3M is analyzing changing its distribution model for healthcare products from using value-added resellers (VARs) to a direct distribution model. Currently, VARs handle around 75% of 3M's medical market sales and provide value-added services. However, this also adds costs through agency fees. A direct distribution system could reduce costs for hospitals but would require increasing inventories, transportation, and customer service costs for 3M. The case discusses evaluating the pros and cons of each approach and how to implement a successful transition if changing to direct distribution.

1. 3M HEALTH CARE
BY NIVEDITA SUBBARAM
VARUN BALAKRISHNAN
ANSH AGGARWAL

2.  The case study talks about Viola Hoo, a summer intern and Kevin
Higgins, vice president 3M Health care analyzing the current
method of distributing products of 3M.
 3M business features
founded in 1902
CASE SYNOPSIS
3M
Consumer
& Office
Display &
Graphics
E & TC Healthcare Industrial
Safety &
Security
Transporta
tion

3.  Animal Care products
 Medical Markets Products
 Dental Products
 Health IT System
 Microbiology
 Pharma
Product Line

4. Value of VARs
 Provides value added services for an agency fee
based on sales.
 Around 75% of medical market division's sales was
contributed by VAR
 Offered services like small lot shipment quantities and
JIT deliveries to the hospital (no cost to 3M)

5. Value of VARs
 Competition between VAR’s benefitted 3M.
 The hospitals were free to choose their channel to
purchase products directly from 3M or through VARs
 VARs also provided EDI services to 3M for order
tracing and order processing .

6.  Should 3M healthcare change their Distribution
Model?
 Current Distribution Model to Direct Distribution Model.
Problem Definition

7. Pros & Cons of Current Model
 Pros
 Value added services to 3M
 Value added services to hospitals at no cost by 3M
 Lesser hassles of order processing
 Cons
 Extra cost of agency fee
 Less scope for direct relation with customers

8. Pros & Cons of Direct Distribution
 Pros
 Cost savings for hospitals (perceived)
 Direct relation with clients
 Cons
 Increase in all costs
 Current VAR services to hospitals might be eliminated
 Change in traditional logistics services

9.  RECEIPTS $3,392.27
 PUT AWAY $2,130.41
 LET DOWN $835.58
 MOVEMENT $308.72
 LEGISLATIVE LABELING $25.37
 SERIAL NUMBER $43.41
 LOT NUMBER $17,875.97
 BILL 101 RE-LABEL $37.17
 TOTAL $24,648.9
CASE INFERENCES
CURRENT MONTHLY COSTS FOR WAREHOUSE

10. CASE INFERENCES
Province No. of locations to
be served
Avg. transportation
rate per site($)
No. of shipments
received per
location per year
Manitoba 21 15 87
Quebec 77 18 96
Ontario 87 21 109
Alberta 71 27 86
Yukon Territory 1 24 18
Northwest
Territories
2 162 67
Estimated Transportation Costs-Direct Distribution Model

11.  Cost Savings: Hospitals prefer directly from 3M
instead through VAR’s.
 Manual orders :
 3M-654 monthly orders.
 VARs – 3900 monthly orders.
 Cost to process manual is high $8.5, hence these
should be converted electronic orders which is
around $2.5.
RECOMMENDATIONS/CONCLUSIONS

12.  Variable costs should be limited to 10% of Sales.
 For Direct Distribution method to be successful 25% of
Inventories should increase in Warehouse.
 To attract more customers more Customer services
should be provided.
RECOMMENDATIONS/CONCLUSIONS