SUPPLY CHAIN MANAGEMENT

CASE STUDY: MEDITECH SURGICALS

What is Supply Chain Mgmt.?Supply chain management is a set of approaches used to efficiently integrate suppliers, manufacturers, warehouses, and customers so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time in order to minimize system wide costs while satisfying service-level requirements.

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Case OverviewIntent – diagnosis of supply chainBusiness overviewSupply chainProduction planningWhat’s wrong?How to fix it?

Meditech SurgicalBackground

Endoscopic surgical instrument maker Minimally invasive surgery

Parent company: Largo Healthcare Company Spun off 3 years ago

Primary competitor: National Medical Corporation Market created in early 80’s, rapidly growing National sells to physicians Meditech sells to material managers as well as physicians Customer preferences change slowly

Old products continually updated Replaced with new product introductions

Compete based on product innovations, customer service, cost

What are Meditech’s problems in introducing new products?Problems

New production introduction needs to be flawless

Consistently fail to keep up with demand during initial order

Customers wait over six weeks to have orders delivered

Dan Franklin, manager of Customer Service & Dist.Recognizing growing customer dissatisfaction

DistributionCentral warehouseTwo primary channels to hospitals

Domestic dealers Order and receive products from multiple manufacturers Independent and autonomous entities

International affiliates Subsidiaries of Largo Healthcare Similar to domestic dealers from Meditech’s point of view

External Supply Chain

Part suppliers

Meditech Assembly

MeditechWarehouse

Domestic Dealers

Int’l MeditechAffiliates

Hospitals

Hospitals

Internal OperationsAssembly

Manually intensiveUsing component parts in inventoryAssembly line with a tem of cross-trained production

workersCycle time for assembly of a batch of instruments

2 weeks

Lead time for component parts 2-16 weeks

PackagingUsing machine

SterilizationCobalt radiation sterilizer, about 1 hour

Internal Supply Chain

Parts Inventory Assembly Bulk Inventory FG InventoryPackaging &Sterilization

2 - 16weeks

2weeks

1 week

Operation Organization

Production PlanningAnnual Forecast

Monthly Revision

TransferRequirements

MonthlyPlan

MRP

PartsProcurement

Plan

WeeklyAssemblySchedule

Production Planning

Parts Inventory Assembly Bulk Inventory Packaging &Sterilization

FG inventory

MonthlyPlan

MRP

Order point;Order quantity

MaterialPlan

Production Planning & SchedulingBroken down two parts

Assembly & component parts order based on monthly forecastPackaging & sterilization based on finished goods inventory

levelForecast

Annual: during the fourth quarter of each fiscal yearMonthly: using annual forecast broken down proportionately

At the beginning of each month: adjustments of forecast

Planning of assemblyUsing monthly demand forecaststransfer req. =

month forecast – finished goods inventory + safety stock

Approved throughout the organization after 1 to 2 weeks

Production Planning & SchedulingMRP systems

Planning assembly schedules and parts orderCalculation may be run several times each

week Notification of change at least 1 weeks before

Packaging & sterilization processOrder point/order quantity (OP/OQ)

Parts Inventory

Assembly Bulk Inventory

FG Inventory

Packaging &Sterilization

2 – 16 weeks 2 weeks 1 weekpush pull

High Inventory Level of Finished GoodsIn case of representative stable product

Var. in Production vs. Var. in DemandVariation in production schedules often exceeded variation in demand

New Product IntroductionPoor service level

Poor forecasting?Panic ordering?And high FG inventory

Poor Service LevelWhat is going on?

Demand is quite predictableUsage in hospitals is quite stableMarket share moves slowly over timeWith each new product, dealer must build inventory to fill

pipelineWhy did Meditech think demand was unpredictable?

Poor information systemsNo one looked at demandNo one had responsibility for forecast errorsTendency to shift the blameBuilt-in delays and monthly buckets in planning systemAmplifier in planning system

Poor Service LevelWhat to do?

Recognize that demand is stable and predictable

Establish accountability for forecastEliminate planning delays and/or reduce time

bucketAlternatively, put assembly within pull system

and eliminate bulk inventory

Why is the customer service manager the first person to recognize the major issues? It deals with everything from occasional customer complaints to establishing strategies to improve delivery service to customers.

The representative works with dealers and affiliates to keep them updated on product delivery schedules and problems.

Handles issues concerning the movement of product out of finished goods inventory.

Implement ERP system for better data storage

Integration of decentralized warehouses.

A leaner product portfolio with PULL strategy would be better.

Emphasis on forecasts with shorter horizons .

Steps should be taken to reduce lead time.

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