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Case Meditech

Supply 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 StockCurrent 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

Fig: The Meditech Production


Process
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

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


exceeding
variation 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 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.

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