With a U.S. market size of $130 billion, the medical device industry is being driven by global economic growth, innovations, and an aging population. Because of this, inventory management at the factory level can be especially challenging for this set of manufacturers that are going through their market growing pains: significant shifts to product customization, demand forecasting, and regulatory requirements.
I’ve seen a similar pattern of development in all industries. It goes a little something like this: First, make something that works. Once it works, customize it for each buyer—new colors, technology, wheels, and the sort. Then, make it at less cost. And finally, produce it at a wider scale.
That transition happened 40 years ago for automotive manufacturers, and aerospace leaders 20 years later. For medical device manufacturers, that transformation is happening now. Why? Challenged by regulations, profitability, consolidation, globalization, and customer/downstream pressure, these manufacturers’ key pain points are now focused on low on-time in-full delivery levels (93% vs. 99% in auto and other industries), excess inventory caused by unpredictable demands (150 days of inventory on average), and supply chain costs—all of which are weak when compared to peers in other industries. According to AT Kearney, “Capturing a long-term advantage will depend on revolutionizing the supply chains with a focus on agility, efficiency, and customer centricity.”
Sounds simple enough, right? The good news is that a few medical device forerunners do outclass their peers in the industry—a clear indication that it is possible to improve the supply chain with these three focuses. The first hurdle to tackle inventory management for medical device manufacturers is in the factory.
The Factory Challenge
To avoid stock-outs, overstocks, and even obsolescence at all costs, medical device manufacturers have deployed complex fulfillment, distribution, and supply chain strategies. While out-of-the-box ERP systems and business intelligence solutions have provided better visualization of data, they don’t provide actionable insight and depth of collaboration companies need to empower factories through the complexities. Manufacturing sites have been left behind in the digitization of supply chain solutions—in medical device and all other industries we work with.
This is unfortunate, as inventory optimization, on-time delivery improvements, and savings from their supply chains are rooted in improving factory operations. Traditional solutions often answer, “Which factory is making what?” “Where is our inventory?” And, “What is our production forecast?” While important, the answers to these questions often don’t help manufacturers manage the increasing complexities of running their businesses day-to-day. Add in the fact that many companies continue to use manual processes and proprietary technology to track inventory, and it’s clear that a change is in order.
Spreadsheets Are Not The Solution
Medical device manufacturers are moving to handle more assembly work, infuse more customizations into final products, and rely on a larger network of outsourced suppliers to make their parts. Spreadsheets and unintegrated solutions just don’t work anymore. Not only are they inefficient, but they cost medical devices businesses a lot. As product complexity increases, so too do the costs associated with making, marketing, and selling those goods. For the company outsourcing key components to suppliers in different countries, reining in those costs is downright difficult.
The uptick in regulations, fluctuating demand, high levels of inventory, and poor on-time delivery can create more challenges for a manufacturer’s inventory management strategy. And while an enterprise resource planning (ERP) system may signal an excess stock situation, it doesn’t actually know why that excess occurred or what to do about it. Factory management platforms, on the other hand, conduct root cause analysis in real-time, shares the findings quickly, and surfaces strong actions for high-value impact to team members.
Saving Time, Space, and Resources
In the absence of good inventory management and optimization, medical device manufacturers can quickly find themselves challenged by operational inefficiencies and poor order fulfillment, both of which increase as demand grows. Other potential issues include wasted time, space, human labor, and other problems that compound operational costs.
By layering advanced business analytics into traditional inventory planning and demand forecasting, companies can use accurate forecasting models that pinpoint key demand centers. This, in turn, helps them understand exactly what to make, when to make it, and where to put it. In an industry where a stock-out can impact human lives, the issue of patient safety comes into view at this point (unlike the retail sector, where such stock-outs only equate to delayed or lost sales)
Enhanced focus on the factory empowers manufacturers to create viable inventory optimization systems that not only help their companies survive, but also thrive in today’s competitive business environment—propelling them over the hurdle that halts their competitors. Directors and C-suite executives can see a clearer picture of what is going on at any time, and with any machine or person, at any manufacturing site. They can then visualize, analyze, and strategize based on that data. Add AI and intelligent algorithms to the equation, and buyers can learn from what’s happening on the factory floor and bring the biggest opportunities for improvement to the forefront.