CASE STUDY

Supplies$4$medics.com

Founded almost $20$ years ago,

supplies$4$medics.com has become one of Europe's most successful direct mail suppliers of medical hardware and consumables to hospitals, doctors" and dentists' surgeries, clinics, nursing homes and other medical$-$related organisations. Its physical and online catalogues list just over $4,000$ items, categorised by broad applications such as 'hygiene consumables' and 'surgeons' instruments'. Quoting their website:

We are the pan$-$European distributors of wholesale medical and safety supplies... We aim to carry everything you might ever need; from nurses' scrubs to medical kits, consumables for operations, first$-$aid kits, safety products, chemicals, fire$-$fighting equipment, nurse and physicians' supplies, etc. Everything is at affordable prices $-$ and backed by our very superior customer service and support $-$ supplies$4$medics is your ideal source for all medical supplies. Orders are normally dispatched same$-$day, via our European distribution partner, the Brussels Hub of DHL$.$ You should therefore receive your complete order within one week, but you can request nextday delivery if required, for a small extra charge. You can order our printed catalogue on the link at the bottom of this page, or shop on our easy$-$to$-$use online store'.

Last year turnover grew by over $25$ per cent to about $120$ million, a cause for considerable satisfaction in the company. However, profit growth was less spectacular; and market research suggested that customer satisfaction, although generally good, was slowly declining. Most worrying, inventory levels had grown faster than sales revenue, in percentage terms. This was putting a strain on cash flow, requiring the company to borrow more cash to fund the rapid growth planned for the next year. Inventory holding is estimated to be costing around $15$ per cent per annum, taking account of the cost of borrowing, insurance and all warehousing overheads.

Pierre Lamouche, the Head of Operations summarised the situation faced by his department: $\text{'}$As a matter of urgency, we are reviewing our purchasing and inventory management systems! Most of our existing re$-$order levels $(ROL)$ and re$-$order quantities $($ROQ$)$ were set several years ago, and have never been recalculated. Our focus has been on rapid growth through the introduction of new product lines. For more recently introduced items, the ROQs were based only on forecast sales, which actually can be quite misleading. We estimate that it costs us$,$ on average, $50$ to place and administer every purchase order, since most suppliers are still not able to take orders online or by EDI. In the meantime, sales of some products have grown fast, while others have declined. Our average inventory $($stock$)$ cover is about $10$ weeks, but $-$ amazingly $-$ we still run out of critical items! In fact, on average, we are currently out of stock of about $500$ SKUs $($stock keeping units$)$ at any time. As you can imagine, our service level is not always satisfactory with this situation. We really need help to conduct a review of our system, so have employed a mature intern from the local business school to review our system. He has first asked my team to provide information on a random, representative sample of $20$ items from the full catalogue range' $($see Table $13\mathrm{.}11).$

CHAPTER $13$ INVENTORY MANAGEMENT

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Table $13\mathrm{.}11$ Representative sample of $20$ catalogue items

$\backslash$table$[[\backslash$table$[[$Sample$],[$Number$]],\backslash$table$[[$Catalogue$],[$reference$],[$number$*]],$Sales unit description $**,\backslash$table$[[$Sales unit$],[$cost $()$