Okay everybody. So this is our second undergraduate team. The winner of track two. This is team O. >> Thanks so much. >> [INAUDIBLE] Hello. Hello. Hello. >> Yeah. I got it. Might have to- >> We can always switch off. >> [INAUDIBLE] >> Hello? Hello? Perfect. >> That's okay. >> Hello everyone. We are J.A.R.S Consulting and we are going to be presenting our solution for MTC's supply chain. My name is Steven Pan. And in addition to our team, we have Alex Ionescu, we have Jennifer Reis, and we have Renira Morris. So a background about MTC, basically the company is located in Collegeville, Pennsylvania. It currently has about 80 hospitals in the region. And so we are trying to find a solution to the 2.3% excise tax that is being placed on the company's medical device revenue. Which equates to roughly 10% of the company's profits. So moving from there, our job is to determine a cost savings opportunities to offset this new ACA tax. Our approach is a three-pronged approach. We have the short term, mid-range, and long term objectives. It is important to note that all of our solutions, while working in tandem, are independent of each other. So in the short term, we have different solutions regarding the sales reps. In the mid-term, we have solutions regarding the supply chain, distribution channels, the 3PLs. And the long term, we have the addition of the smart kiosk, as well as possible acquisition targets. There are four key performance indicators that we are looking at when making our decision criteria for the solutions. The first being sustainability. The second, whether it is feasible or not. The third, whether it matches the company's objectives, and the stakeholders. And lastly, does it achieve the cost savings that we want. In the financial analysis, we see that there's been a strong growth in revenue year after year. From 2010, there's about a 7% growth. Within the last three years, however, growth has been stagnant at 4%. In addition, we realize that there's a disproportional amount of SG&A in proportion to the revenues. So when you look at SG&A for the last year you saw that it was about 15%. In 2012, SG&A was roughly that amount, 14%, but revenues increased by 12%. So there's a lot of opportunities to cost savings within the SG&A. Lastly, we see that there's a large amount in the accounts receivable and in the finished goods, roughly 2 billion total combined. >> Respectfully, do you think this is the best use of your time trying to teach the board about the company that we run? Let's get to some recommendations, please. >> Okay, so perfect. We're getting some recommendations out. >> [INAUDIBLE] Sure, okay. >> So as you can see above, represented is a current depiction of the company's current transportation model. Right now, the finished goods are coming into MTC's assembly plant. And from the assembly plant, 3PL is transporting our product to an offsite sterilization site. Once the product gets sterilized at our suppliers, the product gets rerouted back to MTC's assembly plant. Also contracting 3PL to do so. Once it gets back to our assembly plant, there are multiple avenues that that product can get distributed to the hospitals. One is through a distributor so that the distributors purchase the products from us and then it gets distributed right to the hospital. Another option is for 3PL to transport the product right to our loaner offices where then it gets distributed and then sent to the hospital. So we have two downstream distribution channels, 3PL and Distribution. And five lanes of transportation. So we do realize that there are some opportunities for improvement here. We can reduce transportation time and distance, gain better visibility to product movement, and most importantly, become more eco-friendly. And Alex is actually going to speak to you about our solution. >> So our supply chain optimization is designed around cost savings, reduced variability, and improved inventory control. Okay, the first step is partnering with the sterilization supplier with the purpose of moving the order picking, staging, and shipping operations into their location as opposed to having the sterilized kits shipped back to MTC's manufacturing plant, and then sent downstream in the supply chain. The benefit here is reducing 1 of the 48 hour transportation legs. Second, would be phasing out the direct sales to hospitals. This would eliminate 3PL transportation costs from the manufacturing plant to all of MTC's direct clients. It would cater to the the hospital clients that are participating in group purchasing organization who prefer to buy from distributors. And it would increase revenue faster by offloading inventory to the distributors and the smart kiosk systems. >> [INAUDIBLE] this model, In this model, [INAUDIBLE]. >> Yes, with a small hybridization of direct and distributor. We would be implementing some smart kiosks at the hospital locations, which my colleague, Renira, will go into a little bit later in the presentation. >> If you'd like to, we can discuss that now. [INAUDIBLE] We as distributors are buying parts, dealing with the customer. >> In a way yes, because they do take ownership of the goods from MTC and we receive payment from the distributor, not from the hospital. The hospitals are the end client, though, so our goal is to ensure that MTC's surgical kits reach the intended customer. >> Are all customers [INAUDIBLE] >> Yes and no. [LAUGH] I mean, all customers should be satisfied. All customers should receive a value, but some of them maybe better to work with another. Some of them may have, with some of them we may be able to negotiate faster paying terms which would reduce- >> If I could add something to what you're saying Alex, when we looked at the supply chain operation, we looked both downstream and upstream. And with that said, we did say that all tiers of the customers were important, not just the end user But going right downstream, right through. So in that sense, every single tier, every customer is important when we're looking for those efficiencies. >> [INAUDIBLE] So that's why $800 million a year of our customers money [INAUDIBLE]. >> No, well, are you talking about margins or in terms of considering. >> No, about how you, from a customer segmentation standpoint and from a service segmentation standpoint, do you give them both the exact same [INAUDIBLE]? >> I think it would be more important to try and satisfy and maintain the relationship with the customer that provides a larger portion of NTC's revenues. >> In addition the reason why we have a multi-prong approach was to consider that there were different customers that we were looking at, whether the hospitals going through the group purchasing organisations, or maybe distributors who were just pulling the smaller orders. That's one of the reasons why you'll notice, well, it's not in the slide now, but our ganter shows three different approaches because we're looking to actually satisfy each of those customers through providing the same high level of service. But different approaches and strategies. >> With a change in channel, [INAUDIBLE] what considerations have you given to pricing? [INAUDIBLE] >> Well, the distributor customer would probably end up buying a larger volume from MTC, as opposed to the individual hospital customers. And we may be able to negotiate any volume discounts based on the distributor's needs, and on how they are able to push- >> Would they be negotiating with us looking for lower prices? >> Excuse me? >> Would they be negotiating with us looking for lower prices? >> Exactly, but that would be contingent on how aggressively they would push MTC products to the hospital customers. >> That's also one of the reasons why we didn't want to eliminate some of the direct connection with the hospitals. And that's the reason why we wanted to implement in terms of a long time horizon in the smart kiosk to support that. Because we don't want the distributors or the GPOs to act as an intermediary that has too much leverage in that situation. >> Can you go back to that first slide? Not- >> Further? One more. Okay. Your point number three, there, reassignment for 2% of the sales force. How did you arrive at 2%? >> Do you want us to continue with the- >> Or you want to talk about the financials regarding the 2%? >> We can talk about- >> What was the idea there? Why not 5%, 10%, 1%? Why 2%? >> Sure, so when we were looking at here, we can pull up. >> While he's pulling that up on the, I'll note- >> No, this is a big issue with Mr. Perfeti. >> Yes. [LAUGH] >> Of course. >> We struggled with this as a group as to what would be the appropriate percentage in terms of, and what you're speaking of, I think, is the 2% that's being shifted, not reduced, but shifted, is that right? Because they're being- >> I'm asking you, really, why 2%? >> Why 2%? >> Why not 10%, 5%, 1%, no percent? >> Sure, so- >> How did you arrive at 2%? >> So initially when we were doing the sales rep impact, which you can see up here, Renua hasn't mentioned our detailed plan yet. But going through the financial impacts we looked at the sensitivity. So reducing it by 5% what is it going to do to our cost savings? Ultimately- >> The 2%, you can convince Mr. Perfeti in this model that he's going to say, fine. When he went behind everybody else and went right to the CEO to get 0%, this model is going to be, overwhelm him and he's going to come to his senses and he's going to agree to 2%. >> What I would say to him is, can you stand in confidence and say that every single, 100% of those sales reps, are providing the competitive advantage that you, MTC, expect? >> He would say, yes. Everybody convinced the CEO of that. >> With what numbers? >> I don't know. It was a secret discussion. But he convinced the CEO. >> Maybe it's time for an open discussion. >> Not even one person could be sacrificed in the sales force. >> So what's 2% of the sales force?. >> So, we don't know exactly how many employees they have. >> From our research- >> You don't know how many employees? >> No, so that's why we're estimating the cost savings, we use it as a percentage of SG&A versus how many employees they have. It's not given how many employees. >> At what percent would you cut that? >> Sure, so- >> 300,000 earners, the 300,000 per year earners or the million dollar, what are you going to go after? >> Do you want to explain that Renua? >> Sure, yeah. So, what we're proposing is that it's not based on the salary of the commissions that they earn, but actually revisiting their recent performance reviews and looking at the metrics that UMPC use to review and going based on that. You would be the best judge. >> I don't think a million dollars from one salesman, you don't think his performance is based on that. If he's getting $1 million a year. He must be doing a pretty good job, is that being the correct assumption? >> I believe UMTC would say that. If you're paying someone a million dollars, I would say that you think they're worth a million dollars. >> Okay, so you're going to look at his performance price or her performance price. >> So this is looking more into the lower tiers. If you can look in the financial impact, we're cutting 2% of the employees with a base salary of $300,000, so that's a conservative number. When we're looking at the reviews- >> But how are you going to convince Mr. Perfeti, why is that right? What's it going to do for the company by eliminating us? >> Of course, essentially we're going to be, >> [INAUDIBLE] impact on sales. >> So we're going to be able to have cost savings. Basically, in this case, we wanted to achieve cost savings versus an increased revenue. Because increasing revenue doesn't translate to cost savings, which we're trying to offset with the tax. So even if you have your all-star sales people, you're increasing sales and you're increasing the amount of tax that you're paying, but you're not saving any money. So there has to be some kind of middle ground where you say, hey listen even though your salespeople may increase revenue, we need to find ways of cost savings. So there's a multi-prong approach where we did a supply chain, also with the sales reps, and then possible acquisitions. >> Not only that, the 2% reduction is to create security for the remaining 90%. That's truly, that's what we were seeking. We would like to say we don't have to cut anyone. We would like to say every single person is adding the value that you're looking for, but that's not something that we could see in the numbers. When you look at the fact that 75% of the total inventory is finished goods, Where is that floating around in the supply chain? Well, when we were looking at the reports, it looks like it's sitting in trunks of sales representatives. And not only are they collecting commission, but they also have excess inventory. That's unrealized revenue. >> I guess to address your point further, if we go back to the financial analysis, in 2012 SG&A was roughly the same amount in 2014. If you look at the second bullet point, revenue increased by 12%. That's the time when everyone's happy, everyone's enjoying life. But in 2014, revenues only grew by 4%. So how can you justify an SG&A of 15% when revenues grew only by 4%? So with this information we can go to him and say listen, this isn't justified and you're going to have to make some accommodations. >> Don't you think the CEO already knows that? >> I mean we could reiterate it and make a shorter case of it. >> It could be that during the private meeting there was no room for any dissenting opinions to the Vice President of Sales. And he may be a very charismatic speaker who's able to fully convince and make his case. But I believe that in an open forum where everybody could offer up their opinions and what they believe >> [INAUDIBLE] >> Well, okay, a carefully selected, open forum of all the interested parties in this issue and then everybody could offer up their pros and cons and then a comprehensive decision could be made. Not just based on one private meeting. >> You're not giving the CEO much credit here. >> Ranier, do you want to talk about your sales representative plan? >> No. >> Well I'd like to make sure that we're answering their question. [CROSSTALK] >> Go through the sales plan. >> What I will say is, even if you are not reduce to the sales force, our plan creates significant cost savings. So if you like, we'll walk through those. Yeah, let's do it. We can bypass, I think we've driven home the fact that, the ratio of your SGA is growing a lot faster. Let's slide past the sales reps. And let's talk a little bit about the mobile app. Now you talked about how we have distributors in between with the GPOs. And should we continue to have a direct channel with the hospitals? The mobile app is a way for us to maintain communication and collaboration with medical professionals. Let's move on to the smart kiosks. >> Is the mobile app going to be developed internally or outsourced? >> We'd like to actually outsource, I'm sorry, development of the app. >> So we're looking to partner with technological companies where that is their core competency and then work with them so that we can create this kind of open forum discussion. >> How much do you think that will cost? >> Well, we estimated, it depends, somewhere between 100,000 and half a million, depending on how many systems, hospital systems, are involved. We did look into funding for it, it would not be funded by MTC. We noted that there's major federal funding, as well as grants that are available for innovative medical approaches to care and carrying out of healthcare. Shall we talk more about the Smart Kiosks? So they'll be part of the long range approach to cost savings. And what it's really answering to is two very big concerns, which is how do we continue to bring product direct into the hospital, without sacrificing the cost savings, and the margins that you're looking for. So one thing, is it will completely revolutionize reverse logistics. All of the devices have RFID tags on them. And actually it wasn't discussed earlier but we know that the devices in the kits that are unused are sent back to manufacturing before sterilization. Well, with the smart kiosk in place, they would actually be placed in the smart kiosk, registered immediately as works in process. What that means is all of your production planning would be based on actuals. So instead of producing things that are already in the system, you'd be accounting for that. That would decrease your raw materials, your manufacturing, your excess inventory and even your logistics. >> So you would put, I think it's 80% of repetitive procedures, doctors don't need any kind of additional training, they've got that down pat. So that at 80% would be what you slate for kiosks? >> That's correct, not exclusively, but most, yes. >> What would you do with the 20%? >> The 20% would remain with the traditional sales representatives. And that is one of the reasons why I think we were quite conservative by only taking away 2%. We believe it's important to have a sales force. >> So the [INAUDIBLE]. Do you need a sales force to go in there and introduce the new products? >> Yes, they're in tandem, one is not replaced by the other. >> I'm still a little unsure about [INAUDIBLE]. [INAUDIBLE] And I'm not sure that they would give them up. [INAUDIBLE] >> You're speaking of- >> Okay, so when we are selling to distributors only, the transportation needs would only be from the manufacturing plant to the various distributors that the company has. If we were to keep the direct selling model as well, in addition to shipping to distributors, we would also be shipping to all of the individual hospitals that we have as direct clients. And when eliminating that, we are eliminating the costs associated there. >> So we didn't talk about this portion of the financial impact within the supply chain optimization. If you look here, total COGS in 2014 were roughly $2 billion. Transportation expenses, we estimated from industry wide survey that it was 15% of COGS. So that cost about $300 million and with the implementation that we mentioned, we're about to save 30%. And from that we achieved a cost savings of roughly 4.5%. So, to answer your question we have this to save a certain percentage. We have the sales force, reducing the sales force a certain percentage. And then in the future, we can look at possible acquisitions to per-tax tax inversions >> And [INAUDIBLE]. >> What was that, I'm sorry, the last part, tax? >> Tax inversion, we're going to get to that, yeah. >> Would you like to hear more about the acquisition and the tax inversion. >> I think we have time. >> Sure. >> Actually, I just wanted to make a point to your question, in terms of the cost savings with the smart kiosks. Right now, it's a little bit difficult to gain that sense of cost savings. But if you think about it from an inventory management perspective, it would be much more effective and much more efficient to gain visibility of those products that are being returned back into the supply chain. Because right now the company is producing lots of 720 standard kits per week. So, Those kits are created in full, with all the products. Now, when the products aren't being used in the hospital, they get sent back. And we don't necessarily know if those products are being put into the kits. So, we have all this leftover product, and I think that with the smart kiosk, we're able to better manage that inventory that is being sent back to us, and we can implement it back into the kits as well. >> And one last cost saving opportunity associated with eliminating the direct selling model is also eliminating the offices that are placed locally as warehousing locations for those direct clients. Same as the transportation, we no longer sell to them. Then the overhead costs go down, because we no longer have to lease the offices or maintain them. And now we can go on. >> So, we're going to continue with the Acquisition Targets. Basically, as we mentioned earlier, MTC is stunned with remi-growth represent for year after year. So there's two companies that we researched, and would be good targets for Acquisition Purposes. The first one is a Kuros Bio Surgery, which is headquartered in Zurich, Switzerland, where the tax rate is roughly 18%. They're basically in the biologic and biomaterial products market, where they specialize in the treatment of spine, trauma, and wound care. And they have a product line of the KUR with specific different numbers. The second one is of neoSurgical, which is based in Galway, Ireland, where the tax rate is effectively 12.5%. And they specialize in laparoscopic, and minimally invasive surgery. And their main commercialized product is the neoClose, which is basically meant for laparoscopic abdominal surgery. >> So, very good. Which would you recommend we pursue? >> So, the acquisition that we recommend is of Kuros Biosurgery. Not only do they have a more established product line with the KUR, but they also have shown willingness to enter into the US market with their US patent in synthetic hydrogel technology, and their partnership with Synthes to produce a matrix technology. In addition, they have venture capitalization of roughly 30 million Euro, and that's from a bunch of Swiss banks. And so, this is really important to note, because with venture capital money, you're looking for a large return on investment, basically. >> What type of US market would this be directed at? Is this a geriatric market? >> So, we generalized it in the medical device, so basically this is looking at companies outside of the US, seeing what they're specializing in, and then bringing it into the US, and seeing how they can merge together. So, there's a few risks involved, of course. There's a lengthy acquisition process. We estimated it to be 3.5 years. Also, supply chain integration, where you're taking their technology and integrating it with ours, their distribution channels, their supply chain. In addition, the company willingness is an important factor. How willing are both companies to come together and negotiate and come over to mutual agreement? And lastly, the bank lawyer and consulting fees. So, to continue on, to financial impacts of this acquisition is outlined here. The cost we estimated of acquiring the company is roughly $114 million, and we estimate about 2 million in US fees. The pricing of the company comes from a 3.5 multiple, where their venture capital funding in 2002 was multiplied by that. In addition, cost savings would be through employee consolidation. Striker in 2012 did a similar employee layoff of 5% of their workforce, and taking their revenue then, which was 9 billion, and their estimated net savings 100 million, we found that the cost savings was roughly 1.11%. So using that same kind of model, we used it for- >> [INAUDIBLE] Realize has mass. >> Of course. >> Class action litigation. >> Yeah, so we- >> Is that a fair comparison, then? >> It's not exactly apples to apples comparison, but using the data that we had, and the resources that we could, we try to make the best comparison possible. So, we looked at the 6 million revenue, the savings of 1.11% and a net savings of roughly $67 million. >> How is all this aided or not aided by the ACA? >> So, in regards to this, this is directly affecting their bottom line, and also their revenues. So, with all of our solutions, they work together, so that there's some kind of cost savings, so that we're reaching that 2.3% goal. And what we found with our recommendations is that we not only met that, but we exceeded it, and short midterm and long-term goals. So, in a short-term, we effectively accomplished that, the midterm, we're looking for more sustainability, more cost savings. And in the long-term, solutions such as these were able to continue with the sustainability aspect of it. >> Think we might have a slide that outlines that, the complete cost reduction. >> So, the total financial impact of everything combined you see the streamline logistics is roughly 4.5% of cost savings. The sales reps will effectively save about 3%, and the acquisition will net 19 million in profit. Of course, there are a variety of risks involved that we mentioned earlier. And so, we saw that the streamlining logistics is the lower risk. The sales rep is also low. But the acquisition is medium, depending on a variety of different factors involved. >> [INAUDIBLE] >> Of course, yeah. >> So say [INAUDIBLE] legal fees. >> Yeah. Which is essentially why we were able to work, so that we had about like you see here. 7.5% of cost savings. So, anything in relation to that, we're able to consolidate. >> I'm sure we're wrapping up on time here, one last question that I have, what's your recommendation for timeline on all of this? Click Enter. >> So, do you want to talk about the answer? So for the answer here, you can see that the overall timeline of all of our solutions. Basically, you see our short-term ones with the reassignment of the 2% of sale force, the mobile application. In the midterm, you see the reduction of the loaner branch offices, in addition to the other supply chain solutions that were mentioned. And in the long-term, we have a tax inversion with a possible accusation, in addition to the smart kiosk. >> But it's important to know, to offset that 2.3% that happens within the first year of our plan. >> Thank you. >> All right, time's up. >> Thank you. Thanks so much. Thank you. >> [APPLAUSE] >> Let's walk and shake? >> [INAUDIBLE]
