Case: Meditech Surgical

Designing & Managing the Supply Chain Chapter 1

Byung-Hyun Ha
bhha@pusan.ac.kr

Case Overview
Intent diagnosis of supply chain Business overview Supply chain Production planning

Whats wrong?
How to fix it?

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

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

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

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

Operation Organization

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 forecast finished goods inventory + safety stock Approved throughout the organization after 1 to 2 weeks

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

Packaging & Sterilization

FG Inventory

2 16 weeks

2 weeks

push

pull

1 week

High Inventory Level of Finished Goods

In case of representative stable product

Var. in Production vs. Var. in Demand

Variation in production schedules often exceeded variation in demand

New Product Introduction

Poor service level
Poor forecasting? Panic ordering? And high FG inventory

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

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 bulk inventory