Owens & Minor's Case Essay

Decent Essays

1. What is the value-added by Owens and Minor? Is this value-addition visible?
They own and manage the inventory for the manufacture
They take on the financial risk associated with the function of managing the inventory flow to the hospitals.
They care for product returns and carry the risk for that.
They carry the receivables (cash flow issues due to long payment terms of customers; actually a 90 days credit)
They carry and manage most of the inventory for the hospitals, which are sometimes even running stockless.
They track and verify customer prices for contracted product purchases and monitor agreements between end-users and manufacturers
The distribution has changed in a way that hospitals required the distributors to carry …show more content…

They have the drawback of customers engaging in cherry-picking and only enabling the distributors to manage low-margin, inexpensive products.
Cost-plus pricing lead to a complicated pricing structures, since distributors and customers negotiated separate product prices from manufacturers, introduced incentives, let prices vary from customer to customer, covered some products by contract and some don’t etc.
Hence purchasing managers were nearly unable to properly track actual product costs and compare quotes from competing manufacturers and distributors.
3. What effect will ABP have on customer behavior? Provide an example to illustrate.

ABP connects O&M‘s fee to the level of the service they provide:

Customer is motivated to keep its activities down to a minimum level and only order services that he really needs­
ABP helps customers to optimize their service-level and hence their costs.
Customers who want to extend their service-level can get this because there is a way for O&M to price a higher service-level ­
They came up with a relatively simple matrix based on two major cost drivers—number of purchase orders per month and number of lines per purchase order. The number of orders was tied to our fixed administrative fees and the number of lines was tied to our variable costs—the number of times a worker had to go to a product rack, etc.
It was a very primitive way to

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