Heartsong LLC

Heartsong LLC is a designer and manufacturer of replacement heart valves based in Peoria, Illinois. While it is a relatively small company in the medical devices field, it has established a worldwide reputation as the provider of choice for high-quality, leading-edge artificial heart valves. Most of its products are sold to large regional hospital systems and research hospitals. Specialty heart centers are another emerging but fast-growing market for its valves. While Heartsong would like to grow quickly, its growth is constrained by the need to finance larger production runs and then carry this additional inventory. For products like those of Heartsong, vendors typically do not collect payment until the unit is actually used in surgery. Moreover, heart valves are usually required on short notice, which means that they must be either onsite or inventoried at a nearby location. If they are nearby, then the transport of the unit to a hospital or heart center occurs within a matter of hours, and sometimes minutes. For this reason, accelerated growth would require Heartsong to both finance increased production of its heart valves and carry increased levels of inventory that are sitting on their customers’ shelves. In fact, inventory-carrying cost is the company’s single largest cost outside of research and development. While profitable growth is necessary, if Heartsong is to continue extending its competitive advantage through increasingly greater investments in basic heart valve R&D, it is not clear that the company can internally support all these increased financial commitments (R&D, manufacturing, and inventory). Doc Watson, the CEO of Heartsong, is considering an outside contractor, EdFex, to handle the inventorying, warehousing, and delivery of its valves. EdFex has secure, high-tech warehouses in most major population centers around the country and can ensure delivery of a product to these markets from its warehouses in less than one hour.

Discuss Heartsong’s competitive advantage, including the value-chain activities that appear to underlie this advantage, and the implications of an EdFex outsourcing arrangement to support the competitive advantage that make it attractive to Heartsong.