Supply chain Strategy

Presentation
MTC Background
▪ The company is located in Collegeville, Pennsylvania. It currently has
about 80 hospitals in the region
Financially
The case
▪ We are trying to find a solution to the 2.3% excise tax that is being
placed on the company's medical device revenue.

▪ In order to achieve the same Net earnings, and assuming revenue

stays flat in 2015, it would be 2014 revenue less 2.3% for the next tax
5,953.86-(5,953.86*2.3%) = $5,816.92

▪ In order to achieve the goal of maintaining the same net earnings,

MTC need to decrease direct cost (cost of goods) and indirect cost
( administration, personnel and security costs)
Approach
✓Logistics Solutions

✓Operation Solutions

✓Planning Solutions

✓Sourcing Solutions
Decision Criteria
▪ Feasible

▪ Cost saving

▪ Sustainable
Product Flow
Logistics Solutions
Improvements:
▪ Inventory management: MTC don't hold the right amount of inventory, they need to
choose one of two methods : the s.Q method or the s.S method
▪ Logistic network: products are not moving from facilities to the hospitals in efficient way:
Modify sterilization from off-site to in-house

The changes would improve handling inventory (the right quantity) and the lead time

✓Financially, the inventory improvement will affect the opportunity cost of money
(because most of the money spent holding inventory is cash tied up that they could use
otherwise ) and the storage cost ( warehousing cost ) // and the logistic network
improvement will affect the transportation cost --> Positive financial outcomes
Operations Solutions
▪ The operational improvements in the MTC supply chain would be about helding
inventory by the salespeople, They often carry trunk stock in their company-provided
vehicles. This increases the amount of inventory in the supply chain significantly.
▪ The sales representatives is an adding value in a fragmented way. While they maintain
the relationships with the surgeons, who are generally viewed as the major driver of
which surgical kit to use, they are also highly-trained individuals, who spend considerable
time in the operating rooms assisting the surgeons during cases. They are compensated
very well and their commissions add substantial cost to the product, but they also
provide a competitive advantage through their relationships with the surgeons, which is
of immeasurable value. The average sales representative earns a total salary of around
$300,000, with some top earners receiving more than $1,000,000 per year.

✓The goal is to manage inventory more efficiently so we should stop that practice
Planning Solutions
✓ MTC didn't do forecasting, they produce around 30000 items each month ( even when demand is low in
August ) which is make inventory high . When you proceed with the adaptation that I suggest, we can filter
out noise and make it reactive.
✓ Smoother production: keep it at the same level, each month 20000 items, and as you see on the sheet, it will
satisfy all demand, and decrease inventory ( we end the year with 22671 items, which is way better than
what we end in 2014 and 2013 )
Sourcing Solutions
Reason for keeping the sterilization off-site :
▪ Access to world class resources.
▪ Flexibility: MTC are able to incentivize them to bring up their performance
▪ Access to economies of scale

Reasons to bring sterilization in-house:

▪ Create more value--> more money
▪ Competitive advantage compared to other company
▪ Simplify product flow

✓MTC should bring sterilization in-house, because sterilization off-site add too much
complexity to the whole chain
Resources required for Improvement
▪ In-house sterilization facility at the manufacturing plant, necessary
equipment needs to be brought

▪ 3PL to handle the company’s logistics operation.

Risks to the proposal:
▪ In-house sterilization facility might not workout.

▪ R&D team might not invent a new product after working the major
hospitals, which are serving as strategic partners to MTC.

▪ MTC might not provide the best service after removing the 3PL
distribution.
Contingencies to mitigate risks:
▪ Procurement Sustainability Initiative

▪ Responsibility standards, where they can show the commitment to

fairness and transparency

▪ Access to innovation: with product design and development

Thanks