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Impact of supply chain and logistics in medical technology innovation

Frost & Sullivan research has shown that healthcare providers around the globe could face a decline in operating margins of up to 30 percent, due to costs associated with regulatory reforms as well as general reimbursement.

As a result, providers are often forced to cut back on the procurement prices of products offered by medical technology companies. This means that on the original equipment manufacturer (OEM) side of business, medical technology companies have to look internally for savings as research-led innovation or manufacturing cost management alone cannot bridge the gap.

Supply chain and logistics are major areas where costs savings can be achieved for a medical technology company: According to McKinsey, supply chain transformation not only results in a 10- 20-percent improvement on profit margins and inventory days of supply (DoS), but also allows them to offer additional service solutions to their hospital customers.

A strategic advantage

The time has come for medical technology companies to move away from a one-size-fits-all approach for supply chain management (SCM) and begin to develop differentiated strategies based on product line, target market and customer type.

An effective SCM strategy for medical technology companies should focus on overcoming the fragmentation in inventory management by giving an OEM the ability to base consignment stock on market demand. This will enable companies to have high product visibility across the supply chain, which results in optimized stock-keeping while reducing the cost of inventory holding and improving logistics as more products will be in circulation in the market.

To improve operational aspects of supply chain, most medical technology companies are investing in technologies that enable real-time tracking of assets to forecast demand and improve workflows. However, there is also a need to recognize the variations in the procurement of medical technology by healthcare providers to fine-tune the supply chain strategy based on customer type.

To achieve this, medical device OEMs will have to increasingly look into collaborative and risk-sharing agreements involving multiple stakeholders, including group purchasing organizations, hospital collectives, procurement departments of hospitals, and third-party distributors or logistics providers.

Effective SCM

Supply chain integration will be critical to overcome fragmentation and bring more transparency and communication across the healthcare supply chain. This will require standardization of transactions between medical device OEMs, distributors and healthcare providers.

Medical technology companies are working with distributors as well as directly engaging with healthcare providers to sell their products. In both cases, the focus should be on identifying and addressing the structural changes faced by healthcare providers, such as cost pressures due to regulatory reforms and reimbursement, and use that as the base for pricing and consignment stock management.

Medical technology companies that are revitalizing their supply chains by removing redundancies and improving workflows to enhance operational efficiency should ensure that the transformation process is holistic and rolled out across the entire organization simultaneously. A piecemeal approach will only add to the complexity and result in inefficiencies. An all-inclusive plan will lead to better cross-functional efficiency in the long term, as medical technology companies will be able to identify key performance

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