Supply Chain Partners: Virginia Mason and Owens & Minor (A) (Abridged) case study tells of how two companies that continuously experience inefficiency and fragmentation in the healthcare system supply chain came up with a solution. The two companies, Virginia Mason (VM) and Owens & Minor (OM), have partnered to establish a new activity-based pricing method called the Total Supply Chain Cost (TSCC) method. The TSCC method was designed to audit supply chain activities in more detail and capture more activity-based costs in the pricing model. The issue is to evaluate if the TSCC method is worth implementing and assess the changes that need to take place to assure that both organizations can reach their strategic goals.
V.G. Narayanan; Lisa Brem
Harvard Business Review (110063-PDF-ENG)
April 14, 2010
Case questions answered:
- Identify the issue.
- Analyze and evaluate the situation.
- Provide recommendations and alternatives.
Not the questions you were looking for? Submit your questions & get answers.
Case answers for Supply Chain Partners: Virginia Mason and Owens & Minor (A) (Abridged)
Identification of Issues
Two companies, Virginia Mason (VM) and Owens & Minor (OM), have partnered to establish a new activity-based pricing method called the Total Supply Chain Cost (TSCC) method. Historically, both companies experienced inefficiency and fragmentation in the healthcare system supply chain. The TSCC method was designed to audit supply chain activities in more detail than previously available and capture more activity-based costs in the pricing model.
The activity-based pricing method provides the two companies with a better financial snapshot of fees generated from supply chain activities, which in turn shifts their focus from centering on purchasing price to incorporating costs of transportation and storage of products. The issue is to evaluate if the TSCC method is worth implementing and assess the changes that need to take place to assure that both organizations can reach their strategic goals.
Stakeholder Perspectives
The two companies are trying to implement a pricing model that is based on all costs incurred in getting supplies from the manufacturer to the provider. The pricing model is meant to incentivize the two firms to create a supply chain that is similar to the horizontal flow of goods and services that takes place between two internal departments. However, unlike two internal departments transferring goods and services between each other, VM and OM must both keep their organizations’ strategic goals at the forefront of any decisions they make. OM’s main goal is to cut costs, while VM’s strategic goal is based on quality care that arises from the concept of teamwork.
The differences between the two strategic goals have led to the development of a pricing model that ignores VM’s main objective.
- Michael Stefanic and OM’s cost management team are responsible for lowering the costs incurred in the delivery process. The team is interested in creating value for OM’s customers by reducing costs through efficiency and helping customers meet their strategic goals.
- Daniel Borunda is responsible for ensuring the supply needs of the providers are met. He wants to provide a leaner process by improving efficiency and cutting waste. He is also responsible for aligning his decisions to meet the non-profit’s strategies.
Analysis and Evaluation
Supply chain costs typically account for approximately 55 percent of the total product cost (Lapinskaitė & Kuckailytė, 2014, p. 110), and reducing procurement costs can have a dramatic effect on the bottom line. A five percent cut can translate to a 30 percent increase in profits (Degraeve and Roohooft, 2001). The implementation of the TSCC method would…
Unlock Case Solution Now!
Get instant access to this case solution with a simple, one-time payment ($24.90).
