TOTAL SUPPLY CHAIN COSTS (TSCC)

By: Rhonen Maher Shirley Chong Melissa Seng Jun Ho Ng

INTRODUCTION

Virginia Mason
Private and non-profit organisation Hospital

Owens & Minor

Leading distributor Midical/surgical supply industry

Cost-Plus Pricing System:

Fees plus a fixed percentage of the unit costs

CostTrack Pricing System:

Activity based pricing model

Total-Supply-Chain-Cost (TSCC):
A comprehensive activity-based pricing method Sought to generate 100% fees from supply chain activities

COST-PLUS PRICING MODEL

BASE COST

FIXED %

TOTAL PRICE

COST-TRACK PRICING MODEL

BASE COST

TOTAL PRICE

ABC MATRIX

TRANSPORTATION

ADVANTAGES VS. DISADVANTAGES

ADVANTAGES DISADVANTAGES

Cost-Plus Pricing System

Simple and straightforward

Easier to compare between competitors

Less efficient hidden costs

CostTrack Pricing System

Cost less for efficient companies Immediate feedback for the customers on fees/spending

More complicated and complex Costly for inefficient companies Limited to deliveries, purchase orders and lines per order

VM INITIATIVE

O&M OPPORTUNITY

INCENTIVES

Why Virginia Mason?

Current JIT System Aim to drive the same efficiencies Communicating about eliminating defects Understood the potential cost savings involved Virginia Mason wants to reduce rework and inefficiency in their supply relationship, Owens & Minors is providing the opportunity TSCC will result in efficiency

ASSURANCE

The gain share agreement

Owens & Minor receive a profit percentage based on sales

The loss/costs will be split

Passing on 50% of rework costs/errors E.g. SKUs costs TSCC will reduce purchasing costs through buying in bulks

CONCLUSION

TSCC system (take into account all costs) produce LOWER supply chain costs Concept Total landed cost not fees paid Higher fees

Exposed hidden costs

Incentives to concentrate on process cost