Meditech’s business strategy is to introducing new products into the market to meet customers’ evolving needs. Most of these new products are updated based on existing products. These innovative and lost- cost products are introduced to the market quickly and pushed by an aggressive sales force. However, the problem Meditech has been encountering is that its supply chain cannot keep up with customer demand of each new product introduction. This causes more serious problem that the customer service level of each new product is low. Dan Frankin, the manager of Customer Service and Distribution, realized that customers started to get frustrated with poor order deliveries.
While the service level isn’t doing great, the finishing goods inventory level appears to be high on the manufacturing side. The forecasting was not accurate compared to the actual demand. In the case, an external consultant studies the company’s inventory and found out that its inventory level could be reduced by at least 40 percent without an impact on the service level.
So basically Meditech is holding a high level of inventories on hand but yet cannot fulfill its customer orders on time.