Owens & Minor's Case
1. What is the value-added by Owens and Minor? Is this value-addition visible?
They own and manage the inventory for the manufacture
They take on the financial risk associated with the function of managing the inventory flow to the hospitals.
They care for product returns and carry the risk for that.
They carry the receivables (cash flow issues due to long payment terms of customers; actually a 90 days credit)
They carry and manage most of the inventory for the hospitals, which are sometimes even running stockless.
They track and verify customer prices for contracted product purchases and monitor agreements between end-users and manufacturers
The distribution has changed in a way that hospitals required the distributors to carry more of the inventory and making more deliveries in lower units of measure, while keeping the same originally negotiated prices. This has put a stronger burden on the distributors.
Owens & Minor creates a clear value-add for both manufacturers and suppliers. Manufactures usually only want to produce and sell the product before getting it out of the door
Hence Owens and Minor takes the full responsibility for all stressful parts of selling a product. On the other hand customers don’t want to buy and own products before they are ready to use it.
Thus Owens and Minor also enables them to achieving more efficient structures, while reducing additional costs related to managing efficiently.
2. Evaluate the impact cost-plus pricing has on distributors, customers, and suppliers.
Suppliers:
Suppliers have no motivation to try to reduce costs and increase efficiencies since profits remain the same.
Market demand is not taken into consideration. If a supplier has a markup, which takes the reseller’s price point beyond current market prices, the reseller’s demand will decrease dramatically. Distributors:
Services related to inventory management are not included properly, since the percentage they gain is the same for all products.
They own and manage the inventory for the manufacture
They take on the financial risk associated with the function of managing the inventory flow to the hospitals.
They care for product returns and carry the risk for that.
They carry the receivables (cash flow issues due to long payment terms of customers; actually a 90 days credit)
They carry and manage most of the inventory for the hospitals, which are sometimes even running stockless.
They track and verify customer prices for contracted product purchases and monitor agreements between end-users and manufacturers
The distribution has changed in a way that hospitals required the distributors to carry more of the inventory and making more deliveries in lower units of measure, while keeping the same originally negotiated prices. This has put a stronger burden on the distributors.
Owens & Minor creates a clear value-add for both manufacturers and suppliers. Manufactures usually only want to produce and sell the product before getting it out of the door
Hence Owens and Minor takes the full responsibility for all stressful parts of selling a product. On the other hand customers don’t want to buy and own products before they are ready to use it.
Thus Owens and Minor also enables them to achieving more efficient structures, while reducing additional costs related to managing efficiently.
2. Evaluate the impact cost-plus pricing has on distributors, customers, and suppliers.
Suppliers:
Suppliers have no motivation to try to reduce costs and increase efficiencies since profits remain the same.
Market demand is not taken into consideration. If a supplier has a markup, which takes the reseller’s price point beyond current market prices, the reseller’s demand will decrease dramatically. Distributors:
Services related to inventory management are not included properly, since the percentage they gain is the same for all products.