Control Costs by Reducing and Recouping Your Lost and Expired Inventory

How can you better control costs through inventory management?

In the orthopedic medical device industry, as in every sector, a lot of attention is paid to costs. Labor, sales and marketing, product development, materials, and production are all cost centers to be analyzed and monitored when it comes to your bottom line.

Inventory costs, though, can often be overlooked. And when it comes to inventory costs, many OEMs focus on the carrying cost of inventory—the cost you incur to hold and store your inventory (and the opportunities you forego, perhaps, when you can’t turn it). The problem, though, is broader. Working capital locked in inventory is a resource you can’t reinvest in research and development or new product as long as it’s out in the field. As a result, it is a factor that can actually limit your growth.

Knowing that, how can you optimize your inventory management? More disciplined processes and systems can mitigate  losses and help you better control costs when it comes to inventory. In general, there are three ways for OEMs to control or recover costs when it comes to lost or expired inventory.

#1: Combat the cost of expired inventory.

Inventory in warehouses or consigned to distributors and sales reps that has not been used by its expiration date often represents a significant sunk cost. Much of that inventory can be repackaged and sold, helping you claim a portion of that sunk cost.

At Millstone, we process expired inventory as we do field returns. First, we send a notification out to all distributors or reps in the field who might be holding expired inventory. The notification includes details on what is to be returned and where items should be sent. When parts arrive at our facility, our staff carefully catalogues what has been received and inspects all pieces based on the criteria provided by our clients. We determine what is usable versus what should be sent to a scrap house. At the end of the process, our clients have clear visibility into their inventory and can recoup a portion of the value that would otherwise be zero.

#2: Control inventory loss in the field and you control costs.

Inventory can be lost as a result of the organic activities of the field. Consider the variability inherent in how individual reps store inventory—some meticulously, some less so. Factor in the potential chaos that can result when a new rep picks up where a departing rep left off. When you have massive amounts of inventory out in the field and very little visibility, you most certainly have underutilized andlost inventory.

Greater visibility, better control, and tighter management of field return and loaner kit processes can be transformative for inventory utilization—and for recouping costs. At Millstone, when we manage loaner kits, we implement lot traceability. This means that each part in a kit is traceable, ensuring visibility at all times. With lot traceability, an OEM can identify where each and every part is quickly—with accuracy—as well as see who has it in the field. Furthermore, the repeatable process we put into place for clients allows us to turn kits within 24 hours of receipt, meaning OEMs can get more utilization out of their inventory.

#3: Use disciplined processes and systems and flexible labor to your advantage. 

In our industry, patient and surgeon needs aren’t confined to 9-to-5 business hours. Same-day expedited service, emergency order deliveries, and weekend and holiday shipments increase your labor costs. The pressures of unanticipated and peak demand result in overtime, which drives up operational expenses.

The flexibility and scalability available through outsourcing, though, can help OEMs meet customer demand during peak or off-peak hours. Creating more disciplined processes and systems, when combined with this flexibility and scalability, can materially reduce overtime labor costs in addition to helping reduce or recoup inventory costs.

Meeting the goals of profitability and growth requires consistent focus on the range of factors driving cost in your business. Optimizing your processes will create more efficiency, helping you funnel more working capital into the areas of your business where it will make a difference to your trajectory. With an expert outsourcing partner, you can implement best-in-class processes that help you bring about that kind of transformation more quickly.

At Millstone, we get it. We believe quality drives patient success. That’s why we’ve perfected all the capabilities medical device manufacturers need to get to market. Today we offer post-manufacturing and aftermarket services to more than 50 customers, including some of the top 10 orthopedic companies in the world. We are constantly evolving our processes and services to help OEMs achieve sustainable success. We offer clean room packaging, medical device specific warehousing, finished goods distribution, loaner kit management, advanced inspection and after-market services—all with an unparalleled focus on quality.

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