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New Supply Chain Models Shift Resources from Device Makers to 3PLs

Amidst tightened budgets and stiff competition in the orthopaedic industry, device manufacturers can outsource a variety of business functions to third party logistics (3PLs) providers to save time and money. 

Orthopaedic device manufacturers can benefit from outsourcing services such as inventory management, warehousing, order processing and shipping, thus freeing up internal resources to focus on R&D, manufacturing and sales.

BONEZONE spoke to several representatives from 3PL companies to gauge supply chain trends and the benefits of forming partnerships with logistics companies.

Participants included:
Geoffrey T. Marlatt, Senior Vice President, Manufacturer Services, Owens & Minor
Mark Ouellette, Vice President of Sales and Marketing, WebOps
Damon Peary, President and CEO, Summit Corporate Services
Craig Simon, President and CEO, FedEx Supply Chain and Kevin McPherson, President, Healthcare Logistics, GENCO (a reverse logistics company recently acquired by FedEx)

BONEZONE: In logistics, what trends are you seeing amongst your orthopaedic device company customers?

Geoff Marlatt_Crop
Geoffrey T. Marlatt:
The biggest shift is the desire of manufacturers to be more local vs. centralized, thereby achieving better access to the target market. For device manufacturers, that option would be costly if they were to build a network of warehouses themselves. So, the prohibitive cost is pushing device companies to look for alternatives.

Mark Ouellette_CropMark Ouellette: Many of our clients are mid- to small-sized manufacturers and they’re looking for regional loaner banks or a full outsourcing of warehousing, handling and customer service. Our platform helps to manage loaners that need to go into hospital sites where a specific type of surgery may happen less frequently—when they need to send a complex set of instruments and implants into a surgery. Instead of consigning it to the hospital, it goes in, comes back out, then needs to be put back on the shelf and replenished. Mid-market companies are interested in that. Pre-revenue and early-stage medical device companies just getting started don’t have a lot of distributors signed up. They need a central place to manage the inventory and send orders to their distributors. These are small U.S. domestic companies, as well as a growing number of international companies that get 510(k) clearance and need help setting up shop in the U.S. They need a place for the product to land, a central distribution facility, and then fulfill orders to their distributors.

Damon Peary_Crop
Damon Peary:
We’re seeing some device companies choosing to go abroad first to help fund their U.S. strategy due to time requirements of regulatory approvals and reimbursement issues. This relates to logistics becasue we’ve had to become experts at getting products through customs and keeping on top of the changing requirements in different countries.

Craig Simon_FedExKevin McPherson_Genco_CropSimon and McPherson: Medical device providers are focused on reducing global inventories, especially products in the field or consigned to hospitals. There are significant opportunities to improve cash positions and return on capital by managing down inventories outside of central stocking. The larger organizations seek to pool inventory as alternatives to “trunk” or “field office” stock, and provide transparency of that inventory to the network. When you couple this with advanced planning technologies, you can create an environment whereby you can reduce finished goods inventory without compromising service quality—this is the challenge before us. Small- to mid-sized organizations may have the advantage in the market as they have no legacy models to contend with. They are challenged, however, to penetrate and move market share, and this is where the 3PL can provide knowledge, experience and technologies that are not within the small- or mid-size manufacturer’s reach. 

BONEZONE: How can companies use logistics as a strategic advantage?

Marlatt: A device manufacturer that recognizes the advantages of outsourcing to a trusted 3PL partner can achieve cost savings, better tracking of inventory and better fill rates.

Access to local markets in a controlled, FDA-regulated environment is an attractive option in contrast to using the sales rep model, in which sales reps manage products out of their cars, home offices or storage lockers.

Learn how to strengthen your supply chain at OMTEC:

Related presentations include:
Strategies to Overcome Supply Chain Pain Points
Advantages to Optimizing Your Supplier Partners
Master Strategic Sourcing Execution

View all OMTEC Education here.