I wanted to share with our readers a recent Supply Chain Insights LLC research report by Lora Cecere, Founder, entitled: Supply Chain Metrics That Matter-Improving Supply Chain Resiliency: Insights on Reliability at the Intersection of Operating Margin and Inventory Turns.
The most resilient industry is the medical device industry. This industry operates with both high margins and high levels of resiliency. With a decline in operating margin of 56% over the last decade, and rising inventories, a 2% increase of inventory was seen in an industry that turns inventory three times a year. This industry is struggling with increasing government compliance and the pace of innovation of implantable devices. As hospitals have pushed back to reduce costs in the operating theatre, the industry has increased Sales, General & Administrative Expense (SG&A) by training the sales team on procedures and augmenting the hospital staff resources on procedures.
The medical device industry is not known for supply chain excellence. It lacks the sophisticated inventory systems of other industries. Many devices are termed “trunk stock” and travel to the hospital on the day of the procedure in the trunk of a sales person’s car. Instead, we believe that these results are better defined by the industry dynamics. The product line has been less volatile than big pharmaceutical and the make-to-order and configure-to-order processes are quite effective on this lower-volume, highly-configured supply chain.