Medical Products Company is a supplier of medical devices to hospitals, clinics, and physician offices. They have two product sectors, Disposable and Diagnostics and have factories around the world. Disposable Devices account for over half of their total sales and include hypodermic syringes and needles, diabetic care products, intravenous catheters, prefillable syringes, and medical gloves. MPC has always been an industry leader but the rise of competition has forced them to improve and make changes to their overall business plan.
The factories in the European sector have been recognized as problematic due to their low profits caused by the inability to meet capacity. The initial plan was to close down one of six European manufacturing plants. As which plant to close was discussed, several issues arose. The first being the high cost of shutting a plant down. Employee severance packages would need to be paid as well as an $8 million writedown in assets. Despite a fairly gloomy outlook in Europe, the fall of communism in Russia and Eastern Europe sparked potential for an entirely new market.
It was these events that caused the company to readdress their manufacturing strategy in Europe. There are several organization issues that are created with each sector that the company could address to increase capacity and help give them an edge over the competition. We believe that structure is an issue that should be addressed within all the plants. Currently, the Zaragoza plant is the only plant operating to both efficiency and capacity.
The Enis, Limerick, San Miguel, and Kraus plants are currently only operating on average 240 days per year. This is not allowing them to reach full capacity due to the new market potential and increasing demand. At the Enis plant, their complex product mix of over 120 different items is causing high costs due to machine changeover time and high labor costs. They are also experiencing poor process controls, poor worker attitudes, outdated equipment, and inadequate preventative maintenance.
This results in higher reject rates and ultimately a lower overall yield. At the Limerick plant there is a limited product range and they are also experiencing poor molding efficiency and a high number of line stops. This has resulted in a 30% higher manufacturing cost compared to the cost of producing the same products in the US. The Kraus plant has a high level of quality but experiences high manufacturing costs due to a low rate of capacity utilization. They have outdated equipment and an inadequate facility.
In order to combat these issues, a strategic five year plan must be implemented. Year 1 We would promote the manager of the Zaragoza and San Miguel plant to head of European operations due to his continued success and efficiency. There will still be a separate manager at each plant, however they will report directly to him and he will be free to make changes, recommendations and improvements. Steps to improve would be as follows: * 325 day work year for all plants. * Impose quality standards and efficiency goals.
* Employee extensive training. * Preventative maintenance requirements * Work with Finance and Marketing departments to determine costs estimates of expansion as well as market potential for these areas. * Discover which plant is best at producing which product. * Begin to think about expansion at Zaragoza. * Identify the need to plan on moving the Kraus plant. Year 2 * Fully equip and staff Zaragoza expansion, begin production. * Start building the Kraus plant at the designated location.
* Based on finance and marketing recommendations, expand onto new markets where profit potential is greatest and resources are available to finance entry into new plants. * Increase efficiency goals for higher market share. Years 3 – 5 * Monitor Zaragoza to make sure the expansion is meeting expectations, make changes if necessary. * New Kraus location, fully operational. * Monitor German and Russian Markets to insure desired outcomes. Conclusion Through careful evaluation we have found several operational issues with the Medical Products Company.
The majority of these issues are found in the European sector of this company, thus causing a need for a strategic reevaluation. We have named several operational and plant specific issues, all of which contribute to the inability to operate at capacity. With the increased demand coming from the new market opportunities, fixing these issues is crucial to the company’s overall success. We believe that through the use of our strategic five year plan, Medical Products Company will be able to effectively meet capacity and take full advantage of the new market potential.