Supply Chain challenges and Inventory management techniques for Orthopedic Implant distributors
In the orthopedic industry the two critical business processes challenges are:
- Reducing inventory cost
- Improving customer service through better fulfillment
Attaining those goals can be extremely stressful for an organization because reducing inventory costs generally means lower stock levels. Timely customer fulfillment requires readily available inventory which implies higher stock levels. It’s a stress on the supply chain that can make or break an organization because the implications go to profit, sales success, and even employee retention. Smart companies have cut that tension with technology.
Consigned inventory is very difficult to manage and one of the most challenging situations to manage is orthopedic surgical implants. Implants are expensive and it is critical that the correct items are available and intact when shipped for a procedure. This means there is a substantial opportunity for value creation – value from reducing inventory and value from being more responsive to client needs. The demand for orthopedic products has been growing as the global population ages. Currently, almost 40% of the US population is over the age of fifty. Globally the population of those over the age of 65 is expected to triple in the next fifty years. These factors will help to drive the demand for orthopedic surgical implants and make it all the more incumbent on suppliers and manufacturers to effectively manage their supply chains.
The problem, however, is that the industry is using brute force to react to this demand. Inventory levels in the orthopedic industry. This means that to provide the right devices to a surgeon at the right time, more inventory is being added to the company’s warehouses and stock. This might make sense if the industry growth was keeping pace with the inventory growth, but it’s not. This pattern is not sustainable for the entire industry.
Critical in the success of a company is the velocity of inventory. How quickly can the same kit go out to a surgeon and be returned back in to be fulfilled? How quickly can a warehouse operation react to an order received the same day? The process and market are creating unique problems.
There are several issues with consigned orthopedic inventory including:
- Transactions include both shipping and return back to stock.
- The end user is not financially accountable for the use of the entire kit.
- Inventory turns need to be extremely fast, in many cases same day.
While the patient is the end user of orthopaedic implant products it is the surgeon who determines which products are used. Orthopedic surgeons determine the time and place for a procedure to take place. The surgeon is the one who has to be pleased with not only the quality of the product but perhaps more importantly the quality of the service provided with those products. They want what they need when they want it and are not particularly concerned about the condition of the kit when it is sent back to the supplier. The salesperson needs to develop a strong relationship with the surgeon in order to maintain their loyalty and continued business. The salesperson will often, if not usually, put the surgeon’s interests and preferences, above the requirements of their employer whether they work for the manufacturer or distributor. Distribution models of course vary. The salesperson cannot be counted on to effectively track consigned inventory or ensure that kits are returned properly. These factors add to the difficulties in accounting for kit contents when they are returned.
The orthopedic implants industry is both competitive and unique. The market players have a lot of challenges in optimizing the service to their customers while maximizing profitability to shareholders. Those who position themselves to meet these challenges will gain greater market share and customer loyalty while driving greater entity value. Time to look at the solution which allows companies to do just that. The areas where there are opportunities for process improvement include:
- Reduction in processing time for receiving kits and items.
- Improved billing and receiving accuracy.
- Improved ability to find items and service orders on the fly.
- Reduced time to assemble and ship kits.
- Improved kit accuracy outbound.
- Shortened order to cash cycle.
Inventory management is a critical aspect of running a successful orthopedic implant distribution business. Efficient management of inventory can help reduce costs, improve customer satisfaction, and maximize profitability. Here are five effective techniques for inventory management specifically tailored to orthopedic implant distributors:
Demand Forecasting:
Accurate demand forecasting is the foundation of effective inventory management. Analyze historical sales data, market trends, and upcoming product launches to predict future demand. Collaborate closely with suppliers, hospitals, and healthcare professionals to gather insights and ensure a reliable forecast. By understanding demand patterns, you can optimize stock levels, minimize the risk of stockouts or overstocking, and improve overall inventory accuracy.
Implement Just-in-Time (JIT) Inventory:
Implementing a Just-in-Time (JIT) inventory system can help minimize holding costs and improve cash flow. With JIT, inventory is ordered and received just in time to meet customer demand, reducing the need for excessive stockpiling. Develop strong relationships with reliable suppliers who can provide timely deliveries. JIT inventory management requires a well-coordinated supply chain, accurate demand forecasting, and efficient communication with suppliers.
Utilize Technology and Automation:
Leveraging technology and automation tools can significantly enhance inventory management processes. Implement an inventory management system that integrates with your sales, purchasing, and accounting systems. This allows for real-time visibility of inventory levels, sales data, and replenishment needs. Automated systems can generate alerts for low stock levels, automate purchase orders, and streamline inventory reconciliation processes. Utilizing barcoding or RFID technology can improve accuracy in tracking and managing inventory.
Set Up Safety Stock:
To mitigate the risk of unexpected fluctuations in demand or supply chain disruptions, it is essential to establish safety stock levels. Safety stock acts as a buffer, ensuring that you have enough inventory to fulfill customer orders even during unforeseen circumstances. Determine appropriate safety stock levels based on historical demand variability, lead times, and service level targets. Regularly review and adjust safety stock levels to align with changing market conditions.
Implement ABC Analysis:
ABC analysis categorizes inventory items based on their value and importance. Classify orthopedic implant products into three categories: A, B, and C. Category A includes high-value, high-demand items, while Category C consists of low-value, low-demand items. Classify your inventory items based on factors such as sales volume, profitability, and criticality. Allocate more attention and resources to managing Category A items, as they have the highest impact on your business.
Visibility is critical in the orthopedic supply chain. Regularly monitor and review inventory turnover ratios, carrying costs, and obsolete or slow-moving inventory. Continuously optimize your inventory management techniques by analyzing data, seeking feedback from customers and suppliers, and staying updated on industry trends. By implementing these effective techniques, orthopedic implant distributors can improve efficiency, reduce costs, and provide better service to healthcare providers and patients.
