What is the True Cost of Maintaining the Status Quo? 

Written By

Nicolas Orrego
Nicolas Orrego

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Within several leading drivers for profitability in a medical device inventory operations organization, “business as usual” carries with it unsustainable deficits.


There is often only political—but not practical—validation for persisting in inferior, costly processes. Essentially, “going down with the ship”. Especially when it comes to medical inventory software, cutting losses, absorbing sunk costs, and propelling forward with innovation is almost always the only way to turn around these runaway costs.    


So, what is the status quo really costing your business? 

Consider the following operational and technological components that affect profitability, and—short of completely transforming your commercial inventory operations—the associated costs of continuing to rely on inferior tools and processes: 


Operational Costs 


Freight 

If freight management is not seamlessly integrated with the inventory management system used by operations, and isn’t carrier-integrated, then significant inefficiencies in shipping will introduce serious cost leakage. Without detailed, real-time, integrated tracking, shipments are not optimized. Planning suffers severely, sourcing cannot accurately account for where the nearest inventory is or when it will become available, and urgent freight rates are overused. Optimizing shipments with integration to the carrier and to the rest of operations processes can cut 31% of freight costs, which for enterprise organizations adds up significantly. 


E&O 

Scrap rates are a significant, under-addressed cost for most operations teams.  

Expired or Expiring inventory, and Excess and Obsolescence (E&O) costs result from frequent stock hoarding due to lack of trust, and lack of visibility. For an enterprise business experiencing, say, only 22% visibility to field stock, E&O and expiration can become a very large proportion of operational costs. With improved visibility, an 87% increase in visibility for a company experiencing $100M in expirations, means a recovery of $87 million from losses. 

Further, there is the liability of carrying obsolete or expired implants. Non-routine quality events including recalls and associated legal costs are costing the industry up to $5B annually, and that’s not including all the implications of resulting patient harm. 


Deliverability 

There is limited inventory storage available, especially when it comes to consignment and trunk stock. When valuable storage space is occupied by non-usable product, valuable product gets stored in less optimal locations, delivery can be delayed, or higher urgent shipping rates are overused. Further, the cost to market share and employee churn may seem removed but can be significant. 


Relationships 

Working relationships suffer from manual and inefficient processes. When integration or communication is poor, relationships are strained or weak between Sales and Ops teams, between Reps and Surgeons, between Manufacturers and Providers, and between divisions or org units. Disconnected components fail to enable active automation, accurate communication, and efficient processes. This erodes trust, which leads to overcompensation with more inefficient workarounds. When all organizations and processes are strongly connected and communicating accurate, real-time data, transformational efficiencies are possible. For example, intelligent rebalancing 45% of your inventory between consignment, loaner, and trunk stock can allow locations to return up to 25% of unneeded inventory, and net reductions in inventory of almost 7%, which alleviates significant carrying costs for those locations. 


Technology Costs 


Homegrown Tools 

One of the costliest mistakes enterprise med device companies can make is to attempt to build medical inventory software tools in-house. It may initially seem practical on the surface, but risk of eventual failure is extremely high because the realities of architecting, releasing, supporting, maintaining & upgrading a software tool are simply not feasible for an IT team because they are not a software company. The enhancements, updates, patches, bug fixes, technical support, infrastructure, and resources required—plus delayed, extended, or competing projects—all carry their associated risks and cost. Further, the complexity of managing field inventory in this industry requires a solution needs to competently meet that complexity. It’s not easy. Time and again, project release dates are delayed by years, requirements are slashed to a fraction of the initially proposed, and budgets blow past their allocation early in the process. Far too often— if a v1 release ever becomes viable—the result is a tool that is obsolete before it is even released. Consequently, broad adoption across intended divisions and organization suffers, effectively leading to project failure. And because careers are tied into project success, these projects tend to be (mis)guided by political motivations, and tenaciously dragged out far beyond viability, even when cutting losses is more fiscally practical than hanging on to a sinking ship. 


Disconnected Tools 

Many field operations organizations are paying for software tools that have little to no integration, yet they are using them for processes that are (or should be) highly integrated. A significant cost resulting from the use of many disparate tools at the cost of system integration and comprehensiveness, is the inability to support high levels of automation. Highly manual processes or disconnected tools cause a cascade of additional costs. Inefficiencies introduced due to human error and poor data communication require additional overhead resources for training, for error correction, and for all the manual work. 


Unused Tools 

The industry average user adoption rate for field sales tools is about 25%. Yet a modern, user-friendly field sales app that helps make reps day-to-day duties easier (freeing them up for more value-added sales activities) can experience user adoption of 97% or higher. So your per-user cost to use the tool, for the value you are receiving, is effectively 4x higher than the contract value. 


Generic Tools 

On the operations side, because ERPs are not designed to manage the complexities of the med device industry, they require bolt-on software, or high levels of customization to even approximate what a purpose-built tool would do. Their capability, scalability and speed are still limited by their core architecture design, and ERP efficiency suffers increasingly as more customizations are required. And because neither an ERP nor CRM are purpose-built to comprehensively manage all aspects of field inventory, your operations will likely require several additional tools to manage the various parts of field sales supply chain. 

For example, let’s say your business is spending $150M on software tools, including a highly customized ERP setup (or multiple ERPs), plus a dozen or so ad-hoc tools, including field sales tools. A comprehensive platform can replace all the ad-hoc tools, greatly simplify ERP setup, and maximize impact and value of field sales tools. 

And because the cost is orders of magnitude lower than the total software spend, it’s clear how every Med Device company that has used Movemedical has experienced 10x ROI within the first year.  


Takeaway 

There are so many hidden and painfully obvious costs in that are unnecessarily costing medical device commercial operations. The right technology partnerships can cut through the complexity, remove the pain and bridge the gaps. The reality is, any inventory team can transform their operations and financials by using a purpose-built, automated, medical inventory software platform (like Movemedical), because it gives integrated visibility and control across all assets. 

Note: Example metrics represent results experienced by various Movemedical enterprise users.



If you are ready to control your unnecessary costs and transform your commercial operations, let’s talk.

contact us here:  info@movemedical.com  / call 877.469.3992

or watch this VIDEO (executive case study)

 

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