SUPPLY CHAIN MANAGEMENT Final Examination QUESTION 1: Case Analysis: MEDITECH SURGICAL. 1. What are Meditech’s problems in introducing new products? In manufacturing ALL products? When Meditech introduces new products, the company’s output is exceeded by a higher demand, consequence of a great amount of initial orders from customers. As a result of this situation, the company faces shortage at the beginning of introduction, product cannot be delivered at the agreed time, back orders accumulate and lead times increases. This company is not matching supply and demand adequately.
Next figures (1 and 2) extracted from Simchi, L. & Kaminsky, P. (2008). Designing and Managing the Supply Chain show this situation in a clear way. Figure 1. Production reaction to a new product introduction. In the introduction month (month 0), demand increases overpassing the planned production and creating the matching problem. Figure 2. Production reaction to unexpectedly high demand (not a new product introduction) Meditech’s reaction to abrupt changes in demand for other products is also slow. The company is not matching demand with production in a consistent way.
The main problem in production is the assembly process which is constraining the overall productivity of the system. As a consequence of these supply problems regarding the “matching” issue, service level is slow and customer’s dissatisfaction is increasing. In the health care industry, poor delivery service is a serious issue. To avoid internal supply problems, some customers are incurring in “panic ordering”, thus creating an increase in the inventory level and back orders of Meditech. The most serious issue of this case is that Meditech’s reputation is being affected by the stated problems. . What is driving these problems, both systemically and organizationally? In both categories, System and organization, there are driving problems that will be described and analyzed below. Systematically: * Planning with forecasts Meditech’s production planning is based on monthly forecasts of assembly and component parts order. Simchi (2008) stated that the first principle of forecasting process is that they are always wrong. Even with advanced forecasting techniques it is impossible to achieve an exactly demand prediction for any item. At the root of most business decisions is the challenge of forecasting customer demand, it is a difficult task because the demand for services and goods can vary greatly”. The variability in demand leads to inaccurate forecasts which are deriving in inaccurate production plans for assembly process, plans that not allows the company to match the demand changes. Related with forecasting, the internal policy which states that weekly production schedules cannot be changed with at least one week’s notice reduces the flexibility of the company to respond to real demand from customers. * Assembly process: bottleneck
From the case information, Assembly process which is manually intensive is identified as the bottleneck in the system: Required time for assembling a batch of instruments: 2 weeks Required time for assembling a batch of instruments: 2 weeks According to Goldratt (1986), bottlenecks must be scheduled based on demand and maximizing the throughput of the resource, but in this case and as a consequence of inaccurate forecast, the schedules are not correct. Moreover, if it is necessary to modify the assembly schedule because of changes in demand, the change is possible only after a week. * Push-Pull boundary
Currently, assembly is working with a Make To Stock strategy while packaging is working with a Make To Order strategy. Considering the uncertainty in demand and that assembly process is the bottleneck of the system, the push-pull boundary is not well allocated. “Pull process may also be referred as to reactive process because they react to customer demand”. Meditech’s assembly process needs to react to demand, therefore the correct allocation of the boundary must be considered. * High Inventory Levels Finished goods inventory levels are higher than expected, as showed in the next figure, also extracted from Simchi, L. amp; Kaminsky, P. (2008). “Designing and Managing the Supply Chain”. Figure 3. Level of inventory vs. demand pattern. High inventory levels are a consequence of incorrect forecasting, push-pull boundary decision and “panic ordering” from customers. Krajewski & Ritzman (2006) suggest that in manufacturing, high inventory levels are like water surface, once the level of water (inventory) is reduced, rocks (problems) can be exposed. In Meditech, the high level of inventory avoids detecting problems while incurring in additional costs (holding, etc. ) related with inventory management.
The inventory policy is not adequate for the current situation of Meditech. Organizationally: * Company’s Structure The Functional Departmentalization of the company is a possible cause of bad coordination among areas to identify problems with deliver service, forecasting, production, etc. For example, is stated in the case that Meditech has an aggressive Sales Force, this group of workers must know the limitations that the company is facing in matching the demand. Different managers are responsible for different activities, with the risk of misalignment of product development and supply chain. Development Chain In Meditech it seems that activities and processes associated with new products introduction are not being coordinated with the main supply chain. With a strategy based on innovation and product development, also response to demand changes and patterns must be considered. In the case, Meditech is not ready to match its organizational capabilities (resources) with the organization strategy. The decisions made in the development chain have an impact in the supply chain. * Decentralized warehouses
Regional warehouses are decentralized and dealer has no control over what an individual warehouse is ordering. Warehouses may be incurring in “panic ordering” without the knowledge of the central dealer. 3. Why is the customer service manager the first person to recognize the major issue? As part of Meditech’s internal structure, Dan Franklin, manager of Customer Service and Distribution is the first person to recognize the major problem because his department has to deal directly with delivery issues and customer complaints regarding delays and poor delivery service.
Customer Service representatives work with dealers and affiliates to inform them about product delivery dates and possible problems in the supply chain. As a result, representatives work in direct contact with hospita3l personnel, like in the next scheme. Figure 5. Direct interaction between Meditech and Hospitals Through meetings with hospital managers, Franklin realized the magnitude of the customer frustration due to poor service resulting from each introduction of new products.
A close, direct and well working relationship like this is important between Supply Chain players because it allows them to identify problems and try to solve them. 4. How would you fix these problems? The solution consists of various steps: 1) As identified by Franklin’s staff, forecasting must be improved using a statistical method: linear regression through past data. However, and considering the inaccuracy of forecasts, the actual monthly revision process must continue as part of Meditech’s activities. 2) Assembly process must be analyzed to obtain internal improvements related with operative effectiveness.
To achieve a better supply strategy, the push-pull boundary must be moved. The recommendation is to include the assembly process as part of the pull system to achieve a better reaction to demand changes, lower finished goods inventory and implement a continuous improvement system. The acquisition of components for the assembly must be part of the push system. 3) The change of push-pull boundary will help to the reduction of inventory level but, as suggested by a consultant, inventory policy must also be changed to obtain a reduction of the product in stock from 4000 units to 2240 units (Figure 3). ) To improve the execution of the strategy, the structure of the company can be changed into a Matrix, improving communication and coordination among departments. This new configuration can be used every time the company plans to introduce a new product to improve also the interaction between the development chain and the supply chain. 5) Meditech must centralize the orders (aggregate demand) of the regional warehouses in order to achieve Risk Pooling. This measure will help the company in the reduction of demand variability. QUESTION 2: Discussion: Is Management either science or art?
Imagine a typical manufacturing scheduling situation. The objective is to maximize throughput in the manufacturing process while delivering the goods to customers at the proper time while achieving the best service level and the lowest cost. Effective managers will use the scientific approach in making decisions to achieve that objective, using for example calculations of cost, probabilities of events occurrence, development of forecasts, etc. However, leading, communicating and dealing with human resources to implement this schedule and possible changes, requires the use of the artistic approach.
Therefore, management can be defined as a combination of scientific and artistic approaches to get things done, to conduct and guide an organization. According to Megginson (1986) two centuries ago, management was based mostly on artistic approach. Nevertheless, with the pass of time and the development of technology, nowadays precise applications can help to achieve objectives in a faster and efficient way. These applications are scientific approaches that guide manager’s decisions and help to achieve the best results in directing a company’s activities.
In the cited example, Planning Manager will take his decision based on issues like lower cost, lower lead time, lower idle time etc. For this, many scientific issues have been developed like inventory models, forecasting methods, decision taking tools, etc. Management has also a social sciences connotation like psychology and sociology when human resources must be managed to achieve some particular objectives. If management is merely science, then every manager will make the same decision to obtain a positive result, this is not the case in real context.
The artistic approach of management implies that reasonable decisions are not guided only by scientific approach but also buy criteria, personal skills and abilities, personality and even manager’s intuition. Other issues, like leadership, risk taking, entrepreneurship may guide a manager behavior. For example, a risk taking manager who has three possible choses may choose the one with more risk while other manager will choose other alternative. And, what about strategic planning and implementation?
Strategy is based on analysis of environment and while tools to develop the analysis are the same, people can interpret the environment and react to it in different way and here is where arte shows up. Concluding, management is an art providing the skills and competencies to conduct human activities while using scientific principles to fundament and guide decisions and behavior. REFERENCES * Simchi-Levi, D. , Kaminski, P. , Simchi-Levi, E. “Designing and Managing the Supply Chain”. 3 ed. (2008), p. 3-25. * Goldratt, E. “The Race”. 1 ed. (1986). * Krajewski, L. & Ritzman, L. “Operations Management: strategy and analysis”. ed. (2002), p. 805-806. * Krajewski, L. , Ritzman, L. , Malhotra, M. “Operations Management: process and value chain”. 8 ed. (2007). * Grant, R. “Contemporary Strategy Analysis”. 7 ed. (2008). * Chopra, S. & Meindl, P. “Supply Chain Management”. 3 ed. (2007), p. 12-13. * Megginson, L. , Mosley, D. , Pietri, P. “Management: Concepts and Applications”. 2 ed. (1986), p. 15-16. ——————————————– [ 1 ]. Krajewski, L. & Ritzman, L. (2007) Operations Management. Forecasting, p. 523. [ 2 ]. Chopra, S. & Meindl, P. (2007) Supply Chain Management. Understanding the Supply Chain, p. 12 [ 3 ].
Grant, R. “Contemporary Strategy Analysis”, 7 ed. (2008), p. 127. Jesus Orozco University of Phoenix Kathryn Kendall April 18, 2011 . Introduction In order to identify possible issues that are interfering with Meditech’s ability to remain a leader in the endoscopic market, to understand clearly an analysis will be conducted to identify meditech’s problems in the introduction of new products, concerns in manufacturing, and all its products. The analysis will also observe how problems occur both systemically and organizationally, and the reason why the customer service manager pays quick attention to such problems.
Furthermore, suggestions will be made in order to improve Meditech’s position and remain relative in the medical industry. Issues in new products, manufacturing of all products Some issues that have resulted from the introduction of new products have been issues with supply and customer service. Although finished goods seemed high, the level of service was very low. Another issue meditech is experiencing is panic ordering which has allowed dealers and affiliates uncertain if a product will be delivered on time to increase the size of the order, causing demand to increase but diminish actual supply.
The data that was gathered demonstrated a new product reached a high peak during the first couple of weeks and maintained stable, however changes in production schedules have exceeded demand. Poor forecasting are some of the major issues and low inventory, an improvement in a regression analysis of past data will increase areas of improvement. Driving factors systemically and organizationally Issues that are affecting meditech systemically and organizationally are poor demand forecasts, which are allowing for high levels of inventory.
A third party consultant determined that the current inventory could be reduced up to 40 percent. Although high inventory levels are high, service levels are low failing to meet the organizations objectives. These issues affect not only sales but also the reputation of the organization, which causes the organizations status in the market to diminish. Furthermore Meditech took several initiatives in accurately monitoring past demand forecasts to better determine and improve inventory demand. Customer Service Manager attention to current problems
The role of customer service is to determine and handle various types of issues, which include customer complaints, and to develop effective strategies to improve customer service. Customer service ensures deliveries schedules are followed through and is the first contact for customers to advise of any possible issues or complaints. The increase in panic ordering and data to determine if panic ordering was occurring was difficult to track. The customer service manager ensured his staff to gather and observe past demands patterns, production rates, and demand forecasts to further identify the decrease of customer service.
Strategies to improve customer service Distribution Network Configuration The current issues that are affecting meditech are changes in demand patterns and increases in inventory. Configuring the network of distribution will ensure products are produced serve geographical dispersed retailers. Inventory control is highly important since customer demand change over time retailers must observe what point in time to reorder a given product and the minimum amount to justify inventory ordering and carrying costs. Customer Service
The measurement of customer value is highly important and will maximize meditechs position in the market as new products designs, technology, and value arise in any given market what will allow a company to flourish over its competitors is high end customer service and value. By measuring past trends in the market and opportunities for improvement, this will allow meditech to gain the advantage in the market place. Smart Pricing In order to allow medictech to improve supply chain performance, smart pricing can allow meditech to influence pricing and inventory to influence market demand.
As competition arise, to gain a competitive edge using effective marketing management can allow medictech to enter a new product more effectively and ensure the price and inventory is available for the consumer. Medictech goal is to keep its brand high and allow its reputation to grow as the leader in endoscopic surgical instruments. Conclusion To gain a competitive advantage in a given market by incorporating effective strategic management and an efficient supply chain will ensure the given products meet organizational goals.
As competition arises effective customer service is what will differentiate an organization and attract new customers over the competition, the goal of any organization is to generate a product that will generate and maximize the organizations profits. References Strategic Management (9th ed. ). J. Pearce and R. Robinson McGraw Hill, 2005 Boston, MA Simchi-Levi, D. , Kaminski, P. , & Simchi-Levi, E. (2008). Designing and managing the supply chain: Concepts, strategies, and case studies (3rd ed. ). Boston: McGraw-Hill/Irwin.