Supply Chain Partners: Virginia Mason and Owens & Minor (A)

Posted: 21 May 2009

See all articles by V. G. Narayanan

V. G. Narayanan

Harvard University - Accounting & Control Unit

Lisa Brem

Harvard University - Business School (HBS)

Date Written: April 15, 2009

Abstract

Virginia Mason Medical Center (VM) hired Owens & Minor (O&M) as its alpha vendor for medical/surgical supplies in 2004. By 2005, O&M was performing JIT and LUM services for VM, but they believed the pricing model in the industry was outdated. VM and O&M partnered to create the Total Supply Chain Cost (TSCC) pricing program, an activity-based model that assigned all the cost drivers of distribution and inventory handling to VM, but also assured O&M of a profit. The TSCC incented VM to streamline its distribution activities, since these would directly impact its fee. After beta testing the TSCC for one year, VM's Daniel Borunda and O&M's Michael Stefanic believed that TSCC was a better and more cost-effective pricing model, but could they convince their companies to continue to invest in TSCC?

JEL Classification: M40, M46, D40, G31

Suggested Citation

Narayanan, V. G. and Brem, Lisa, Supply Chain Partners: Virginia Mason and Owens & Minor (A) (April 15, 2009). HBS Case No. 109-076, Harvard Business School Accounting & Management Unit Paper No. 1408120, Available at SSRN: https://ssrn.com/abstract=1408120

V. G. Narayanan (Contact Author)

Harvard University - Accounting & Control Unit ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-6359 (Phone)
617-496-7363 (Fax)

Lisa Brem

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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