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Posted on Sep 05, 2024

Please answer the following for this case: What are the services rendered by the distributor to manufacturers and hospitals? How has the nature of distribution

Please answer the following for this case:

1. What are the services rendered by the distributor to manufacturers and hospitals?
  1. How has the nature of distribution changed over time?
  2. What is the value-added by O&M?
2. Evaluate the impact cost-plus pricing has on distributors, customers and suppliers
3. What effect will ABP have on customer behavior?
4. Explain Exhibit 5. How does the pricing matrix work?
  1. How do the costs in Exhibit 5 correspond to the costs shown in the customer profitability statement in Exhibit 4?
  2. Why doesnt the matrix comprise all the costs shown in Exhibit 4?
5. What are the obstacles to successful implementation of ABP at Ideal? How would you address these obstacles?
6. What type of customer will adopt ABP first?
7. How difficult or easy is it for O&Ms rivals to adopt ABP?
8. What are the risks associated with ABP for Owens & Minor?
9. Work through the Owens and Minor numerical example posted on Blackboard by filling in the template provided.

\begin{tabular}{|c|c|c|c|c|} \hline Activity Levels & Alpha Hospital & & Bet & sspital \\ \hline Sales & s & 150,000 & $ & 300,000 \\ \hline Orders/month & & 400 & & 660 \\ \hline Lines/month & & 11,000 & & 20,000 \\ \hline Deliveries/month & & 7 & & 10 \\ \hline \% EDI orders & & 95% & & 95% \\ \hline Accounts Receivables & & $75,000 & & $150,000 \\ \hline Emergency Orders/Month & & 6 & & 6 \\ \hline Vendor Discounts & & $4035 & & $8070 \\ \hline \end{tabular} Numerical Exercise Solution Template \begin{tabular}{|c|c|c|c|c|c|} \hline Cost Driver & Rate & \begin{tabular}{l} Alpha \\ Volume \end{tabular} & \begin{tabular}{l} Beta \\ Volume \end{tabular} & \begin{tabular}{c} Alpha \\ Volume \\ One-Year \\ Later \end{tabular} & \begin{tabular}{c} Beta Volume \\ One-Year \\ Later \end{tabular} \\ \hline Number of Orders & & 750 & 333 & 400 & 660 \\ \hline EDI Orders & $4.5 & 25% & 95% & 95% & 95% \\ \hline Non-EDI Orders & \$ 9.01 & 75% & 5% & 5% & 5% \\ \hline Lines & \$ 0.66 & 15,000 & 10,000 & 11,000 & 20,000 \\ \hline Deliveries & $457.58 & 12 & 10 & 7 & 10 \\ \hline Accounts Receivable & 8.64%/yr & $300,000 & $75,000 & $75,000 & $150,000 \\ \hline Emergency Orders & \begin{tabular}{ll} 5 & 25 \end{tabular} & 20 & 10 & 6 & 6 \\ \hline Shipping and Handling & \begin{tabular}{l} 5 \\ 130 \end{tabular} & 12 & 10 & 7 & 10 \\ \hline Product Sales/month & & $150,000 & $150,000 & $150,000 & $300,000 \\ \hline Cost Plas Margin & & $22,500 & & - & - \\ \hline ABP Fees & & - & - & & \\ \hline Total Monthly Revenue & & $172,500 & & & \\ \hline Less:cogs & & $150,000 & $150,000 & $150,000 & $300,000 \\ \hline Add: Vendor Discounts & & $4,035 & $4,035 & $4,035 & $8,070 \\ \hline Monthly Gross Margin & & $26,535 & & & \\ \hline EDI Order Casts & & $844 & & & \\ \hline NonEDI Order Costs & & $5,068 & & & \\ \hline Line Costs & & $9,900 & & & \\ \hline Shipping and Handling & & $1,560 & & & \\ \hline Delivery Cost & & $5,491 & & & \\ \hline Emergency Orders & & s 500 & & & \\ \hline Interest & & $2,160 & & & \\ \hline Procurement & & $1,486 & & & \\ \hline Labeling & & $1,000 & & & \\ \hline Account Management & & $991 & & & \\ \hline \end{tabular} Work through the following numerical exercise by filling in the template provided: (A) You are an account manager at Owens \& Minor. You have two customers on a stockless program. Below are each customer's activity levels, activity rates, and customer level costs. See Alpha Hospital - Customer Profitability Statement (Exhibit 4 in Owens \& Minor, Inc. Case A). Draft a customer profitability statement for Beta Hospital by filling in the template provided. (B) It is one year later. Both your customers switched to Activity-Based Pricing (ABP) nine months ago. You charge each customer what it casts you to provide service, making margin only on distributor discounts. Draft new customer profitability statements for both Alpha Hospital and Beta Hospital using the new activity drivers shown below: What is the cost-plus equivalent of the activity fee each customer is charged? Explain why each customer responded differently to activity-based pricing. Numerical Exercise Solution Template \begin{tabular}{|c|c|c|c|c|c|} \hline Cost Driver & Rate & \begin{tabular}{l} Alpha \\ Volume \end{tabular} & \begin{tabular}{l} Beta \\ Volume \end{tabular} & \begin{tabular}{c} Alpha \\ Volume \\ One-Year \\ Later \end{tabular} & \begin{tabular}{c} Beta Volume \\ One-Year \\ Later \end{tabular} \\ \hline Number of Orders & & 750 & 333 & 400 & 660 \\ \hline EDI Orders & \begin{tabular}{ll} & 4.5 \end{tabular} & 25% & 95% & 95% & 95% \\ \hline Non-EDI Onders & \begin{tabular}{ll} & 9.01 \end{tabular} & 75% & 5% & 5% & 5% \\ \hline Lines & \& 0.66 & 15,000 & 10,000 & 11,000 & 20,000 \\ \hline Deliveries & $457.58 & 12 & 10 & 7 & 10 \\ \hline Accounts Reccivable & 8.64%yr & $300,000 & $75,000 & $75,000 & $150,000 \\ \hline Emergency Orders & \begin{tabular}{ll} & 25 \end{tabular} & 20 & 10 & 6 & 6 \\ \hline Shipping and Handting & 1305 & 12 & 10 & 7 & 10 \\ \hline Product Sales/month & & $150,000 & $150,000 & $150,000 & $300,000 \\ \hline Cost Plus Margin & & $22,500 & & - & - \\ \hline ABP Fees & & - & - & & \\ \hline Total Monthly Revense & & $172,500 & & & \\ \hline Less COGS & & $150,000 & $150,000 & $150,000 & $300,000 \\ \hline Add: Vendor Discounts & & $4,035 & $4,035 & $4,035 & $8,070 \\ \hline Monthly Gross Margin & & $26,535 & & & \\ \hline EDI Onder Costs & & 5844 & & & \\ \hline NonEDI Order Costs & & $5,068 & & & \\ \hline Line Costs & & $9,900 & & & \\ \hline Shipping and Handling & & $1,560 & & & \\ \hline Delivery Cost & & $5,491 & & & \\ \hline Emergency Orders & & $500 & & & \\ \hline Interest & & $2,160 & & & \\ \hline Procurement & & $1,486 & & & \\ \hline Labeling & & $1,000 & & & \\ \hline Account Management & & $991 & & & \\ \hline Occupancy & & $1,007 & & & \\ \hline Group Fees & & S 750 & & & \\ \hline Total Monthly Cost & & 530,757 & & & \\ \hline Net Operating Profit & & 54,222 & & & \\ \hline \begin{tabular}{l} Cest Plus/Equivalent Cost \\ Plus \end{tabular} & & 15% & & & \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|} \hline Activity Levels & Alpha Hospital & & Bet & sspital \\ \hline Sales & s & 150,000 & $ & 300,000 \\ \hline Orders/month & & 400 & & 660 \\ \hline Lines/month & & 11,000 & & 20,000 \\ \hline Deliveries/month & & 7 & & 10 \\ \hline \% EDI orders & & 95% & & 95% \\ \hline Accounts Receivables & & $75,000 & & $150,000 \\ \hline Emergency Orders/Month & & 6 & & 6 \\ \hline Vendor Discounts & & $4035 & & $8070 \\ \hline \end{tabular} Numerical Exercise Solution Template \begin{tabular}{|c|c|c|c|c|c|} \hline Cost Driver & Rate & \begin{tabular}{l} Alpha \\ Volume \end{tabular} & \begin{tabular}{l} Beta \\ Volume \end{tabular} & \begin{tabular}{c} Alpha \\ Volume \\ One-Year \\ Later \end{tabular} & \begin{tabular}{c} Beta Volume \\ One-Year \\ Later \end{tabular} \\ \hline Number of Orders & & 750 & 333 & 400 & 660 \\ \hline EDI Orders & $4.5 & 25% & 95% & 95% & 95% \\ \hline Non-EDI Orders & \$ 9.01 & 75% & 5% & 5% & 5% \\ \hline Lines & \$ 0.66 & 15,000 & 10,000 & 11,000 & 20,000 \\ \hline Deliveries & $457.58 & 12 & 10 & 7 & 10 \\ \hline Accounts Receivable & 8.64%/yr & $300,000 & $75,000 & $75,000 & $150,000 \\ \hline Emergency Orders & \begin{tabular}{ll} 5 & 25 \end{tabular} & 20 & 10 & 6 & 6 \\ \hline Shipping and Handling & \begin{tabular}{l} 5 \\ 130 \end{tabular} & 12 & 10 & 7 & 10 \\ \hline Product Sales/month & & $150,000 & $150,000 & $150,000 & $300,000 \\ \hline Cost Plas Margin & & $22,500 & & - & - \\ \hline ABP Fees & & - & - & & \\ \hline Total Monthly Revenue & & $172,500 & & & \\ \hline Less:cogs & & $150,000 & $150,000 & $150,000 & $300,000 \\ \hline Add: Vendor Discounts & & $4,035 & $4,035 & $4,035 & $8,070 \\ \hline Monthly Gross Margin & & $26,535 & & & \\ \hline EDI Order Casts & & $844 & & & \\ \hline NonEDI Order Costs & & $5,068 & & & \\ \hline Line Costs & & $9,900 & & & \\ \hline Shipping and Handling & & $1,560 & & & \\ \hline Delivery Cost & & $5,491 & & & \\ \hline Emergency Orders & & s 500 & & & \\ \hline Interest & & $2,160 & & & \\ \hline Procurement & & $1,486 & & & \\ \hline Labeling & & $1,000 & & & \\ \hline Account Management & & $991 & & & \\ \hline \end{tabular} Work through the following numerical exercise by filling in the template provided: (A) You are an account manager at Owens \& Minor. You have two customers on a stockless program. Below are each customer's activity levels, activity rates, and customer level costs. See Alpha Hospital - Customer Profitability Statement (Exhibit 4 in Owens \& Minor, Inc. Case A). Draft a customer profitability statement for Beta Hospital by filling in the template provided. (B) It is one year later. Both your customers switched to Activity-Based Pricing (ABP) nine months ago. You charge each customer what it casts you to provide service, making margin only on distributor discounts. Draft new customer profitability statements for both Alpha Hospital and Beta Hospital using the new activity drivers shown below: What is the cost-plus equivalent of the activity fee each customer is charged? Explain why each customer responded differently to activity-based pricing. Numerical Exercise Solution Template \begin{tabular}{|c|c|c|c|c|c|} \hline Cost Driver & Rate & \begin{tabular}{l} Alpha \\ Volume \end{tabular} & \begin{tabular}{l} Beta \\ Volume \end{tabular} & \begin{tabular}{c} Alpha \\ Volume \\ One-Year \\ Later \end{tabular} & \begin{tabular}{c} Beta Volume \\ One-Year \\ Later \end{tabular} \\ \hline Number of Orders & & 750 & 333 & 400 & 660 \\ \hline EDI Orders & \begin{tabular}{ll} & 4.5 \end{tabular} & 25% & 95% & 95% & 95% \\ \hline Non-EDI Onders & \begin{tabular}{ll} & 9.01 \end{tabular} & 75% & 5% & 5% & 5% \\ \hline Lines & \& 0.66 & 15,000 & 10,000 & 11,000 & 20,000 \\ \hline Deliveries & $457.58 & 12 & 10 & 7 & 10 \\ \hline Accounts Reccivable & 8.64%yr & $300,000 & $75,000 & $75,000 & $150,000 \\ \hline Emergency Orders & \begin{tabular}{ll} & 25 \end{tabular} & 20 & 10 & 6 & 6 \\ \hline Shipping and Handting & 1305 & 12 & 10 & 7 & 10 \\ \hline Product Sales/month & & $150,000 & $150,000 & $150,000 & $300,000 \\ \hline Cost Plus Margin & & $22,500 & & - & - \\ \hline ABP Fees & & - & - & & \\ \hline Total Monthly Revense & & $172,500 & & & \\ \hline Less COGS & & $150,000 & $150,000 & $150,000 & $300,000 \\ \hline Add: Vendor Discounts & & $4,035 & $4,035 & $4,035 & $8,070 \\ \hline Monthly Gross Margin & & $26,535 & & & \\ \hline EDI Onder Costs & & 5844 & & & \\ \hline NonEDI Order Costs & & $5,068 & & & \\ \hline Line Costs & & $9,900 & & & \\ \hline Shipping and Handling & & $1,560 & & & \\ \hline Delivery Cost & & $5,491 & & & \\ \hline Emergency Orders & & $500 & & & \\ \hline Interest & & $2,160 & & & \\ \hline Procurement & & $1,486 & & & \\ \hline Labeling & & $1,000 & & & \\ \hline Account Management & & $991 & & & \\ \hline Occupancy & & $1,007 & & & \\ \hline Group Fees & & S 750 & & & \\ \hline Total Monthly Cost & & 530,757 & & & \\ \hline Net Operating Profit & & 54,222 & & & \\ \hline \begin{tabular}{l} Cest Plus/Equivalent Cost \\ Plus \end{tabular} & & 15% & & & \\ \hline \end{tabular}