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CASE : Meditech Surgical

Meditech Surgical Intent – diagnosis of supply chain Business overview Supply chain Production planning What’s wrong? How to fix it?

THE PRODUCT:

ENDOSCOPIC SURGICAL INSTRUMENTS

Permits minimally invasive surgery Market created in early 80’s, rapidly growing

Old products continually updated and replaced with new product introductions

THE MARKET

National and Meditech split the market

Compete based on product innovations, customer service, cost

National sells to physicians; Meditech sells to material managers

Customer preferences change slowly

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 Meditech’s 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

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

PRODUCTION PLANNING & SCHEDULING • MRP systems • Planning assembly schedules and parts order • Calculation
PRODUCTION PLANNING & SCHEDULING • MRP systems • Planning assembly schedules and parts order • Calculation
PRODUCTION PLANNING & SCHEDULING • MRP systems • Planning assembly schedules and parts order • Calculation
PRODUCTION PLANNING & SCHEDULING • MRP systems • Planning assembly schedules and parts order • Calculation
PRODUCTION PLANNING & SCHEDULING • MRP systems • Planning assembly schedules and parts order • Calculation
PRODUCTION PLANNING & SCHEDULING • MRP systems • Planning assembly schedules and parts order • Calculation

2 weeks

1 week

push

pull

 
2 weeks 1 week push pull
2 weeks 1 week push pull
 
PRODUCTION PLANNING & SCHEDULING • MRP systems • Planning assembly schedules and parts order • Calculation
PRODUCTION PLANNING & SCHEDULING • MRP systems • Planning assembly schedules and parts order • Calculation

2 – 16 weeks

PRODUCTION PLANNING & SCHEDULING • MRP systems • Planning assembly schedules and parts order • Calculation

PRODUCTION PLANNING

Annual Forecast
Annual
Forecast
Monthly Revision Transfer Requirements Monthly Plan MRP Parts Weekly Procurement Assembly Plan Schedule
Monthly
Revision
Transfer
Requirements
Monthly
Plan
MRP
Parts
Weekly
Procurement
Assembly
Plan
Schedule

Monthly

Plan

PRODUCTION PLANNING

Monthly Plan PRODUCTION PLANNING Order point; Order quantity MRP Material Plan Sterilization Parts Inventory Assembly Bulk
Order point; Order quantity
Order point;
Order quantity

MRP

Monthly Plan PRODUCTION PLANNING Order point; Order quantity MRP Material Plan Sterilization Parts Inventory Assembly Bulk
Monthly Plan PRODUCTION PLANNING Order point; Order quantity MRP Material Plan Sterilization Parts Inventory Assembly Bulk

Material

Plan

Monthly Plan PRODUCTION PLANNING Order point; Order quantity MRP Material Plan Sterilization Parts Inventory Assembly Bulk
Monthly Plan PRODUCTION PLANNING Order point; Order quantity MRP Material Plan Sterilization Parts Inventory Assembly Bulk

Packaging & Sterilization

Parts Inventory

Assembly

Bulk Inventory

FG inventory

External Supply Chain

Domestic Dealers Part Meditech Meditech suppliers Assembly Warehouse
Domestic
Dealers
Part
Meditech
Meditech
suppliers
Assembly
Warehouse

Hospitals

Hospitals

Int’l

Meditech

INTERNAL SUPPLY CHAIN

Parts Inventory

Assembly

Bulk Inventory

Packaging & Sterilization

FG Inventory

INTERNAL SUPPLY CHAIN Parts Inventory Assembly Bulk Inventory Packaging & Sterilization FG Inventory 2 - 16
INTERNAL SUPPLY CHAIN Parts Inventory Assembly Bulk Inventory Packaging & Sterilization FG Inventory 2 - 16
INTERNAL SUPPLY CHAIN Parts Inventory Assembly Bulk Inventory Packaging & Sterilization FG Inventory 2 - 16
INTERNAL SUPPLY CHAIN Parts Inventory Assembly Bulk Inventory Packaging & Sterilization FG Inventory 2 - 16
INTERNAL SUPPLY CHAIN Parts Inventory Assembly Bulk Inventory Packaging & Sterilization FG Inventory 2 - 16
INTERNAL SUPPLY CHAIN Parts Inventory Assembly Bulk Inventory Packaging & Sterilization FG Inventory 2 - 16

2 - 16 weeks

INTERNAL SUPPLY CHAIN Parts Inventory Assembly Bulk Inventory Packaging & Sterilization FG Inventory 2 - 16

2

weeks

INTERNAL SUPPLY CHAIN Parts Inventory Assembly Bulk Inventory Packaging & Sterilization FG Inventory 2 - 16

1

week

HIGH INVENTORY LEVEL OF FINISHED GOODS

In case of representative stable product

HIGH INVENTORY LEVEL OF FINISHED GOODS • In case of representative stable product

VAR. IN PRODUCTION VS. VAR. IN DEMAND

VAR. IN PRODUCTION VS. VAR. IN DEMAND • Variation in production schedules often exceeded variation in

Variation in production schedules often exceeded variation in demand

NEW PRODUCT INTRODUCTION

Poor service level

Poor forecasting?

Panic ordering?

And high FG inventory

NEW PRODUCT INTRODUCTION • Poor service level • Poor forecasting? • Panic ordering? • And high

WHAT’S WRONG?

Poor service for new product introductions Poor forecasting? Panic ordering? And high FG inventory

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

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

Thank you