University of Southern Queensland

MGT 2104 Supply Chain Design Case Study Meditech Surgical

Student name: USQ ID: Submission deadline: Nguyen Quoc Tuan U1055975 28/03/2014

Word Count: words

1. Introduction Meditech Surgical was separated from its parent, the National Medical Corporation, to penetrate into endoscopic surgical instrument market. Being that a newly born company, Meditech has managed to capture a huge market share due to its competencies and competitive attitude towards its product. The main strategy of Meditech is to focus on introducing new products that are cost competitive and effective and, with the help of its aggressively sales force, offer them to hospitals, materials managers and surgeons. The distribution network of Meditech comprises of a central warehouse, domestics shipping line (hospitals), and international affiliates. Additionally, there are several regional warehouses that help Meditech to distribute their products more frequently. In the past, the company enjoyed a highly rated customer feedback due to their quality products. Nevertheless, Meditech now receive rows of complaints and a report of customer dissatisfaction because of the long leadtime and shortage of product. In the medical industry, time is an important factor since patients need to be medically attended through equipment. Therefore, this current situation needs to be addressed urgently if Meditech wants to keep its market share.

Question 1 Meditech has been frequently introducing new products to market. However, the new products are the ones that are upgraded from the old products. Hence, they make the old ones obsolete and create a new demand. According to Figure 1-10 (Simchi-Levi, D, Kaminsky, P & Simchi-Levi, 2008), the initial demand for new product exceeds the production plan. In medical industry, poor service can be a serious issue and shortage of medical supply causes customers to place panic orders, which in turn place more pressure on the assemblyline. However, Meditech cannot reconcile demand and supply forecast as raw materials lead-time is up to 16 weeks and delivery lead-time is 6 weeks. Furthermore, poor customer service is also a problem because the company is focusing on introducing new products and simultaneously neglecting customer orientated services. Meditech is currently practicing JIT, but it is inundated with orders and low finish goods. To sum up, Meditech is facing : Supply shortages Long lead time delivery (6 weeks) Long lead time raw material procurement (16 weeks at most) Low customer service level Unreliable forecast of demand Initially low FG inventory levels and high obsolete FG later. The worst problem that Meditech is now suffering is that its own services and products are affecting its reputation.

Question 2

The sources of these problems stem from: Management The organization has scatter department and there is a lack in communication between the whole organizations. For example, the business units within the plant take full responsibility for production of a particular product and only restrict to finish their work on time. Furthermore, each functional department such as Central Planning, Customer Service, Inventory, or Logistics seems to focus on their own areas without coordinating with each other. Production planning and scheduling are a long process with low reliability and accuracy. The forecast for more than 200-plus products is based mainly one marketing and finance departments report and is broke down to weekly forecast and frequently adjusted to accommodate market trends. However, Meditech has failed to predict the demand which in turn leading their customers to place more backorder and create the bullwhip effect. Strategy The goal of continuously introducing new products is backfiring for Meditech. It has incidentally shorten the product life cycle of the old products line and causing the assembly line to shift frequently, although at a low cost and fast. Hence, the long procurement time makes it impossible to address the immediate demand for the new product and piles up obsolete finished goods in the long run. Meditech focus on sales to promote its products to customers. However, with the problem of supply shortages and the absent of finished goods inventory, customer is required to wait for 6 weeks for their orders to be fulfilled and therefore, experiencing poor services.

Question 3 Customer Service representatives have to deal directly with dealers and affiliate if there are problems, new product introduction, or simply change in schedule. Hence, the Customer Service manager will be the first one to hear about complaints on late delivery. In a particular case, Mr. Dan Franklin, the manager of Customer Service and Distribution, held a meeting with the largest dealer of Meditech only to receive complaints about long lead time and, because the problem has been existing for sometime, it expects the possibility of panic order. Given the nature of the medical industry, late deliveries can be a spell for disaster.

Question 4 There are some personal suggestions that I would make to Meditech: First, I would implement an electronic data interchange system (EDI) that allows inter- and intra- communication from within and between supply chain entities. Hence, all the departments within Meditech interact with each other to anticipate demand more accurately than they did in the past. This also allows communication between Meditech Customer Service to receive pre-order from dealers and affiliates in order to procure enough resources and start production early to prevent backorders. Second, I would implement an enterprise resource planning system (ERP) to track down inventory, manage warehouse inventory and trace shipping orders. By this method, Meditech could identify the source of backorders, where it comes from and how to address this. In addition, this system allows better production planning since it incorporates marketing and sales data in comparison to past manufacturing figures. Third, I would implement cross-functional teams within the Operation department. These teams will be responsible for handling certain family of products. They can better monitor the manufacturing line, produce weekly reports, come up with new ideas, and team up with Customer Service department to address specific customers requirements. Furthermore, they can send representatives down to hospitals or dealers to interact with them about upcoming demands for certain products or inform them about new products for these buyers to place an early order. Fourth, I would change my suppliers list and make them to enroll in suppliers achievement program. I could procure more quickly and ensure the quality of my products at the same time. Fifth, I could either go for push or pull strategies depends on Meditech decision. Push strategies allows Meditech to supply without fear of stock-out and stay cheap at the same time. It also allows Meditech to forecast much better since the figures would be relatively easy to recognize. On the other hand, Pull strategies allows Meditech to eliminate high finished goods inventory to reduce production costs and ready themselves to produce when demand is anticipated.