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MTS Blog: From Savings to Profits - The Financial Impact of Full Optimization

In response to increasing pressure to save costs, medical device manufacturers are exploring a variety of options.  According to The LogiMed Benchmark Report, “Protecting Margins While Preserving Efficiency,”[1] the majority of supply chain managers (74 percent) are looking to reduce warehousing and transportation costs or improve efficiency in either area.  Fifty-nine percent expect to streamline their supply chains, and 54 percent will try to reduce material purchasing costs.  For 28 percent, a reduction in headcount is unavoidable.

Any one of these cost-saving measures or the combination of several will require enhanced methods of inventory control.  Some companies are on the basic end of the spectrum, and some are still using white boards and spreadsheets to track and manage inventory.  Other companies are employing manipulated ERP and CRM systems.  Some medical device manufacturers are finally realizing the need for a comprehensive inventory control system that provides real-time tracking of products, can facilitate communication and collaboration across the enterprise, and enable leaders to make critical, fact-based decisions with real-time information.

What’s at Stake?

As companies progress through the inventory control maturity continuum, they begin to understand and realize the business growth and efficiency gains that can be achieved through improved inventory control and utilization.  Here are three ways effective inventory control can influence the bottom line: 

#1 – The simplest financial impact relates to the increase in cash flow that comes from inventory reduction.  One dollar out of inventory is one dollar more in cash.  With that reduction also comes a reduction in carrying cost.  For the most efficient operations, inventory carrying cost varies from 20% to 30%.  A $1 million reduction of inventory would take $200,000 to $300,000 of cost off the P&L/Income statement. 

#2 – Excess inventory and a lack of visibility add ancillary costs as well as drain the sales engine.  An opaque supply chain drives operational inefficiencies, which also adds to the simple cost required to manage the inventory.  Efficiency gains of 10% to 15% can be achieved through customer service, distribution, and management and by eliminating the confusion of inventory control that operates below optimized levels. 

#3 – Perhaps the most impactful improvement of increased inventory control and visibility is the ability to elevate sales efficiency.  Poor inventory control and an inefficient order management process can occupy 6-8 hours a week of a sales professional’s time.  Converting half of that wasted time into productive sales is a 7.5% to 10% growth in sales.  As the role of the sales rep in the medical device industry evolves, driving improved sales efficiency becomes more important than ever.

While medical device manufacturers are in the business of developing state-of-the-art products to solve today’s complex medical challenges, the companies are not utilizing cutting-edge technology to manage their inventory.  Pressures from impending federal regulations and increased competition will continue to drive the need for cost-cutting measures and increased efficiency.  And, unlike other industries, medical device manufacturers have the added responsibility of ensuring quality and tracking their products from the manufacturing process to the patient surgery and beyond.  The only way medical device manufacturers continue to identify savings while maintaining quality and moving their companies forward is by fully embracing technology for themselves.      

[1] LogiMed.  “Protecting Margins While Preserving Efficiency,” The 2016 LogiMed Benchmark Report.