Blog

Maximize Case Coverage with Inventory Utilization

This has been an unprecedented year in so many ways. While acknowledging the devastating loss of life in the pandemic and the economic and political turmoil that has ensued, we’re focusing this article on how the year has unfolded for medical device companies. In addition, we’ll look at how they can strengthen their COVID-19 recovery planning through the final quarter of 2020 and into early 2021.

In mid-March, many hospitals shut down all elective procedures and surgeries, to prepare for spikes in COVID-19 cases and to reduce the potential transmission of the virus. By mid-April, more than two million surgeries had been postponed or cancelled. Before elective surgeries resumed in early summer, the effect was clear. Data analysis from ConsumerMedical estimates that elective surgeries dropped by 65% in March and April 2020 when compared to the same period in 2019. Related care, including physical therapy and office visits, also dropped by approximately 30%.

Specialties saw varying impacts. An analysis published by FAIR Health in June estimated that orthopedics utilization had dropped by 58% in March and 65% in April compared to 2019.

Of course, this reality has far-reaching implications for millions of patients whose care has been delayed, for surgeons and hospital systems, and for medical device manufacturers. Estimates range for the financial effects of the shutdowns and subsequent delays, but it’s not out of the range to consider that many OEMs might have seen as much as 50% of their revenue at risk during late Q2 and Q3 2020.

This makes accelerating recovery essential through the remainder of 2020 and into Q1 2021. With COVID-19 still very much a part of the present, this is an evolving situation. But we are seeing signs of movement and growth, and OEMs have a strong and strategic option to deploy in their recovery planning: better inventory utilization. Let’s look at how.

Support more surgeries with better inventory utilization

Certainly, capacity and the availability of operating rooms affect how quickly the backlog in elective surgeries clears. But so does access to devices and sets. In orthopedics, long lead times—often 12 to 20 weeks—can mean OEMs don’t have the ability to support immediate increases in case coverage. And this assumes that there are no difficulties or disruptions in the inbound supply chain (a big assumption, given some of the supplier vulnerabilities the pandemic has revealed across industries; but that’s a topic for another post).

Lead times aren’t the only challenge. Manufacturing additional inventory is costly, and when revenue is already down, investing additional working capital in new inventory can introduce new risk.

There is another answer to the challenge of accessing inventory. Under the traditional approach to inventory management, product is distributed through dozens of field locations nationwide. Where inventory is currently parked isn’t necessarily where it’s in demand. This means that instrument sets and millions of implants are available but not necessarily being optimally utilized.

Taking a different approach to improve inventory utilization with a robust reverse logistics program can help at this critical time.

Reverse logistics

Reverse logistics is also known by the terms field returns or instrument or implant recycling. By implementing a reverse logistics program, a med device manufacturer can withdraw implants, instruments, and sets from where they are not needed in the field. All material is returned to a central location, where it is inspected, cleaned, and autoclaved. Each piece is logged and given a tracking number. During this process, it is determined which pieces are acceptable (as specified by the manufacturer) and can be redeployed to the field, and which are expired, damaged, or obsolete and can be recycled.

Reverse logistics offers substantial cost savings opportunities as well as access to product to support more surgeries. Here’s a closer look at the five benefits of improving inventory utilization in the time of COVID-19.

Five ways inventory utilization can augment COVID-19 recovery

Dramatically reduce lead times

As mentioned above, one of the main constraints to recovery and to reducing the backlog of elective surgeries is available inventory. Shortening lead times by gaining access to existing inventory can be one of the most important drivers of recovery during these next few months.

Meet demand with supply

Long before the pandemic hit, OEMs had struggled to deliver inventory where it was needed, or to pull it back from locations where it wasn’t being used. Field sales incentives and lack of inventory visibility can contribute, as well as the traditional approach to distributed inventory management.

Centralize inventory management

Related to the above, centralizing inventory management offers additional substantial cost savings opportunities for OEMs. Redeploying inventory with one or two locations is possible with a model that creates a single headquarters location for the OEM and an auxiliary hub with an expert outsourcing partner. This helps to facilitate inventory flow where it is needed most.

Improve inventory control

With centralized management comes better inventory control. Gaining inventory visibility through per-piece tracking may also prove transformational as the new normal of inventory flow in and out of hospitals in the time of COVID-19 becomes apparent.

Recoup costs

Turning existing inventory into sellable goods offers the potential for significant cost recoupment. First, it relieves pressure on finished goods without new capital investment in additional manufacturing. Second, it helps OEMs realize their initial investment in the manufacture of inventory. In a robust reverse logistics program, expired and obsolete items are recycled in an effort to realize every cost recoupment opportunity.

Two case studies

How much of a difference to the bottom line can reverse logistics make for med device companies? Numbers from two clients’ programs can provide a sense of the size of the opportunity.

A top global med device company signed on to pilot a reverse logistics program for three of its divisions in 2018. In the first six months of the program, over one million products were reclaimed from the field, representing a total of $103 million in value. Two years later, total reclaimed inventory is closing in on three million units for a total value of $312 million. Over 60% of the inventory has been redeployed. The OEM has saved $75 million and reduced backorders by $4.5 million.

Another top firm implemented our reverse logistics approach in 2013. In the seven years since, we have helped it reclaim nearly 4 million units with a value of $332 million. Eighty percent of this inventory was redeployed for a $10.5 million reduction in backorders.

In closing, these are uncertain times. Constraints can hamper recovery from the effects of the spring shutdowns, but this period is essential to accelerate recovery and regain revenue. Reverse logistics offers one of the fastest paths to boosting med device manufacturers’ COVID-19 recovery plans.

At Millstone, we get it. 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.

What could we help you do better? Learn more at https://millstonemedical.com.