Annual revenue for medical device manufacturers is expected to surpass $800 billion by the end of the decade. However medical device manufacturers must give careful consideration to supply chain and inventory management which represents the second largest expenditure in medical device manufacturing. With proper inventory strategies, manufacturers can not only affect their own bottom lines, they can also meaningfully contribute to the improvement of patient care within the healthcare industry. This is accomplished by reducing inventory costs which reduce the overall cost of healthcare and by decreasing the amount of lead time to treatment.
Challenges to Inventory Management
There are several different factors that can affect inventory optimization for medical device manufacturers. First, the lack of visibility throughout the supply chain is problematic. Manufacturers tend to undervalue supply chain technology and inventory management systems. These are either not seen as a competitive advantage among manufacturers or are underutilized to the point that the information becomes inaccurate. With inaccurate and underutilized information, predicting demand and managing inventory becomes a nearly impossible task. This ripples up the supply chain causing production uncertainty and down the supply chain requiring hospitals to maintain large levels of inventory instead of relying on JIT delivery. Ultimately, patients are the ones bearing the higher inventory costs and sometimes a lower quality of care.
Impacts of Improper Inventory Management
In addition to patients bearing the brunt of higher inventory costs, mismanaged inventory can lead to other negative consequences. Medical device shortages can lead to lost revenue for hospital systems, longer lead times, and lower patient satisfaction. Healthcare providers are also stuck in the undesirable position of providing inferior care, extending the time to care, and in extreme circumstances, the use of expired products. Even when the appropriate devices are present, healthcare providers are also forced to spend more time tracking down the right materials needed for a given patient. During periods of abundance, a whole new set of problems and inefficiencies arise. Healthcare institutions must increase the amount of time, labor, and funding for inventory management which raises the cost of healthcare.
Inventory Management Solutions for Medical Device Manufacturers
Inventory-associated losses are accepted by many manufacturers as part of the cost of doing business. However, many inefficiencies can be mitigated if not eliminated altogether and result in an improved bottom line. Implementing these solutions means gaining buy-in from other stakeholders, adhering to regulations, prioritizing patient care and cultivating a culture of efficiency.
Digitize and Integrate Systems
Manufacturers, healthcare providers, and sales representatives all use different systems to track the output, throughput, and usage of medical devices. These disparate sources of “truth” end up creating an unhealthy amount of dissonance when managing inventory. This leads to waste and obsolescence of different medical equipment which could be mitigated by a harmonized and integrated system. Manufacturers must be the first movers to use these systems and equip the sales team with inventory management solutions. These solutions should also be combined with QR codes connected to a central ERP to monitor inventory needs and respond when they become too high or too low.
Use Advanced Analytics
Demand for medical devices is nonlinear and extremely unpredictable. The lack of visibility within current inventory levels across the manufacturers, sales reps, and healthcare providers further exacerbates this problem in demand and production planning. However, advancements in artificial intelligence and machine learning, give manufacturers a better base to begin predicting demand for their different products. This ultimately leads to less field inventory, fewer inventory costs, and more narrow JIT windows.
Increase Stakeholder Visibility
Solutions that increase stakeholder visibility will also help them understand the types of resources that are currently being allocated to inventory management. Through this transparency and visibility, manufacturers can show in a tangible way the benefit of proper inventory management. This will help gain buy-in from stakeholders, primarily those closest to patient care (and inventory), like hospital administrators and clinicians.
Optimize Distribution Network
Patient care is uncompromisingly the priority in all aspects of healthcare, including the medical device industry. Any actions taken, therefore, should not interfere with patient care. Because of this, medical device inventory is often kept in a very decentralized manner. Different components are stored nearly everywhere to ensure low to no lead times and ensure the highest level of patient care. However, medical device inventory is often inefficiently stored in places that don’t meaningfully affect patient care. To solve this issue, a network analysis can identify the demand for a given product and its nearest point of inventory.
Adopt JIT Inventory
Finally, adopting a JIT inventory approach helps medical device manufacturers manage their own inventory and consignment inventory more efficiently and effectively. Manufacturers are able to order higher-tier materials with more precision and accurate lead times. This not only reduces inventory costs but also reduces carrying costs while minimizing the risk of obsolescence.
The approach requires much collaboration from other suppliers as well as forecasting which is why advanced data analytics, increased stakeholder visibility, and integrated systems are so important. Efficient internal processes are also essential for successful JIT production. While JIT sophistication can be a challenge to meet and maintain, it can drastically reduce waste, inventory costs, and increase responsiveness to market demand.
How Seraph Can Help
Managing inventory effectively is crucial for the success of any medical device manufacturer. By following best practices companies can optimize their inventory management and improve their bottom line. However, even with the best practices, companies may still encounter inventory management problems. In these situations, hiring a specialized consultant can be a valuable solution. A consulting agency can provide expert analysis and advice on specific inventory management issues, as well as help implement and monitor new inventory management strategies. Thanks to our team of specialized medical device operational consultants, Seraph can come alongside medical device manufacturers and act as a support structure and begin adding value from day one. Our advisors are former management at many suppliers and OEMs and are experts in production and operational efficiency. Contact us today to schedule a discovery call, or see our case studies for more information.