regional warehouses all over the United States,the distance between dealer warehouses and most hospitals tends to be quite small.The short distance permits frequent replenishments of hospital inventories;in some cases,trucks from dealers drop off supplies once or twice per day. Hospitals enjoy the frequent replenishments,which reduce hospital inventory and,consequently, reduce material costs. The regional dealer warehouses act as independent entities,autonomously determining when to order new supplies and how much to order.Therefore,while Meditech only uses four or five major distribution companies,it still receives orders from,and ship to,hundreds of regional, individually-run warehouses.The warehouses in turn each ship to about a dozen or more hospitals,resulting in thousands of hospitals that receive Meditech products. The distribution channel for international sales uses Largo Healthcare's international affiliates. International affiliates are wholly-owned subsidiaries of Largo Healthcare residing outside of the United States.As with domestic dealers,affiliates distribute to hospitals in their regional area. However,in contrast with domestic dealers,which may locate within just a few miles of customer hospitals,an affiliate ships product throughout an entire country.From Meditech's point of view,affiliates'orders essentially look no different than dealers--intemational affiliates submit orders to Meditech and Meditech fills them with available product. Internal Operations The production processes to manufacture endoscopic instruments are composed of three major steps--assembling of component parts into individual orbulk"instruments,packaging one or more bulk instruments into a packaged good,and sterilizing the packaged goods.Each of these steps is described below: Assembly--the assembly process is manually intensive.Component parts arrive into the assembly area from suppliers following a brief inspection by Quality Assurance(QA).The parts are placed into inventory until ready for use by one of several assembly lines.Each assembly line is run by a team of cross-trained production workers who can produce any of several instruments within a product family.Line changeovers within a family are quick and inexpensive,merely requiring a warning from the production team leader and a supply of the appropriate component parts.The typical cycle time for assembly of a batch of instruments-- the time required to schedule assembly of a batch of instrument and then actually assemble them,assuming that component parts are available in component parts inventory--is on the order of two weeks.Lead time for component parts is on the order of 2-16 weeks. Assembled instruments are moved from the assembly area into bulk instrument inventory where they wait to be packaged. Packaging--the packaging process makes use of several large packaging machines.The machines direct bulk instruments into plastic containers and then adhere a flexible sheet of material over the top of the container.The entire plastic container is then placed into a finished cardboard container and shipped immediately to the sterilizer.Capacity at the packaging area has not restricted output. 3regional warehouses all over the United States, the distance between dealer warehouses and most hospitals tends to be quite small. The short distance permits frequent replenishments of hospital inventories; in some cases, trucks from dealers drop off supplies once or twice per day. Hospitals enjoy the frequent replenishments, which reduce hospital inventory and, consequently, reduce material costs. The regional dealer warehouses act as independent entities, autonomously determining when to order new supplies and how much to order. Therefore, while Meditech only uses four or five major distribution companies, it still receives orders from, and ship to, hundreds of regional, individually-run warehouses. The warehouses in turn each ship to about a dozen or more hospitals, resulting in thousands of hospitals that receive Meditech products. The distribution channel for international sales uses Largo Healthcare’s international affiliates. International affiliates are wholly-owned subsidiaries of Largo Healthcare residing outside of the United States. As with domestic dealers, affiliates distribute to hospitals in their regional area. However, in contrast with domestic dealers, which may locate within just a few miles of customer hospitals, an affiliate ships product throughout an entire country. From Meditech's point of view, affiliates’ orders essentially look no different than dealers -- international affiliates submit orders to Meditech and Meditech fills them with available product. Internal Operations The production processes to manufacture endoscopic instruments are composed of three major steps -- assembling of component parts into individual or “bulk” instruments, packaging one or more bulk instruments into a packaged good, and sterilizing the packaged goods. Each of these steps is described below: Assembly -- the assembly process is manually intensive. Component parts arrive into the assembly area from suppliers following a brief inspection by Quality Assurance (QA). The parts are placed into inventory until ready for use by one of several assembly lines. Each assembly line is run by a team of cross-trained production workers who can produce any of several instruments within a product family. Line changeovers within a family are quick and inexpensive, merely requiring a warning from the production team leader and a supply of the appropriate component parts. The typical cycle time for assembly of a batch of instruments -­ the time required to schedule assembly of a batch of instrument and then actually assemble them, assuming that component parts are available in component parts inventory -- is on the order of two weeks. Lead time for component parts is on the order of 2-16 weeks. Assembled instruments are moved from the assembly area into bulk instrument inventory where they wait to be packaged. Packaging -- the packaging process makes use of several large packaging machines. The machines direct bulk instruments into plastic containers and then adhere a flexible sheet of material over the top of the container. The entire plastic container is then placed into a finished cardboard container and shipped immediately to the sterilizer. Capacity at the packaging area has not restricted output. 3