Background
Meditech Surgical is a subsidiary company of Largo Healthcare Company. Meditech as an independent of Largo Healthcare Company focused solely on producing and selling endoscopic surgical instruments. Since its inception, Meditech has produced innovative, low-cost products. New products were brought to the market quickly and pushed by an aggressive sales force. Old products were updated with innovative features and presented to the market as new products.
Meditech's sales force concentrate on selling its products to hospitals, material managers as well as to surgeons. Material managers tended to be more concerned with cost and delivery performance. The surgeons, on the other hand, focused on products features. As pressures increased on the health care costs, the importance of the material manager's purchasing position increased. All in all, the Meditech product line consists of over 200 separate end products.
Meditech distributes all its goods from a central warehouse using two primary channels - domestic dealers and international affiliates to distribute its products from the central warehouse to end-customers (i,e., hospitals)
The production processes to manufacture endoscopic instruments are composed of three major steps: assembling of component parts into individual or "bulk" instruments, packaging one or more instruments into a packaged good and sterilizing the packaged goods.
Case Discussion Questions
1. What are Meditech's problems in introducing new products? In manufacturing ALL products?
New product introductions were critical to Meditech strategy of rapid product development to protect Meditech's reputation and sales of other products. However, their greatest problems are consistent failure to keep up with demand because of production capacity as it takes over six weeks to deliver orders. Additionally, poor delivery services are fatal in the healthcare industry and were affecting Meditech reputation.
Meditech's problems can be categorized as follow:
In introducing new products.
The company introduces many new products in any given year. Introducing new products creates a high peak during the first few weeks and this increase in demand creates back orders and consequently customer's dissatisfaction. Harvard Business Review (2018) noted that a supply chain manager has the power not just to optimize speed and control costs but also to determine customer satisfaction by anticipating demand and executing a strategy to fulfill that demand. This is crucial to every mid-market high-tech company. Failure to deliver when and where customers expect can mean losing a once-in-a-lifetime opportunity to succeed.
There is also a long lead time of component parts. As Simchi-Levi, Kaminsky, and Simchi-Levi noted that Meditech's strategy of rapid product development needed to be introduced flawlessly to protect its reputation and sales of other products.
But Meditech consistently failed to keep up with demand during the flood of initial orders. Peter Horscroft (2013) noted that the accepted logistics theory states that short lead times are consistent with the high accuracy of customer service and low levels of inventory. Unfortunately, for Meditech, their production capacity became strained as customers waited over six weeks to have their orders delivered (Simchi-Levi, et al).
In manufacturing ALL products?
For all products, they are a huge number of end-products - over 200 end products with unexpectedly high demand resulting in delivery delays. There are poor forecasting, panic ordering, and poor inventory management system.
What is driving these problems, both systemically and organizationally?
The major issues driving these problems is the poor forecasting methodology. Data to measure forecast accuracy had not previously been tracked nor had forecasts and demand information been kept.
In addition to new product introduction problems, finished good inventory levels appeared to be remarkably high. A consultant's study of inventory management shows that overall inventory could be reduced by at least 40 percent without an impact on the delivery service levels, yet the management feared that reducing inventory would further damage the already subpar level performance.
Another cause of the problem is "panic ordering" from dealers and affiliates. This occurs when a dealer or affiliate is unsure of whether or not the product will be received in time and therefore increases the size of its order. These increased orders would cause demand to temporarily rise to result in demand exceeding supply.
Organizationally, the driving force is the organizational structure of Meditech. Given the decentralized nature of the regional warehouses, the dealers have little control over what an individual warehouse actually orders
Summarily, the driving force to Meditech is the fact that data to measure forecast accuracy had not previously been tracked; forecast and demand had not been kept, and data gathering requires a lengthy process of going back through hard copy.
Why is the customer services manager the first person to recognize the major issues?
The customer services manager is the first person to recognize these major issues because the customer service manager is the first person, who directly deal with the customer's problems.
As Simchi-Levi, Kaminsky, and Simchi-Levi noted customer service deals with everything from occasional customer service complaints to establishing strategies to improve delivery services to customers. Customer services representatives work with dealers and affiliates to keep them updated on product delivery schedules and problems. Often this responsibility places the Customer Service representatives in direct contact with hospital personnel.
The Customer Service Manager, therefore, was the first person to recognize the major issues because of his constant interactions and meetings with the hospital material managers.
How would you fix these problems?
These problems could be fixed in a number of ways. The company's innovative strategies of rapid product development should be revisited. They should embark on product line rationalization.
This is according to David M. Anderson (2018) is a powerful technique to improve profits, free valuable resources, and simplify operations and supply chains.
It does this by rationalizing existing product lines to eliminate or outsource products and product variations that are problem prone, don't "fit" into a flexible environment, have low sales, have excessive overhead demands, are not really appreciated by customers, have limited future potential, may really be losing money. This approach will ensure the elimination or reduction of low margin products, obsolete non-value products, slow-moving products as well as increasing the production process capability.
Reference
Harvard Business Review (2017). Supply Chain's Critical Role in Product Launch.
Peter Horscroft (2013). Enhancing Supply Chain Efficiency - The Strategic Lead Time Approach. The International Journal of Logistics Management. Vol.1, Issue 2.
Simchi-Levi et al.(2008). Designing and Managing The Supply Chain - Concepts, Strategies and Case Studies(3rd ed). McGraw-Hill/Irwin, New York, NY
David M. Anderson (2018). Product line rationalization.