OEMs Look to Suppliers for Vendor Managed Inventory Help

Inventory management has always been a complicated process due to the volume of orthopedic implants and instruments that move from hospital to hospital. Now, the lack of clarity surrounding the business impact of COVID-19 has forced companies to rethink their strategies, including packaging, warehousing, forecasting and distribution.

With that in mind, contract manufacturers and service providers could be tasked with playing an even more significant role in vendor managed inventory. We spoke with three suppliers that have bolstered their inventory management services to find out the role they’re playing today and how that might change in the future.

We interviewed:

  • Tom Williams, General Manager, Millstone Medical Outsourcing
  • Josh Monesmith, General Manager, Micropulse
  • Tyson Dunn, Director of Operations, Elite-Medical

What are your device company customers asking about when it comes to inventory management?

Williams: Currently, the focus is on reverse logistics and recapturing the value of assets that they already have in the field that are potentially not turning as quickly as they could be. There’s also a big change in taking non-sterile items out of the field and repurposing or packaging them as sterile items to go back out into the field.

Monesmith: The main thing that we’ve seen, especially over the last couple of years, is speed to market. Customers are looking to cut time from the entire process, from purchase order issuance to receipt of product. Those conversations have involved large batch manufacturing so that we can have a product available on the shelf, sometimes at various stages of product realization. We’ve seen a pretty strong economy over the last several years, so lead time is paramount right now. Customers are looking for options on how they can reduce that lead time.

Dunn: OEMs are continually seeking competitive advantages within the marketplace, and inventory management is just one piece of that puzzle. We believe having a good relationship with active communication is what most of our partners seek.

Device companies want to streamline their inventory management and logistics processes. How might orthopedics’ inventory management model evolve?

Williams: A lot of it has to do with data. Companies are focused on gathering more data and having more visibility into the location of their inventory and assets. The way we see it evolving is it’s going to become a lot more flexible. The one-size-fits-all model for the industry of pushing out a ton of heavy capital assets and instruments is potentially not sustainable. It’s more about being flexible and having the assets where you need them, when you need them. And there’s definitely a change on the horizon away from the antiquated, big, heavy devices that you’re shipping around the country to more single-use, sterile-packaged devices.

Monesmith: One strategy is inventorying products at various stages. For example, if products go through 12 weeks of the realization process, we may have products staged that are through the first four weeks and then they’re on the shelf, and then other products that are eight weeks in, and another product that’s completely sterile packed and ready to go.

What trends do you expect to see when it comes to inventory management in the next five years?

Williams: The big trend that we’re going to see is the movement away from fixed assets to a flexible model, with lower-cost, single-use devices as much as possible. For example, with COVID-19, we talk about needing to get devices into hospitals sooner so they can clean them and decontaminate them and get them ready for use. I predict a movement away from onsite sterilizing toward single-use packaged devices that are disposable, which will allow hospitals to turn over the rooms faster and enable OEMs to drive more sales with less inventory.

Monesmith: One trend that we’ve seen more of is that OEMs are dialing in what their needs will be, even down to a monthly basis. But that ends up becoming a byproduct of a challenging forecast situation for a customer. Also, universal designs and having the supplier build inventory so that if OEMs don’t know what they want yet, inventory is available. That’s a service piece that contract manufacturers will be able to provide if they’re structured to do so. There’s a cost to stocking universal designs or staging inventories. Still, that cost can be much higher if you lose time to market and potentially miss out on procedures if you don’t have the product available quickly. I think that will be especially true over the next 12 to 18 months, as hopefully, the economy rebounds from the current situation, and we see pent-up demand increase.

Dunn: We see the future of inventory management as being integrated into the contract manufacturing world. Who better to manage the inventory than the people who have the capacity to manufacture it?

How will the supplier/service provider role change when it comes to assisting OEMs with inventory management?

Williams: We have to be flexible in our ability to react to what our customers are asking us, whether that’s a different model to deliver, or it’s able to turn inventory faster so that a customer doesn’t require as much inventory. We need to be able to react to the things that they need. We need to become comfortable with the data and understand what the data is telling us as well as what it’s telling the OEMs.

Monesmith: We are starting to get more requests for quicker lead times related to patient matching products. Patient matching changes the whole vendor managed inventory, because now we are not mass producing specific part numbers, we are producing a single part number. Industry is going to have to address the way we handle lead times when something is specific to a patient. Many contract manufacturers aren’t used to dealing with that turnaround.

Almost the inverse of that, as well, is happening. We have some customers who, through their design process, are trying to design more universal devices, which have different end attachments. They want to make a universal component to be able to mass-produce those and put those into inventory without knowing what the end product is going to be, because the end product could be interchangeable. We’re seeing that in our case and tray area right now. That allows us to build the common cases, and then only have to build the custom pieces with a much shorter lead time.

Dunn: We try not to wait for our partners to request things from us; we are usually out front asking them how we can better serve them, or offering to fill a need that we see they may have. Each of our partners is unique, so we offer them options that best fit their needs. Vendor managed inventory, partner-managed capacity or captive cells are some of the successful programs we have developed for various clients. One size does not fit all.

Heather Tunstall is an ORTHOWORLD Contributing Editor.