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 servicelevel requirements.

Case Overview
y Intent diagnosis of supply chain y Business overview y Supply chain y Production planning y What s wrong? y How to fix it?

Meditech Surgical
y Background y Endoscopic surgical instrument maker
y

Minimally invasive surgery Spun off 3 years ago 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 Replaced with new product introductions

y Parent company: Largo Healthcare Company

y

y Primary competitor: National Medical Corporation

y y y y

y Old products continually updated

y

y Compete based on product innovations, customer service,

cost

What are Meditech s problems in introducing new products?

y Problems y New production introduction needs to be flawless y Consistently fail to keep up with demand during initial order y Customers wait over six weeks to have orders delivered y Dan Franklin, manager of Customer Service & Dist. y Recognizing growing customer dissatisfaction

Distribution
y Central warehouse y Two primary channels to hospitals y Domestic dealers
y y

Order and receive products from multiple manufacturers Independent and autonomous entities Subsidiaries of Largo Healthcare Similar to domestic dealers from Meditech s point of view

y International affiliates
y y

EXTERNAL SUPPLY CHAIN

Hospitals

Domestic Dealers

Part suppliers

Meditech Assembly

Meditech Warehouse

Hospitals

Intl Meditech Affiliates

Internal Operations
y Assembly y Manually intensive y Using component parts in inventory y Assembly line with a tem of cross-trained production workers y Cycle time for assembly of a batch of instruments
y

2 weeks 2-16 weeks

y Lead time for component parts

y

y Packaging y Using machine y Sterilization y Cobalt radiation sterilizer, about 1 hour

INTERNAL SUPPLY CHAIN

Parts Inventory Assembly Bulk Inventory Packaging & Sterilization FG Inventory

2 - 16 weeks

2 weeks

1 week

Operation Organization

PRODUCTION PLANNING
Annual recast M nthly Revisi n Transfer Requirements M nthly Plan MRP

Parts Pr curement Plan

Weekly Assembly Schedule

Monthly Plan

PRODUCTION PLANNING
MRP

Material Plan

Order point; Order quantity

Parts Inventory

Assembly

Bulk Inventory

Packaging & Sterilization

FG inventory

Production Planning & Scheduling

y Broken down two parts y Assembly & component parts order based on monthly forecast y Packaging & sterilization based on finished goods inventory level y Forecast y Annual: during the fourth quarter of each fiscal year y Monthly: using annual forecast broken down proportionately
y

At the beginning of each month: adjustments of forecast

y Planning of assembly y Using monthly demand forecasts y transfer req. = month forecast finished goods inventory + safety stock y Approved throughout the organization after 1 to 2 weeks

Production Planning & Scheduling

y MRP systems y Planning assembly schedules and parts order y Calculation may be run several times each week
y

Notification of change at least 1 weeks before

y Packaging & sterilization process Packaging & Parts Inventory point/order quantity (OP/OQ) Assembly Bulk Inventory y Order terilization

FG Inventory

2 16 weeks

2 weeks

push

pull

1 week

High Inventory Level of Finished Goods

y In case of representative stable product

Var. in Production vs. Var. in Demand y Variation in

production schedules often exceeded variation in demand

New Product Introduction

y Poor service level y Poor forecasting? y Panic ordering? y And high FG inventory

Poor Service Level

y What is going on? y Demand is quite predictable y Usage in hospitals is quite stable y Market share moves slowly over time y With each new product, dealer must build inventory to fill pipeline y Why did Meditech think demand was unpredictable? y Poor information systems y No one looked at demand y No one had responsibility for forecast errors y Tendency to shift the blame y Built-in delays and monthly buckets in planning system y Amplifier in planning system

Poor Service Level

y What to do? y Recognize that demand is stable and predictable y Establish accountability for forecast y Eliminate planning delays and/or reduce time bucket y Alternatively, put assembly within pull system and eliminate bulk inventory

Why is the customer service manager the first person to recognize the major issues?
y It deals with everything from occasional customer

complaints to establishing strategies to improve delivery service to customers.

y The representative works with dealers and affiliates

to keep them updated on product delivery schedules and problems.

y 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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