Owens Miner Essay

1048 Words5 Pages
Owens and Minor (A) This is a case that has relatively few calculations. However, it is a nice application of how superior costing information can help alter decisions. Also, it highlights some of the issues involved in altering behavior, particularly across organizational boundaries. 1. Evaluate the impact of cost-plus pricing on distributors, customers and suppliers. Distributors (Owens & Minor): • Some products are most costly to handle than others. Using a flat 7% across all products provides very different profit margins across products, not a clear 7%. This model is causing O&M to lose profit. • Customers are also demanding more. Previously, O&M would deliver a load weekly to the hospital dock. The hospital would then receive and breakdown the shipment. Now, many hospitals are requesting smaller shipments more frequently, modeling a JIT inventory type system. In addition, some venues are moving toward a stockless system, requiring O&M to package the production in much smaller units, usually in a plastic tote which would go directly to the nursing and surgical units, bypassing the entire storeroom processes. The following additional requirements for a sockless or JIT system add additional cost, reducing profit margin on a cost plus model; additional line item, number of PO’s, number of deliveries, special packaging requirements, bulk shipment breakdown handling, inventory carrying cost for O&M, additional staff required for the additional services. • To get reduced costs, distributors generally buy larger orders from suppliers to get an economy of scale discount. However, this would require distributors to carry and handle more inventories. • Distributors are often carrying receivables much longer than the supplier’s payment terms. This puts a constraint on cash. Customers (hospitals and health care centers): • Hospitals with

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