Three Reasons Reverse Logistics is Mission-critical for OEMs

Over the last year, we’ve confronted a new reality in a world that changed rapidly, sometimes daily, for the medtech industry. Supply chain disruption unfolded across the globe early, with widespread ramifications for materials, labor and production. According to recent research by EY, two-thirds of medtech companies experienced revenue loss, with an average revenue decline of 5% across the medtech industry. This decline was higher for companies focused on elective procedures, as the pandemic strained healthcare systems or patients chose to delay surgeries during case surges or until after vaccination.

While Wall Street analysts predict recovery in the second half of 2021, uncertainty remains. Potential challenges include variant-driven virus resurgence, the tightening of the market for components and talent, and ongoing supply chain disruption, even as med device companies prioritize building greater resilience.

Opportunity also beckons, with growth in the orthopedics market projected to reach nearly $9 billion in annual revenue by 2025, a CAGR of 6.9%. Increasing procedure volumes, new products and technologies and an ever-growing potential market size are driving this reacceleration.

Given how competitive the orthopedic medical device market is, and how key riding market growth will be to future profitability, it’s essential that OEMs examine every possible angle for growing revenue and increasing efficiency. With so much going on in the market, it can be tempting to focus on the “shiny and new” instead of optimizing operations in the emerging new normal. This overlooks a strategic move with strong upside.

In an effort to build business resilience, orthopedic firms should give reverse logistics a closer look. Here are three areas where embracing a strategic approach to reverse logistics can help OEMs make critical gains.

Reverse logistics

First, let’s define what we mean by reverse logistics. Reverse logistics refers to reclaiming product from the field. It’s a reverse supply chain strategy intended to improve profit margins. And it’s one of the four types of logistics, along with supply chain management, production, and distribution. In the medical device market, reverse logistics has sometimes also been referred to as field returns.

Now that we’re clear on what reverse logistics means for medical device manufacturers, let’s look at the reasons to implement a program.

Reason #1: Enable a shift to a new inventory management model

Med device manufacturers have traditionally built and managed a large inventory footprint of implants and instrument sets. To meet demand, they supply branch offices in the field with inventory.

The problem with this approach is that it often fails to match demand with supply. Some branches have excess inventory while others do not have the right implants or instrument sets to cover cases. As a result, this model is complex to manage and requires a considerable investment in inventory.

As the last year has shown, work is evolving. Even in the new normal, some work will remain remote or distributed. Savvy OEMs can transform inventory utilization by shifting to a centralized inventory management model with one or two inventory headquarters. This can enable faster inventory turns and reduce excess inventory while ensuring the agility to manage nationwide demand more easily. A strategic reverse logistics program makes it possible.

Reason #2: Drive higher ROI

As mentioned above, maintaining an inventory footprint is a costly investment. Traditionally, OEMs have produced large quantities of implants and instrument sets to meet anticipated demand.

Some of these remain in areas of the field where demand is low, sometimes leaving OEMs scrambling to cover cases. Others are damaged, expired, or reach obsolescence.

Through reverse logistics, these can be reclaimed, cleaned, repackaged, sterilized, and sent back out to the market. This can be a strategic way to cover more cases in shorter lead times and drive velocity during the coming market reacceleration. Given the tight timelines for material and lead times in the orthopedic market currently, reverse logistics can offer a success path for OEMs—and can even scale to manage inventory spikes and minimize lead times.

There is still value in E/O, expired, and damaged items. When these are reclaimed from the field, OEMs can recoup costs. This is a complex sorting process that an expert outsourcing partner can streamline for manufacturers. All told, a successful reverse logistics program can help OEMs manage investment in new product while recouping cost and driving down backorders for significant savings potential.

Reason #3: Meet changing compliance regulations while protecting revenue

The onset of COVID-19 pushed the dates for compliance with the European Medical Device Regulations for sterile packaging from May 2020 to May 2021. As a result, many OEMs delayed efforts to convert their non-sterile packaging to sterile packaging until late last year (or early 2021). Now with the regulations set to go into effect on May 26, the pressure is on.

Any process change of this nature can cause disruption to revenue and increase the potential for error. As OEMs look to convert to be in compliance, they can work with an expert partner to smooth the transition. Using reverse logistics, they can reclaim product from the field, clean and repackage it to redeploy it.

How to maximize inventory utilization with reverse logistics

Clearly, reverse logistics programs offer upsides for inventory reallocation and utilization, ROI, and compliance. Not every outsourcing partner understands the nuances of creating and running a successful reverse logistics program. It’s important to choose one that does.

At Millstone, we bring experience in successful reverse logistics programs for top global orthopedics OEMs to manage all aspects of reclaiming product from the field:

  • Traceability of all returned product
  • Cleaning, inspection, and autoclaving
  • Customized reporting, real-time visibility into processing and tracking
  • Identification of E/O, expired and damaged items for full cost recoupment
  • Packaging and labeling
  • Warehousing and worldwide distribution to redeploy sellable products
  • Centralized inventory management
  • Packaging validation and testing for sterile pack conversion
  • Scale to manage inventory spikes and minimize lead times

In addition, our proximity to a nationwide distribution hub gives Millstone the ability to provide same-day, expedited, emergency and weekend and holiday shipments for clients nationwide, with shipping windows open until 11 PM EST.

In an uncertain and increasingly competitive world, in an industry that has ridden its own highs and lows over the last year, any advantage counts. As OEMs look to protect their businesses from future shocks, it’s important to understand how mission-critical reverse logistics initiatives can be.

At Millstone, we understand the challenges OEMs face when it comes to reverse logistics programs. We believe that quality drives patient success and that the expertise of a trusted outsourcing partner can help at this critical time. 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.

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