MBA OPERATIONSMeditech Surgical Case Group III Ankur Verma Arvinderpal Singh Balvinder Singh Bhavya Pabby Bhupesh Singh Bhupinder Kumar Jasdeep Bedi Ishwar Devgan
IntroductionMeditech is a leader in the endoscopic surgical instrument market. The companymanufactures and market low cost endoscopy surgical equipment to hospitals andindependent surgeons. The company’s distribution operation is arranged and managed from acentral storage warehouse that ships its products to domestic and international affiliates. Theorganization have been experiencing a good customer service experience in the past,however, lately customers have expressed concerns with the time products are beingdelivered to them. Due to the nature of the industry, the delivery of surgical equipment ontime is extremely important. The on time delivery of products to its customers has becomethe main problem for the firm. Currently, Meditech’s customers are waiting over six weeksfor products to be delivered to them. This current practice is not acceptable and must beaddressed by management immediately if Meditech wants to stay competitive and keep itscurrent market share.Statement and Causes of the problemMeditech’s main problem is that a bullwhip effect was produced due to organizational andsupply chain problems. The method used by Meditech to balance customer demands withplanned production is not effectively serving its purpose. The catalogue of products beingoffered by Meditech continues to grow and replacing current items, making obsolete oldproducts that are in their catalogue and current customer orders. Poor customer demandsforecasting, long assembly lead times, and changing products are the main reason whyinventory levels are not enough to satisfy customer’s demands. While the assembly lines try
to keep with demand and company’s resources are getting exhausted trying to launch a newproduct, the distributors then will increase their product demand, which causes a bottle neckeffect as it moves up the supply chain process. As the initial demand slows down there arestill backup of high demand of inventory being produced. This cycle would repeat again asnew products are being released to the market. Due to these problems, Meditech supply chainand management has created a poor customer service.Another problem of Meditech is communication. There is not enough communicationbetween main operations departments in the company; this is causing information to becomedistorted as it makes its way through the supply chain line. The lack of communication andinformation increases the firm’s lead to demand variation as orders or demand is beingprocess through the supply chain systems and departments. In consequence, distributors arefeeling the effect by long waiting periods of time, thus this also causes them to place largerorders in an effort to help them compensate the waiting time. Panic ordering by distributors iscaused by lack of communication and in turn leads into the problem of the bullwhip effect.Meditech’s current distribution system is inefficient and obviously is causing an inflateddemand of products. There is not enough information being shared among distributors andMeditech’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 alsoconfronting serious problems. The current organization’s forecast system is determined bymarketing and finance departments on an annual basis. The annual forecast is then brokendown into monthly and weekly forecasts and is frequently adjusted by Central Plannersaccording to market trends. Meditech has realized that leads to forecasting problems whenthey try to introduce new products. The organization realizes that they are unable toeffectively predict demand for new products, which causes large demand fluctuations andbackorders.
Decision Criteria & Alternative solutions + Recommended Solution,Implementation and JustificationMeditech can try few alternatives process to reduce demand variation and the possibility ofpanic ordering. The company should improve how customer ordering is processed, theyshould more effectively share demand information, and increase lead times on new products.The forecast methods needs to be upgraded to reflect current needs, the company should alsointroduce vendor managed inventory and an e-commerce web site to share information withits customers. All of these functions should be centralized and shared among all of the supplychain channels that are involved. With improvements in forecasting it would be muchcheaper and more efficient with the introduction of new products to stock finished goodsinventory based on projected forecasts. By pushing products intis anticipating the fluctuations in demands that may be caused with the introduction of a newproduct. Meditech will now have products available exactly when the customer needs them,and will no longer be forced into back order. A push strategy will also allow Meditech to bemore confident in their inventory policies and should allow them to lower their currentinventory policy to a level that is more economical and feasible.Q1) Meditech’s problem in introducing new products. In manufacturing ALL products.Meditech introduces 1 new product per month on an average. Most of the new products areonly upgrades of old products. This considerably reduces the life-cycle of the products.Majority of Meditech customers are Material Managers whose primary focus is on cost anddelivery schedules but not on innovative product features. Though no major problems arise
from assembly line perspective, signs of cognitive dissonance may arise in customers. Noattempt is made by Meditech to understand the Demand Dynamics along the product life-cycle. Qualitative factors that have been identified as critical success drivers for a newproduct launch are time-to-market relative to competition or product diffusion. But Meditechdoes not launch new products relative to competition and by constantly pushing newinnovations into the market it does not allow its products to diffuse effectively into themarket. Every new product launch requires a lead time of around 5-19 weeks (excludingdesign phase lead time) which is very high. With every product launch, pushing the productinto the market becomes the primary consideration of the sales force thereby neglectingcustomer service for older products. These constant launches have led to: • Supply side shortages • Delayed deliveries (6 weeks) • Low customer service • Low customer satisfaction • Inaccurate forecasts • High FG inventory levelsThe product portfolio of Meditech comprises about 200 separate end-products and thenumber is increasing. These wide ranges of products make Meditech rely heavily on supplierswherein the lead time is 2-16 weeks. So practising JIT, which would be very effective forMeditech, becomes impossible in this case. Meditech organizational structure has a longscalar chain. Information dissemination becomes difficult here if there are too many productsin the portfolio.
Q2) Cause of the problems, systematically and organizationallyISHIKAWA FISH-BONE DIAGRAM WAS USED TO DISSECT THE CAUSE ANDEFFECTQ3) Why is customer service manager the first person to recognize the major issues?The scalar chain from Customer Service Manager to the Customer Service Representative isonly of two steps. The representatives work in direct contact with dealers and affiliates andare often in direct contact with hospital personnel i.e. their consumers. A general rule ofthumb is “If you want the best feedback, ask your consumers”. This network would haveproved effective for feedback-information flow. Mr. Dan Franklin himself held manymeetings with hospital material managers. This brought forth the level of dissatisfactionamongst his customers, Meditech’s poor service levels and improper delivery schedules.
Q4) How would you fix these problems?The foremost thing we would do is implement an ERP System costing around $100,000. Thiswould help in better data storage & warehousing, analysis and forecasting. We would reducethe frequency of new product launches. We would prefer a leaner product portfolio. Wewould lay emphasis on better forecasts with a shorter horizon of 1-2 months. We wouldmaintain a safety stock so as to provide a service level of 95%. We would work to reduce theassembly cycle time from the current level of 2 weeks. We would look for new and bettersupplier relations to reduce the supplier lead time from the current level of 2-16 weeks.References 1. (Bass 1969, Krishnan 2000) 2. (Porter 1985, Kailash and Lilien 1986)