“Meditech Surgical” Case study

Presentation
By Maria Mushtaque MBA 4
Course : Healthcare and pharmaceutical supply chain and management.
 Company Background
 Largo Healthcare Company, Meditech’s parent company, decided to spin Meditech
off as an independent company focused solely on producing and selling
endoscopic surgical instruments.
 Endoscopic surgical techniques are surgical procedures described as minimally
invasive which, as opposed to traditional open surgery, requires only small
incisions to perform an operation.
 Endoscopic techniques provide substantial benefits for the patient both physically
and financially. The procedures often shorten patient recovery, which can translate
into reduced surgical expenses overall.
 Meditech product line consists of over 200 separate end products.
 Meditech had captured the leading share in the endoscopic surgical instrument
market.
 Meditech Strategy
 The endoscopic market, worth $800 million, was highly
competitive, with major players like National Medical
Corporation. Meditech used innovation, low costs and a
strong sales force to capture a majority of market share.
 New products were brought to the market quickly and
pushed by an aggressive sales force.
 Old products were updated with innovative features and
presented to the market as new products.
 A dozen or more new products would typically be
introduced by Meditech in any given year.
 Meditech's sales force focused on selling to hospitals
material managers as well as to surgeons, while National
Medical concentrated on selling to surgeons.
 Material managers tended to be more concerned with
cost and delivery performance. The surgeons, on the
other hand, focused on product features
 Distribution

 Meditech distributes all its goods from a central warehouse.

 Two primary channels:
 Domestic dealers
 For domestic sales only, uses domestic distributors, or dealers, to ship to hospitals.
 Dealers maintain regional warehouses all over the United States.
 Regional dealer warehouses act as independent entities, autonomously determining when
to order new supplies and how much to order.
 International affiliates
 Wholly-owned subsidiaries of Largo Healthcare residing outside of the US.
 An affiliate ships product throughout an entire country.
 International affiliates submit orders to Meditech and Meditech fills them with available
product.
 International operations
 Manufacturing Process
 Assembly: Manual labor-intensive, cross-trained teams capable of switching between product families. A
typical cycle time for a batch is two weeks, depending on part availability. Assembled instruments are moved
from the assembly area into bulk instrument inventory where they wait to be packaged.
 Packaging: Automated machines package instruments in plastic containers before moving them to
sterilization.
 Sterilization: Cobalt radiation sterilization of the packed instruments before they are moved to finished
goods inventory.
 Production planning
and scheduling

 Forecasting and Monthly Plans

 Annual Forecast: At the start of the fiscal year, the marketing and finance teams develop an
annual demand forecast. This forecast is then broken down into monthly projections to estimate
how much product will be needed throughout the year.
 Monthly Adjustments: Each month, the Central Planners work with the marketing team to
adjust forecasts based on real-time market data and trends. These adjustments are necessary as
demand fluctuates, particularly during new product launches or changes in market conditions.
 Transfer Requirements: The Central Planners estimate the number of products that need to be
transferred from bulk inventory (assembled but not packaged goods) to finished goods inventory.
This estimate is based on:
 The monthly demand forecast
 Existing finished goods inventory
 The required safety stock (which is typically set at three weeks’ worth of demand)
 Production planning and scheduling
 Assembly and Component Parts Planning
 Materials Requirements Planning (MRP): Once monthly forecasts are
finalized, they are inputted into the MRP system. This system calculates the
specific assembly schedules and component part orders needed for each
product.
 The MRP takes into account:
 Lead times: for assembly, packaging, and sterilization (ranging from 2
to 16 weeks for components)
 Inventory levels: for component parts, bulk instruments, and finished
goods
 The MRP system creates a weekly production schedule based on the
demand forecast, ensuring that the assembly team knows what products to
assemble and when to order parts.
 Cycle Time for Assembly: The typical assembly cycle takes around two
weeks, assuming the necessary components are available in inventory.
 Production planning and scheduling
 Packaging and Sterilization Scheduling
 Unlike the assembly process, the packaging and sterilization processes are
scheduled using a just-in-time (JIT) or Order Point/Order Quantity
(OP/OQ) method.
 Pull-based scheduling: This means that once the finished goods
inventory drops below a certain threshold (the "order point"), more
products are scheduled for packaging and sterilization. The exact number
of products is determined by the "order quantity."
 The packaging and sterilization steps are treated as a single process because
instruments flow directly from packaging into sterilization and then into
finished goods inventory without being stored in bulk inventory.
 This process can be completed within a week for a batch of instruments.
 Lead Time for Replenishment: The replenishment process for finished
goods is designed to quickly respond to sales, with lead times of about one
week from the initiation of the process to finished goods being available for
sale.
 Meditech production
process
Challenges in Production Planning and Scheduling
 Forecasting Issues
 Meditech’s forecasts were not always accurate, particularly for new product
launches, where demand was unpredictable and often much higher than expected.
 There was no system in place to track forecast accuracy or to gather historical
data for comparison, making it difficult to predict demand spikes. This led to either
overproduction (causing excess inventory) or underproduction (leading to
stockouts).
 Inventory Management Despite high levels of finished goods inventory,
Meditech consistently experienced delivery problems, leading to customer
dissatisfaction. High inventory levels were a result of poor coordination between
production, assembly, and forecasting.
 Inflexible Assembly Scheduling: Once a weekly assembly schedule was set,
changes could not be made with less than a week's notice. This lack of flexibility
caused problems when demand fluctuated unexpectedly, as production teams
were unable to respond quickly.
 Challenges in Production Planning and
Scheduling
 Panic ordering
 Meditech’s distributors, especially in the domestic market, operate as independent
entities. These distributors manage their regional warehouses and decide when
and how much to order. If they anticipate delays, each warehouse might place
larger orders than usual to compensate for potential supply shortages.
 In the healthcare industry, timely delivery of products is critical. Hospitals rely on
just-in-time inventory replenishment, and any delay can disrupt surgeries or
patient care. This adds pressure on distributors to ensure that they have enough
stock on hand, leading them to inflate their orders when they sense any
uncertainty.
 The sudden surge in demand caused by panic ordering exacerbates existing
supply chain issues. Meditech's production and distribution systems, which are
already stretched during product launches, become even more overloaded,
leading to longer delays and more frustrated customers.
Analysis of Supply Chain Issues
 Demand Variability: Demand for new products
spiked shortly after launch and then stabilized, but
production did not react quickly enough to this
fluctuation.
 Forecasting Inaccuracies: Meditech lacked a solid
forecasting mechanism. Data to track demand and
forecast accuracy was either unavailable or hard to
collect, leading to poor predictions of initial demand.
 Inventory Paradox: Despite high inventory levels,
Meditech frequently struggled with stockouts during
critical times, especially for newly launched products.
 A consultant found that Meditech could reduce
inventory by 40% without harming service levels,
highlighting inefficiencies in inventory management.
 Product Launch Demand Patterns
 Initial Spike: Demand for new products peaked dramatically
within the first few weeks post-launch. Meditech’s production
schedules were unable to handle this immediate surge.
 Stabilization: Demand typically leveled off soon after the
peak, suggesting that if production could meet initial demand,
stockouts could be avoided.
 Production Lag: Meditech’s production planning lagged
behind demand changes, resulting in delayed deliveries and
lost sales.
 Solutions Considered
 Improve Forecasting: Meditech could significantly improve forecasting accuracy by using
historical data and applying simple statistical techniques like linear regression.
 A more sophisticated approach to demand prediction would allow the company to better prepare
for new product launches and adjust production schedules accordingly.
 Inventory Management: Meditech had the opportunity to reduce excess inventory, streamline
operations, and still maintain strong service levels by optimizing how inventory was managed.
 Strategic safety stock levels should be maintained to meet demand without overstocking slow-
moving products.
 Monitor Panic Ordering: A more controlled and transparent communication strategy with
distributors could help reduce panic ordering. Ensuring that distributors feel confident in
Meditech’s ability to deliver on time could reduce the number of inflated orders.
 Meditech should work on improving communication with distributors and hospitals to prevent
panic ordering and improve order accuracy. Building trust in delivery timelines would reduce the
need for inflated orders.
 Addressing these supply chain inefficiencies would not only solve current issues but
also position Meditech to maintain its leadership in the fast-growing endoscopic
instrument market.