Moore Medical

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Moore Medical

• By Khalil Matta

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Moore Medical BACKGROUND
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What is Moore in Business for?

• Provide superior care to a specific group of
  medical practitioners
• Focus on podiatrists and emergency medical
  service personal
• One stop shopping by offering a broad number of
  items
• Buyers Guide of 350 pages (catalog)
• Margins exceed 30 compared to pharmacy drug
  distribution of 5 (exited market in 1997)
• Feature over 8,500 products out of more than ½
  million potential products

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Sales techniques

• Catalogs
• Brochures
• Direct Marketing Materials
• Decreased emphasis on direct selling using a
  sales force (prevalent during the days when it
  sold pharmacies)

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Customers

• Physicians
• Podiatrists
• EMS
• Public sector (schools, municipalities..)
• Industrial
• Resellers (dealers)
• Sales to Physicians 31 more than Resellers

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Penetration rates

• 75 of Podiatrists
• lt 5 of Physicians
• 45 share of wallet (percent spent on medical
  supplies) for Podiatrists
• 37 share of wallet for EMS
• Much less for other groups
• Sales vary by product even to the same customer
  group

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Interactions with Customers

• Telephone 50
• Telemarketing 25
• Internet 10
• Mail 5
• Fax 5
• Bid Quote 3
• Customer relations 2

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Operations

• 4 identical DCs in Connecticut, Florida, Illinois
  and California
• Split shipments result from stock outs at a DC
• Cost per split shipment is 2.82
• Direct order from manufacturer for slow moving
  items
• EOQ model with safety stock used to reorder items
  from suppliers

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Performance

• 68 perfect orders (on time, free of defects,
  accurate..)
• 17 split shipments
• 10 back orders
• 5 late shipments

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ERP system

• Cost over 7 million
• Cost overruns due to implementation costs
• Not being utilized to the fullest
• Older system did a better job in some areas
  especially in marketing, order entry, new account
  setup
• No demand forecasting model
• Return on investment analysis???

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Web facts!

• Less than 6 of visitors placed orders
• 87 of orders from existing customers
• 2200 web orders represent 5 of total orders
• 50 growth in web orders but need a 100 growth
  rate to reach target goal of 10 by 2001
• The cost of the website was partially responsible
  for 2 million loss in year 2000
• Additional of 100 - 200K per year in tech
  staffing

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Decisions!
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What Should Moore Do?

• Do Nothing
• Demand Planning (forecasting) only
• Demand Planning Warehouse Transfer (Transfer
  between DCs) Deal Mgt (stock ups to take adv of
  special offers) Stock Simulation (model service
  level vs. Stock levels)
• CRM only
• Demand Planning CRM
• Demand Planning add on (s) CRM
• Website
• Buy from same supplier or a different one?

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What is your strategy stupid?
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Challenges facing Moore

• Operations
• Fulfillment (8,500 products out of ½ million
  possible)
• Backorders split orders
• Customer
• Higher churn rate than the industry (30 vs. 25)
• No apparent loyalty to the company competition
  predominantly on price
• Do not have large enough share of customer
  wallets (they do not spend as much with Moore as
  the company would have liked)
• Penetration rates
• Does not understand the causes of different
  penetration rates, churn of wallet churn rates

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Customer Issues!

• Why is the churn rate higher than industry
  average?
• Why customers defect?
• Where do they go when they defect?
• Is Moore doing a good job satisfying all customer
  needs?
• Product line and mix need changing?
• Price sensitivity?
• Can IT help in accomplishing these tasks?

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Costs

• Demand Planning 300K
• Each additional Module 300K
• CRM (600K) deployment costs (3x to 10x)
• Website ??

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Can we at least solve an operational problem?
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Demand Planning System

• Forecast demand for fast moving items
• Manage the reordering process
• Increase customer service levels
• Decrease inventory costs
• Better customer satisfaction

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Demand Planning Software!

• Demand Planning Model makes immediate sense!
• Annual volume of shipments 500,000 (2000/day
  250 days (5 days/week 50)
• Cost per split shipment 2.82
• Percentage of split shipments 17
• Annual benefit of 50 decrease in splits (500K
  2.82 .17 .5) 120K
• Cost to implement this module 300K
• It can potentially pay for itself in a couple of
  years

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Other modules

• Warehouse transfer system (consider inventory at
  other DCs before ordering from vendors)
• Deal management analyze special offers from
  suppliers to decide if they should stock up on an
  item
• Stock simulations to estimate inventory levels at
  different service levels
• Each module cost 300K

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Is Moore ready for New IT?

• Are there still any disruptions?
• Are people used to using the new software?
• How well are they using the current software?

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Can CRM help ?

• Would it increase share of wallet for customer
  groups?
• Will it help in retaining customers thus reducing
  churn rates?
• How is going to help improve customer service,
  retention, and acquisition?

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CRM goals

• Better customer service
• Generate new business
• Increase cross selling
• Up sell option
• reduce inventory shelf time

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How does the CRM do this?

• Integrate records of customer contacts through
  all channels (Fax, Web, Phone)
• Optimize schedule of appointments for the
  salespeople
• Increase consistency of customer interactions
• Generate reports to track sales and salespersons
  performance
• Note that all these issues are internal to the
  organization

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Problems with the CRM solution

• No evidence that customer interaction is a
  problem (as compared to pricing or product mix or
  operational deficiencies)
• Company moving away from using sales force and
  cold calling to get business
• What effect is the integration of channels going
  to have (internet, fax, phone calls..)
• Cost might be 3 to 10 times as large as quoted
  once implemented (can Moore afford 1.8-6
  million IT solution?)

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Recommendation!
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Recommendation!!

• Buy the Demand Planning System
• Need much more Customer Info before investing in
  more IT!
• Can customers be segregated?
• What are the issues most important to each
  segment?
• How can Moore improve customer retention?
• How can Moore improve market penetration?
• Should Moore sales and fulfillment processes be
  changed?
• Can IT and more specifically CRM help us improve
  the efficiency and/or effectiveness of our
  processes?
• What is my differentiation strategy?

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How about the Web Channel?

• Is it succeeding?
• Growth rates
• Order sizes
• Any other measures?
• How to measure success?
• Order margin
• Customer retention
• Etc.
• Do good customers want the web?
• Are customers demanding channel integration?

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Web Strategy Success

• Depends on
• Bringing new profitable customers
• Increasing the volume of orders
• Increasing the order size
• Improving customer satisfaction loyalty
• Lowering the cost of serving the customer

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e-commerce solutions to ponder?

• Why not use an Amazon type model get out of
  storing distributing products order directly
  from the manufacturer?
• How can I reach new customers via the web (buy
  ads on Google or better yet on websites that your
  customers frequent)?
• Why not consider on demand CRM vendor such as
  SalesForce.com?
• Why not outsource the logistics at their DCs to
  FedEx or UPS?