PowerPoint Presentation

Case Meditech

About the CompanyParent Company

Largo Health CompanySpun off from Largo to avoid distractions from other Largo businesses and acquire market share.

Product

Endoscopic Surgical InstrumentsFall under Minimally Invasive Category

Primary Competitor

National Medical CorporationCreated $800 million of Market over a decade.National Medical concentrated on selling to surgeons.

Strategy Followed by the CompanyAggressive competition with National Medical Corporation

Developing new, low cost innovative instruments

Selling them through a first-class sales force.

Old products were updated with innovative features and presented to the market as new products.

A dozen or more new products would typically be introduced by Meditech in any given year.

Problems FacedGrowing customer dissatisfaction

Strained production capacity

Meditech consistently failed to keep up with demand during the flood of initial orders.

Poor service Delivery - customers had to wait over six week to have their orders delivered.

DistributionDistribution through a Central Warehouse

Primary Channels

Domestic DealersPrimarily for domestic salesOrder and receive products from multiple manufacturersIndependent and autonomous entities

International AffiliatesWholly owned subsidiaries of Largo HealthcareProduct shipping throughout the countryInternational affiliates submit orders to Meditech and Meditech fills them with available product.

Internal OperationsAssemblyManually IntensiveComponents parts placed in Inventory after Quality AssuranceRun by a team of cross-trained production workersTypical cycle time 2weeksLead time 2-16 weeks

PackagingUsing several large packaging machinesEnough capacity, has not restricted output

SterilizationUsing a large cobalt radiation sterilizerCan sterilize as much product as will fit inside its four walls.Capacity limitations not a problem

Operations Organization

Production Scheduling and PlanningBroken down into two partsPlanning, based on monthly forecasts, of assembly and component parts ordersDaily scheduling of packaging and sterilization based on finished goods inventory levels.

ForecastAnnual forecast during fourth quarter of each fiscal year.Monthly forecast based on annual forecast

Assembly Planning

Based on monthly forecast Determining Transfer Requirement by following equation Transfer Req. = Demand forecast for the month + Safety Stock- Current inventory level

Production Scheduling and PlanningMRP System

Monthly forecastLead time for assembly, packaging & sterilization Current parts, bulk, and finished goods inventory levels.

Packaging & sterilization

Scheduled based on needed replenishment of finished goods inventory.Packaging and sterilization operations are considered one operationOrder point/order quantity (OP/OQ) basis.

Production Scheduling and Planning

Material being pushed through assembly into bulk instrument inventory based on monthly forecast

Pulled through packaging/sterilization into finished goods inventory, replenishing being done from what was sold from finished goods the day beforeFig: The Meditech Production Process

Reasons for ProblemsProblems with new product introduction

Data to measure forecast accuracy had not previously been tracked

Forecasts and demand information had not been kept.

High finished goods inventory levels

Despite the high levels of inventory, the actual service level over the previous years were disappointing

Panic ordering from dealers and affiliates.

Decentralized nature of the regional warehouses

Problems with data gathering

Weekly Demand Pattern

Variation in production schedules exceedingvariation in demand

Q1)Problems in introducing new productsForecasting had definitely been a problem, but determining its extent was difficult. Data to measure forecast accuracy had not previously been trackedMeditech does not have separate forecast for new products. It goes from the yearly forecast schedule

Every time a new product was introduced it resulted in serious supply problems[2-16 weeks] which in turn resulted in the dissatisfaction of customer due to poor service resulting from each product introduction.

Backorder cancellationsdue to high waiting time

Meditech gives the impression that they were using a cost-effective supply chain, instead of a responsiveness supply chain that they should have been using considering highly innovative products.They should plan a new introduction cycle two months before the sales force starts marketing the product

Q1)Problems in introducing All products

Meditech has too many products to be efficient at manufacturing from one facility.

Inaccurate forecasts based on split of yearly forecasts

Lack of information co-ordination

Centralization of data is missing

Q3) Why is Customer Service Manager the first person to recognize the major issues?

Q3) Why is Customer Service Manager the first person to recognize the major issues?

Steps to Fix the Problems

Centralization in Data storage : Uniting POS , Distribution Channels and Production Channels. Role of technology.

Leaner Product Portfolio.

Need to keep high Service levels. Standardizing a certain safety stock level in inventory. Focus in improving Supplier Lead time which is presently 2-16 weeks.