Case MeditechSupply Chain

About the Company

Parent Company

• Largo Health Company• Spun off from Largo to avoid distractions from other Largo

businesses and acquire market share.

Product

• Endoscopic Surgical Instruments• Fall under “Minimally Invasive” Category

Primary Competitor

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

Strategy Followed by the Company

• Aggressive 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 Faced

• Growing 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.

Distribution

• Distribution through a Central Warehouse

• Primary Channels

Domestic Dealers Primarily for domestic sales Order and receive products from multiple

manufacturers Independent and autonomous entities

International Affiliates Wholly owned subsidiaries of Largo

Healthcare Product shipping throughout the country International affiliates submit orders to

Meditech and Meditech fills them with available product.

Internal Operations

Assembly• Manually Intensive• Components parts placed in Inventory after Quality

Assurance• Run by a team of cross-trained production workers• Typical cycle time – 2weeks• Lead time – 2-16 weeks

Packaging• Using several large packaging machines• Enough capacity, has not restricted output

Sterilization• Using a large cobalt radiation sterilizer• Can sterilize as much product as will fit inside its four

walls.• Capacity limitations not a problem

Operations Organization

Production Scheduling and Planning

Broken down into two parts• Planning, based on monthly forecasts, of assembly and component

parts orders• Daily scheduling of packaging and sterilization based on finished

goods inventory levels.

Forecast• Annual 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 Planning

MRP System

• Monthly forecast• Lead 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 operation• Order 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 before

Fig: The Meditech Production Process

Reasons for Problems

• Problems 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 products

Forecasting had definitely been a problem, but determining its extent was difficult. Data to measure forecast accuracy had not previously been tracked Meditech 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 cancellations due 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.