Part of doing business as an orthopedic device manufacturer is walking the thin line of keeping enough instrument and implant inventory available for surgeries without overproducing products at a high cost.
Cost of consignment and inventory management is a well-known industry challenge that is virtually unquantifiable when factoring in a stagnant product, labor and productivity loss from tracking, and excess implants and instruments on hand for just-in-case scenarios. To control these scenarios, orthopedic device manufacturers seek efficient ways to track inventory usage and stock levels, particularly as the industry continues to grow and companies serve international and outpatient markets.
“Rapid growth and significant new product introductions have resulted in more assets and inventory to control and manage today versus years past,” said Tommy Russell, Manager of Global Field Operations for Arthrex. “So, while volume and value have exponentially grown, the same challenges that require focus for $100 million worth of products exist for $800 million of products.”
HOW INVENTORY MANAGEMENT HAS CHANGED
Orthopedics is a dynamic industry, and excess inventory is inevitable. Even so, companies must adapt their inventory management techniques to mitigate costs associated with consignment when products are sitting unused in sales reps’ cars or on hospital shelves.
Inventory management has changed significantly since the early 2000s in both approach and resources, according to Rich Wilson, Director of Distribution and Planning for Ortho Development.
“Though once seemingly an afterthought, organizations have now made inventory management a key initiative in business performance, as proper inventory control can alleviate bottom-line pain caused by industry-wide decreased ASPs over the years,” Wilson said. “This altered approach has resulted in additional resources and new innovations as organizations look to improve year over year.”
Sales rep incentives help move the needle in some cases, but companies have been getting more strategic with how they track product movement and usage beyond the sale.
“Managing inventory through procedure packs, construct pricing and linear discounting requires a higher degree of focus and accountability, which must be balanced to not distract the orthopedic sales rep from selling the product,” Russell said. “The industry is certainly migrating to the use of cloud-based platform systems as the need for more robust lot tracking is becoming more necessary than legacy spreadsheets and access tables.”
THE EVOLUTION OF TRACKING AND AUDITING
Orthopedic device companies have taken advantage of emerging tools—built internally or purchased from software vendors—that allow inventory management professionals to dissect trends and predict future activity. Arthrex’s approach to auditing and tracking its inventory and performance has shifted to a two-part system that prioritizes compliance and transparency in relation to product whereabouts.
“Field inventory is measured at the agency level by product classes for excess and is subject to physical inventory audits, which is a driving force for compliance and accountability,” Russell said. “We use a cloud-based system that allows for full consignment visibility, transfer, cycle count, audit and accountability. By using systems with GPS coordinates, instrument sets are tracked not only in a system but also in real time at point-of-use, where data capture allows specific part lot usage, and performance metrics are captured to rank each specific asset to revenue to determine placement, movement or entitlement.”
Ortho Development manages their inventory through an ERP system, and they’ve also partnered with a third-party healthcare logistics software company for advanced tracking and analytics. The platform provides Ortho Development with real-time data on inventory movement, including consignment and loaner inventory.
“Instead of using spreadsheets, magnet boards, or an endless number of emails, tray and kit movement is recorded with instant visibility, which is provided to anyone with the appropriate access,” Wilson said. “All movements are tracked by the user, providing a clear audit trail in the event research is needed.”
Healthcare facilities have also partnered with the same third-party player to manage assets within their own supply chain—a plus for device companies, Wilson said.
“Having the manufacturer, distributor and hospital all on the same system allows for a seamless handoff of both consignment and loaner assets, while improving visibility for all parties involved,” he said.
Ortho Development takes a team-oriented approach to audit their inventory’s performance. In addition to the software and tools that they use, good old-fashioned communication is a key component to keeping operations streamlined.
“The numbers lead to effective conversations with sales management about specific products and locations,” Wilson said. “Frequent conversations allow all parties to be involved in the strategic placement of inventory and provide an opportunity for sales leadership to offer insights that would not be available with numbers alone. Ultimately, it’s the combination of customer insights and data that lead to effective consignment performance.”
Consigned inventory management will likely continue to see enhanced tracking capabilities and optimization in the future with the advent of new technologies, Wilson added.
“These improved tracking capabilities will lead to improved performance through better bell-curved size distribution, hospital storage considerations, and ultimately, reduced opportunity for waste or shrink,” he said. “Shared information between the facility and supplier can help create a collaborative approach to supporting surgeon needs while minimizing costs.”
MITIGATING SUPPLY CHAIN RISK
Visibility into inventory movement can become difficult as products move through the supply chain. Issues such as delivery delays, vendor management, quality or regulatory issues come into play, not to mention the impact of inclement weather, political unrest and global economies for larger-scale orthopedic operations.
Arthrex’s most significant strategy in supply chain risk management is having a strong field operations department that is hyper-focused on inventory, operations and supply chain that works side-by-side with purchasing and sales and operations planning, according to Russell.
“Issues are mitigated due to the additional level of communication and support that a true field operations department provides,” he said. “This level of support provides the visibility and speed to drive agency performance and set realistic expectations.”
Continuous safety stock evaluation helps Ortho Development manage supply chain risks. They calculate and verify the appropriate levels each month to make sure that they’re not exceeding a lead time formulation without creating a risk of excessive backorders.
“Another way we mitigate risk is to solicit inputs from both sides of the supply chain spectrum,” Wilson said. “From suppliers to end-users, this feedback helps us predict potential disruptions and address them before they become a problem.”
THE PROACTIVE APPROACH
Inventory management processes will continue to evolve, presenting new opportunities and challenges to device companies. The global adoption of unique device identifiers will require manufacturers to track the product to point of care on a much larger scale. The movement of procedures to ambulatory surgical centers will require manufacturers to rethink the size of their products and where and how they’re stored. The list goes on.
As conditions change, especially in the regulatory environment, staying ahead of the game takes a proactive approach by seeking and investing in new technology and continuing education opportunities for employees.
“It is important for us to structure our processes to maximize time and efficiency, while strictly following regulatory guidelines,” Wilson said. “However, additional time may be required to distribute items for surgical support without improved processes and/or systems. Adherence could lead to an increase in personnel, affect inventory availability, or both.”
Heather Tunstall is an ORTHOWORLD Contributor.