Total Supply Chain Cost
What is your evaluation of the Total Supply Chain Cost (TSCC) program developed by Owens & Minor and Virginia Mason? * Virginia Mason Medical Center (VM) hired Owens & Minor (O&M) as its alpha vendor for medical/surgical supplies in 2004. At that time O&M was performing JIT and low unit measure services for VM. Together VM and O&M worked together to create a new supply chain process called the Total Supply Chain Cost (TSCC) pricing program. * TSCC was is an activity-based model that assigned all the cost drivers of distribution and inventory handling to VM, while also guaranteed O&M a profit. * TSCC uses the Alpha system which created exclusive relationships with a few key vendors that acted a
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Clients must pay an Alpha line fee for each line item on a order, plus a Alpha fee every month for the right to purchase sutures from the TSCC system. The benefit of this is that TSCC motivates client and distributor to work together and increase efficiency for both. The client will work to lower the number of line items per order in order to reduce the total cost of Alpha Line Cost. By doing this the client is also lowering the distributors cost, since the less line items order will mean a lower number of different items they will have to keep in inventory. If the client is only ordering one type of latex glove, then the distributor will not incur expenses to order multiple different kinds of latex gloves, process them, store them, and deliver them. Therefore TSCC results in a cost savings to the distributor which flows down the client.
Even though TSCC provides saving s overall it is difficult to explain to clients that are used to a simple Cost-Plus system. Also, clients may be reluctant to make such a commitment to a distributor.
How does Virginia Mason’s lean philosophy affect the partnership?
* VM’s “Everyday lean idea” philosophy focused on the concept that all employees should continually attempt to reduce waste and add value in every facet of their jobs. This philosophy allows them to be open and willing to implementing TSCC and reduce