MTC aims to streamline its supply chain to offset costs from the Affordable Care Act's excise tax. It will insource sterilization, right-size inventory using MRP and kanban systems, and incorporate a 3PL to improve efficiency and become a strategic supplier. This will reduce transportation and inventory costs while improving speed and visibility across the network. However, transition risks include pushback from salespeople and customers, workflow disruptions, and IT integration challenges.

1. INTRODUCTION
• I’m a Logistics and Supply Chain Management
Consultant from Executive Consulting Services
• The Problem: The newly-imposed Affordable Care
Act (ACA) Medical Device Excise Tax of 2.3% will
result in a 10% reduction in Medical Technologies
Corporation’s (MTC) profits
• Goal: Streamline MTC’s supply chain in order to
buffer the excise tax of 2.3%

2. Executive Summary
Approaches to streamline the supply chain:
• Insource the sterilization function. The goals with this
approach: (1) Reduce overall transportation costs, (2)
Eliminate 5 days of lead time from the supply chain, and (3)
Eliminate the qualitative and quantitative costs of outsourcing
• Right-sizing inventory. The goals with this approach: (1)
Reduce inventory carrying cost, (2) Improve the efficiency of
the supply chain, and (3) Right-size the workforce
• Incorporate a 3PL, rather than doing business with a
distributor. The goals of this approach: (1) MTC will be
positioned to be a strategic supplier, (2) Reduce cost of supply
for our final customers, and (3) Improve speed to the
customer

3. Current Supply Network

4. Future Supply Network
Transportation
IT Integration Support
Additive
Manufacturing
Support
3PL Provider
MAJOR
HOSPITAL
GROUPS
MTC
SUPPLIERS

5. Functions Within Future Network
• Suppliers – We will consolidate suppliers, maximizing
EOQ/volume benefits/discounts
• MTC – MTC will be a manufacturing center of excellence.
Sanitization functions will be assumed by MTC. An additive
manufacturing capability will be incorporated at this location
• 3PL Provider – Catalyst for MTC being a strategic supplier of the
major hospital groups. Improve IT integration throughout the
network, improving integration, asset visibility, and real-time
information/data sharing. Provide additive manufacturing support
at MTC.
• Major Hospital Groups – Will have an enhanced inventory
management capability. Will improve the performance work
statement of contracts. Establish a streamlined blanket
purchasing agreement, with improved catalog

6. Right-Sizing Inventory
• MTC currently holds 6 mos of inventory, which is
inefficient and costly. MTC will produce PO
requirements and implement an MRP, which will
help eradicate excess inventory
• MTC will establish safety stock and utilize the
KANBAN methodology, where bin one is located on
the production floor, bin two is in MTC’s
warehouse, and bin three is at the raw materials
supplier’s warehouse
• The following pages provide the details concerning
this approach

7. Improved Inventory Methodology
• Our analysis determined forecasting future demand
utilizing the cumulative average yielded the best
results, substantiated by the MSE accuracy method.
Furthermore, our plan is to draw down our
completed units inventory to the safety stock level
of 40,000 units
• Below is our forecasted operation for 2015:
Month/Year January February March April May June July August September October November December
2015
Shipped 28,804 29,244 28,603 29,410 29,714 29,102 30,146 28,731 29,443 29,534 29,700 29,449
Production 28,804 29,244 28,603 29,410 29,714 29,102 30,146 28,731 29,443 29,534 29,700 29,449

8. KANBAN Methodology
• MRP implementation is essential to the success of
the KANBAN Methodology
• Our MRP will require a safety stock feature, as
MRPs are designed to align inbound raw material
with the master schedule. In that regard it is
precise, so in order for our operations to be
successful, we need to account for production
variability in order to replenish safety
• The range and depth of KANBAN bins will vary
month-to-month, as we need to satisfy demand
(POs) and sustain our safety stock.

9. Incorporate 3PL
• As it stands currently, we are not a strategic supplier in
the eyes of our customers
• Our customers see the distributor as the strategic
supply, thus they must be eliminated from the network
• We will incorporate a 3PL, as our goal is to be a
strategic supplier. A 3PL will ensure we’re visible to the
customer
• Utilizing a 3PL will enable MTC to have better control
over the supply chain, establish more efficient
contracting pathways with the major hospital groups,
and increase speed of delivery to the customer

10. Trunk Stock
• The intent is for salespeople to no longer carry
trunk stock that skews the accuracy of our
inventory accounting
• Salespeople will have demonstration articles, as
this allows them to advertise its contents and uses
to physicians
• With respect to implementation, we will pilot this
approach first, as we do not want this to negatively
impact our revenue streams

11. Resources
• We will need to establish a contract arrangement with a 3PL. We need to
determine the scope of the performance work statement, ensuring the
appropriate mix of fixed-priced (LOE), cost-plus, and time and material
structure
• 3D printers capable of producing polymers, metals, and carbon fiber units
• Personnel knowledgeable in the design of technical data packages/CAD
drawings for 3D printers
• Equipment to assume the sterilization function
• Contract arrangements with major hospital groups as we’re cutting out our
distributor
• Need to recoup trunk stock. Subsequently, offload trunk stock via volume
purchase discounts. This will be conducted utilizing our current distributor.
Starting inventory will be reduced to the safety sock level of 40,000 units
• Hire personnel tasked with the sterilization function and/or cross-train
existing workforce. Will need to update our workflow and create standard
operation procedures

12. Risks
• Considerable push-back from our salespeople. If we do not get their
buy-in they can compromise this initiative
• The major hospital groups not supporting our desire to utilize a 3PL.
Need to ensure they buy-in to the benefits associated with our plan
• The sterilization process causing major disruptions to our workflow
• Potential contracting issues if contract clauses do not enable us to end
arrangements. There by be option years tied to current arrangements,
and we may be in the middle of a particular period of performance
• Our raw materials suppliers not being in a position to keep up with our
variability. Need to ensure we incorporate a robust IT system, which will
be contracted to the 3PL
• The costs of establishing an end-to-end IT system that will facilitate
asset visibility, integration, and information sharing up and down the
supply chain