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Official concept - Case study group 7 O&SCM

TIAS
by

Ljc vK

on 7 November 2014

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Transcript of Official concept - Case study group 7 O&SCM

Group 7
CASE STUDY
''Supply Chain Partners: Virginia Mason and Owens & Minor.''

Harvard Business School
Written by:
V. G. Narayanan
L. Brem
- June 24, 2010 -

PART 1 - QUESTION 1
What are the key elements from VM perspective?
PART 1 - QUESTION 2
What would you expect to be the key elements of operation strategy at VM?
PART 1 - QUESTION 4
Do you see alignment of strategies among these organizations?
PART 2 - QUESTION 1
Compare the two price schemes
PART 2 - QUESTION 2
How does TSCC change the “operations management system” of VM and O&M?
PART 2 - QUESTION 3
What requirements does Virginia Mason Production System impose on partnership?
PART 2 - QUESTION 5
What changes to the TSCC program would you propose?
The key elements of the operation strategy at VM are:

Largely consensus-driven organization
The concept of teamwork (one staff, working side by side every day)
The Virginia Mason Production System
High quality services
PART 1 - QUESTION 3
What roles does the O&M play in the overall achievement of VM operations strategy?
The roles are:
Reduced operation costs
Good quality products
No inventory
Bigger network
Alignment of strategies among the organizations:

Both organizations want to be efficient
Both organizations want to reduce costs
VM is a non-profit organization & a lean company (top-level buy-in)
O&M is a profit organization & a non-lean company (six sigma)
Cost-plus pricing value:

Simple and well-known method
Consider costs mostly based on suppliers' side -> Give the suppliers more bargain powers
Nominally lower costs -> Better performance on the annual reports
Will it work?

Temporarily period and unsophisticated business
How does TSCC may contribute to cost reduction?

Discover costs & cost drivers associated with inefficient supply chain practives more quickly
Reduce double work and inefficiencies in supply relationship
Gain mutual benefits from any improvement, giving the incentives for reducing the costs
Note: The pros and cons are on the next slide
PART 2 - QUESTION 1
Compare the two price schemes
Changes TSCC:
Equally split rework costs for VM and O&M -> Dedicate to reduce costs in the whole supply chain, not individually
Consider the hidden operating costs
Tie much of VM's fee to the cost of carrying inventory, or the SKU costs
Incorporate the supplier-evaluation process into a pricing program
New relationship built on common objectives, shared incentives and trust
Requirements:
Quick reply to changes for JIT/LUM orders, with continuous improvements
Appropriate and sustainable delivery commitments -> Allow reductions of buffer inventories
Effective collaborations -> Work and eliminate the waste together
Long-run picture of the demand and information sharing -> Well responsive to actual customers' demands, even in special fluctuations
PART 2 - QUESTION 4
Under what conditions TSCC produce lower supply chain costs?
Conditions:
Both VM and O&M dedicate into reducing cost in the whole supply chain not individually
Eliminate more hidden operating costs and remove inefficient factors
Consider the inventory or SKU cost for not only suppliers but also buyers
Trust relationship and shared information from reliable data collection
Recommendations:
Complexity & time consuming - Make TSCC simple by coming up with fewer critical factors for standard of operation after trial and errors -> Through the modified TSCC method, companies can have lower initial cost of applying it
Focus on ROI - Not just emphasizing on reducing cost but also focusing on adding profits
WHAT DO WE WANT TO CHANGE?
PART 1 - QUESTION 1

PART 1 - QUESTION 2,3 & 4

PART 2 - QUESTION 1

PART 2 - QUESTION 4

PART 2 - QUESTION 5

EDITS & RECOMMENDATIONS
In addition to our first concept of the business model on slide 3 of this PDF file, we would like to add the following elements:
RED = What we would like to remove from the model
GREEN = What we would like to add to the model
Question 2
In this question, the only key element we want to add is the decrease of inventory by working with the just in time principle.
Question 3
In this question, we would like to add that O&M is also a distributor and partner of VM.
Question 4
In this question, we would like to make a distinction between the alignments and the differences as followed:
In this question we want to add
(in green)
a few elements, namely:

Cost-plus pricing value:

Adding a fixed mark-up percentage to derive prices
Will it work?
Fail to consider price elasticity demand + certain costs: SKU costs, unexpected sales costs and so on...
High level of customer service for JIT/LUM orders -> Negatively effects on the profitability of O&M
With our answer on how TSCC contributes to cost reduction, we are satisfied.
In addition to our first concept of pros and cons, we would like to add the following elements:
With question 2 & 3 we are satisfied as we first made it. In question 4 we would like to add the following point:

Share costs between VM and O&M: Shift more costs of the inventory - SKU costs VM, costs of errors and costs of back orders shared equally by both.
With question 5 we would like to add a financial analysis from the annual report from O&M, see the table below.
O&M started the TSCC in 2005 and used the TSCC method officially in 2007. The table demonstrates that: the fluctuation in ROA (return of total assets) has not changed a lot except 2006 (we can think that one of the possible reasons was that O&M invested in the TSCC a lot); the difference of ratios is cost of revenue/revenue is within 2% from 2005 to 2013; in addition to 2006 and 2013 the ratios of total expense/revenue are most roughly in 7-8%

According to the previous analysis, it can be indicated that the O&M has not improved a lot in the profit side since the profit does not increase even the assets and the inventory of sale (cost of revenue) raised. As this result, we suggest O&M should not just focus on reducing the cost but also on growth of the profit.
If you have any questions regarding to our edits and recommendations, please do not hesitate to contact us for more details.
Kinds regards,

Group 7
Full transcript