3M Canada Health Care Supply Chain.docx - Problem...

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Problem Identification:Should 3M Canada’s Health Care Business Group’s Medical Division switch to directdistribution or keep relying on value-added resellers (VAR)?Criteria that the solution should fill:The distribution model must provide the best value to the Medical Division and itscustomersCost reduced or kept equalThe decision must be good for the hospitals too, so they keep getting their supplies fromthemImprove salesOther Criteria to take into account:How much would have to be changed? Marketing, sourcing, sales, accounting.Can they handle all the orders without VAR’s and their distribution? Storage, customerservice, transportation, warehouse handling, order fulfilment.Would the cost of switching cost more than what they pay for the VAR’s now (8%)?Assessment of possible alternatives:VAR distribution: 3M Canada Medical Division currently uses VAR’s for distribution of itsproducts to hospitals which is where 65% of their sales come from and the rest from out-of-hospital markets such as home care agencies, surgical centre, long-term care facilities, walk-inclinics, and private physician offices. Only 5% of the Medical Divisions sales to hospitals wereon a direct basis.Pros: VAR offered hospitals the same as the Medical Divisions direct sale for full caseshipments, but they also offered negotiable terms and conditions on their orders unlike a directdistribution from the Medical Division, and some offer small lot shipment quantities and just-in-time (JIT) deliveries. They also offer value-added services such as storage, transportation,product handling, transaction and order processing, credit management, billing, returns andinventory management. VAR’s small lot shipments are 3 out of 4 of their hospital deliveries,which is something that the Medical Division, currently, is not offering to the hospitals. The VAR

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