Total Supply Chain Cost Essay Example

is $350 a month; this monthly fee provides the client the right to order sutures from O&M.

Under the cost-plus method of the competitor, the client is charged a 1. 5% of sales markup by the distributor. In the Suture Vendor analysis, this results in a charge of $11,430 just to place the order with the new distributor. On top of that fee, there is a $36,000 internal cost to VM to process the purchase order outside of the TSCC system.

In this example, it would cost an additional $42,630 to go outside of the Alpha System with a new distributor. Suture activity through O&M does not generate additional purchase orders which allows the cost to remain low to O&M. Even with the added line number fees and Alpha Fee, the savings to the client and O&M are obvious.  What are the advantages and disadvantages of cost-plus pricing relative to the TSCC pricing program? Cost-plus pricing is easy to calculate and requires little information.

The fees are easy to explain and understandable. There is simply a % of sales markup and a purchase order cost for all orders. With the TSCC pricing program, there more of a commitment needs to be made between client and distributor. Clients must pay an Alpha line fee for each line item on an order, plus an Alpha fee every month for the right to purchase sutures from the TSCC system. The benefit of this is that TSCC motivates clients and distributors to work together and increases efficiency for both.

The client will work to lower the number of line items per order in order to reduce the total cost of Alpha Line Cost.

By doing this the client is also lowering the distributor's cost since the fewer line items order will mean a lower number of different items they will have to keep in inventory. If the client is only ordering one type of latex glove, then the distributor will not incur expenses to order multiple different kinds of latex gloves, process them, store them, and deliver them. Therefore TSCC results in ost savings to the distributor which flows down the client. Even though TSCC provides savings overall it is difficult to explain to clients that are used to a simple Cost-Plus system. Also, clients may be reluctant to make such a commitment to a distributor.

How does Virginia Mason’s lean philosophy affect the partnership? VM’s “Everyday lean idea” philosophy focused on the concept that all employees should continually attempt to reduce waste and add value in every facet of their jobs. This philosophy allows them to be open and willing to implementing TSCC and reduce unnecessary expenses in the distribution system.

VM’s stated vision is “to be the quality leader and transform healthcare” providing the “best outcomes available anywhere. ” This allows VM to be open to new money-saving processes, which will make the partnership with O&M work so well because they are willing to take the time and effort to streamline the supply chain.

VM had been implementing since 2002 the Virginia Mason Production System (VMPS), which continuously strived for a zero-defect rate. Value-stream mapping was a main component of VMPS; it defined a process by visually mapping (creating a flow chart) of information, materials, workflow, and other medical-center metrics involved in a process.

By looking at the larger picture,

they will see that there are many unnecessary expenses in the distribution process that can be eliminated. This will encourage them to work with O&M to streamline the distribution process and work together to reduce the distributor cost so that they can reduce waste and flow the savings to VM.

What changes to the TSCC contract would you propose?

• Don’t know that anything can be done to simplify the process; perhaps they can try and show forecasted cost of purchases to clients. To show the total annual savings with the TSCC system as opposed to the cost-plus system.
• Focus on showing the customer’s how by reducing line orders and SKU they can reduce costs to distributors which results in lower costs to clients.
• Focus on establishing a relationship with the distributor so that client has more control over variable costs that flow down to them.