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Case: Meditech Surgical
Designing & Managing the Supply Chain
Chapter 1Byung-Hyun Ha
mailto:[email protected]:[email protected] -
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Case Overview
Intentdiagnosis of supply chain
Business overview
Supply chain
Production planning
Whats wrong?
How to fix it?
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Meditech Surgical
Background 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 80s, 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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Meditech Surgical
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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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 Meditechs point of view
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Internal Operations
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
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Operation Organization
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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 forecastfinished goods inventory + safety stock
Approved throughout the organization after 1 to 2 weeks
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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 InventoryPackaging &
Sterilization
216 weeks 2 weeks 1 weekpush pull
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High Inventory Level of Finished Goods
In case of representative stable product
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Var. in Production vs. Var. in Demand
Variation inproduction
schedules
often
exceededvariation in
demand
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New Product Introduction
Poor service level Poor forecasting?
Panic ordering?
And high FG inventory
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Poor Service Level
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
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Poor Service Level
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 bulkinventory