In addition to new product introduction problems,finished goods inventory levels appeared to be remarkably high.A consultant had recently been hired to study Meditech's inventory.Her findings indicated that overall inventory could be reduced by at least 40%without an impact on the delivery service level (see Exhibit 5).Despite the high levels of inventory,the actual service level over the past year was disappointing and below corporate objectives.Management feared that reducing inventory would further damage the already sub-par level of performance. Another possible cause of the problem is "panic ordering"from dealers and affiliates.Panic ordering occurs when a dealer or affiliate is unsure of whether or not product will be received in time and therefore increases the size of its orders hoping that Meditech will deliver at least part of the order.The increased orders would cause demand to temporarily rise,helping to explain Meditech's problems with demand consistently exceeding supply.Familiar with past delivery problems,dealers and affiliates had every reason to want to panic order.In one conversation with a representative from Meditech's largest dealer,the representative had indicated that panic ordering was a possibility.Given the decentralized nature of the regional warehouses,the dealer has little control over what an individual warehouse actually orders.Warehouses could therefore panic order without the knowledge of the central dealer.On the other hand,the possibility of panic ordering does not mean that it actually occurs.To make matters worse,data proving or disproving its existence had been hard to find. Dan asked one of his staff members to investigate the new product introduction problem and inventory/service level paradox.The staff member spent several months compiling information on demand patterns,production rates,and forecasts.Consistent with Meditech's decentralized nature,the information existed on many different systems in several different areas of the organization.There was no routine way to see incoming demand,inventory,or production rates for a particular instrument.Developing a common format for the data had also been difficult. Some data were expressed in terms of calendar months,other data in terms of weeks,and still other data in terms of the corporate financial calendar (alternating 4-week,4-week,and 5- week months).Once put together,the information conveyed the following: New product demand after an introduction followed a consistent pattern of reaching a high peak during the first few weeks,but becoming relatively stable immediately afterward(see Exhibit 2), ● Variation in production schedules often exceeded variation in demand (see Exhibits 3&4); Monthly forecasting could be improved substantially using a simple statistical method-- generating a linear regression through past data. With this information in mind,Dan Franklin began thinking about how to fix Meditech's delivery problems. 2Service level is defined as the%of orders filled directly with product from finished goods inventory.In addition to new product introduction problems, finished goods inventory levels appeared to be remarkably high. A consultant had recently been hired to study Meditech's inventory. Her findings indicated that overall inventory could be reduced by at least 40% without an impact on the delivery service level2 (see Exhibit 5). Despite the high levels of inventory, the actual service level over the past year was disappointing and below corporate objectives. Management feared that reducing inventory would further damage the already sub-par level of performance. Another possible cause of the problem is "panic ordering" from dealers and affiliates. Panic ordering occurs when a dealer or affiliate is unsure of whether or not product will be received in time and therefore increases the size of its orders hoping that Meditech will deliver at least part of the order. The increased orders would cause demand to temporarily rise, helping to explain Meditech’s problems with demand consistently exceeding supply. Familiar with past delivery problems, dealers and affiliates had every reason to want to panic order. In one conversation with a representative from Meditech’s largest dealer, the representative had indicated that panic ordering was a possibility. Given the decentralized nature of the regional warehouses, the dealer has little control over what an individual warehouse actually orders. Warehouses could therefore panic order without the knowledge of the central dealer. On the other hand, the possibility of panic ordering does not mean that it actually occurs. To make matters worse, data proving or disproving its existence had been hard to find. Dan asked one of his staff members to investigate the new product introduction problem and inventory/service level paradox. The staff member spent several months compiling information on demand patterns, production rates, and forecasts. Consistent with Meditech's decentralized nature, the information existed on many different systems in several different areas of the organization. There was no routine way to see incoming demand, inventory, or production rates for a particular instrument. Developing a common format for the data had also been difficult. Some data were expressed in terms of calendar months, other data in terms of weeks, and still other data in terms of the corporate financial calendar (alternating 4-week, 4-week, and 5­ week months). Once put together, the information conveyed the following: • New product demand after an introduction followed a consistent pattern of reaching a high peak during the first few weeks, but becoming relatively stable immediately afterward (see Exhibit 2); • Variation in production schedules often exceeded variation in demand (see Exhibits 3 & 4); • Monthly forecasting could be improved substantially using a simple statistical method -­ generating a linear regression through past data. With this information in mind, Dan Franklin began thinking about how to fix Meditech’s delivery problems. 2 Service level is defined as the % of orders filled directly with product from finished goods inventory. 7