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MTC Supply Chain Optimization and Cost Savings
- 1. MTC SUPPLY CHAIN OPTIMISATION PRESENTED BY ARNAB NATH
- 2. MEDICAL TECHNOLOGIES CORPORATION • Located in Collegeville, Pennsylvania • Has 80 hospitals in the region • Introduction to excise tax of 2.3% of revenue • 10% reduction in profits • Determine cost saving opportunities to offset new ACA act
- 3. APPROACH Short Term- Solution Regarding Sales Rep Mid Range- Solutions regarding the supply chain, off- site sterilization, distribution channels, the 3PLs Long Term-Addition of the smart kiosk. Lean/JIT System
- 5. CURRENT TRANSPORT MODEL • Off-site Sterilization • 02 Downstream Distribution Channels -3PL -Distribution
- 6. SHORT TERM SOLUTION • Establish Earnings vs Returns for Sales Representatives • Rationalize Sales Incentives- Keep incentives limited to New Product Sales • Trunk stock to have new product sales • Trunk stock to have few Physician Preference Items (PPIs)
- 7. MEDIUM TERM SOLUTION • In house sterilization • Move away from Distributor model to a direct model, by using a Third Party Logistics (3PL)
- 8. LONG TERM SOLUTION • SMART KIOSKS • RFID • Inventory Management • Production Planning • Implement Lean/JIT systems • Strategic supplier for the major hospital groups • Mobile APP
- 9. OPPORTUNITIES OF IMPROVEMENT • In house sterilization • Third Party Logistics (3PL) • Smart Kiosks • Lean/JIT systems • Mobile APP
- 10. RESOURCES NEEDED • In house sterilization process • 3PL contract • Smart Kisoks • Lean/JIT process • Mobile APP
- 11. RISK TO PROPOSAL • Moving away from Distributor model entails risk
- 12. RISK MITIGATION • Lean/JIT System • Strategic alliance with major hospital groups
Editor's Notes
- The company is located in Pennsylvania and has about 80 hospitals in the region. The aim is to find a solution to the 2.3% Affordable Care Act (ACA) Medical Device exercise tax that is being placed. The surgical devices that the firm sells puts them squarely into the focus of this tax, and after taxes, 2.3% of sales on the company’s medical device revenue which equates to over 10% reduction of company’s profit. Hence to determine the cost saving opportunities to offset this new ACA tax
- There are short term, mid range and long term objective
- There are four key performance indicators that can ne looked upon when making our decision criteria for the solutions. The first being sustainability. The second, whether it is feasible or not. The third, whether it matches the company's objectives, and the stakeholders. And lastly, does it achieve the cost savings that we want.
- Presently, the finished goods are coming into MTC's assembly plant and from the assembly plant, 3PL is transporting the products to an offsite sterilization site. Once the product gets sterilized at the suppliers, the product gets rerouted back to MTC's assembly plant. Once it gets back to the assembly plant, there are multiple avenues that that product gets distributed to the hospitals. One is through a distributor so that the distributors purchase the products from the company and then it gets distributed right to the hospital without going to the regional distribution center. Another avenue is through 3PL to transport the product right to loaner offices where then it gets distributed and then sent to the hospital. So there are two downstream distribution channels, 3PL and Distributor.
- This will reduce commission of the sales representative however encouraging them to be engaged on new products. Trunk stocks to have inventory of new products to reduce inventory in supply chain.
- The change will reduce Lead time of 03 days including 24 hrs for sterilization, multiple touch points hence will reduce need for storing (warehouse), transportation and safety and quality issue. Move away from the Distributor model to a direct model, by using a Third Party Logistics (3PL) provider. Moving to 3PL model will render MTC to sell its product at retail price instead of wholesale price it has to sell to distributor. It will save the problem of additional warehouse, transportation and reduce one complete supply chain and lead time of 03 days. Hence it will save time and money. Selling at retail price will generate more revenue. This will optimize the supply chain.
- The surgical kits could be stored in smart kiosks at the hospital locations. It would enable them to effectively control the inventory and it would reduce the need for the hospital to carry the inventory themselves. Surgical staff could pay for the kit when necessary and it would remove a lot of touch points. It would enable the manufacturer to have complete visibility into the last mile of the supply chain with RFID tagging. Implementing Lean/ JIT system will reduce wastage and reduce inventory. Lean/ JIT will reduce wastage in production and hence preserve capital and JIT will reduce inventory and hence costing with effect of warehousing. The hospital will be responsible for placing the purchase orders but they may be transmitted by individual departments, and the material is delivered directly to the ward, bypassing the storage room . This will happen with the consent of the hospitals value analysis teams (VATs) or committees (VACs).Under this model, holding inventory can be reduced and expenses can be more aligned with clinical demand. To be strategic supplier requirement would be to convince the powerful hospital group purchasing organizations (GPOs) to add their products directly to their catalogue. Mobile APP would lead to real time information sharing, product line offerings, better product visibility, dynamic pricing, better inventory management, reduce expenditure on stationary ,advertisement other associated expenditure.
- In house sterilization will reduce Lead time of 03 days including 24 hrs for sterilization, multiple touch points hence will reduce need for storing (warehouse), transportation and safety and quality issue. Moving to 3PL model will render MTC to sell its product at retail price instead of wholesale price it has to sell to distributor. Smart Kiosks would enable them to effectively control the inventory and it would reduce the need for the hospital to carry the inventory themselves. Surgical staff could pay for the kit when necessary and it would remove a lot of touch points. . Implementing Lean/ JIT system will reduce wastage and reduce inventory. Lean/ JIT will reduce wastage in production and hence preserve capital and JIT will reduce inventory and hence costing with effect of warehousing. Under this model, holding inventory can be reduced and expenses can be more aligned with clinical demand. Mobile APP would lead to real time information sharing, product line offerings, better product visibility, dynamic pricing, better inventory management, reduce expenditure on stationary ,advertisement other associated expenditure.
- Moving away from distributor network entails risk of longer revenue realisation and inventory offloading.
- Lean management will reduce wastage in the entire process reducing expenditure.JIT system will reduce inventory hence mitigate the requirement to offload inventory to Distributor. Inventory expense will align with clinical demand. Moving to 3PL model will render MTC to sell its product at retail price instead of wholesale price it has to sell to distributor hence will mitigate loss of revenue to a large extent. However MTC have to take responsibility for the activities that the distributor was once performing. This will optimize the supply chain. To enter into strategic alliance MTC would need to convince the powerful hospital group purchasing organizations (GPOs) to add their products directly to their catalogue.