Virginia Mason - Total Supply Chain Cost System

Published: 2021-06-29 07:00:49
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Category: Business

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The total-supply-chain-cost (TSCC) system is an activity-based pricing model that aims to capture the total landed costs involved in the just-in-time / low unit of measurement system, or the true cost to get a product to a patient in Virginia Mason (VM). By capturing the total landed costs involved, VM and O&M are able to better identify cost drivers that were previously hidden under the old costing models. By finding these hidden cost drivers VM and O&M are able to identify errors and inefficiencies, and as a result, streamline the JIT system. The TSSC system also incentivises efficiency by rewarding both VM and O&M to cut costs and reduce errors.The TSSC model rewards VM for choosing effective and less error prone suppliers based on a 23 parameter efficiency weighting, if VM choose more efficient suppliers then the model rewards them with a discount. With better suppliers O&M will also benefit by cutting costs on holding inventory and reduce the chance of backorders. These efficiency based rewards work to streamline the JIT delivery services by eliminating costly errors, which hamper the delivery process and waste time. The previous costing system, named the cost plus method, worked by adding a fee on top of the cost of the product. Under this method it was much more difficult to uncover the finer details of the product cost. Under the TSCC model VM were able to identify hidden costs in the supply chain. One such cost driver that was identified was the high cost of keeping many different SKU’s on hand. With less SKU’s O&M will save on inventory costs as well help streamline the JIT service by lowering the amount of order discrepancies that are possible, thus increasing the accuracy of the orders.

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