Total Supply Chain Cost
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 partnership in the supply chain, which offered on average the lowest costs of both goods and services. * Since the costs of distribution activities directly impacted VM’s fees, the TSCC encouraged VM to streamline its supply chain. * This resulted in overall savings for both VM and O&M. * After testing the TSCC for one year, VM's Daniel Borunda and O&M's Michael Stefanic felt that TSCC was a better and more cost-effective pricing model. * In 2007, one of VM’s buyers received an offer from a specialty distribution company that offered a very low cost-plus fee for suture orders. * A comparison was run between the new distributor’s costs and O&M’s fees under TSCC (see exhibit 7) * Clearly the analysis shows the cost savings of staying with TSCC (Alpha Cost). * Under the Alpha System the total cost of ordering sutures is $769,800. The client is charged a fee of $.30 per line item plus the Alpha Fee. In this case the Alpha Fee is $350 a month; this monthly fee provides the client the right to order sutures from O&M. There is no % of sales markup with the TSCC model. * Under the cost-plus method of the competitor the client is charges a 1.5% of sales markup by the distributor. In the