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Medical technology corporation (mtc)
- 1. Medical Technology Corporation (MTC) SUPPLY CHAIN MANAGEMENT STRATEGY DESIGN
- 2. Presented by: Muhammad G U Rone Supply Chain Management approah to overcome Excise Tax for Medical Technology Corporation (MTC)
- 3. Executive Summary Short-term Improvement Plans (within 1 year) ➔ Upgrade our forecasting method ◆ Inventory and associated costs are reduced considerably ➔ Realign the sales representatives’ job description ◆ Eliminates “trunk costs” which are unrealized revenue ◆ Improves inventory management ◆ Strengthens our relationships with our customers Mid-term Improvement Plans (within 3-5 years) ➔ Insource the sterilization of our products ◆ Faster processing and delivery of our products ◆ Reduced costs ◆ Greater quality management and control ➔ Implement lean/just-in-time (JIT) production ◆ Increases production and distribution efficiency ◆ No more unnecessary expenses ➔ Let’s do away the distributors and directly sell to the GPOs ◆ Improves our relationships with our customers ◆ Products can be sold at retail price ➔ Partner with 3PLs and use RFID ◆ Streamlines distribution ◆ Greater product visibility
- 4. Executive Summary Long-term Improvement Plans (5-7 years and beyond) Focus on research and development to create new and innovative products Creates more value to our customers Improves our long-term relationships with them Enhances our revenue streams
- 5. MTC case overview Name: Medical Technology Corporation (MTC) Located in Collegeville, Pennsylvania, USA New tax excise impose on all medial technology company 2.3% on revenue New imposed tax 2.3% will reduce profit margin by 10% Company’s supply chain managed by Sales team All sterilization done by 3rd parties Sales parson carries Truck inventories Now MTC determine costs savings opportunities to adjust new imposed tax
- 6. Financial Status & Market Segmentation Growth: Avg. growth rate 7.03% (2010) Steady growth 4.0% in 2012 Disproportional increase in SG&A expense in relation to revenue growth SG&A 14.76% in 2014 SG&A 14.0% in 2012 but profit increase by 11.86% MTC transacted $1.01B account receivable and $743 millions financial goods Net earnings ● Grew from 2010 to 2012 by 10% ● Contracted after then, falling by 14% 37% 35% 16% 12% MTC Market Segmentation Export Hospitals Specialist & Alternate care Distributors
- 7. Financial Status & Market Segmentation Revenue Growing strongly by 11% from 2010 to 2012 Slowed down to 4% after then Cost of Goods Sold Steady growth; average annual growth rate is 8% Selling, general and administrative expenses Constitutes more than 45% of revenue in 2014, from 37% in 2010; average annual growth is 13% Research, development and engineering expenses Just 6% of 2014 revenue
- 8. Resolution Costs Saving, Time Phased approach Short Term - Remove Sales Team from Supply chain process - Establish SCM Dept. - Supply Chain & logistics Operation done by SCM department not sales team - Mobile application for surgeons Mid Term - Reduce branch office manpower at least 50% - Establish 3PL - In House Sterilization - Establish 6 Sigma manufacturing process - Establish lean Production - Direct Sales Long Term - Develop Sterilization supplier into strategic alliance - Tax inversion through acquisition of low bracket company - Smart kiosk development
- 9. Key Performance Indicators Sustainability Can the solutions be sustained for long term with benefits? Feasibility Are the solutions feasible for a seamless rollout? Strategic Objectives Does the solutions meet company's objectives? Costs Savings Does the solutions help achieving cost savings target? Key Performance Indicators Decisive Metrics Analyzed and addressed while arriving at the solutions: Increase net earnings Increase in operating margin Control on SG&A and COGS Inventory Turnover 6 Sigma Manufacturing process On- Time delivery - FIFO Products in Compliance
- 10. Current Distribution Model MTC Manufacturing Facilities Hospitals Distributors Assembly VTC Off Site Sterilization Receiving VTC Supplier Key Points: - Off Site Sterilization - Three Distribution Channel - 3PL - Distribution Centre - Trunk Inventory - Long Transport lead time
- 11. Logistics Optimization MTC Manufacturing Facilities (Resources) In House Sterilization & Assembly MTC branch warehouse 50% less – using 6 sigma 3rd Party Logistics (3PL) Customers: Hospitals, Export, etc. Key Features In house Sterilization Process Reduce lead time by 2 days Direct sales – Hospitals Increase visibility reduce middle parties Reduce Branch offices reduce overhead costs reduce inventory accumulation reduce inventory depreciation
- 12. Improvement Plans Short-term: Realign the sales representatives’ job description ● According to Medreps.com, the average total compensation of medical device sales representatives $180,146 ● Our sales reps’ $300,000 average pay is 67% higher SG&A Expenses (2014) $2,683.56 Total Sales Compensations $1,610.14 40% Cut $644.05 Total SG&A Cost Savings $644.05 Total SG&A Cost Savings (%) 24.00% Benefits ● Elimination of “trunk stocks” ● Better inventory management ● Reduction in SG&A costs ● More focused supplier-customer relationships Risks ● Employee resistance, which can be overcome by ensuring that the transition process will be collaborative and careful
- 13. Improvement Plans Mid-term: In house the sterilization Benefits ● Simpler operations ● Considerable reduction in transportation costs ● Less handling and touch points ● Increased control over processing and quality ● Improved lead time by 4 days ● More responsive to customer demand Risks ● Not currently performed, which can be mitigated by detailed planning ● Requires high capital investment, which can be redeemed through the lower transportation costs, better quality of our products, and by increasing sales MTC Manufacturing Facilities (Resources) In House Sterilization & Assembly MTC branch warehouse 50% less – using 6 sigma 3rd Party Logistics (3PL) Customers: Hospitals, Export, etc.
- 14. Improvement Plans Mid-term: Implement lean Production /just-in-time (JIT) production Benefits By producing what we only need, we can… ❑ Eliminate waste ❑ save space ❑ improve our inventory management ❑ avoid excessive units ❑ align our spending with the demand Risks ● Disruption due to external risks, which can be mitigated by having an effective Kanban system in place
- 15. Improvement Plans Mid-term: Do away with the distributors and directly sell to the GPOs Benefits ● Increase our revenues since we could sell at retail versus wholesale ● More direct customer relationship ● Improved customer service Risks ● Need to convince the GPOs to add our products directly to their catalog without going through a distributor MTC Manufacturing Facilities (Resources) In House Sterilization & Assembly MTC branch warehouse 50% less – using 6 sigma 3rd Party Logistics (3PL) Customers: Hospitals, Export, etc.
- 16. Improvement Plans Mid-term: Partner with 3PLs Benefits ● More efficient logistics network ● Better control of distribution ● Greater visibility because of RFIDs ● Automated and real-time inventory management ● Improves production ● No stock-outs ● Reduces costs Risks ● Requires capital investment, which can be easily recoup in this set-up MTC Manufacturing Facilities (Resources) In House Sterilization & Assembly MTC branch warehouse 50% less – using 6 sigma 3rd Party Logistics (3PL) Customers: Hospitals, Export, etc.
- 17. Improvement Plans Long-term: Smart Kiosk & acquisition or Marge Benefits ❑ Better customer service ❑ Stronger supplier-customer relationship ❑ Enhances our revenue streams ❑ Diversification of operations and offerings ❑ Possible tax inversion through Overseas accusation ❑ Marge with another well structured company Risks ❑ Products may be more costly or time-consuming to develop than anticipated ❑ Unsuccessful or unworkable product Overall Financial Impact: Logistics 4.5% cost saving, Sales 3% Costs saving, low risk on streamline logistics process, low sales representative overhead costs.