Supply Chain Report
Meditech Surgical
Group 1
Supply Chain Report
We have short video about MEDITECH
Life at MEDITECH
 https://www.youtube.com/watch?v=6gDFxEV8pv4
Company Background
Meditech Company spun off from its parent company, Largo Healthcare Company,
to avoid the distractions of other Largo businesses and capture market share of
endoscopic instruments. Their primary competitor, National Medical Corporation,
created the $800million market.
Endoscopic surgical techniques changed surgical procedures described as
minimally invasive bring about considerable benefits. Minimally invasive was totally
differ from traditional open surgery, requires only small wound are required to
perform an operation. The procedures often shorten patient recovery, which can
translate into reduced surgical expense. Despite the benefits and the multi-decade
history of endoscopic technology, the procedures have only become popular in the last
ten years.
The following strategies:
1. Meditech produced innovative, low-cost products
2. Old products were updated with innovative features.
3. A dozen or more new products would typically be introduced by Meditech in
any given year
The different strategies with both companies:
1. Meditech sell their product to hospitals, material managers as well as
surgeons.
2. National Medical concentrated on selling surgeons.
Problem faced
1. Growing customer dissatisfaction
2. Consistently fail to keep up with demand during initial order
3. Poor service Delivery- Customers wait over six weeks to have orders delivered.
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Supply Chain Report
Distribution
Meditech distributes all its goods from a central warehouse.
Two primary channels:
1. Domestic dealers
The dealers order and receive products from multiple manufacturers. Stocked
products of the items, such as surgical gloves and aspirin, to endoscopic
surgical instruments. Another benefit for using dealers, hospitals do not need
to order directly form manufactures for their diverse need. They also reduce
hospitals inventory and material costs. Independent and autonomous entities
determining when to order new supplies and how much to order.
2. International affiliates
International affiliates are wholly-owned subsidiaries of Largo Healthcare
residing outside of the United States. By contrast with domestic dealers,
international affiliates ship their products throughout an entire whole country.
From Meditech viewpoint, it look no different from the two channels, they just
submit the available product to their customers.
Internal Operations
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 bulk instruments into a packaged good, and
sterilizing the packaged goods.
 Assembly -- - the assembly process is manually intensive.
The parts are placed into inventory until ready for use by one of several assembly
lines. Each assembly line is run by a team of cross-trained production workers who can
produce any of several instruments within a product family. The typical cycle time for
assembly of a batch of instruments - the time required to schedule assembly of a batch
of instrument and then actually assemble them, assuming that component parts are
available in component parts inventory -- is on the order of two weeks. Lead time for
component parts is on the order of 2-16 weeks.
 Packaging -- the packaging process makes use of several large packaging
machines.
The machines direct bulk instruments into plastic containers and then adhere a
flexible sheet of material over the top of the container.
 Sterilization -- the sterilization process uses a large Cobalt radiation sterilizer.
After batches of packaged instruments (cardboard container, plastic container,
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Supply Chain Report
and instruments) are placed into the sterilizer, the sterilizer is turned on for about an
hour.
Internal Supply Chain
External Supply Chain
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Supply Chain Report
The Operations Organization
Production Planning and Scheduling
The production planning and scheduling process is broken down into two parts - planning, based on monthly forecasts, of assembly and component parts orders; and
daily scheduling of packaging and sterilization based on finished goods inventory levels.
The annual forecast is then broken down proportionately, based on the number
of weeks in the month, into monthly forecasts. As the year progresses, the Central
Planners work with the Marketing organization to make forecast adjustments
according to market trends and events. At the beginning of each month, the month’s
forecasts are adjusted and agreed upon by the Marketing organization and the Central
Planners.
The planning of assembly for a particular instrument begins with the monthly
demand forecasts. Based on the month’s forecast, the Central Planners determine the
amount of product that needs to be transferred from bulk inventory into finished
goods inventory to “meet” the expected demand. This amount, termed the finished
goods “transfer requirement”, is determined by subtracting the current finished goods
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Supply Chain Report
inventory level from (1) the demand forecast for the month plus (2) the required safety
stock. (The current safety stock policy is to maintain three weeks’ worth of demand).
The transfer requirements, once completed for all 200-plus product codes, are
passed throughout the organization for approval. This process typically takes place one
to two weeks into the current month.
A planner in the business unit plugs the forecasts into a Materials Requirement
Planning (MRP) system, which determines weekly production schedules and
component parts orders for each finished product. The MRP system determines
assembly schedules and parts orders based on
(1) the monthly forecasts
(2) the lead times for assembly, packaging, and sterilization
(3) current parts, bulk, and finished goods inventory levels.
Although the MRP calculation may be run several times each week, the planner
is careful not to change weekly production schedules with less than a week's notice.
The entire packaging / sterilization process can be completed for a batch of
instruments in about one week. The scheduling of packaging / sterilization is done on
an order point/order quantity (OP/OQ) basis (i.e., when finished goods inventory drops
below the predetermined order point (OP), a replenishment order for more packaged
/ sterilized product is initiated. The size of the order in terms of number of instruments
is always equal to the predetermined order quantity (OQ).)
Production Planning
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Supply Chain Report
New Product Introductions, High Levels of Inventory, and Poor
Service Level
Over the past several years, Meditech has introduced dozens of new products
into the market, mostly by updating existing products. Meditech plans to continue this
strategy of continuously obsoleting its own products by constantly introducing
innovations. While the innovative products have been well accepted by the market
place, each new product introduction has resulted in a nightmare of supply problems.
Forecasting had definitely been a problem, but determining its extent was
difficult. Data to measure forecast accuracy had not previously been tracked, nor had
forecasts and demand information been kept. Data gathering requires a lengthy
process of going back through hard copies of prior monthly plans and entering the
information by hand into a computer. Even if a better methodology could be
determined, forecasts can only be improved by so much. In addition to new product
introduction problems, finished goods inventory levels appeared to be remarkably
high. A consultant had recently been hired to study Meditech's inventory. Her findings
indicated that overall inventory could be reduced by at least 40% without an impact
on the delivery service level
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Supply Chain Report

New product demand after an introduction followed a consistent pattern of
reaching a high peak during the first few weeks, but becoming relatively stable
immediately afterward
 Poor service level
 Poor forecasting?
 Panic ordering?

And high FG inventory
Var. in Production vs. Var. in Demand

Variation in production schedules often exceeded variation in demand
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Supply Chain Report

Monthly forecasting could be improved substantially using a simple statistical
method -generating a linear regression through past data.
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Supply Chain Report
Case Discussion Questions
With this information in mind, Dan Franklin began thinking about how to fix Meditech’s
delivery problems.
1. What are Meditech’s problems in introducing new products? In manufacturing ALL
products?
There is Lack of communications between marketing department and supply
chain. Basically, new products are being introduce, which makes an impact in the
production line. This process backs up the release of existing orders. Old and current
customer’s orders get delayed. . It took 4 months to catch up, but bad service along
with dropped orders had a decrease in orders, with an increase in planned production.
Also their supply chain for new innovative products is not customer service oriented.
According to case it shows low finished goods inventory therefore, the
company took orders and assembled finished goods, which take an ample of time
to complete the actual finished good.
2. What is driving these problems, both systemically and organizationally?
Lack of communication between each department, Bullwhip effect, customer
orders time, poor forecasting and unclear production schedules
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Supply Chain Report
3. Why is the Customer Service manager the first person to recognize the major issues?
From the case there are Customer’s complaints due to the product arriving late
to them. Customers first start to complain when they don't receive their products on
time. Due to the nature of the industry, time is extremely important.
4. How would fix these problems?
(1). Share demand information between all levels of distribution and production.
(2). Increase the advanced ordering time period of new products while at the same
time creating incentives to pre-order.
(3). Change Meditech techniques into a linear regression forecast that relies on past
data. Linear regression forecasting will allow Meditech to better predict the
demands of their new products sand eliminate some of the demand fluctuations
that they are currently going through
(4). Alternatively, put assembly within pull system and eliminate bulk inventory.
Case Analysis of our group:
Meditech is a leader in the endoscopic surgical instrument market. The
company manufactures and market low cost endoscopy surgical equipment to
hospitals and independent surgeons. The company's distribution operation is
arranged and managed from a central storage warehouse that ships its products
to domestic and international affiliates. The organization have been experiencing
a good customer service experience in the past, however, lately customers have
expressed concerns with the time products are being delivered to them. Due to the
nature of the industry, the delivery of surgical equipment on time is extremely
important. The on time delivery of products to its customers has become the main
problem for the firm. Currently, Meditech’s customers are waiting over six weeks
for products to be delivered to them. This current practice is not acceptable and
must be addressed by management immediately if Meditech wants to stay
competitive and keep its current market share.
Meditech’s main problem is that a bullwhip effect was produced due to
organizational and supply chain problems. The method used by Meditech to
balance customer demands with planned production is not effectively serving its
purpose. The catalog of products been offered by Meditech continues to grow and
replacing current items, making obsolete old products that are in their catalog and
current customer orders. Poor customer demands forecasting, long assembly lead
time, and changing products are the main reason why inventory levels are not
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Supply Chain Report
enough to satisfy customer’s demands. While assembly lines try to keep with
demand and company’s resources are getting exhausted trying to launch a new
product, the distributors then will increase their product demand, which causes a
bottle neck effect as it moves up the supply chain process. As the initial demand
shows down there are still backup of high demand of inventory being produce. This
cycle would repeat again as new products are being released to the market. Due
to these problems, Meditech supply chain and management has created a poor
customer service.
Another problem of Meditech is communication. There is not enough
communications between main operations departments in the company; this is
causing information to become distorted as it makes its way through the supply
chain line. The lack of communication and information increases the firm’s lead to
demand variation as orders or demands are being process through the supply
chain systems and departments. In consequence, distributors are feeling the effect
by long waiting periods of time, thus this also causes them to place larger orders
in an effort to help them compensate the waiting time. The panic ordering by
distributors are caused by lack of communications and in turn lead into the problem
of the bullwhip effect. Meditech’s current distribuition system is inefficient and
obviously is causing and inflated demand of products. There is not enough
information being shared among distributors and Miditech’s operations. Each
distributor receives orders from different regional warehouse, which makes it hard
to see the bullwhip effect. The organization’s forecasting system is also confronting
serious problems. The current organization’s forecasting system is determined by
marketing and finance departments on an annual basis. The annual forecast is
then broken down into monthly and weekly forecasts and is frequently adjusted by
Central Planners according to market trends. Meditech has realized that leads to
forecasting problems when they try to introduce new products. The organization
realizes that they are unable to effectively predict demand for new products, which
causes large demand fluctuations and backorders.
Meditech can try new alternatives process to reduce demand variation and the
possibility of panic ordering. The company should improve how customers ordering
is processed, they should more effectively share demand information, and increase
lead times on new products. The forecast methods need to be upgraded to reflect
current needs, the company should also introduce vendor managed inventory and
an e-commerce web site to share information with its customers. All of these
functions should be centralized and shared among all of the supply chain channels
that are involve.
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Supply Chain Report
We have some short videos:
 MRP & ERP Systems Explained: Difference & Definitions
https://www.youtube.com/watch?v=kzsbuiiaor8
 American Apparel - Factory Tour - Production Planning
https://www.youtube.com/watch?v=Lnpm2T9OcKQ
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