For example, Duffy lists the main challenges to orthopaedic supply chains as increasingly high cost of supplies; management of hospital-owned, consigned and company-loaned instruments; lack of visibility in the supply chain; manual supply chain processes and the significant burden on clinician time and workflow, which can result in delayed room time and unaccounted-for items.
While many of those challenges have been around for years, Parampalli believes that OEMs are now more willing to leverage best practices and solutions from other industries. Those sources of inspiration are as diverse as high-tech, e-commerce and retail.
While the highly-regulated nature of the industry presents obstacles to adopting new supply chain practices, Parampalli thinks that increasing price transparency and the unbundling of supplier product cost from total pre/post-procedure costs will push the segment forward.
Parampalli believes that as the industry moves toward new supply chain models, companies will look to and adopt best practices from other industries. One practice that more OEMs are examining is the use of outside distribution vendors.
As mergers and acquisitions squeeze the market, causing demand for quicker turnaround on orders, more companies are considering the use of third-party logistics (3PL) providers and forward-stocking locations (FSL). Alphatec Spine, for instance, has begun to leverage UPS services to provide better service to its end-customers.
“We’re small. We’re $200 million in annual revenue. We’re nimble and agile enough to fully leverage UPS’ services,” says Mike Plunkett, COO of Alphatec. “Our vision is to have a model where inventory from our suppliers would go right to a UPS facility where they would keep inventory, receive sets from hospitals, clean the sets, replenish the inventory, inspect the instrumentation and replace it as necessary. We would fully outsource our whole process.”
But using a 3PL isn’t going to work for every company. For example, Russell says that while using an outside vendor for distribution may be a future consideration, that model wouldn’t currently fit with Arthrex’s priorities.
So, how do companies determine whether or not to use a 3PL?
Chris Franzen, Vice President of Sales & Operations at Shipware, a logistics consultancy, says that while the unique aspects of the orthopaedic industry present certain wrinkles, like a less than two-hour delivery window, much of the supply chain is similar to other industries—meaning an evaluation of a 3PL can be conducted using certain tried-and-true metrics.
“Less than truckload (LTL) and parcel shipping have commonality with almost any manufacturer or distributor of products,” he says. “These should be areas of focus for determining if a 3PL is the right choice for a company, and if it will increase service performance or decrease costs.”
Companies should also be looking to modally optimize their supply chain, he says. That may mean a few things. Namely, it could be diverting traditional parcel shipping away from FedEx or UPS and moving to USPS and regional carriers. It may also mean seeking out LTL consolidation for multi-stop truckloads, which can provide faster service, less expense and expose you to less opportunity for damage.
Franzen says that OEMs should consider adopting more of outside industries’ best practices. One that he particularly suggests is the arena of audits, payment and reporting of transportation invoices. The average cost to process a freight invoice internally is much higher than what an outsourced partner can provide, he says. Some companies have been processing those invoices for as much as $10. A 3PL can process freight invoices for anywhere between $0.10 to $1.35.
“Last, but not least, many industries have been slow to adopt an Inbound Freight Policy that includes vendor compliance,” Franzen says. “It is imperative for any decently sized shipper/receiver of goods to take control of the routing of their inbound freight and leverage this spend with outbound volume.”
Franzen believes there has been a hesitancy to use 3PLs. He believes that there is a common sentiment among OEMs that their needs are unique compared to other industries, making 3PLs less effective.