The durable medical equipment market is worth 35 Billion USD annually in the United States.Durable medical equipment (DME) is defined as instruments and products used for medical purposes that can withstand repeated uses.DME is used primarily to help improve the quality of life for patients with injuries or illnesses.The DME market is divided into six therapeutic segments:

Home respiratory therapy

Home infusions

Diabetes supplies

Patient positioning

Patient mobility

Other equipment

DME products are distributed primarily by national and local distributors; and other channels such as internet sales.The market is complex and highly fragmented making customer relationship management an imperative to success.

Medi-Lab is a Canadian company that has 95% of their $3 billion annual sales in the United States.They manufacture and distribute equipment in the Diabetes Supplies, Home Infusions, and Home respiratory therapy segments.Their customers are comprised of retailers, hospitals and therapy clinics.Generally these organizations are serviced by Medi-Lab sales representatives.To support the home healthcare market they also provide internet sales.The internet pricing is carefully managed so it does not undercut the pricing of the brick and mortar retail distribution network.

The company employs 2,800 staff members, 2000 of which are located at the manufacturing sites, 500 are located a head office in Mississauga, and 300 are located across the United States managing the customer relationships.The manufacturing operations are located in Mississauga, Montreal, and Calgary as these locations are close to the US border.Raw materials are located in warehouses at the manufacturing sites but finished products are produced on a just-in-time basis and are immediately shipped by air, rail or truck to US customers.Due to the complexity of the processes and the complexity of the customer base, the company must have up to date information about their operations to ensure customer demands are met on time and on budget.

Medi-Lab produce their financial statements in accordance with IFRS and US GAAP. They report their results in US dollars on a monthly basis and they have a December 31^st year end. Medi-Lab stocks are traded on the TSX and they utilize loans obtained from US banks to fund their operations.To help managed their operations they employ an ERP system that utilizes systems modules for sales, procurement, manufacturing, financing, and HR/payroll.

Each region is a profit center.That is sales are attributed to the region and the associated costs of manufacturing are also attributed to these sites.This creates fierce competition between the manufacturing locations which helps to hold the line on costs.Bill Murray believes that competition is at the heart of good management.The bonuses of the Regional VP's is higher for the region that makes the most profit and the bonus' drop dramatically for the region that comes last. Bill Murray believes his process is effective as the Regional Vice Presidents really work hard to achieve their results in comparison to the budget.The organizational structure is shown below:

The company has been experiencing issues with raw material inventory and this has Bill Murray worried.The inventory levels in the system do not appear to agree with the inventory in the warehouse in the Western Region.Manufacturing is experiencing shortages which is resulting in interrupted customer supply.When the Western manufacturing production planner specifies particular raw materials on the production orders, the site is substituting other raw materials to keep the manufacturing process in operation.These substituted raw materials are higher in price resulting in higher manufacturing costs in that specific region.

Each manufacturing facility has its own procurement manager.The regional procurement managers have staff that also purchase for the sales and distribution teams in the specific region.The Western procurement manager position has been vacant for four months and Sidney Sheppard is managing the procurement team directly.He is responsible to approve the purchase orders for raw materials.Sidney Sheppard has been trying to hire a new procurement manager but HR does not appear to be sending him appropriate candidates.He has rejected all candidates over the past six months.At one point, HR hired a candidate but the individual resigned from the position after only six weeks on the job.The company does not have a policy of holding exit interviews so HR was not apprised of the reason for their departure.Sidney Sheppard indicated that the candidate was a bad fit for the team and did not get along with other employees in the area.

Each region also has their own accounting teams that report through the Regional Vice Presidents.These individuals have a dotted line to the CFO.There is no corporate controllers or controllers at the manufacturing sites.The accounting team is responsible to produce all the managerial and financial reports as well as manage all the data input and balance sheet account reconciliations.On a monthly basis the accounting team makes adjusting journal entries for accounting estimates such as allowance for doubtful accounts, and provisions for warranty claims based on recommendations by the regional vice presidents.The CFO does not approve these adjustments but it is assumed they have the knowledge and authority to make these adjustments.There is no formal delegation of authority guideline.

The reports the accounting department produces compares actual results to budgeted results on a monthly and year to date basis and actual results to prior year actual results.Prior to the quarter end, the budget is adjusted for current market trends.On a go forward basis the actual results are compared to the adjusted budget.The CFO, Adnan Sohari has indicated this is an appropriate methodology, given the fluid and complex nature of the industry.The changes to the budget are approved by the Regional Vice Presidents.

The CIO is responsible for all the computer systems including network maintenance, security, and maintenance of the ERP system.The sales module of the ERP system has been under constant development.All custom contracts developed by the sales department and forwarded to the IT department and they program the system to accommodate the new contracts.The system is tested by the IT department and then the changes are transported into the production system.This process of constant revisions is putting stress on the IT department so the CIO is considering outsourcing to a third party provider the management of data storage and network access maintenance and control.She was planning to keep the ERP maintenance in-house.The on-line sales portion of the business is also a stressor for Zhoulin Cheong.There is a monthly negotiation as to how the sales are allocated between the regions with Bill Murray making the final call.The constant revisions on the allocation process require IT resources to be expended unnecessarily.

Due to the reporting requirements for the TSX, the company must undergo an annual audit of both their IT system and their financial reports.These audited financial statements are also required by the bank to support the continuation of the bank loans.For the bank loans, the company also must meet several debt covenants.The company must maintain a certain debt to equity ratio and they also must maintain their current ratio above a certain minimum level.In the last audit, the company failed the systems security test and now the external auditors were requiring the accounting department to provide supporting documentation for all journal entries.Supporting documentation does not appear to be available for the adjusting journal entries for warranty liabilities, adjustments to allowance for doubtful accounts, and nor do sales contracts appear to be signed and approved for several large custom sales contracts for which the sales module was programmed to handle.

1-identify three events in the case

2analyse the case using the management models available in the support document file (be sure to make seven points management models.

recommend three steps Medi-Lab can employ to improve their efficiency and effectiveness