Nexus Cardiac Products Ltd

Contents

Executive Summary        2

Issue Identification        2

Environment and Root Cause        4

Porters Five Forces Market/Environment Analysis        5

Alternatives and Options        6

Recommendation        8

Implementation        9

Monitor and Control        9

Executive Summary

Nexus Cardiac is a company that dug its roots through hard work and innovation. Getting its start through the incubation program at Wilkinson University, it has carved out a portion of market share due to its patented products and award winning technological advancements. The market has been growing year after year with roughly $21 billion in cardiovascular rhythm management devices sold last year alone. Although there are emerging markets in India and China, Nexus Cardiac remains dialed in on the North American market. Currently Nexus Cardiac is faced with the same issue that makes or breaks many successful startup companies; to sell out to a larger company or seek risky expansion opportunities.  Externally Nexus Cardiac faces a consumer environment that is fixated on reducing costs through inventory management. This creates challenges for manufacturing companies, and emphasizes the need to minimize lead times, and ensure that our supply chain is as efficient as possible in order to remain relevant in bid processes. This problem came to fruition through a combination of unanticipated product success, limited manufacturing outsourcing options, and limited cash flow/resources. This problem will be solved by focusing on supporting our foundation, utilizing resources on hand in an appropriate manner, and expanding at strategic times. From start to finish this implementation process will last 18- 24 months and will ultimately lead to a more stable production set up that is capable of supporting our current pacemaker production. Ensuring we capitalize on sales opportunities for our current products will allow us the financial freedom to continue expanding and patenting innovative products, which will ultimately take our growth to the next level. This will support the long term goal of generating positive cash flows as a multi-product company, and be rewarding both personally and financially for key stakeholders.

Issue Identification

Short Term

Product Focus

Currently Nexus Cardiac is facing confusion in terms of where resources and attention should be focused. There are two products that are in the patent process right now. Nexus will face a number of challenges if these products are patented (whether to pursue production, sales, resource distribution) These new products will present opportunities that should be discussed and properly prioritized, because at this point in time resources are limited and cannot be spread too thin.

Manufacturing Limitations

Nexus’s number one priority right now is to support their pacemaker product. Sales are expected to increase significantly over the next two years, and the current manufacturing capabilities are not sufficient enough to support the projected growth. If this issue is not addressed immediately there is the potential to miss out on a significant amount of sales.

Long Term

Sales Staff Restrictions

In order to grow Nexus will need to drastically increase their sales staff. As of right now, salesmen are able to work with internal technical stakeholders in order to have the knowledge required to impress health care decision makers. Moving forward quality salesmen who have medical and technical knowledge is a necessity. This becomes even more relevant if the decision to move into the USA market is entertained.

Customer Expectations

Cost cutting is a priority in the medical community. This has led to most health care managers making a push towards keeping fewer inventories on hand. The issue here is that this makes demand planning and lead times more sensitive and an important focus when being considered during the bid process.

Environment

External

The current external environment is extremely competitive but only amongst a few companies. Difficult barriers (certification, skillset, patents, advanced manufacturing) to entry make it extraordinary difficult for a company to begin earning market share in the field of cardiac medical products. There is over 1000 manufacturing companies in Canada alone, however not all of them are competitive.  Each year there is more pressure on health care managers to find ways to cut costs. Included in these cost cutting initiatives are two trends that directly impact Nexus Cardiac. The first is the desire to find alternatives that move away from invasive procedures in order to reduce the time patients remain in the hospital. The second being the movement to reduce the amount of inventory kept on hand. This means that during bid processes companies who can limit the lead time they require will have an advantage.

Internal

The internal environment seems to be healthy. Opinions amongst internal stakeholders about company direction seem to align.  There is a known need for hiring in order to support growth, and there is a need for knowledge transfer to sales.

Root Cause

The cause of the issues listed previously can be drawn back to three main contributing factors.

1. The lack of ability to foresight growth and production capabilities

• If this growth was to be expected then manufacturing arrangements should be been lined up ahead of time in order to support future growth. This would have eliminated manufacturing production issues
• The sales team could have been expanded gradually up to this point and trained in order to require less time working with technical stakeholders on sales calls

1. Changing expectations from customers

• As outlined previously, customers are demanding a higher quality product with less lead time. This drastically increases pressure on suppliers and creates a need for demand planning/forecasting

1. The change from a “stick to your knitting” mentality to the desire to expand into other product markets has created the issue of resource management and made the future focus of Nexus Cardiac unsteady

Porters Five Forces Market/Environment Analysis

Threat of New Entrants

• Low threat of new entrants due to the advanced skillset and startup capital required in order to gain market share. However, new technological advancements are always being discovered and patents on revolutionary technology could shift market share quickly

Threat of Substitutes

• Currently there are next to no substitution options for people who require cardiac medical devices in order to remain alive

Bargaining Power of Customer

• As of right now customers have limited bargaining power. In some regions customers are able to contribute to the decision of what product they will purchase, but the viable and readily available options are not extensive

Bargaining Power of Suppliers

• The competitive environment amongst several big players keep suppliers honest, but ultimately the price point of this product is largely determined by the suppliers as they provide an advanced product that is required in life or death scenarios

Industry Rivalry

• The cardiac medical device market is dominated by a select few big companies. Their financial capabilities allow them to purchase competition, patents, and establish a sales force in order to choke out most other competition

Alternatives and Options

1. Sell out to a large competitor

Pros:

• Potentially a lucrative venture for the stakeholders involved
• No longer have to make difficult management decisions
• Potential for good job offer within new company still working with the product

Cons:

• Competitor could get rid of the product, leaving years of hard work to waste
• Could put many employees out of a job
• The innovative product might not reach the market and have the ability to help those who could benefit from it
• 2/3 of manufacturers for big companies are overseas, this means it is likely to relocate that work and money out of country

1. Remain a small technology development firm and license the product

Pros:

• Have full control over product design and implementation due to the patents in place, and still own the rights to the product in the long run
• Product is still on the market helping people in need

Cons

• Manufacturing and distribution personnel no longer employed by Nexus
• Lose the developed brand reputation
• Not nearly as lucrative or rewarding

1. Strategically develop Nexus Cardiac and attempt to support growth

Pros:

• Challenging and rewarding if successful
• Maintain possession of  product and company future
• Able to provide innovative and necessary products to people in need

Cons:

• Involves much more risk to lose on investment
• Could miss out on lucrative sales deal

Recommendation

The first order of action for Nexus Cardiac is to ensure that we can support pacemaker sales moving forward at all costs. The foundation for expansion revolves around the success of our pacemaker. Ensuring that this product has the support it needs to take advantage of future growth is essential in financing our expansion plans and continuing R&D. In order to do so I recommend moving in to our extra lease space in 18 months once the current sublease has expired. This new space will allow us to double our production capacity, and with the new demand forecasting module and plan in place we should be able to forecast production demands far enough in advance that our capacity will hand the projected growth in pacemaker sales. This will be funded by capitalizing on opportunities such as economic development loans and grants, and tax credits. Our current manufacturing process is near its limit, and with sales forecasted to double each year for the next two years, it is clear that an uptick in manufacturing is needed as soon as possible. Therefore, utilizing the new module to increase our lead time flexibility will be essential in order to work with the past manufacturing firm that was able to meet our specs but had issues meeting deadlines. Bringing this vendor back in to play with a more flexible timeline will allow us to sustain growth temporarily until we are able to expand our manufacturing capabilities internally. Alongside outsourcing manufacturing in the short term, I do not wish to pursue the option to buy out MMPO at this time, but if sales continue and cash flow ratios improve it is an option that should be considered in the long run to increase margins. The implementation of product tracking and optimizing lead-times and supply chain function is essential for future growth beyond production purposes. As we all know, the health care managers are constantly looking to cut costs. This means an uptick in bid processes, and a downward trend in inventories kept on hand. In order to remain competitive it will be essential for us to meet our goal of reducing lead time to 30 days from our current standard of 70 days. Keep in mind that the industry average is 100+ days and we have an opportunity to earn market share because of this. In terms of product innovation and expansion, with our sales foundation supported I encourage us to continue pursuing product expansion by using utilizing our proven patent process.  Our sales team will need to be expanded upon gradually in order to support growth. The key is to utilize our ties with the university to recruit knowledgeable salesmen who know both sides of the industry.