Optimizing Inventory Management for Medical Devices

September 9, 2015


• Categories: Inventory Management, Logistics, Medical Devices, Supply Chain

The existing consigned model of medical device sales has resulted in expensive excess inventory. This is a major detriment to the current healthcare climate where medical device manufacturers are facing increased cost pressures. As a result, device manufacturers are looking for ways to optimize logistics to reduce costs and increase profits. Integrated logistics solutions can help companies streamline their supply chain, gain control of inventory, and improve their bottom line. The following Q&A with Josh Cannon, director of global healthcare strategy at UPS, explores the role of technology in improving visibility throughout the device supply chain.

MedTech Intelligence: What role do you see technology playing in the future of medical device supply chains?

Josh Cannon: Medical device manufacturers are facing the same issues—cost pressures, increasing legislation, and changing global demand—that were faced 15-20 years ago in the high tech sector. Certain technologies and industry practices had to take effect to get those cost reductions down and make products more affordable. Similarly, the medical device industry is moving toward lean inventory models. The industry is looking at every aspect of cost optimization, from supply chain to manufacturing costs and more importantly, to investing in technologies that help support lean models.

MTI: What technologies should medical device manufacturers use to improve supply chain visibility to solve the problem of excess inventory?

Cannon: Manufacturers should leverage business analytics technology, which focuses on demand forecasting and inventory planning systems. These technologies look at forecasting models that tell you where the demand centers are so you know how much to manufacture, how much to carry, and where to store it.

Another important element is RFID technology as a visibility tool. RFID technology can be used throughout the entire supply chain. Couple it with demand forecasting and planning systems, and manufacturers have visibility that enables them to make good inventory decisions and reduce costs.

MTI: Is there a difference in adoption rate of these technologies between small and large manufacturers?

Cannon: Inventory management, from an optimization and visibility standpoint, doesn’t have anything to do with the size of the company. It is about savings. When you look at smaller companies, they tend to be more agile, so they embrace technology faster than normal because they’re fighting for market position. Conversely, many of the larger medical device companies have invested in reconfiguring or outsourcing to find new software providers to supplement their ERPs.

I think what’s more important is how companies integrate technology systems into their supply chain. For example, some manufacturers could see better results by driving visibility tools from the end user back to the manufacturing process. In addition, manufacturers should consider how their systems will interact with those of their suppliers and distributors.

MTI: What estimated cost savings can a device company realize as a result of optimizing logistics?

Cannon: From what I see, it is changing as the supply chain for medical device manufacturers evolves. For an optimized network, we’re talking about an estimated 5-7% savings of the supply chain cost. To realize these savings, manufacturers need to create a more flexible and efficient supply chain; one that moves with demand cycles and consumption clusters. Companies must build in a flexible supply chain that can grow and collapse with the demand cycle, especially when going into emerging markets.

MTI: What’s the next step for medical device companies that want to implement integrated logistics solutions to reduce costs and increase profits?

Cannon: Companies must look at opportunities to outsource and integrate. Outsourcing solutions allow flexibility that drives down costs, and integration ensures access to data across the entire supply chain, which is critical to improving efficiencies. By bringing these best practices into the medical device field, manufacturers can create a compliant network that drives savings, visibility and optimization.