Two Strategies to Free Capital Captured in Consignment Inventory
No doubt you know about the La Brea Tar Pits, the gooey natural asphalt in present-day Los Angeles that trapped over three million animals during and since the last Ice Age. What captures our collective imagination is the idea that so many animals went in—and never came out.
In a way, cash into consigned inventory faces the same fate as those Ice Age animals: it goes in, and it might not come out. Consigned inventory captures the largest share of your company’s free cash. Each unit represents a past expenditure yet to turn into cash from a procedure. Depending on where it is, who is holding it, and what the market demand is, it might turn today, or it might never turn at all.
Access to more working capital gives you the ability to reinvest in your business and drive innovation through product development and R&D. This activity feeds growth and enhances profitability. No doubt you’re aware of ways to free working capital, like turning loaner kits faster, extending your shipping window, and thinking critically about large capital expenditures like facilities (and what’s required to staff them).
When you’ve found all the efficiency you can in these functions and areas, though, you might still be left with capital captured in consignment inventory. What’s the most effective strategy to free more? Here are two ways that working with Millstone can help you better manage—even optimize—the capital you have in consigned inventory.
As they continue to bring new products to market, many OEMs build a large number of implants and instrument sets, anticipating high demand. Frequently, this inventory is deployed into the field, but perhaps not where it is needed most. Devices and sets may be in the hands of reps or hospitals in areas of the country far from where case coverage needs arise.
A lack of inventory visibility or traceability can hamper your ability to optimally manage your inventory assets. When this happens, and supply and demand are mismatched, many OEMs resort to ramping up production of new devices and sets to satisfy backorder demand. You can already see the result: more and more cash goes into consigned inventory, and it becomes ever more difficult for the OEM to turn this inventory back into cash.
If this situation sounds familiar, a reverse logistics program may be the answer. Reverse logistics refers to everything associated with a product after manufacturing and the usual point of sale. Through a reverse logistics program, inventory can be reclaimed from the field and redeployed for the full benefit of your workforce and customer base. The savings can be in the order of millions, and such programs can be a powerful way of reducing additional millions in backorders.
Tier 1 service
There’s another scenario related to consigned inventory and captured cash. Through rapid growth or merger and acquisition activity (or even a combination of both), some OEMs find themselves handling ever-increasing complexity in supply chain management. More and more cash is trapped in the inbound supply chain. If that supply chain is not highly coordinated, you may end up with unrealistic or delayed assembly schedules, which of course affect how quickly you can produce finished goods and turn them into consigned inventory. Along with increased complexity comes heightened risk. Liquidity declines as more capital is captured by the supply chain.
If this situation sounds familiar, the answer can be a comprehensive solution such as Millstone’s Tier 1 service. Tier 1 clients turn the role of supply chain management over to Millstone. We purchase components from highly regarded contract manufacturers, pay for those components, and handle invoicing, inspection, and assembly into finished goods. The true benefit comes in a consolidated invoice, as Tier 1 service clients are billed only once for this comprehensive process. The result is maximum liquidity with significant reductions in overhead and the possibility of being cash positive before that single invoice ever comes due.
Depending on your current goals or needs, one of these two strategies might be a better fit. Either one can be highly effective in giving you access to more working capital, which you already know would benefit your business.
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 reverse logistics services—all with an unparalleled focus on quality.
What could we help you do better? Learn more at http://millstonemedical.com.
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