Over the past few summers I have had the pleasure of working
for a medical supply company called McKesson. McKesson is one of the largest
distributors of medical supplies, products, and equipment; they ship to
hospitals, private practices, and homes all over the country. These products
included everything from medicines and syringes to food supplements such as Pediasure. Working for this company has introduced me to the world of supply chain management and logistics.
McKesson has several warehouses that are based by region
which receive, store, and ship thousands of lines on a daily basis. In order to
ensure that the warehouse is efficient, the warehouse is divided into three departments:
receiving, replenishment, and shipping. All three departments are currently integrated
through one system that the employees can use via a hand held computer called
an RF. The RF allows employees to see how much work that needs to completed per
day per department and helps the company keep track of worker efficiency and the
amount of each product that is shipped and received. Before this summer, the branch
of McKesson that I worked for used two separate systems to keep track of all
their logistics which was based on a series of specific factors. The corporate
supervisors of the branch made the decision to switch to one integrated system
to increase productivity and which would ultimately save the company money. In
order to integrate the system, the company had to incur several transaction
costs
. Transaction Costs Incurred:
1.
Developing the product: The transaction costs
for developing the system were the time it took the company engineers to design
it and the amount of money that it cost to fund the process. Funding includes
the salary paid to the design team and the amount of money it costs to code it.
2.
Testing the product: As any smart corporation
would do, McKesson ran several simulations and tests to make sure that the
program worked properly and all the bugs and problems were corrected. This
takes time and money that added to the cost of the project.
3.
Putting it into play: Up until this point, most
transaction cost that were incurred were at a more corporate level. However,
once the system was ready to be put into place, the lower-level employees that
worked in the warehouse had to give up free time and work longer hours and
extra days to take inventory and make sure that the turnover went smoothly. There were several employees that were asked
to work over forty hours a week Monday thru Saturday. I played a big role in helping
the warehouse switch over and was needed to work a couple six day weeks that
cost me time I could have used for other activities. In addition, travel time
and extra gas bought to make sure I was able to get to work on time so as to
not let my team could be factored into my transaction costs.
This is a potentially interesting example for your first real post. I would have liked to know more about what you did in the internship. I don't have a sense of that at all. Part of that would say how you know about issues with the company, the ones you write about and perhaps some others as well.
ReplyDeleteThen it might have been nice to give some more background. You said what was going on at the branch where you worked, before the integrated system was brought in. Do you know what was happening at other branches? Had the systems to use been a branch-level decision in the past? You may recall our discussion in class of command and control versus boots on the ground. Is this an example of that tension?
There is then whether you've identified transaction costs or production costs. When equipment wears out and needs to be replaced, would we consider that transaction costs or production costs? In my way of thinking there is some of both. For example, if you run computer labs and replace the computers on a four year cycle and say you have 100 machine in total, then you might replace all 100 one year and do no replacement till 4 years out or you might replace 25 machines per year. Presumably, each approach has its pros and cons. Determining which way to go imposes coordination so that part of it is a transactions cost. That the equipment needs to be replaced because it has worn out, is a production cost.
You might consider each of the things you've listed to see how they should be parsed into transaction and production costs. My sense of things is that most of what you've identified actually are production costs.