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MTS Blog: Rules Are Changing in Hospital Space Game

Medical device inventory sales reps don’t have it easy.  Often they cover broad territories, interact with many layers of hospital staff, retain knowledge of complicated devices and kits, and are in serious competition with other sales reps every day.  Lately, hospitals have been making the sales rep job even harder.  In an effort to leverage space, hospitals are moving medical device inventory out of storage areas, and sales reps aren’t happy.  What should manufacturers do?  Lobby hospitals to regain their shelf space or partner with hospitals to solve the storage challenge?

For Hospitals, Space = Revenue

Margins for all players in the healthcare industry are slimmer than ever before.  Hospitals are trying to squeeze as much revenue out of their facilities as possible.  Storage space previously seen as extra or behind the scenes is being transformed into valuable operating areas used for revenue generating activities.  Soon the days of fighting for prominent shelf space will be over forever as hospitals move inventory into external warehouses that either they run or are managed by a third-party logistics provider (3PL).

Hospitals are pursuing two options: do-it-yourself warehousing and distribution or experienced 3PLs who store, manage, and distribute inventory.  In the DIY model, hospitals build their own warehouses, install personnel and systems to manage and distribute inventory, and develop a transportation system to deliver product on a daily basis.  Through the 3PL partner, medical device inventory is inspected, stocked, and distributed through localized warehousing and fulfillment centers and is professionally delivered right to central processing inside the hospital.

What Should Manufacturers Do?

Rather than fight alongside sales reps to maintain shelf space, medical device inventory manufacturers should recognize the inevitability of hospitals making more room for revenue generating functions.  Partnering with hospitals and buying into the 3PL model, which is the same idea as local warehousing, is the smart move.  And, it’s the smart move for manufacturers and sales reps as well.  Here’s why:

  • With visibility, manufacturers 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.
  • Sales reps have greater access to inventory as they tap a greater pool of resources.
  • Sales reps gain back time wasted on inventory management and paperwork and spend that recovered time on increasing sales.
  • More savings comes from sharing the warehousing overhead, labor costs of logistics, and delivery expenses with other manufacturers.

Hospitals will willingly partner with manufacturers because it makes sense for them as well.  First, the demand signal comes earlier in the process so inventory is always available and on time.  Second, hospitals regain inventory storage space that can be used to generate revenue.  Finally, comprehensive data capture enables hospitals to use less inventory which results in reduced costs.

So, What’s the Hold Up?

Every major industry change requires a radical shift in thinking.  In this case, control of inventory is often the sticking point.  In the past, the entity – manufacturer, sales rep, hospital – with physical control over the product was in the pole position.  The 3PL model or local warehousing concept is based on the idea of sharing resources to meet a common goal.  That’s a significant shift to make, but the benefits to every party are substantial.  And, in the end, maybe the biggest winner of all is the patient.