Owens & Minor

Brian Oulay

Dr. Civelek

MGT 314

May 5, 2016

Honors Case: Owens and Minor

1. What are the services rendered by the distributor to manufacturers and hospital?

Distributors are able to benefit both manufacturers and hospitals. Manufacturers desired shipping large quantities of products to few customers. They wanted to have fewer orders of larger sizes in order to reduce costs. Hospitals also wanted to reduce costs. Hospitals did not want to own, store, and manage large medical supply inventories. Distributors were in the middle of the two, solving problems for both sides.

2. Evaluate the impact cost-plus pricing has on distributors, customers, and suppliers. What effect will ABP have on customer behavior?

The cost-plus pricing method allowed customers to demand higher service levels of distribution from O&M. Customers were encouraged to shift their costs to distributors. Customers demanded distributors store more inventory and make more deliveries without any added cost to the customer. Distributors were forced to satisfy customers in order to maintain a relationship. Under cost-plus pricing, customers wanted to purchase supplies from manufacturers to avoid distribution fees. This conflicted with the manufacturers desire to ship large volumes.

The effect ABP has on customer behavior is the incentive to keep activities at a minimum. This reduces the amount of times O&M has to deliver products to customers, which provides efficiency for both parties. Since ABP connects distribution fees to the level of service, it forces customers to optimize their service levels while lowering costs for distributors.

3. What are the obstacles to successful implementation of ABP at Ideal. How would you address these obstacles? What are the risks associated with ABP for Owens and Minor?

Due to the long-term relationship hospitals had using cost-plus percentages, essentially all of Ideal’s systems—from budgeting to incentive...