2 Scenario 2. 1 Introduction MedCom1 an Australian-based manufacturer of medical instruments that are used to treat a specec type of medical disease. The rm was established in 1990 and is currently focused on medical devices for this particular medical condition. In 2015 earned revenues of AUD $17.3 billion and operates in over 35 countries either with its own sales ofces or distributor networks. But, during last years in 2020 and 2021 its revenue was signicantly decreased due to COVID-IQ global pandemic( See table 1 but is was recovered in 2022. The medical condition affects up to 20% of adults to varying degrees, and so the rm anticipates that the potential market is signicant. The rm believes that around 90% of sufferers of the medical disorder remain undiagnosed and are therefore untreated (and so do not demand the medical device). They have two major competitors based in the USA {which dominate the North American market, leaving MedCom with 10% market share) and one in Europe which has around 60% of the European market and 20% of the Japanese market. MedCom has around 30% of the European market and 60% of the Japanese market. Moreover, 44% of revenue is generated in Japan; Europe accounts for 26% of revenue; North America accounts for 8% of revenue; Australia accounts for 5% of revenue; and the remainder is generated globally. There are two major products, ow generators and the masks and other accessories, accounting for 58% and 42% of revenue, respectively. The markets are quite competitive in terms of the product costs, but MedCom is recognised as having been at the forefront of research in this area and has a good reputation amongst the medical facility customers. Since 2015 MedCom has deliberately sought to create a wide range of products targeted at homeusers, in an attempt to capture more market share here. This intentional product proliferation has, however, put increasing pressure on manufacturing at MedCom. 1This is a ctitious company but shares similarities with some real companies. Many of the details are fabricated, and there is not intended to be any relationship to any real company Table 1: MeCom Revenue from 2009 to 2022 Year Revenue ($million) 2009 3570 2010 4275 2011 4594 2012 4527 2013 7245 2014 7228 2015 17222 2016 12205 2017 15230 2018 15293 2019 16202 2020 13202 2021 11202 2022 15250 There are two major product categories: the capital-intensive unit (containing mechanics, electronics, etc.) and the accessory category (consisting primarily of the masks and tubing, and other accessories for the equipment). The capitalintensive unit contributes 60% of revenue while sales of the accessories generate 40% of revenue. The medical devices market is highly regulated globally, forcing extremely high standards for manufactur- ing, distribution, and information management. All products must comply with medical regulation regimes in a variety of countries, which are designed to ensure the safety of citizens. Compliance requires extensive testing, documentation, and management of changes and information associated with the product. At any time detailed information may be requested, and if the information is not available, or indicates possible problems (such as quality of products or contaminated components), this could result in product recalls or being barred from supplying a particular market. The CEO has asked the Chief Supply Ofcer (030) to reduce the total costs so that their products will remain competitive in the international markets. The CSO has assembled your team from the operations and supply chain staff to tackle this problem. 2.2 Manufacturing Lean manufacturing was briey introduced by the old Operations Manager ve years ago. After one produc tion line was converted to use Lean philosophies, customers soon began to complain that they were unable to acquire products when required. The fall-out was signicant and two key accounts (large medical facilities) were lost as a result. The CEO told the 080 to stop using Lean manufacturing immediately. After a return to the previous production system, products have been more readily available for customers. A past consultant developed a system, based on the Economic Production Quantity (EPQ) formula, to help determine the optimal production runs on a key piece of equipment that was identied to be a bottleneck. This is based on the EOQ formula, but accounts for the fact that 'delivery' of each order is not instant, it occurs over a period of time as the items are produced, while they are simultaneously being ordered by customers. Solving the EPQ problem for each of the ve major products produced on the production line, the consultant recommended that they produce in batch sizes suggested by the formula. Most equipment is run for two-shifts per day. Factory staff education levels are as follows: 10% 0f the staff in the factory are highly qualied {holding a Master's degree or higher); 35% are moderately qualied (holding a Bachelor's degree); while 55% are highschool qualied, with some additional workforce training provided by MedCom. Most degree-holders are technical staff who predominately work on the main day shift. They are the most capable staff at resolving issues or technical challenges on the production lines. If production issues occur on other shifts, there are frequently delays as the qualied staff are called in from home to assist. There have been challenges in the contemporary environment and the Operations team has struggled to maintain production of a wide variety of products, each with reducing volumes, while still ensuring low production costs are respected. Due to the regulated environment, the setup and changeover of the production equipment must be conducted very carefully and all steps (including any problems) must be documented and recorded each time. As a result, there are signicant setup times. This means that it is more economically viable to run larger production batches; yet, if this is done, there are greater inventory holding costs and the rm is not able to produce a wide enough variety of products to satisfy customers. Some equipment is run on a third shift on a regular basis to ensure continuity of supply for downstream processes. Where there is a problem identied with raw materials, this causes signicant challenges to production. The entire process must be carefully documented. Equipment must be stopped and all nished goods (FG) inventory must be checked carefully. Faults must be identied and rectied. This causes signicant disruption and is becoming increasingly common. Just last month, this occurred twice, causing threehour delays each time. At the end of the manufacturing the products undergo testing processes on equipment that was designed and built by engineers at MedCom. They believe that this allows them to test equipment faster and to a higher level of certainty than their competitors are able to achieve. Production planners receive estimates from the Sales Division about what the monthly demand for each product group will be the following month. Production planners believe that this information is usually late, and they nd it is extremely inaccurate. The Sales staff request changes and make updates several times every week. Most planning and scheduling occurs every month for these product groups, then weekly for each stock peeping unit (SKU). Every year there is an annual budget and a careful evaluation of the strategic direction that the rm is taking. Information from the lower managerial levels is fed into the annual planning document, and new projections are made. 2.3 Inventory MedCom holds raw Materials, work in progress (WIP), and Finished Goods as inventory. It do not hold other types of inventory. WIP inventory is predominantly held before the two capacity constrained resources, reecting the inuence of a 'theory of constraints' seminar held several years ago. Raw materials are held in an onsite warehouse near to the main manufacturing facility. When required the materials can be withdrawn from stock and moved using manual processes to the appropriate location on the production line in a matter of hours. Finished goods inventory is held in an onsite warehouse for despatch as required. It has been noted that some inventory has been accumulated over an extended period of time, reecting the changing demand patterns in the marketplace. 2.4 Sourcing Sourcing and procurement staff frequently complain of being the last to learn about significant changes in production volumes. They are often 'caught on the wrong foot' and struggle to respond to changing production plans. This may result in expedited orders, which cause signicant cost increases but may frequently be achieved by exible, local suppliers. Changes in product designs require extensive documentation by the procurement team as they update the information management system to accommodate any changes in supply to reect this. Furthermore, any changes made by suppliers must also be reected in documentation within the information management system, enabling an auditable record to be maintained by MedCom. These regulatory requirements add signicant additional costs to MedCom each time a new vendor is used, or a vendor changes their products slightly. Local suppliers are extremely exible and are usually able to exceed specications for expedited deliveries. Many of these are SMEs that have grown with MedCom over the last twenty years, with their own success linked to MedCom's success; MedCom remains a significant customer for many key suppliers. However, with rising labour costs, the materials and services provided by these suppliers have been increasing at a rate much faster than ination. The 050 has pressured the procurement team to investigate options for reducing the procurement spend. Careful sourcing has identied several suppliers in South East Asia that can supply three key compo nents / materials that account for 25% of the cost of the capitalintensive unit, and two suppliers of compo nents / materials that account for 40% of the cost of the accessories. Preliminary investigations indicate that deliveries would be unreliable. Samples ordered also had widely varying levels of quality and careful analysis turned up some dangerous chemical compounds in the plastics from one vendor. These concerns have led to the retention of the local suppliers, although the procurement team believes that the materials costs may be reduced by 17% if sourcing the ve components / materials from the South East Asian suppliers. 2.5 Interactions with the customers There are two key market segments: hospitals (or other medical facilities) accounting for 60% of sales, and home-users (40% of sales). These segments are treated differently. Medical facilities tend to purchase larger quantities of products at irregular intervals and may have few acquisitions between these planned acquisitions. The devices are used as part of a larger treatment plan and many of the medical facilities already have similar devices installed which need to be replaced or repaired on a regular basis. These are purchased directly from MedCom. Homebased users acquire the equipment and accessories on a continuous basis, with variable but more consistent demand in each geographic region. These are purchased from distributors. The distributors engage in their own forecasts and order from MedCom, but may engage in 'panic ordering' if they find they are running low on stock. MedCom's Sales Division uses exponential smoothing forecasting techniques to forecast revenues and provides these forecasted sales gures to the Operations Manager. The historical data is shown in Table 1. 2.6 What needs to be done to x the problems Despite its excellent and modern equipment, MedCom frequently struggles to satisfy demand. Their Delivery in Full on Time in Spec (DIFOTIS) metric is only 68%. Inventory turns are only a quarter of the inventory turns at comparable companies. Marketing has reported that customer satisfaction levels are at 78% and have been dropping steadily over the last ve years. Revenues have plateaued over the last two years and the Accounting and Finance Division is projecting a fall in sales next year. The Finished Goods inventory is increasing, as some products cannot be sold. Eventually, these products must be disposed of, or liquidated, at signicantly reduced costs, before the technology becomes out-dated, the materials deteriorate (in the case of some masks and accessories), or a new generation of products are introduced (where old accessories may not be compatible with the new capitalintensive unit). The 080 wants to improve MedCom's manufacturing and supply chain performance. However, the 080 is not sure how to do this because Lean Manufacturing was previously attempted and was found to fail! The 030 has established a team to investigate these problems and provide solutions. Your project group is this team. Your team must investigate and analyse the combination of the various aspects of operations management to achieve competitive advantage and optimal performance in the supply chain. There are three roles that team members must assume in this case are