CASE : Meditech Surgical

• Meditech Surgical • Intent – diagnosis of supply chain • Business overview • Supply chain • Production planning • What’s wrong? • How to fix it?

THE PRODUCT: ENDOSCOPIC SURGICAL INSTRUMENTS • Permits minimally invasive surgery • Market created in early 80’s, rapidly growing • Old products continually updated and replaced with new

product introductions

THE MARKET

• National and Meditech split the market • Compete based on product innovations, customer service,

cost • National sells to physicians; Meditech sells to material

managers • Customer preferences change slowly

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

DISTRIBUTION

• Central warehouse • Two 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

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

• 2 weeks • Lead time for component parts

• 2-16 weeks • Packaging

• Using machine • Sterilization

• Cobalt radiation sterilizer, about 1 hour

INTERNAL OPERATIONS

OPERATION ORGANIZATION

PRODUCTION PLANNING & SCHEDULING

• Broken down two parts • Assembly & component parts order based on monthly forecast • Packaging & sterilization based on finished goods inventory level

• Forecast • Annual: during the fourth quarter of each fiscal year • Monthly: using annual forecast broken down proportionately

• At the beginning of each month: adjustments of forecast • Planning of assembly

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

PRODUCTION PLANNING & SCHEDULING • MRP systems

• Planning assembly schedules and parts order • Calculation may be run several times each week

• Notification of change at least 1 weeks before

• Packaging & sterilization process • Order point/order quantity (OP/OQ)

Parts Inventory Assembly Bulk Inventory FG Inventory Packaging & Sterilization

2 – 16 weeks 2 weeks 1 week push pull

PRODUCTION PLANNING Annual Forecast

Monthly Revision

Transfer Requirements

Monthly Plan

MRP

Parts Procurement

Plan

Weekly Assembly Schedule

PRODUCTION PLANNING

Parts Inventory Assembly Bulk Inventory Packaging & Sterilization

FG inventory

Monthly Plan

MRP

Order point; Order quantity

Material Plan

External Supply Chain

Part suppliers

Meditech Assembly

Meditech Warehouse

Domestic Dealers

Int’l Meditech Affiliates

Hospitals

Hospitals

INTERNAL SUPPLY CHAIN Parts Inventory Assembly Bulk Inventory FG Inventory

Packaging & Sterilization

2 - 16 weeks

2 weeks

1 week

HIGH INVENTORY LEVEL OF FINISHED GOODS • In case of representative stable product

VAR. IN PRODUCTION VS. VAR. IN DEMAND

• Variation in production schedules often exceeded variation in demand

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

NEW PRODUCT INTRODUCTION

WHAT’S WRONG?

• Poor service for new product introductions • Poor forecasting? • Panic ordering? • And high FG inventory

WHAT IS GOING ON? • Demand is quite predictable • Usage in hospitals is quite stable • Market share moves slowly over time • With each new product, dealer must build inventory to fill

pipeline

WHY DID MEDITECH THINK DEMAND WAS UNPREDICTABLE?

• Poor information systems • No one looked at demand • No one had responsibility for forecast errors • Tendency to shift the blame • Built-in delays and monthly buckets in planning system • Amplifier in planning system

What to Do?

• Recognize that demand is stable and predictable • Establish accountability for forecast • Eliminate planning delays and/or reduce time bucket • Alternatively, put assembly within pull system and

eliminate bulk inventory

Thank you