BOC Group: Ohmeda (B) Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Evaluation of Ohmeda’s Current Distribution System

Ohmeda is currently following a multi-channel distribution strategy where it is selling its medical equipment through distributors and its direct sales force with 70% of the products being shipped directly to customers. Appendix 1 gives a quick overview of Ohmeda’s channel distribution with the company that is managing its distribution activities. The current sales force at Ohmeda is independent and aggressive in managing the company’s distribution. However, collaboration with dealers is required in handling the medical equipment during demonstrations since dealers carry the inventory.

The sales force includes experienced professionals whose length of service with Ohmeda averages 10 years; whereas some dealers have had long-term relationships with Ohmeda spanning 70 years and provide extensive coverage to them.

The company’s sales department is organized in five sales regions and is responsible for sales administration, convention attendance and national account management.

Appendix 3 shows the basic channel selection decision criteria where a high demand for information and a low demand for logistics services can be catered through a direct channel. If an indirect channel is used then the demand for information should be low. Looking at the current positioning that Ohmeda is looking for where the company wants its distribution channel to provide information about its complex products to customers; it is obvious that the company needs to alter its channel management plan so that only those products are sold through dealers which require less information. A direct channel needs to be used for products that have a high demand for information. In the current distribution system, dealer’s sales efforts overlap the efforts of Ohmeda’s direct sales force and occasionally each other, which means there is wastage of time and energy. In addition to this, the dealers do not provide specialized product information or focus their selling efforts on Ohmeda’s weaker products so a direct channel with a focus on these two types of product is highly important for pursing growth.

Justification & Recommended Structure for Ohmeda’s Distribution System

As per an analysis of Ohmeda’s current distribution system, it can be seen that the arrangement being followed by the company in terms of opting for a multi-channel distribution system including both dealers and salespersons should not be completely terminated. However, a certain change in the distribution system is recommended to cater to the changing market.

If the supplies business is sold, Ohmeda will be incurring a loss in revenues of approximately 31%. In such circumstances, greater coverage will be the key for increasing sales revenue. However, at the same time there are certain products which require a greater focus and so a specialized sales force is needed instead of selling them through dealers. If Ohmeda completely terminates dealers, not only will these mean greater expenses for the company but will also mean a loss of sales revenue especially if the terminated dealers become Ohmeda’s competitors.

As per the recommended plan in appendix 2, the multi-channel distribution system will divide the distribution of products between Ohmeda’s dealers and sales force so that each group has exclusive distribution for product types.

When it comes to the sale of complex capital equipment, the hospital’s medical specialists and clinical end users are responsible for the selection process and so it is recommended that Ohmeda should avoid selling such equipment through dealers. A specialized sales force is needed for handling the sale of products that fall under the category of complex equipment which may require attention to detail.

In addition to this, sophistication of clinical procedures and technical expertise along with the interest of medical specialist is increasing; hence Ohmeda cannot forgo the option of a specialized sales force as they will be able to capture the attention of medical specialists.

Ohmeda is currently selling a wide range of medical equipment and accessories and most of these items are unrelated which means that separation of their distribution channels is easily manageable.

Since high-tech products attract the most R&D funds, medical specialist will not be reluctant in spending money on them and so Ohmeda can be sure of a low price elasticity of demand when it comes to such products. This means that an increase in sales revenue can be expected easily if aggressive marketing is initiated even if these products are pricey.

Furthermore, Ohmeda’s competitors include large companies like Hewlett-Packard and Siemens and small niche players like Heathdyne. While niche players may be opting for dealers, larger companies rely on direct sales which are another reason why Ohmeda needs to opt for a multi-channel approach.

As per appendix 2, ‘Anesthesia Equipment’ needs to be sold through a direct sales channel since there is increasing sophistication in the anesthesia market and Ohmeda is already experiencing a fall is market share. The fact that Ohmeda’s competitor in this segment, North American Drager, is capitalizing on the sophistication of this market segment makes it even more significant for Ohmeda to introduce a specialized sales force for selling.

Ohmeda’s ‘Patient Monitors’ also need to be sold via a specialized sales force especially as the product is undergoing technical innovations and the company is currently not a market leader in this product category. Although a market share of 12 to 17 percent is maintained in this............................

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Discusses the measures taken by the President Ohmeda and sales results for the following three years. "Hide
by Rowland T. Moriarty Jr., Gordon Schwartz Source: Harvard Business School 2 pages. Publication Date: September 25, 1986. Prod. #: 587081-PDF-ENG