SCM Strategy Final

1. Medical Technology
Corporation (MTC)
SUPPLY CHAIN MANAGEMENT STRATEGY DESIGN

2. Presented by:
Muhammad G U Rone
Supply Chain Management
approah to overcome Excise Tax
for Medical Technology
Corporation (MTC)

3. Executive Summary
Short-term Improvement Plans (within 1 year)
➔ Upgrade our forecasting method
◆ Inventory and associated costs are reduced
considerably
➔ Realign the sales representatives’ job
description
◆ Eliminates “trunk costs” which are
unrealized revenue
◆ Improves inventory management
◆ Strengthens our relationships with
our customers
Mid-term Improvement Plans (within 3-5 years)
➔ Insource the sterilization of our products
◆ Faster processing and delivery of our products
◆ Reduced costs
◆ Greater quality management and control
➔ Implement lean/just-in-time (JIT) production
◆ Increases production and distribution
efficiency
◆ No more unnecessary expenses
➔ Let’s do away the distributors and directly
sell to the GPOs
◆ Improves our relationships with our
customers
◆ Products can be sold at retail price
➔ Partner with 3PLs and use RFID
◆ Streamlines distribution
◆ Greater product visibility

4. Executive Summary
Long-term Improvement Plans (5-7 years and beyond)
Focus on research and development to create new and innovative products
Creates more value to our customers
Improves our long-term relationships with them
Enhances our revenue streams

5. MTC case overview
Name: Medical Technology Corporation (MTC)
Located in Collegeville, Pennsylvania, USA
New tax excise impose on all medial technology company 2.3% on revenue
New imposed tax 2.3% will reduce profit margin by 10%
Company’s supply chain managed by Sales team
All sterilization done by 3rd parties
Sales parson carries Truck inventories
Now MTC determine costs savings opportunities to adjust new imposed tax

6. Financial Status & Market Segmentation
Growth:
Avg. growth rate 7.03% (2010)
Steady growth 4.0% in 2012
Disproportional increase in SG&A expense in relation to
revenue growth
SG&A 14.76% in 2014
SG&A 14.0% in 2012 but profit increase by 11.86%
MTC transacted $1.01B account receivable and $743
millions financial goods
Net earnings
● Grew from 2010 to 2012 by 10%
● Contracted after then, falling by 14%
37%
35%
16%
12%
MTC Market Segmentation
Export
Hospitals
Specialist & Alternate
care
Distributors

7. Financial Status & Market Segmentation
Revenue
Growing strongly by 11% from 2010 to 2012
Slowed down to 4% after then
Cost of Goods Sold
Steady growth; average annual growth rate is 8%
Selling, general and administrative expenses
Constitutes more than 45% of revenue in 2014, from 37% in 2010; average annual
growth is 13%
Research, development and engineering expenses
Just 6% of 2014 revenue

8. Resolution Costs Saving, Time Phased approach
Short Term
- Remove Sales Team from
Supply chain process
- Establish SCM Dept.
- Supply Chain & logistics
Operation done by SCM
department not sales team
- Mobile application for
surgeons
Mid Term
- Reduce branch office
manpower at least 50%
- Establish 3PL
- In House Sterilization
- Establish 6 Sigma
manufacturing process
- Establish lean Production
- Direct Sales
Long Term
- Develop Sterilization
supplier into strategic
alliance
- Tax inversion through
acquisition of low bracket
company
- Smart kiosk development

9. Key Performance Indicators
Sustainability
Can the solutions be
sustained for long
term with benefits?
Feasibility
Are the solutions
feasible for a
seamless rollout?
Strategic
Objectives
Does the solutions
meet company's
objectives?
Costs Savings
Does the solutions
help achieving cost
savings target?
Key Performance Indicators
Decisive Metrics
Analyzed and addressed while arriving
at the solutions:
Increase net earnings
Increase in operating margin
Control on SG&A and COGS
Inventory Turnover
6 Sigma Manufacturing process
On- Time delivery - FIFO
Products in Compliance

10. Current Distribution Model
MTC Manufacturing
Facilities
Hospitals
Distributors
Assembly
VTC
Off Site
Sterilization
Receiving
VTC
Supplier
Key Points:
- Off Site Sterilization
- Three Distribution Channel
- 3PL
- Distribution Centre
- Trunk Inventory
- Long Transport lead time

11. Logistics Optimization
MTC
Manufacturing
Facilities
(Resources)
In House
Sterilization &
Assembly
MTC branch
warehouse 50%
less – using 6
sigma
3rd Party
Logistics (3PL)
Customers:
Hospitals, Export,
etc.
Key Features
In house Sterilization Process
Reduce lead time by 2 days
Direct sales – Hospitals
Increase visibility
reduce middle parties
Reduce Branch offices
reduce overhead costs
reduce inventory accumulation
reduce inventory depreciation

12. Improvement Plans
Short-term: Realign the sales representatives’ job description
● According to Medreps.com, the average total
compensation of medical device sales
representatives $180,146
● Our sales reps’ $300,000 average pay is 67%
higher
SG&A Expenses (2014) $2,683.56
Total Sales Compensations $1,610.14
40% Cut $644.05
Total SG&A Cost Savings $644.05
Total SG&A Cost Savings (%) 24.00%
Benefits
● Elimination of “trunk stocks”
● Better inventory management
● Reduction in SG&A costs
● More focused supplier-customer
relationships
Risks
● Employee resistance, which can be
overcome by ensuring that the
transition process will be collaborative
and careful

13. Improvement Plans
Mid-term: In house the sterilization
Benefits
● Simpler operations
● Considerable reduction in transportation costs
● Less handling and touch points
● Increased control over processing and quality
● Improved lead time by 4 days
● More responsive to customer demand
Risks
● Not currently performed, which can be
mitigated by detailed planning
● Requires high capital investment, which can be
redeemed through the lower transportation
costs, better quality of our products, and by
increasing sales
MTC
Manufacturing
Facilities
(Resources)
In House
Sterilization &
Assembly
MTC branch
warehouse 50%
less – using 6
sigma
3rd Party
Logistics (3PL)
Customers:
Hospitals, Export,
etc.

14. Improvement Plans
Mid-term: Implement lean Production /just-in-time (JIT) production
Benefits
By producing what we only need, we
can…
❑ Eliminate waste
❑ save space
❑ improve our inventory management
❑ avoid excessive units
❑ align our spending with the demand
Risks
● Disruption due to external risks, which
can be mitigated by having an
effective Kanban system in place

15. Improvement Plans
Mid-term: Do away with the distributors and directly sell to the GPOs
Benefits
● Increase our revenues since we could sell at
retail versus wholesale
● More direct customer relationship
● Improved customer service
Risks
● Need to convince the GPOs to add our
products directly to their catalog without
going through a distributor
MTC
Manufacturing
Facilities
(Resources)
In House
Sterilization &
Assembly
MTC branch
warehouse 50%
less – using 6
sigma
3rd Party
Logistics (3PL)
Customers:
Hospitals, Export,
etc.

16. Improvement Plans
Mid-term: Partner with 3PLs
Benefits
● More efficient logistics network
● Better control of distribution
● Greater visibility because of RFIDs
● Automated and real-time inventory
management
● Improves production
● No stock-outs
● Reduces costs
Risks
● Requires capital investment, which
can be easily recoup in this set-up
MTC
Manufacturing
Facilities
(Resources)
In House
Sterilization &
Assembly
MTC branch
warehouse 50%
less – using 6
sigma
3rd Party
Logistics (3PL)
Customers:
Hospitals, Export,
etc.

17. Improvement Plans
Long-term: Smart Kiosk & acquisition or Marge
Benefits
❑ Better customer service
❑ Stronger supplier-customer relationship
❑ Enhances our revenue streams
❑ Diversification of operations and
offerings
❑ Possible tax inversion through Overseas
accusation
❑ Marge with another well structured
company
Risks
❑ Products may be more costly or
time-consuming to develop
than anticipated
❑ Unsuccessful or unworkable
product
Overall Financial Impact: Logistics 4.5% cost saving, Sales 3% Costs saving, low
risk on streamline logistics process, low sales representative overhead costs.

18. Thank you
for
your Time