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MTC Supply Chain
Strategy
BY: JON MILAN
The Case
Medical Technologies Corporation (MTC) a medical Device Manufacturer in
Collegeville, PA needs to come up with costs savings large enough to cover
the newly-imposed Affordable Care Act (ACA) Medical Device Excise Tax of
2.3% of revenue. The surgical devices that the firm sells puts them squarely
into the focus of this tax, and after taxes, 2.3% of sales translated into over
10% reduction in MTC’s profits.
Executive Summary
 Reduce costs by at least 2.3% to account for the new ACA tax
 2.3% revenue tax increase translates to 10% reduction in MTC’s
profits
 Create supply chain network
 Include in house sterilization
 Use Smart Kiosks at hospitals
 Improve RFID tagging
 Use 3PLs to strategically store and position products
 Improve forecasting
 Reduce safety stock
Areas of Improvement
 Improve forecasting
 Reduce safety stock
 Reduce supply chain touch points
 Cut out third party sterilization
 Develop in house sterilization at manufacturing plant
 Build own supply chain network with 3PLs
 Allows for selling at market price rather than wholesale
 Cut out branch loaner offices for stock
 Dedicated Warehouses/DCs
 Reduce Sales involvement
 Cut out trunk inventory
 Replace with kiosks
 Utilize sales solely for relationship building and teaching of medical devices
 Capitalize on GPO’s
Risks
 High start up costs
 Capital costs
 Building/Renting of Warehouses/DC’s
 Operational costs
 Maintaining Warehouses/DC’s
 Hiring new personally to manage supply chain
 Lack of experience in creating a self
sufficient supply chain
 Seasonal demand trends change
 Hospitals not on board to by direct
from manufacturer
• Increased sale profits
• Greater product control through supply
chain
• Quality assurance
• Better relationship with Hospitals
• Lower transportation costs
• Consistently accurate forecasting
• Retail sales price instead of wholesale
Benefits
Resources Needed
 Supply Chain network
 Warehouses/ DC’s
 Sterilization capabilities
 Supply Chain employees
Forecasting
 MTCs forecast has a mean square error of 102,587,493 and a
mean absolute % error of 114.64%
 Using a Naïve forecast using the previous years demand for
each month reduces the mean square error to 1,219,697 and
the mean absolute % error to 3.17%
 This results in a leaner supply chain and reduces costs
 Using this new naïve method production could have been
decreased production by 22,437 units
MTC Demand vs. Forecast
0
10,000
20,000
30,000
40,000
50,000
60,000
Demand/Forecast
Month/Year
MTC Demand vs. Forecast
Shipped(Demand) Production (MTC Forecast) Naïve(Previous Year)
Current MTC Product Flow
 Many Touch points
 5 day sterilization process
 Multiple storage arrangements
 Difficult to manage inventory
Manufacturer Sterilization
Distribution
Center
Manufacturer
Branch Office
Loaner Office
Central
Receiving/
hospital
Storage
Operating
Room
Current MTC product Flow Chart
Proposed MTC Product Flow
 Less Touch points
 In house sterilization
 Cut out Loaner offices
 Cut out trunk storage
 Easier to manage inventory
Manufacturer
Central
Receiving/
hospital
Storage
Operating
Room
Manufacturer
Warehousing/
Sterilization/ RFID
tagging
Distribution
Center
Proposed MTC Product Flow Chart
The Numbers
 Revenue in 2014 was $5,953.86 and cost of goods sold was $1964.82
 New 2.3% tax on 2014 revenue equates to $136.94 in additional taxes
 Demand for 2014 was 359,460
 New forecasting method forecasted 347,315 units in 2014
 22,437 less than MTC produced
 Just by reducing production MTC could have saved $122.64
 Starting stock in 2014 was 125,767 and ended with 136,058
 New method would have an ending stock of 113,622 in 2014
 By reducing safety stock by an additional 5000 units MTC can save an additional
$27.33 in 2014
 Average demand a month was 29955 in 2014
 A safety stock of 108,622 still provides a 3 month safety blanket
Can MTC offset the ACA tax?
 Yes
 Just by improving forecasting and reducing production and safety stock MTC
can offset the cost of the ACA tax
 $136.94 ACA Cost increase
 Improved Forecasting/Inventory savings of $149.97
 MTC can reduce transportation costs by creating an in house supply chain
network.
 MTC can increase sales prices with this network by servicing hospitals directly
and selling their product at retail price
Thank You For Joining My Ted Talk

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MTC Supply Chain Strategy.pptx

  • 2. The Case Medical Technologies Corporation (MTC) a medical Device Manufacturer in Collegeville, PA needs to come up with costs savings large enough to cover the newly-imposed Affordable Care Act (ACA) Medical Device Excise Tax of 2.3% of revenue. The surgical devices that the firm sells puts them squarely into the focus of this tax, and after taxes, 2.3% of sales translated into over 10% reduction in MTC’s profits.
  • 3. Executive Summary  Reduce costs by at least 2.3% to account for the new ACA tax  2.3% revenue tax increase translates to 10% reduction in MTC’s profits  Create supply chain network  Include in house sterilization  Use Smart Kiosks at hospitals  Improve RFID tagging  Use 3PLs to strategically store and position products  Improve forecasting  Reduce safety stock
  • 4. Areas of Improvement  Improve forecasting  Reduce safety stock  Reduce supply chain touch points  Cut out third party sterilization  Develop in house sterilization at manufacturing plant  Build own supply chain network with 3PLs  Allows for selling at market price rather than wholesale  Cut out branch loaner offices for stock  Dedicated Warehouses/DCs  Reduce Sales involvement  Cut out trunk inventory  Replace with kiosks  Utilize sales solely for relationship building and teaching of medical devices  Capitalize on GPO’s
  • 5. Risks  High start up costs  Capital costs  Building/Renting of Warehouses/DC’s  Operational costs  Maintaining Warehouses/DC’s  Hiring new personally to manage supply chain  Lack of experience in creating a self sufficient supply chain  Seasonal demand trends change  Hospitals not on board to by direct from manufacturer • Increased sale profits • Greater product control through supply chain • Quality assurance • Better relationship with Hospitals • Lower transportation costs • Consistently accurate forecasting • Retail sales price instead of wholesale Benefits
  • 6. Resources Needed  Supply Chain network  Warehouses/ DC’s  Sterilization capabilities  Supply Chain employees
  • 7. Forecasting  MTCs forecast has a mean square error of 102,587,493 and a mean absolute % error of 114.64%  Using a Naïve forecast using the previous years demand for each month reduces the mean square error to 1,219,697 and the mean absolute % error to 3.17%  This results in a leaner supply chain and reduces costs  Using this new naïve method production could have been decreased production by 22,437 units
  • 8. MTC Demand vs. Forecast 0 10,000 20,000 30,000 40,000 50,000 60,000 Demand/Forecast Month/Year MTC Demand vs. Forecast Shipped(Demand) Production (MTC Forecast) Naïve(Previous Year)
  • 9. Current MTC Product Flow  Many Touch points  5 day sterilization process  Multiple storage arrangements  Difficult to manage inventory
  • 10. Manufacturer Sterilization Distribution Center Manufacturer Branch Office Loaner Office Central Receiving/ hospital Storage Operating Room Current MTC product Flow Chart
  • 11. Proposed MTC Product Flow  Less Touch points  In house sterilization  Cut out Loaner offices  Cut out trunk storage  Easier to manage inventory
  • 13. The Numbers  Revenue in 2014 was $5,953.86 and cost of goods sold was $1964.82  New 2.3% tax on 2014 revenue equates to $136.94 in additional taxes  Demand for 2014 was 359,460  New forecasting method forecasted 347,315 units in 2014  22,437 less than MTC produced  Just by reducing production MTC could have saved $122.64  Starting stock in 2014 was 125,767 and ended with 136,058  New method would have an ending stock of 113,622 in 2014  By reducing safety stock by an additional 5000 units MTC can save an additional $27.33 in 2014  Average demand a month was 29955 in 2014  A safety stock of 108,622 still provides a 3 month safety blanket
  • 14. Can MTC offset the ACA tax?  Yes  Just by improving forecasting and reducing production and safety stock MTC can offset the cost of the ACA tax  $136.94 ACA Cost increase  Improved Forecasting/Inventory savings of $149.97  MTC can reduce transportation costs by creating an in house supply chain network.  MTC can increase sales prices with this network by servicing hospitals directly and selling their product at retail price
  • 15. Thank You For Joining My Ted Talk