MTS Blog: Be More like Amazon. Go Local.
Hospitals want medical device manufacturers to be more like Amazon. The company started selling books and now delivers everything from lawn mowers to toilet paper on a daily basis. Amazon is the retail behemoth it is today because of the company’s innovative supply chain. In fact, “The combination of sophisticated information technology, an extensive network of warehouses, multi-tier inventory management, and excellent transportation makes Amazon’s supply chain the most efficient among all the major companies in the world.”* Technology, comprehensive inventory management, local warehouses, and delivery services? Sounds like the Forward Stocking Location (FSL) model we have been touting for over a year.
In the last decade, medical device sales reps claimed more and more space in hospitals for storing products. Hospitals want that space back. But, while hospitals are pushing manufacturers to reduce stored inventory, they need to keep consignment products and have inventory regularly replenished – all without disrupting service. Not an easy task for medical device manufacturers unless they employ a FSL strategy. (Click here to learn more about the nuts and bolts of FSL.)
The Hospital/Manufacturer Connection
Whether medical device manufacturers like it or not, the way they provide service to hospitals is changing. Hospitals are under the gun, like everyone else, to reduce costs, streamline operations, and utilize every inch of space for revenue generating functions. Many hospitals, though, especially those with an active emergency room or a high volume surgical practice, need to keep consigned inventory on hand and they need a partner who can keep up with the pace of replenishment and delivery.
In fact, to go a little further, hospitals are pivoting towards moving 75-80% of their medical device inventory to FSL or a similar, decentralized system. The 20-25% of inventory they maintain in their facilities are consignment product needed on a frequent basis. This consignment inventory also must be replenished, and it makes sense to manage replenishment through the FSL as well. The cost for storing this small percentage of additional product is minimal at worst, non-existent at best.
As medical device manufacturers move towards the FSL model to lower their own costs, they should begin highlighting the system advantages to their hospital customers.
- Reduced inventory on site enables hospitals to leverage the resource of additional space.
- Time is saved because replenishment orders are placed as soon as product is used, and product is delivered from a nearby warehouse facility the same day, or next day at the latest.
- Product is delivered via white-glove service right to the point of care, which ensures resolution of any discrepancies.
- High shipping costs through big carriers are replaced with low-cost, local “milk run” delivery charges.
- Quality assurance is enhanced because inventory management experts are checking product expiration dates and precisely tracking for UDI purposes.
- Because there is less inventory in the hospitals, opportunities for product to expire, get lost, or get damaged is dramatically reduced
- Finally, service goes uninterrupted because the manufacturer has access to more than one local FSL and all that stored inventory.
Manufacturers are finally beginning to recognize the beauty of going local with the FSL concept. Cost savings come from inventory reductions, lower shipping costs, and consolidation of warehousing, labor, and management expenses. Efficiencies result in better quality control and improved customer service. But, the real winning reason that manufacturers are taking the plunge is because FSL increases sales revenue by freeing sales reps from inventory oversight to sell, sell, sell. If hospitals also realized the advantages, it might make it easier for manufacturers to jump to FSL sooner so that all parts of the supply chain would begin to reap the rewards that much faster.
* LeBlanc, Rick. “How Amazon Is Changing Supply Chain Management: Amazon Builds Reputation Through Bold Strategies and Technology.” The Balance Small Business. March 24, 2018. Web. June 14, 2018. (https://www.thebalancesmb.com/how-amazon-is-changing-supply-chain-management-4155324)