for manufacturing in the food, personal care products, pharmaceuticals, pulp and paper, and utility industries.
The company operates four product groups which are broken down into three divisions (see Table 1). Division 1 comprises chemicals and performance products, which are mainly used as raw materials in the manufacture and/or processing of consumer products. Division 2 is composed of two product groups: plastic products, and hydrocarbons and energy. Plastic products are utilized in numerous markets such as packaging, automotive, electrical appliances, building and construction, housewares, recreation, furniture, flooring, and health care. The hydrocarbons and energy group is concerned with the purchase of fuels and petroleum-based materials as well as the production of power and steam used to manufacture WCC’s plastics, chemicals, and metals. Division 3 comprises consumer specialties, which serve the food care, home care, and personal products markets.
In terms of functional support, each division maintains its own marketing, manufacturing, logistics, and administrative departments. Currently, divisional information processing responsibilities for customer service, transportation, and warehousing are provided by the logistics group. Information processing responsibility for finance and accounting are provided by the administration group. Figure 1 presents the organization structure for WCC North America’s operations.
Across the four product groups, performance has varied considerably over recent years. Although chemical and performance product sales have been declining or flat, increased volume and profit improvement is projected due to growth opportunities. In Division 2, plastic products has exhibited reduced sales; although moderate growth is attainable, prices are projected to remain under pressure due to a weak global economy and considerable industry oversupply. Hydrocarbons and energy sales have declined significantly in the past 3 years; although feedstock and energy purchase costs have been reduced, lower sales have more than offset procurement savings. Industry overcapacity remains a severe problem; additional capacity coming online in developing industries in Korea and China will only exacerbate the situation. Consumer specialties continues to exhibit very strong sales gains, particularly in medical and health and consumer product categories. Agricultural sales are relatively unchanged. Steady growth for consumer specialties is projected to continue, although perhaps not at the rapid rate of the past 5 years.
A significant concern of WCC management are the major cost and expense areas of distribution and marketing (see Table 2). The company has made considerable progress in reducing the cost of purchased raw material inputs, but other category expenses are increasing at a rate in excess of sales.
Chemical manufacturing has historically been a very cyclical industry; recessions and periods of slow economic growth typically depress chemical industry sales for several years at a time. As economies begin to rebound, manufacturing picks up and chemical production often leads the U.S. economy into a recovery period.
The chemical industry’s attempts to alter its strategic planning with regard to markets and strategy are changing. The expansion of a global economy and leading-edge chemical technology have dramatically altered the manner in which the chemical industry operates today. In the past, a large, fully integrated chemical company with control of raw materials, economies of scale, and modern plants possessed significant cost advantages that could eliminate marginally efficient chemical producers throughout the world. Today, such a strategy is easily negated. The availability of cutting edge chemical technology that goes into building premier chemical plants can make a low-cost producer out of most any company that can structure an arrangement for a constant supply of chemical feedstock from an oil-producing country. Contemporary competitive advantage is typically derived from a focused market position, good raw materials supply without the heavy investment required in a completely vertically integrated structure, and a lean efficient organization structure. Industry leaders must maintain efficient resource and organization structure while they leverage their technological expertise across as many chemical applications as possible. In addition, many chemical manufacturers are diversifying into specialty chemicals in an attempt to balance the cyclical nature of their earnings.
Faced with mounting pressure to become increasingly globalized, especially during difficult economic conditions, chemical industry information systems leaders are scrambling to implement more cost-efficient and effective strategies to track and share business information. Angela Lowrey, director of WCC North America’s Information Resources Planning, says, “better logistics information across business divisions is integral to instituting a strategic business plan. With current spending on computer information systems accounting for approximately 2% of corporate revenues, [business] information is a premium commodity and a potential strategic asset that many firms in our industry are just beginning to recognize.”
The determination of where to focus chemical operations is also becoming increasingly complex as the geographic nature of the industry changes economically. Uncertainty in Eastern Europe, rapid growth in the Pacific Rim, and potential markets in Latin and South America and the Caribbean have upset the traditional patterns of global chemical manufacturing. Very high research and development costs are necessary to maintain a steady stream of high-margin, new products. Environmental problems and liability issues are a significant concern for the chemical manufacturing industry. Although compliance with increasingly stringent emission controls has improved the relationships among chemical manufacturers, government, and public interest groups, the transportation and handling of hazardous materials remains a high-profile issue, particularly in North America and Western Europe.
WCC North American’s Distribution Network
WCC North America produces and sells more than 1,500 products in many different formulations, packaging containers, and labeling arrangements. The products are manufactured at one or more of the 22 manufacturing locations in the USA, and are distributed through 5 WCC distribution centers to field warehouses and then to 325 stocking points (cooperatives and dealers). Table 3 lists the WCC manufacturing plants and distribution centers located in North America.
Chemical manufacturing does not maintain significant levels of WIP (work-in-process) inventories and managing them is typically not difficult. However, managing finished goods inventories is a considerable problem. Short customer lead times, high customer service levels, large manufacturing and distribution replenishment quantities, and long manufacturing and distribution lead times require that many products be in inventory when customer orders are received. The size and complexity of the WCC distribution network makes distribution management complex and difficult.
According to Melinda Sanders, WCC’s management structure does not match up well to the company’s needs of supply chain management. Recently, however, the company has begun to implement an integrated logistics system to coordinate planning, purchasing, manufacturing, marketing, and distribution functions. Increased attention has been directed to the problems of providing manufacturing with the necessary information to determine the level of individual SKU production (via MRP) as well as how much and where to deploy products (via DRP). Improved communication among marketing, manufacturing, and distribution has led to better forecasts of IT customer demand.
However, although each division of WCC is beginning to operate in a more integrated manner, each division continues to maintain separate responsibility for customer orders and information status. Each division also designs, plans, and executes its manufacturing, warehousing, picking, and loading activities. The majority of warehouses utilized are public facilities. Transportation is provided by common and contract carriage and railroad. A significant portion of WCC’s product moves by rail; in fact, WCC owns and operates a sizeable private railcar fleet due to the specialized nature of its products. The link between transportation and customer service is a vital component at WCC. “Logistics at WCC North America’s Chemicals and Performance Products Division is a competitive tool,” says Logistics Manager Michael Davidson. “I make sure that we always have more than enough carriers on our inbound and outbound traffic lanes to keep product moving throughout our system.”
Traditionally, a general level of attention to customer service was acceptable but as WCC restructured its divisional operations by product grouping and, in particular, diversified into specialty chemicals, the requirements across divisions have become very differentiated. The complexity of customer service is additionally complicated because each division serves a considerable number of common customers, many of whom are high-volume, key accounts. WCC North America’s decentralized divisional structure has historically allowed each division to provide tailored, high-quality customer service to meet the differentiated and demanding requirements of WCC customers. The ability to tailor such services is considered a competitive strength at WCC. Sales, marketing, and cost control efforts are becoming increasingly customer responsive ?the level of focus is now not only division-specific but also individual customer account-specific. In particular, the Consumer Specialties Division serves a highly time-sensitive market that includes many powerful, large retailers and mass merchandisers.
Case 10: Customer Service at Woodson Chemical Company.
According to Melisa Sanders, the problems associated with Woodson Chemical Company were
easily identifiable and straightforward. However…