If these costs were included then it should be included in the basis of per unit cost which wasn’t identical to different cost. In the Matrix, its cost was not included because of the complexity. In the Exhibit 4 and 5 all the cost included under the purchase order per month and the line order per month cost included all the costing under the line order costs. Each activity was driven on these cost drivers.
#OWENS AND MINOR DRIVER#
First driver was the number of lines per month and second was the numbers of orders per month. The cost matrix was designed on the basis of the two cost drivers. Activity based costing was able to satisfy customers to optimize their services and it also reduced the costs. If any of the customers wanted to get the higher services then customer has to pay for that. It also helps customers to order only those products that were in need. The Activity based costing was effective in reducing the cost of products not only for the OWEN but also for its customers.
#OWENS AND MINOR PLUS#
In result from the cost plus pricing the customer were avoiding to buy the medical & surgical equipment from suppliers and distributors as they were making order directly to the manufacturers. These distributors tell their customers that they can’t lower the prices of the product because they are getting it at cost plus margin from the manufacturer. The cost system they were using had impact on customers in a way that whenever the customer wanted the product, Owens distributors added the cost plus margin in it. The Owen was adding the value for their services through remain in the surgical and medical industry. The services changed with time and customers wanted the services at lower cost because they were gaining lower profit margin on the services they provided. In the medical and surgical industry, services rendered from the distributors to manufacturers were, the inventory control management and the cost reduction consultancy. For this purpose the analysis were made on the following below: For that Valderas wanted to evaluate the current costing system with the new activity based costing. Valderas knew that if company changes its cost system then the following problem will occur:Ĭompany was introducing the Activity based costing to improve the costing criteria but it will lose its customers. These rates would persuade the Owen to offer supplies at lower prices and would bring loss with it. This higher margin of sales allows Atlantic to offer supplies at lower prices.
Atlantic Health Care was the entity of the Medical supply manufacturer which had higher margin of sales.
For it Valderas was the opportunity to get this contract, because this contract was previously held with the Owens competitor Atlantic health Care. In the industry of medical and surgical supplies, large amount of contract wasn’t possible due to the consolidations. From this news Valderas was concerned about getting this contract by bidding the lower price. In 1996, Jose Valderas heard the news that the Ideal Health System was putting the bid amounted $3 million dollar for the annual medical and surgical supplies contract. In the same year the company adopted the long-term strategy to improve its profit margin and productivity trough supply chain partnership. The company sought to grow in sale from $367million to $1billion by the year 1990. The company’s income source was replaced from wholesale drug to medical & surgical supplies, which contributed a large portion of sale. Advanced medical technology case solution
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