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Total Supply Chain Cost Essay

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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 …show more content…

On top of that fee, there is a $36,000 internal cost to VM to process the purchase order outside of the TSCC system. * In this example it would cost an additional $42,630 to go outside of the Alpha System with a new distributor. * Suture activity through O&M does not generate additional purchase orders which allow the cost to remain low to O&M. Even with the added line number fees and Alpha Fee, the savings to the client and O&M are obvious. Exhibit 7 | Suture Vendor Change Analysis | Description | Variables | Non-Alpha Cost | Alpha Cost | Estimated Purchase Orders 2008 | 400 | | | Estimated Purchases 2008 | 762,000 | 762,000 | 762,000 | Non-Alpha Purchase Order Costa | 90 | 36,000 | | Alpha Line Cost (at $0.30/line) b | 12,000 lines | | $ 3,600 | Non-Alpha Mark up (Cost-plus % of sales) | 1.50% | $ 11,430 | | Alpha Fee c | | | $ 4,200 | Non-Alpha Shipping | $7.50 per order | $ 3,000 | | Alpha Shipping | - | | - | | | | | Product Cost | | $ 812,430 | $ 769,800 | Total Annual Cost of Change | | $ 42,630 | |

What are the advantages and disadvantages of cost-plus pricing relative to the TSCC pricing program?

Cost-plus pricing is easy to calculate and requires little information. The fees are easy to explain and

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