1, Introduction:

After finishing all the courses, leading to this Supply Chain Management, I would like to present the
case study of MTC (Medical Technologies Corporation) and the introduced Medical Device
Excise Tax.

To focus only on the most important participants, they are:

- MTC - the production part of the line.

- Distribution company – right now together with the sanitizing place, the „truck stock” and
the companies between MTC and the hospitals they are the supply chain.

- Group Purchasing Organization – the most important buyers, groups of hospitals, dealing
with purchasing in cooperation.

The situation of the area is generally favorable: market size is 110 billion USD in 2014, revenue
growth rate in 2015 is 7.6%. However, the current tax might be a big hit for a sector just getting over
the crisis, especially as though the revenue growth is significant the profit rate is only 2%.

Also, it is important to point out the 2.3% tax newly introduced tax is calculated based on the
revenue and not on the profit.

However, there is potential in the sector. Take a look at the combined growth of the 4 biggest
companies mentioned in the field case:

*million USD
As you can see the growth generally continuous, however there was an obvious halt due to the
financial crisis. So, it is crucial to deal with this special tax and keep this growth otherwise the
industry is prone to fall back into regression.

The four major players on the field are the following:

*million USD

As you can see MTC is a middle-sized player, though also important to know that only 20% of the
6500 companies have more than 50 employees, so the sector cannot be said to be dominated by big
corporates.

2, Executive Summary

1. Bring down the number of sales representatives – effects:

a. Saving costs in the sales department.
b. Workforce can be utilized in other areas – see later sterilization.
2. Limit the “trunk stock” to new items – effects:
a. Easier to monitor the inventory.
b. Opportunity to innovate – “smart kiosks” in the hospitals for routine operations.
3. Move sterilization “on-site” – effects:
a. Shortening the lead time – see below; steps “off-site sterilization” and “sent back to
manufacturer” can be omitted.
48 hours Sent to sterilization
24 hours Sterilization
48 hours Sent back to manufacturer
Effectively saving at least 96 hours in lead time.
 b. Stronger cooperation with the distribution on sterilization, easier to fulfill ad hoc
needs or to plan the sterilization right after production is finished.

4. Better planning system – effects:

a. Cut down the finished goods inventory – way higher than the shipped goods.
b. Cutting down the warehouse costs – simple yearly naïve forecast is perfect.
c. Faster reaction to the needs of the hospitals.

As you can see below, the planning can be based on the last year. Also, the ending is
4 times higher than the shipped amount – that is basically overplanned inventory.

3, Areas of improvement

1. Stronger cooperation with the distributor – hospitals like to buy „the whole lot”, we need
them to offer it from us. It is easier to stay in the distribution system for that part. MTC
would take too much trying to persuade the hospitals by themselves.
 2. Stronger cooperation with the hospitals – we need to know the exact needs, also install
“smart kiosks” or storages closer to the hospitals, maybe on their lot. Also, more influence on
the key decision makers (surgeons, purchasing groups and local hospital administrators).
3. Smarter inventory tracking – with reducing the “trunk stock” and introducing the “smart
kiosks” and also with reducing generally inventory to one month of safety stock.

4, Resources needed for the improvement

1. Revising workforce – instead of sales reps MTC needs professionals for sterilization
a. 80% of the sales can go without the sales reps;
b. 45% of the revenue is the sales/admin costs in 2014 – among which the sales reps are
the highest. Also, it is growing every year.

In the percentage of the revenue:

2. Acquiring companies for the innovations – possibly overseas companies for the “smart kiosk”
and for 3D printing, can be useful for tax avoidance and opening up for overseas markets as
well.
Possible companies:

Name of the company Country Tax

TouchBionics Great Britain 19%

Open Bionics Great Britain 19%
Nextep Switzerland 8,5%
 All of them have better taxing options but also, they might be a good way into the European
market. That might give an opportunity to grow the percentage export is present in the
MTC’s market segmentation.

3. Spots are needed for the sterilization project – that would be a step away from the
distribution system, to take the service totally “on-site”. Obviously, needs planning. As I can
see there are two options
a. Next to manufacturing;
b. Next to the most frequent buyers – and trying to get the proper certification.

Risk to the proposal and contingencies to mitigate the risk

1. Difficulties with finding workforce – finding the right staffing firm. The biggest one can
obviously provide the best service. As of 2012 they are:

Company Revenue (€millions) Market share

Adecco 20,536 6.5%

Randstad 17,087 5.4%

ManpowerGroup 16,081 4.9%

Allegis 7,425 2.2%

Recruit 4,872 1.5%

2. Distribution company has difficulties selling in bulk our products – They might be mitigated
by additional costs at the beginning:
a. longer payment terms – this is basically a loan;
b. special sales on items at the beginning;
c. Special price if they buy bigger amount – we get to sell more-they get to buy cheaper.
3. Hospitals are not keen on cooperation – free training, actively looking for different GPOs or
shift the focus to export or to specialists. As you can see below, export is just as important as
hospitals and specialists – in my opinion – have a potential with the right items.