Owens and Minor

Powerful Essays
Date: March 12, 2012
Course: Management Accounting & Control
Case: Session 3: Owens & Minor (A)

Date: March 12, 2012
Course: Management Accounting & Control
Case: Session 3: Owens & Minor (A)

Case Background:

Who: Jose Valderas, divisional VP for Owens & Minor (O&M)
What: How does O&M sell ABP (activity based pricing) to Ideal? Could they implement ABP to help Ideal?
Why: O&M needs to improve margins; by understanding where costs are derived from, they can then pass those costs onto the customer. O&M needs to eliminate the cost-plus system and would like to move to cost-plus zero with monthly fee based on activity levels

Case Overview: * O&M is a medical and surgical supplies distributor. They focus on distributing one core business line (medical/surgical supplies) rather than expanding to other lines. This gives them an advantage over the competition by being able to offer better products, prices and services to customers. Their customers are predominately hospitals/hospital networks. * Through acquisitions over the years, they have presence across the country and became leader in low cost distributor of healthcare products * They have 49 distribution centers in the US, which warehouse over 300,000 products from over 3,000 manufacturers to over 4,000 customers; each division served customers within a 100-150 mile radius using owned/leased fleet. Customers on average receive 2-6 deliveries/week * At Savage the (Maryland) division, they carry over 50,000 line items, with 120 customers. They serve an area with nearly 12 million people within one hour * * The sector is growing, but more and more cost pressures; led to customers demanding reduction in supply costs and improving of inventory management. Customers forced distributors to carry more of the inventory and make more delivers in lower quantities. Distributors were being squeezed from both sides to reduce margins:

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