Supply Chain Strategy

1. MEDICAL
TECNOLOGY
CORPORATION –
SUPPLY CHAIN
STRATEGY DESIGN
C O U R S E R A S U P P L Y C H A I N M A N A G A M E N T
S T R A T E G Y W E E K 6 A S S I G N M E N T
J U A N M A N U E L V A R G A S V A R G A S

2. Introduction to MTC
MTC is a medical device manufacturer located in Pennsylvania. It
manufactures and supplies essential medical devices like surgical
kits to hospital and other markets.
What is the PROBLEM?
A new Affordable Care Act (ACA) which is a Medical Device Excise.
Tax is of 2.3% of Revenue
This newly introduce tax leads to a 10% reduction in Net Profits.
Objective
Find out cost savings in order to minimize the impact created by
the new act which is taking 2.3% in revenue.

3. Key Financial
Insights
Revenue
• Growing strongly by 11% from 2010 to 2012.
• Slowed down to 4% after then.
Cost of Good Sold
• Steady growth average annual growth is 8%
SG&A
• Constitutes more than 45% of revenue in 2014, form
37% in 2010; average annual growth is 13%.
R&D
• Just 6% of 2014 Revenue.
Net Earnings
• Grew from 2010 to 2012 by 10%.
• Start falling after by 14%.

4. Old Logistic Map

5. Executive Summary – Short Term
In-house Sterilization.
• Reduction in Transportation Cost
• Direct Control and Quality Management
• Reduce Lead Time
Re-alignment of Sales Representative Teams.
• Save a major portion of SG&A cost
• Reduction on inventory by no allowing trunk stock
• Realign Sales representative to other roles where they add more value to the company.

6. Executive Summary – Mid Term
Establish Smart Kiosks at Hospital
• Enable to effectively control inventory
• Enable us to have complete visibility into the “last mile” of the
supply chain
• Replace the trunk stock system currently in use.
Use of RFID in collaboration with Smart Kiosks
• Enable RFID tracking for each storage location rather than only the
first-tier distribution points.
• Accurate inventory records in real-time
• Save time and effort while minimizing risk of inconsistent and
unreliable data.

7. Executive Summary – Long Term
Implement Lean/ Just in Time System
• By producing only what we need we eliminate waste
and save space.
• Improve delivery time which adds value to the product.
• Improve in inventory management saves cost.
Do away with distributors and partner with 3LPS to
sell directly
• More efficient Logistic network
• Increase in revenue
• Improved customer service.

8. Short Term: In House Sterilization
Benefits
• Allow Just in Time sterilization and significantly reduce inventory.
• Direct control over the process help in proper quality control and reduces touch points.
• The reduction of travel distance improve lead time by 4 days while reducing
transportation cost
• More responsive in case of emergency and customers demands.
Risks and Mitigation
• Not currently performed, which can be mitigated by detailed planning.
• Requires high capital investment which can be redeemed through transportation costs,
less inventory, increase of product quality and service cost.
Resources needed
• Sterilization Personal and equipment.

9. Short Term: Re-alignment of Sales
Representative Teams.
Benefits
• Eliminate trunk stock carried reduce the amount of inventory in the supply
chain. It will also mitigate the risk of losing track of exactly how much
inventory sales resp have.
• Fall in SG&A and rise in revenue. The average total in commission for sales
rep is 180000 $, our average pay is higher by 67% which can be reduced.
• Sales representative should be focused more in maintaining relationship with
hospital/surgeons instead of inventory control.
Risks and Mitigation
• Employee resistance which can be overcame by ensuring that the transition
process be collaborative and careful.
Resources needed
• Implement Smart Kiosks or Better JIT systems.

10. Mid Term: Establish Smart Kiosks
Benefits
• Better control over the entire product flow, right from production to its
destination.
• This will replace trunk stock kept with the sales representative and reduce the total
reliance on the Loaner and Branch Offices.
• Increases the efficiency of inventory controls and visibility of the supply chain.
Risks and Mitigation
• Not enough or any Smart Kiosks, logistics problems can be reduced by relying in
3LPS for lasts mile delivery until the implementation of smart Kiosks.
• Hospital not onboard, the entire team must work in getting the hospital onboard
by showing of the benefits it gives.
Resources needed
• Automatic bill system and the smart Kiosks.

11. Mid Term: Use of RFID in collaboration
with Smart Kiosks
Benefits
• Enable tracking and monitoring of products that will help us get
accurate inventory records in real time.
• Eliminate manual counting which makes it less risky of having
inconsistent or unreliable data.
• Having real time data of inventory helps us in improving the inventory
management and avoid stock outs.
Risks and Mitigation
• Investment which can be recoup with a reduction in inventory stocks.
Resources needed
• RFID tracking system.

12. Long Term: Implement Lean/ Just in Time
System
Benefits
• Streamline the entire process to eliminate waste, save space and have the
maximum out of every aspect.
• Having a better logistic network for the faster delivery can give us
competitive advantage in the price negotiation.
• Minimize the inventory that take up resources like time, space and money.
Risks and Mitigation
• Disruption due to external risk, which can be mitigated by having an effective
Kanban system in place.
• Personal knowledge insufficient, can be mitigated by hiring expert to teach
them the systems.
Resources needed
• Experts and investment.

13. Long Term: Do away with distributors and
partner with 3LPS to sell directly
Benefits
• Increase in Revenue since we could sell at retail versus wholesale.
• We now work directly with the customers so we can have a better relationship with
them and improve out customers services.
• 3LPS have more efficient logistic network and better control of the distribution.
• With Smart Kiosks and RFIDS implemented previously we have a better inventory
management.
Risks and Mitigation
• Need to convince GPO´s to add your product directly to their catalog without going
through a distributor, to do this a lower prices or add value is necessary.
Resources needed
• Smart Kiosks and RFID.

14. Financial Benefits of Short Term
Improvement
Considering the same revenue of 2014 with a 2.3% reduction in revenue for the newly established
taxes to be paid and considering that all other costs of goods, R&D and SG&A remain the same in
2015, to maintain the same net earnings as the previous year 2014, a total of $136.94 million in net
earnings is to be made up.
In order to offset the difference caused we need to reduce the percentage of fund in SG&A.
Corresponding to a percentage cut of 5.10%.
This 5.10% cut can be accrued by:
• Lowering the high salary of sales representatives, that is higher than the market if they performance was not
optimal or firing people.
• Transportation cost, inventory cost and the elimination of trunk stock can also help.
• Allowing sales representative to focus on the customer more will also be helpful to increase revenues.