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MTS Blog: Manufacturers and Hospitals - Finding Common Ground

Medical device manufacturers and hospitals are very different animals.  Manufacturers are in the business of developing innovative products that help increase mobility, decrease pain, and save lives.  Once a product comes to market, the job of the manufacturer is to get that device in the hands of as many surgeons as possible.  Hospitals are dedicated to providing the best care to patients, and to accomplish this goal, they are focused on the needs of patients, doctors, and administrators.  For both manufacturers and hospitals, the management of medical device inventory is a necessary evil.

What Manufacturers and Hospitals Want

Manufacturers and hospitals want the same things with regard to inventory management.  Both entities want a more comprehensive, real-time understanding of where inventory is, and they need a way to anticipate inventory demand for upcoming procedures.  Reducing inventory is also a priority but for slightly different reasons.  As Taiichi Ohno, the father of lean manufacturing, once said, “The more inventory a company has, the less likely they will have what they need.” 

Manufacturers want to reduce inventory to improve cash flow and decrease complexity costs.  Hospitals look to reduce inventory so they can recapture scarce and valuable space.  Overall, what manufacturers and hospitals desperately need is a technology platform that delivers real-time inventory visibility; manages scheduling, ordering, and replenishment functions; and integrates with multiple software systems to keep records consistently updated without manual data entry.

Road Blocks

The medical device industry grew freely and without uniformity or direction.  Manufacturers and hospitals created processes that addressed their operational needs without collaboration or coordination.  The result is a hodgepodge of systems that do not communicate, share information, or compile data in similar ways.  Surgery-specific software, a manufacturer’s homegrown software solution, RFID hardware and software, medical records software, and ERPs/financial management systems – one might find all these solutions and more in today’s interplay between manufacturers and hospitals.

Compounding the technology quagmire is the fact that inventory physically resides in many disparate places.  Hospitals house inventory, sales reps hoard product in their homes and cars, and each manufacturer spreads inventory across warehouses and distribution centers.  It can sometimes seem like the only way to ensure that a product is available for a surgery is to stockpile what is needed for the future.

In general, the biggest road block in establishing a streamlined solution that works for manufacturers and hospitals alike is the issue of control.  Manufacturers are loath to relinquish control over their methods of tracking inventory.  Their dread might be best summed up with the old adage: “Better the devil you know than the devil you don’t.”  Hospitals, which serve on the front lines of patient care, are resistant to changing their methods of inventory management for fear of making something already complicated and time consuming even more so.

Is There a Solution?

Yes.  The solution is the magic combination of a comprehensive inventory management system and a third-party logistics partner (3PL).  Here’s how it works.  A 3PL provides a network of strategically located distribution centers and valuable expertise in distribution.  An inventory management system specifically designed to track and move medical devices serves as the critical link between the hospital, 3PL partner, and manufacturer.  The blend of the 3PL partner’s warehousing space and distribution proficiency integrated with a comprehensive software creates a cohesive, effective closed-loop system.

The benefits for manufacturers and hospitals are significant. 

  • With visibility, manufacturers and hospitals have greater control.
  • Control leads to the ability to leverage inventory in the most effective and efficient manner.
  • Manufacturers are able to level set their inventory in real-time across the country.
  • Less inventory is needed, which accounts for the huge reduction in inventory costs.
  • Hospitals regain valuable space.
  • Sales reps have greater access to inventory as they tap a greater pool of resources while spending less time on inventory management.
  • More savings comes from sharing the warehousing overhead, labor costs of logistics, and delivery expenses with other manufacturers.

But, there’s a problem.  If a single platform is needed, which entity adopts the technology first?  The answer has to be manufacturers.  It would be almost impossible for hospitals to drive this change.  The charge must be led by the manufacturers.  When they recognize the advantages of a common technology and a unified distribution program, they will reap the rewards that come from major inventory reductions and cost sharing of warehouse space, delivery routes, and shipping.  

At some point in time the medical device world will shift to one solution that works for manufacturers and hospitals.  This shift is critical to the future progress of the industry.  Manufacturers, lead the way.