A Case study for operations Management describing 3M strategies for efficient management of their Supply Chain.

2. ❖Founded in 1902.
❖Headquarters in St. Paul,
Minnesota, Canada
❖Leading developer, manufacturer
& distributor of consumer &
industrial products.
❖Revenue of $32.136 billion in
Global Sales -2019*
❖Operation in 70 countries and
served customer in 200 countries
❖3M realigned into four business
groups in Apr 2019.
3M
Safety &
industrial
Transportati
on &
Electronics
Health care Consumer
Products

3. •
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4. ❖Vice President of 3M Canada’s Health Care
Business is looking for an answer to ………….
❖Should 3M Canada switch to direct- distribution
model(As demanded by hospitals administered by
Government of Canada) or to continue with the
present system of product distribution to these
hospitals through VARs?
❖Can you help?

5. ❑ Health care Services in Canada are funded by govt. &
delivered through RHA.
❑Provinces responsible for health care services under the
regulatory authority of Federal Government.
❑Fiscal constraints in 2015, forced regulators to initiate a
series of cost reduction measures.
❑Innovation in health care delivery, consolidation and
centralized procurement were some of the measures.
❑ Hospital management believed that cost saving through
direct distribution by 3M was possible.
❑Hence were pressuring the company for switch over to direct
distribution model.

6. ❖Total Health care Expenditure in
2014- $214 billion.
❖11% of GDP
❖Spending on hospitals – 31%
❖Drug cost- 16%
❖Physician – 16%
❖Other health Care cost- 37%

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8. • VARs are an important link in the supply
chain, providing value added services,
(storage, transportation, handling,
transaction and order processing) to
350 hospitals and 5000 organizations
across Canada for agency fee of 8%.
• 3M is benefited by their specialists’
knowledge and well developed
information system, more favorable
shipping rates.
• 3M to concentrate on its core business.
• Hence it is not prudent to do away with
VARs.
Storage Shipping
Transactions
Material Handling
Invoicing

10. Cost comparison of two Supply chains, present system of supply
through VARs and proposed Direct to Hospitals.
Cost under the old system(Per Annum) (1)
1. Picking cost $93,600
2. Agency fee @8% of sales value $8,208,000
3. Warehousing charges $325, 380
Total yearly cost (1) $8,623,380
Total yearly cost (2) (- ) $7,706724
Cost saving per annum (1) – (2) $916,656
Cost under Direct Delivery to Hospitals (Per
Annum) (2)
1. Picking charges $936,000
2. Transport cost $1,442,039
3. Warehousing Charges $976,140
4. Invest in additional Staff $550,000
5. Increased cost on account of $838,545
25% Increase in inventory
Handling
Total yearly cost $7,706724

11. The other dimensions that should
also be considered along with cost
while analyzing the structure of
supply chain are,
a. Response time,
b. Product Variety,
c. Product availability,
d. Customer experience,
e. Time to market,
f. Order visibility,
g. Returnability.
Changing the distribution network
design affects the following chain
costs.
1.Inventories
2.Transportation
3.Facilities and handling
4.Information

12. The SCM at 3 M Canada
Medical Care Division can
be classified as;
❖VARs distribution channel
– serve 350 hospitals in
Canada.
❖3M direct distribution
channel- volume handled
5% of hospital supply.
3M –
Manufacturing
facility
VARs
HOSPITAL
WAREHOUSE
CLINIC
NURSING HOME
PHARMECY
INTEGRATED
DELIVERY NETWORK
PHYSCIAN OFFICE
3M HEALTH CARE DIVISION SUPPLY CHAIN DIAGRAM
Product and Information flow back ward
Cash flow and returns

13. • In the current scenario, health care supply
industry is struggling to achieve on time
delivery, caused due to the fact that each part
of the supply chain works independently,
creating misaligned activities that prevents it
from working as a system.
• Addressing these issues requires redesigning
of inventory management systems in
hospitals, aggregation of suppliers and their
products through electronic catalogues, use of
ERP system to address another bottleneck in
the supply chain, namely: inefficient
information flow in the system and create an
Agile Supply chain.

14. • Certain new strategies emerging in
the sector that are contributing
towards efficient SCM practices are,
RFID, Supply Utilization Management,
Virtual Centralization of the Supply
Chain and Vendor Managed Inventory.
In recent times issues related to the
• Environment and Sustainability have
grown in relevance and must be
accounted for while designing a
supply chain strategy.

15. Fragmentation of supply chain ownership has its advantages and
disadvantages as well.
❖Companies are able to take advantage of supplier and customer
competencies that they themselves don’t have.
❖3M will be taking advantage of 3PLs’ specialist knowledge, their well-
developed information system, and their ability to obtain favorable
shipping rates.
❖This will help 3M to focus more on its core business.
❖3M should avail of 3PL services for distribution of its products in
domestic and international markets.

16. ❖3M follows a resource-based strategy to gain competitive advantage
over its rivals.
❖3M is always concerned with identifying the key areas at which the
company can outperform its rivals in the market.
❖3M’s business model has four fundamental strengths: technology,
manufacturing, global capabilities and the 3M brand.
❖3M supply chain is a significant competitive advantage for it.
❖3M pursues a resource based strategic decision-making process to
make the most out of its resources, which makes it stand out of its
competitors.

17. 3M should continue with the present supply chain structure for the
distribution of its products in the domestic and international market,
using the specialized value added services of VARs as 3PL’ and
should concentrate on its core business of technology and product
management, follow a resource-based strategy to gain competitive
advantage over its rivals. It should continue to serve institutional
customers including hospitals using VAR’s value added services.

18. ❖VARs have a very significant role to play and are providing host of value
added services, from storage, transportation, order processing, product
handling, returns, credit management etc.
❖VARs also have well established infrastructure and well aligned and
agile supply chain, and be further optimized introducing efficient and
cost-effective technologies and AI ( Artificial Intelligence).
❖ Fragmentation of supply chain ownership brings specialist knowledge,
efficient logistics, competitive shipping rate, well established information
system.
❖3M does not have to enter into non-core operations and can
concentrate on its technology and product innovation, its core area.

19. ❖The health care industry is witnessing sharp rise in the cost of all its
products. The supply chain in this industry is inherently complex and as a
result it is difficult to recognize any single measure that will help remove
the inefficiencies to drive down costs.
❖Addressing these issues requires redesigning of inventory management
systems in hospitals, aggregation of suppliers and their products through
electronic catalogues, use of ERP system to address inefficient
information flow in the system and create an agile supply chain.
❖Certain new strategies emerging in the sector that are contributing
towards efficient SCM practices are: RFID, Supply Utilization Management,
Virtual Centralization of the Supply Chain and Vendor Managed Inventory.

20. • In the new setup using technology and AI techniques for SCM will
prove to be game changer, and the roll of VARs will be very critical
in the supply chain management. VARs will have to upgrade
themselves technologically, to make the information flow faster to
reduce shrinkages and shipping errors and reducing the response
time.
• This will result into reduction of supply chain cost, cutting down
inventory levels and improving the co-operation level up and down
the supply chain.
• These are some of the answers to Mr. Matt’s dilema.