Meditech Case Study

Question One: What are Meditech’s problems in introducing new products?  In manufacturing all products? 

            After reading the case study I discovered several issues related to the introduction of the new products.   First, Meditech was unsuccessful in keeping up with the demand for the new products during the rush on initial orders.  Meditech also struggled in forecasting which lead to the shortage with each introduction. Data to measure the forecast accurately had not been previously tracked nor had the forecast and demand information documented (Levi & Kaminsky, 2008, pg.22).   Customers also seemed to be waiting a lengthy time for orders to be fulfilled.  In the health care industry this can be fatal as surgical teams rely on having the right instruments to not only work on but save the lives of their patients. 

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            In manufacturing there are large variance in component lead times.  Lead time for component parts is on the order of 2-16 weeks (Levi, & Kaminsky, 2008, pg. 20).  This can lead to another problem a high level of inventory.  Also the assembly operation and packaging operations are scheduled based on different systems.  While the assembly operation is based on forecasts the packaging and sterilization operations are scheduled based on as needed replenishment of finished good s inventory.  If the forecasts are too high and not enough finished goods are in stock this will increase delivery times.  Finally it seems variation in production levels did not match the variation in demand leading again to excessive inventory in some month and not enough in others.    

Question Two: What is driving these problems both systemically and organizationally? 

            Systematically these problems are being driven by a few factors.  One cause is panic ordering which occurs when a dealer or affiliate is unsure of whether or not product will be received in time and therefore increases the size of its orders in hoping Meditech will deliver at least part of the order (Levi & Kaminsky, 2008, pg. 23).  Since Meditech has a bad reputation of delivery products on time larger orders are placed leading to larger levels of inventory and bigger demand on manufacturers.  Another major cause is the lack of documentation to help predict future forecasts.  Also it seems that having a decentralized production facility has proven to be a scheduling nightmare for the company.

            Organizationally one factor driving these problems is management’s fear to reduce inventory.  A consultant determined Meditech’s inventory could be reduced by 40% and still keep up with demand but management fears this will cause more damage to already subpar level performance (Levi & Kaminsky, 2008, pg. 23).  Also based on the figure 1-6 it appears that the departments are independent of each other which can lead to responsibility issues and lags in production times.  Finally once again it seems the lack of a dedicated forecasting team has led to improper production forecasts and longer service and lead times. 

Question Three: Why is the Customer Service Manager the first person to recognize the major issues? 

            Dan Franklin, customer service manager, was the first to notice these simply because he is on the front line dealing with the customers.  Through meetings with hospital material managers Dan began to realize the full scope of his customer’s frustrations (Levi & Kaminsky, 2008, pg. 22).  He was able to hear directly from the end users which in turn forced him to investigate their concerns and see how these issues are being caused internally. 

Question Four: How would you fix these problems?

            First and foremost better communication between the departments is needed-each department needs to know what the other is doing in order to better serve the customer.   Meditech may want to consider a centralized production facility where assembly, bulk instruments, and packaging are done in one facility therefore keeping both levels of production on the same forecasting system and closer in line with each other.  The biggest item that needs to be addressed is having a dedicated forecasting team to better predict demand which will in turn lead to better turn around costs, component ordering to reduce the 2-16 week window, and even lead to just in time inventory strategy which is when materials are only ordered and received when they are needed in the production process (Hunt, 2015).  Think about it less inventory means less storage space required and therefore able to add the bulk invetory section of the chain to the centralized location.  Better forecasting will lead to reduction in inventory which will lead to reduction in cost and able to invest the savings elsewhere as in improved marketing and customer service. 

Source

Hunt, J. (2015).  The “Just In Time” Method.  Retrieved April 28, 2015 from  www.smallbusiness.chron.com

Levi, D., & Kaminsky, P. (2008). Chapter One: Introduction To Supply Chain Management. In Designing and Managing the Supply Chain: Concepts, strategies, and Case Studies.3rd ed. Boston: Irwin/McGraw-Hill.

Chapter Twelve Discussion Questions

Question One: Discuss the tradeoff between product quality and price for traditional and on line retailing. 

            In traditional retailing, quality is a driving factor for price: the higher the quality of the physical product, the higher is the price.  Also the experience provided by the one on one interactions and the customer physically being able to see and handle the product before buying also add value but at a higher price tag.  On line retailers have the advantage of selling directly to customers and skipping the “middle man” of the traditional brick and mortar locations.  This can keep pricing lower but some of the overall product quality such at the personal attention a traditional retailer can offer is lowered as well.  To make up for it the” e-tailers” have come up with ways to enhance the online shopping experience.  For example a tailored experience.  The ability to provide each customer with an individual experience is an important part of the internet (Levi & Kaminski, 2008, pg. 383).  For example a clothing e-tailer can keep track of a customer’s purchase history and recommend new products and styles and also show the customer’s preferred sizes. 

Question Two: Consider dynamic pricing strategies and their impact on profit.  Explain why dynamic pricing provides significant profit benefit over (the best) fixed-price strategy as:

  1. Available capacity decreases
  2. Demand uncertainty increases
  3. Seasonality in demand pattern increases

a). Companies may find it impossible to keep up with demand as available capacity decreases.  By having a flexible price strategy pricing can be adjusted based on available inventory.  A good example of this is the oil industry.  As more oil becomes available the price at the gas pump goes down.  The opposite effect is true as well. 

b). Companies do their best to forecast demand to keep proper inventory levels and pricing.  However this is not an exact science and sometimes it becomes nearly impossible to be certain that the forecasts will be accurate.  If you have a tailored pricing strategy that changes with the market it will give the company a much greater chance to keep pricing competitive and profits in line with forecasts versus a fixed pricing strategy. 

c). Demand is not only a function of price. Seasonality has a huge effect on pricing and a firm will do itself justice to be prepared with a custom made pricing strategy.  A good example of this is the hotel industry especially those located in vacation destinations.  A room at a resort may cost X amount of dollars on the offseason and the same room will cost 2X in season.  This is taken advantage of a seasonal opportunity that the customer will be willing to pay. 

Question Three: Discuss how supply chain management decisions impact the ability to excel in certain dimensions. Specifically, consider

a. Conformance to requirements.

b. Product selection.

c. Price and brand.

d. Value-added services.

e. Relationships and experiences.

a.)This dimension of customer value refers to the ability to match supply and demand.  The ability to offer what the customer wants and needs is a basic requirement to which supply chain management contributes by creating availability and selection (Levi & Kaminsky, 2008. Pg. 370).  Also referred to market mediation this function can greatly impact the supply chain as it will affect the ability to convert raw materials into end goods and getting them to the customer.

b.)Retailers are tasked with determining how many products and services to offer.  Many products come in a wide range of options and therefore require retailers to build large and diverse inventories (Levi & Kaminsky, 2008, pg. 372).   Some ways to keep these inventory costs low are to use a build to order approach such as Dell does or specialize in one product offering thus keeping inventory simple and lean. 

c). An important component of price is cost. Supply chain decisions determine production, inventory and transportation costs, and affect the ability of a company to offer low prices. Although the price may not be the only factor a customer considers, there may be a narrow price range that is acceptable for certain products (Levi & Kaminsky, 2008, pg. 374).  Therefore brand plays a significant role in supply chain decisions as consumers are more comfortable buying a brand name even though it may be higher price because they perceive it as higher quality too and force retailers to keep a steady supply of these products. 

d). Value added services, such as support and maintenance, can be a major factor in the purchase of some products (Levi & Kamisky, 2008, pg. 375).  For example if a company is offering 100% guarantee product replacement then they need to make sure an ample supply of products is available to fulfill this promise. 

e.) Consider the Dell example, in which Dell manages the entire purchasing process of large customers including special custom features. In this case, the supply chain must have enough flexibility in production and distribution to accommodate customer-specific demands.  Building this type of relationship will take time but if done properly will have a great impact on repeat sales and also what type of inventory supply chains need to have in stock.  And if the relationship is built correctly it will also make it harder for a customer to switch therefore decreasing the worries of an abundance of inventory that might not sell. 

Question Four: What is the dominant customer value the following companies bring?

a. Starbucks

b. The Gap

c. Expedia.com

a. Starbucks offers strong customer access by securing prime real estate locations along specializing in one product line and offering a pleasant environment to enjoy their products. 

b. The Gap creates value by offering a strong brand that is known for its quality and reasonable prices thus making customers feel they are getting a great product at a fair price.

c. Expedia.com brings customer value by offering a large selection of products all in one locations or one stop shopping.  Customers can book their flights, hotels, rental cars, and even things to do such as theater or concert tickets once they arrive at their destination. 

Question Five: What additional experience opportunitiesdoes the Internet enable?

Examples of experiences enabled by the Internet include:

1. Newsletters sent regularly by e-mail.

2. On-line customer service.

3. Cater shopping experiences to each customer based on past shopping data.  

4. Ease of access from a computer, smart phone, or other device such as a tablet

5. “Erooms” created by companies that bring together people that share the same enthusiasm and interest about the company’s products.  In addition, participants can trade comments within these erooms with no phone contact at all (Levi & Kaminsky, 2008. Pg. 378).  This encourages participants to be more free flowing with ideas. 

Question Six: What measures would you use in a business like Amazon.com to evaluate the company’s performance? The supply chain?

Possible performance measures for Amazon.com include:

  1. Customer loyalty (repeat customers).
  2. The average size of an order.
  3. Increase traffic to the website.
  4. Some more traditional items such as sales, revenue, net profit

Possible performance measures for the supply chain include:

  1. On-time delivery
  2. Fill rate
  3. Rate of returned items
  4. Inventory turnover.
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