Meditech Supply Chain Design - Essay Example

? Supply Chain Design Executive summary Meditech is one of the principal market leaders in the supply of endoscopic surgical instruments. The Company is responsible for manufacturing and supplying low cost surgical equipment, either to independent surgeons or hospitals. Meditech’s distribution network is managed from a main warehouse, where members of staff dispatch the instruments both to local, as well as, international customers. Meditech has been successful in the past, but numerous customer complaints indicate a problem in supply chain management. Customer service in the industry within which Meditech is operating is a crucial consideration, owing to the urgency of medical operations. Failure to deliver equipment in a timely manner, therefore, places the Company at a risk of incurring losses and losing its competitive advantage. For Meditech to retain its current share of the market, drastic supply chain management measures must be executed (Simchi-Levi et al., p. 18). Introduction Acute competition in the contemporary international markets, continuous introduction of commodities with short life spans, as well as, increased customer expectations are some of the factors that have prompted most businesses to focus extensively on management of supply chains. The mentioned aspects, coupled with constant progress in procurement and communications technologies, also motivate the uninterrupted development of supply chains and techniques for their effective management. In an ordinary chain of supply, manufacturers procure raw materials, produce commodities and ship them to warehouses for transitional storage, later shipping the products to customers or retailers. This is not any different from the procedure followed by Meditech. However, logistical problems are bound to occur in a supply chain, warranting better management of the interactions between suppliers, manufacturing departments, storage facilities, and retail outlets. Problems may also arise in management of raw materials, work-in-process (WIP) inventory, as well as, the inventory of finished products (Simchi-Levi, Kaminsky, and Simchi-Levi, 2003 p.1). This paper seeks to establish these problems in Meditech’s context and propose possible solutions. Problems in Introduction of new products The chain of development is a series of processes and activities linked to introduction of new products. This chain encompasses the design stage, the related abilities and information that must be developed within a company, sourcing decisions, as well as, plans for production. Meditech decided to adopt a unique development chain over the past few years. This strategy involves constant introduction of innovative products into the surgical instruments market, by primarily updating the existing ones. Even though the new products are generally accepted in the market, each introduction appeared to bring about a wide array of supply troubles (Simchi-Levi et al., p. 22). For instance, customers began to get tired of the low quality service accompanying each new product introduction. The Company also constantly suffered acute shortages with each product launch. Demand forecasting became increasingly difficult for Meditech, and to make matters worse, establishing the extent of damage was hard. Additionally, irrespective of the high inventory levels, the actual level of service declined sharply, largely undermining the Company’s objectives. Overall, the principal problems faced by Meditech include lack of communication between the marketing department and the procurement department, as well as, constant introduction of innovative products, which had a significant impact on the production line. Further, the supply chain management process jammed up, delaying the release of customers’ orders. Problem Drivers One of the potential causes of Meditech’s poor inventory management problem is “panic ordering” by affiliates and dealers. This is a phenomenon which occurs when a customer is not sure about timely delivery of products. As a result, the customer resorts to increasing the order size, with the hope that the Company will provide at least a portion of the placed order. This increment in number and size of orders cause temporary increase in demand, thus explaining Meditech’s troubles of demand constantly surpassing supply. This is a problem likely to prevail, since Meditech’s affiliates are conversant with the Company’s past inability to deliver on placed orders. Further, owing to the decentralization of regional storage facilities, Meditech’s central dealer has little or no control at all, over the orders placed by independent warehouses. As a result, these warehouses can place panic orders without knowing the central dealer’s inventory status. The situation is worsened by the fact that it is difficult to data prove or disprove existence of panic orders (Simchi-Levi et al., p. 23). Another driver of Meditech’s problems is emergence of the bullwhip effect, owing to managerial and supply chain setbacks. This effect arises from the fact that, the method utilized by Meditech in establishing balance between production and customer demands, does not effectively serve its function. Additionally, the list of Meditech instruments grows continually; replacing existing ones and making the old ones completely obsolete. This is risky, since some of the customers’ current orders consist of already obsolete products. Other factors propelling the supply chain problems include poor demand forecasting, exceedingly long production lead times, as well as, constant alteration of products. This is because, whereas assembly lines attempt to meet customers’ demands, the Company’s capital is slowly diminishing in the attempt to launch innovative products. This cycle is highly repetitive and if not addressed, Meditech’s supply chain will continue delivering poor services to customers (Simchi-Levi et al., p. 24). Another setback experience in Meditech is poor communication. It is evident that there is no sufficient communication between the main operations departments in the organization. This is a principal problem driver, as it causes information breakdown when being conveyed throughout the supply chain. Lack of appropriate communication, as well as, improper information conveyance has led to an increase in the customers’ demand for change. Of particular concern is the inefficiency experienced when the orders are getting processed via the supply chain structure and relevant procurement departments. On the other hand, poor communication also affects distributors negatively, since they take longer to process orders, preferring instead to place big orders, in order to compensate for the lost time spent waiting. This panic by the distributors, while ordering is attributable to the lack of communication and it ultimately leads to the bullwhip effect problem. Further, Meditech’s distribution structure is largely inefficient, hence causing an inflated products’ demand. This is because there is inadequate information sharing between Meditech’s personnel in production operations and those dealing actively with distribution activities. The distributors have to deal with difficult tasks, because they receive orders from diverse regional warehouses, making it difficult for them to recognize the bullwhip effect and make appropriate corrective measures. The company’s forecasting structure is also marred with serious issues. This is due to the fact that current company’s forecast structure is based solely on findings by the marketing as well as finance departments on yearly basis. This undermines the role of the procurement and production departments, whose input is also vital. This annual forecast is further broken down into subsequent monthly as well as weekly forecasts, all of which are controlled by the Central Planners in accordance to the market trends (Simchi-Levi et al., pp. 24-25). Another probable factor propelling Meditech’s problem is that, the company does not have a routine way of verifying the current inventory, incoming materials, customers’ demand, or even the production rates, in regard to a given item. The organization has been facing some difficulties in developing a universal format for capturing data. There is a mix up in the way the data is stored especially when dealing with the data from varying time frames. For instance, some of the information is monthly, while the rest is weekly. This is a big issue, since compiling of this information might be confusing for the distributors. After the organization introduces a new product, its peaks in the beginning especially in the first few weeks, but this trend changes after some time when the product becomes relatively stable and fails instantaneously afterwards. This causes a significant variation in the production schedules, consistently exceeding the varying rates of demand. In general, managerially Meditech is lacking an organic technique for tracking data that will enable them to become more efficient in manufacturing, delivering customer service, as well as, in forecasting. As previously mentioned in the case study, the company is reluctant in trying to develop new trends of using data bases in storing the relevant information. Systemically the organization is not sufficiently focused on customers’ needs. This prohibits Meditech from developing the proper manufacturing system that will enable them correctly identify ways of satisfying their customers. The role of customer manager The customer service department acts as the foremost representative for the organization’s interests. This is because the department is the first to receive calls from the hospitals and other affiliates, who want to know why they consistently have delays with orders placed for the new products in the market. Meditech would not survive very long if their accounts receivables constantly ran longer than five months for turnover. This is because the Company cannot guarantee any type of cash flow or purchases of raw materials to continue operations, if their customers withhold payment for duration longer than was reasonably expected. Customer service staff has constant contact with materials managers, as well as, with the people dissatisfied about Meditech operations. They can, therefore, act as intermediaries in matters regarding order placement and delays (Simchi-Levi et al., p. 4). Recommendation Meditech should embark on developing a database system for recording, as well as, tracking all their customers’ purchases and how they respond to their new products. The database should also seek to address concerns of the markets or distributors, and try to anticipate backorders which cause delays. Moreover, the organization should develop a policies and procedures of dealing with the lack of synchronization in the manufacturing process of new products. Meditech should also backdate the production by at least two months before introducing any new product to the market. This would really assist them in ensuring that customers’ demands are met effectively and in a timely manner. All the mentioned functions should then be centralized and conveyed to all personnel in the supply chain channels. Another feasible alternative is transforming the finished goods inventory policy to a “push” strategy instead of a “pull” strategy. By improving forecasting introduction of new products would be cheaper and more efficient. By “pushing” the products to become finished goods, Meditech will be able to anticipate fluctuations in demand that can be caused by introduction of new products. Conclusion The discussion above identifies the gaps in Meditech’s supply chain, thus paving way for formulation of appropriate solutions imperative in operation, control, design as well as management of the organization’s supply chain structure. Bibliography Simchi-Levi, D., Kaminsky, P, and Simchi-Levi, E. 2003. Designing and Managing the Supply Chain (2nd Ed.). New York, NY: McGraw-Hill. Read More