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SUPPLY CHAIN MANAGEMENT
CASE STUDY: MEDITECH SURGICALS
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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?
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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
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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
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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
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External Supply Chain
Part suppliers
Meditech Assembly
MeditechWarehouse
Domestic Dealers
Int’l MeditechAffiliates
Hospitals
Hospitals
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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
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Internal Supply Chain
Parts Inventory Assembly Bulk Inventory FG InventoryPackaging &Sterilization
2 - 16weeks
2weeks
1 week
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Operation Organization
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Production PlanningAnnual Forecast
Monthly Revision
TransferRequirements
MonthlyPlan
MRP
PartsProcurement
Plan
WeeklyAssemblySchedule
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Production Planning
Parts Inventory Assembly Bulk Inventory Packaging &Sterilization
FG inventory
MonthlyPlan
MRP
Order point;Order quantity
MaterialPlan
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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
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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
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High Inventory Level of Finished GoodsIn case of representative stable product
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Var. in Production vs. Var. in DemandVariation in production schedules often exceeded variation in demand
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New Product IntroductionPoor service level
Poor forecasting?Panic ordering?And high FG inventory
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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
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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
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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.
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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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Thank You