The high lead time, risks costs are certain to

The above classification shows that in this portfolio there are only 2
items out of 1149 active codes that have a stable demand with high annual
volumes and 2 more whose demand volatility is medium. 59 items have medium
volumes and around 80% of them have a medium demand volatility. What it is
astonishing is the number of SKU’s that have marginal contributions to annual
volumes in dollars, and that 90% of them have unstable demand. This
segmentation analysis leads to two main conclusions. First, this portfolio does
not provide big volumes to business. Second, 85% of the items are low-volumes
products with unstable demand. The question that arises is why DePuy Synthes
has a portfolio that does not provides any economical beneficial in terms of
annual volumes in dollars and high demand uncertainty that combined with high
lead time, risks costs are certain to increase?

The first part of the question can be easily analysed. The ABC
classification is comparing the annual usage of a single SKU with the overall
annual usage of a business unit. What it is not considered in the analysis, on
the contrary, is that medical cases are an indisputable product for every set
provided to the end-customer. Every orthopaedic surgery needs one medical case
to put all instruments and implants required. However, once a hospital has a
medical case, it can reuse it for the same types of surgeries; thus, it is not
a product that is used to be replenished but its sales come mainly from
business expansions. Flextronics is not the only medical case supplier, though,
but it has the highest market share for this product as they are cheaper
compared to other suppliers that offers more innovative products.

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As business expansions are strategically important for top management,
these medical cases tend to have higher target service level compared to the
low volumes they represent. In DePuy Synthes, the target service level is based
on marketing inputs from customer needs. Table 2 shows a segmentation based on
4 types of service level that has this portfolio and the percentage of annual
demand in units per service level. As expected, 99% of the overall annual
demand volumes comes from items that are considered critical for the business,
such as the non-stock out items (NSO); and which represents 70% of the active
codes.