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
 What’s 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
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Market created in early 80’s, 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 Meditech’s point of view
Internal Operations
 Assembly
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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
2 – 16 weeks
Assembly
2 weeks
Bulk Inventory
push
pull
Packaging &
Sterilization
1 week
FG Inventory
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?
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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?
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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?
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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