Owens & Minor case for aligning supply chain incentives
Executive Summary
Statement of issues: Due to the changes of business environment, O&M suffered a continuous loss on business. Instead of acting individually, customers formed buying groups and combined buying power to gain advantages in negotiating gross margin with distributor. With the increased popularity of JIT and stockless idea, customers want to shift cost and risk associated with inventory to distributor, and they also want distributor to provide better services at its own expense. Moreover, competitions from private label distributors and manufacturing distributors further squeezed profit margin of our company.
Owens and Minor play a very important role in the entire SC. They are in charge of providing information to manufacturers on product flow. Their services to the hospitals include storing the inventory in their warehouse and making constant shipments based on stockless and JIT strategy, thus taking all the financial risk in inventory handling and storage. They don't add value to the product itself, but they do add a lot of value to the SC.
The nature of distribution has changed over time. The bargaining power of hospital has increased due to mergers and alliances, pressuring the distributors to reduce their margins. Upstream members of the SC have also put some pressure on O&M to take additional cost in their operations.
If the ABP strategy could be successfully implemented, both distributor's and customers' incentives could be allied. Customers would be willing to order expensive products via distributors' channel instead of buying directly from manufacture.
Generally, customers who could reduce or simplify the activities happened through the supply chain would adopt ABP faster. Also, customers who understood and were willing to develop a sustainable relationship with distributors would adopt the ABP first.
ABP was a new concept and its value had not been proven. Aggressive implementation of new idea such as ABP might drive customers away and
Statement of issues: Due to the changes of business environment, O&M suffered a continuous loss on business. Instead of acting individually, customers formed buying groups and combined buying power to gain advantages in negotiating gross margin with distributor. With the increased popularity of JIT and stockless idea, customers want to shift cost and risk associated with inventory to distributor, and they also want distributor to provide better services at its own expense. Moreover, competitions from private label distributors and manufacturing distributors further squeezed profit margin of our company.
Owens and Minor play a very important role in the entire SC. They are in charge of providing information to manufacturers on product flow. Their services to the hospitals include storing the inventory in their warehouse and making constant shipments based on stockless and JIT strategy, thus taking all the financial risk in inventory handling and storage. They don't add value to the product itself, but they do add a lot of value to the SC.
The nature of distribution has changed over time. The bargaining power of hospital has increased due to mergers and alliances, pressuring the distributors to reduce their margins. Upstream members of the SC have also put some pressure on O&M to take additional cost in their operations.
If the ABP strategy could be successfully implemented, both distributor's and customers' incentives could be allied. Customers would be willing to order expensive products via distributors' channel instead of buying directly from manufacture.
Generally, customers who could reduce or simplify the activities happened through the supply chain would adopt ABP faster. Also, customers who understood and were willing to develop a sustainable relationship with distributors would adopt the ABP first.
ABP was a new concept and its value had not been proven. Aggressive implementation of new idea such as ABP might drive customers away and