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The capital associated with instrument sets is significant and, to some companies, somewhat unknown once inventory enters the field. As orthopaedic companies seek to speed their service to hospital customers and cut waste from operations, a greater focus has been placed upon inventory management.
These challenges were examined during a panel at LogiMed 2016, a supply chain logistics conference focused on the medical device and diagnostics industries. Experts from Alphatec Spine, Arthrex and K2M discussed their companies’ shifting policies on inventory and the tools they use to overcome challenges old and new. Here, we highlight select questions and responses.
Panelists included:
Michael Plunkett, Chief Operating Officer, Alphatec Spine
Tommy Russell, Manager, Global Field Operations, Arthrex
Pratik Saraiya, Director, Supply Chain, K2M
How has your company’s focus on inventory management changed over time?
Michael Plunkett, Alphatec Spine: We’re experiencing not just a changing but a transformative environment. A couple of years ago, I would have said that we had a tremendous challenge. We were a $200 million dollar company and I had $100 million of inventory. If you want to grow, you’re not going to invest another $50 million in inventory. It was a transformative time, because we took that inventory, 70 percent of which was in consignment, and pulled it back into a pool which we control much better. When we went 50/50, consignment and non-consignment, we were able to reduce our customer spend and improve customer service. It was a challenge to get our distributors and our sales team onboard. We’re still working through that and made progress because they’ve seen the benefits. Our tenets of perfect quality and perfect delivery have continued to be delivered on, so they still have confidence in our ability to perform.
Tommy Russell, Arthrex: We’re still in the development stage. Being a sports medicine company with, from our viewpoint, predominant market share in that segment, it’s a different game now that we’re in the trauma and arthroplasty businesses. The idea is that we’ve been very successfully managing our inventory on the sportsmed side, but our policies and procedures must change as they relate to the way we handle our loaners and our physical inventory audits, and the way we process our policies with distributors and agents. We have a unique hybrid model, because in sports medicine, the instruments are not as expensive. However, the instruments in arthroplasty are comparatively expensive. We’re developing new procedures and policies that change the dynamic and maintain the legacy of our past success. One thing that is critical is inventory visibility. With many companies, regardless of the Enterprise Resource Planning systems they use, quite often the inventory team and the specialists and field operations people live and die by spreadsheets. Some of our best practices have allowed us to have visibility at the agency level, but also at the set level. We’re trying to actually measure the performance of a kit that is sitting in a hospital location. That’s key and critical for us.
Pratik Saraiya, K2M: K2M has experienced tremendous growth over the last 12 years. In that short timeframe, we’ve grown from a start-up to a publicly-traded organization. Our focus on asset management and inventory management has completely changed. In the early phases, we wanted to build as much as we could, as quickly as we could, and bring it to the market so that we could acquire market share. Over the last three or four years, our focus has shifted to placing the product in the right location. We spend a lot of time now identifying where K2M will get the most return on its assets. That has been a collaboration between our commercialization and internal operations teams. In the first few years, we didn’t care too much about asset utilization, but that has changed. Now, we seek to optimize asset utilization.
How do you measure and track your inventory and its performance?
Plunkett: We were looking at lead time, WIP, fill rates and back orders. When it comes down to it, those were the day-to-day metrics with which we provided customer satisfaction. As we transformed the company, our focus shifted to set turns. As a company, we were averaging 1.75 turns a month. I came to the organization and wanted to fix that right away; we’re still working on it. What we did do is launch new products. We outsourced manufacturing. We’re in the process of outsourcing distribution. We took our new products and put a different set of rules around them. For our latest pedicle screw system we’re averaging 3.75 turns a month, and there’s a lot of transfer and improvement that occurred so that we can do that. The impact of a change like that is pretty dramatic.
Russell: We keep it simple. We don’t start and stop at spreadsheets; we do not manage by spreadsheets. We manage by being in the field and by understanding the life of the sales rep and the agency owner; what is their day-to-day. We want to understand if there’s a system that’s causing backup.
An additional metric we have is what we call “one and dones.” We measure each hospital or surgeon that used our product once, and that’s all. That becomes a source for sales rep follow-up. There could be a particular reason they used it only once. From an inventory standpoint, we measure our successes and those instances where we didn’t see the results we wanted.
Saraiya : We started an efficiency management program about two years ago. The first nine to 12 months, we focused on four things: hiring the right people, acquiring the right tools, identifying which metrics we want to measure and how we want to portray that to the field. What we realized is that the sales managers, who were key to the success of the program, frequently had a short span of attention. We devised a simple efficiency metric. It is geography-based because you have to look at reimbursements in different markets, which are very different, and have a huge impact on the return on assets. We have a very simple metric for how our assets are utilized. It’s just efficiency of the inventory, which is revenue divided by our inventory value, and we measure everyone on the same scale based on their geography. So, if you’re in a geography where your pricing is preferable as compared to another geography, you will have a specific metric that we measure you against. That way there is no ambiguity.
The spine space is a little different than other segments, because 95 percent of our product lines are non-sterile. It goes into a tray, stays there and gets sterilized before surgery. Tracking and measuring the productivity of that attachment can prove to be difficult. Understanding that and understanding what your business needs are is critical before defining an inventory strategy. We’re a high-growth stage right now, so for us, speed-to-market is key. You have to honestly assess where your business is and devise a strategy that is right for you.
What are your risk management strategies with supply chain?
Plunkett: For Alphatec Spine, we’re running a global organization out of California. We decided to outsource manufacturing. On the distribution side, we’re doing the same thing to get the product closer to our customer. We have a relationship with UPS and we’ve worked with GENCO, but we’re in the initial stages of putting product in Forward Stocking Locations (FSLs). From a risk standpoint, that cuts days out of our supply chain process to get the product to our customers. It was an internal inertia that we had to overcome to take those steps. Getting the inventory closer to the customer is one of the greatest risk mitigation factors you can do.
Russell: As it stands today, risk management in the past, under the sports medicine model, was: build more inventory. That was how you managed risk. That changed, and continues to change, as the cost increases, as the price of freight increases, and especially when you’re in a situation when you’re in the Eastern Standard Time Zone. And currently, we do not operate in FSLs or Third Party Logistics because in the past we’ve been able to accommodate based on the amount and value of the inventory. We’re at a tipping point where a lot of things, including philosophies of the business, are changing, particularly because hospitals now require sets to come in 24 to 48 hours before surgery. As the rules and the game changes, I think companies like Arthrex and others are changing their philosophy in how they adopt outsourcing and FSLs.
What tools help you with consignment and visibility?
Plunkett: Our partnership with UPS. Our vision is to have a model where inventory from our suppliers would go right to a UPS facility which would keep inventory, receive sets from hospitals, clean the sets, replenish the inventory, inspect the instrumentation and replace it as necessary. We would fully outsource that whole process. We also use WebOps, which allows us to schedule the surgery and get full transparency.
Russell: There have been a lot of advances in scanner technology. The intelligence in the scanners will now immediately notify you if a product is expired and will not allow you to move forward and scan another part until you’ve taken a level of rectifying action. You can also build in intelligence that will tell you that this part is not meant to be in this location, but in, say, Texas. We can now take that product and move it immediately. There are also less-intelligent scanners, which essentially go around your neck. That way you can pull someone who isn’t necessarily part of your audit team, train them quickly and send them to work on a large audit.
Saraiya: One of the challenges we’ve had is that we’ve used a lot of tools that didn’t allow reps to perform reconciliation while they were in the field. We’ve worked with our IT people to develop a platform to allow that. And then as soon as they have access to the internet, which isn’t available in all hospital systems, they can perform the reconciliations. At that point, you can instantly know the exposure and if you have to increase inventory by a couple of days or a week, you can do it at that time.
Questions about this article? Email Julie Vetalice.
The capital associated with instrument sets is significant and, to some companies, somewhat unknown once inventory enters the field. As orthopaedic companies seek to speed their service to hospital customers and cut waste from operations, a greater focus has been placed upon inventory management.
These challenges were examined during a panel...
The capital associated with instrument sets is significant and, to some companies, somewhat unknown once inventory enters the field. As orthopaedic companies seek to speed their service to hospital customers and cut waste from operations, a greater focus has been placed upon inventory management.
These challenges were examined during a panel at LogiMed 2016, a supply chain logistics conference focused on the medical device and diagnostics industries. Experts from Alphatec Spine, Arthrex and K2M discussed their companies’ shifting policies on inventory and the tools they use to overcome challenges old and new. Here, we highlight select questions and responses.
Panelists included:
Michael Plunkett, Chief Operating Officer, Alphatec Spine
Tommy Russell, Manager, Global Field Operations, Arthrex
Pratik Saraiya, Director, Supply Chain, K2M
How has your company’s focus on inventory management changed over time?
Michael Plunkett, Alphatec Spine: We’re experiencing not just a changing but a transformative environment. A couple of years ago, I would have said that we had a tremendous challenge. We were a $200 million dollar company and I had $100 million of inventory. If you want to grow, you’re not going to invest another $50 million in inventory. It was a transformative time, because we took that inventory, 70 percent of which was in consignment, and pulled it back into a pool which we control much better. When we went 50/50, consignment and non-consignment, we were able to reduce our customer spend and improve customer service. It was a challenge to get our distributors and our sales team onboard. We’re still working through that and made progress because they’ve seen the benefits. Our tenets of perfect quality and perfect delivery have continued to be delivered on, so they still have confidence in our ability to perform.
Tommy Russell, Arthrex: We’re still in the development stage. Being a sports medicine company with, from our viewpoint, predominant market share in that segment, it’s a different game now that we’re in the trauma and arthroplasty businesses. The idea is that we’ve been very successfully managing our inventory on the sportsmed side, but our policies and procedures must change as they relate to the way we handle our loaners and our physical inventory audits, and the way we process our policies with distributors and agents. We have a unique hybrid model, because in sports medicine, the instruments are not as expensive. However, the instruments in arthroplasty are comparatively expensive. We’re developing new procedures and policies that change the dynamic and maintain the legacy of our past success. One thing that is critical is inventory visibility. With many companies, regardless of the Enterprise Resource Planning systems they use, quite often the inventory team and the specialists and field operations people live and die by spreadsheets. Some of our best practices have allowed us to have visibility at the agency level, but also at the set level. We’re trying to actually measure the performance of a kit that is sitting in a hospital location. That’s key and critical for us.
Pratik Saraiya, K2M: K2M has experienced tremendous growth over the last 12 years. In that short timeframe, we’ve grown from a start-up to a publicly-traded organization. Our focus on asset management and inventory management has completely changed. In the early phases, we wanted to build as much as we could, as quickly as we could, and bring it to the market so that we could acquire market share. Over the last three or four years, our focus has shifted to placing the product in the right location. We spend a lot of time now identifying where K2M will get the most return on its assets. That has been a collaboration between our commercialization and internal operations teams. In the first few years, we didn’t care too much about asset utilization, but that has changed. Now, we seek to optimize asset utilization.
How do you measure and track your inventory and its performance?
Plunkett: We were looking at lead time, WIP, fill rates and back orders. When it comes down to it, those were the day-to-day metrics with which we provided customer satisfaction. As we transformed the company, our focus shifted to set turns. As a company, we were averaging 1.75 turns a month. I came to the organization and wanted to fix that right away; we’re still working on it. What we did do is launch new products. We outsourced manufacturing. We’re in the process of outsourcing distribution. We took our new products and put a different set of rules around them. For our latest pedicle screw system we’re averaging 3.75 turns a month, and there’s a lot of transfer and improvement that occurred so that we can do that. The impact of a change like that is pretty dramatic.
Russell: We keep it simple. We don’t start and stop at spreadsheets; we do not manage by spreadsheets. We manage by being in the field and by understanding the life of the sales rep and the agency owner; what is their day-to-day. We want to understand if there’s a system that’s causing backup.
An additional metric we have is what we call “one and dones.” We measure each hospital or surgeon that used our product once, and that’s all. That becomes a source for sales rep follow-up. There could be a particular reason they used it only once. From an inventory standpoint, we measure our successes and those instances where we didn’t see the results we wanted.
Saraiya : We started an efficiency management program about two years ago. The first nine to 12 months, we focused on four things: hiring the right people, acquiring the right tools, identifying which metrics we want to measure and how we want to portray that to the field. What we realized is that the sales managers, who were key to the success of the program, frequently had a short span of attention. We devised a simple efficiency metric. It is geography-based because you have to look at reimbursements in different markets, which are very different, and have a huge impact on the return on assets. We have a very simple metric for how our assets are utilized. It’s just efficiency of the inventory, which is revenue divided by our inventory value, and we measure everyone on the same scale based on their geography. So, if you’re in a geography where your pricing is preferable as compared to another geography, you will have a specific metric that we measure you against. That way there is no ambiguity.
The spine space is a little different than other segments, because 95 percent of our product lines are non-sterile. It goes into a tray, stays there and gets sterilized before surgery. Tracking and measuring the productivity of that attachment can prove to be difficult. Understanding that and understanding what your business needs are is critical before defining an inventory strategy. We’re a high-growth stage right now, so for us, speed-to-market is key. You have to honestly assess where your business is and devise a strategy that is right for you.
What are your risk management strategies with supply chain?
Plunkett: For Alphatec Spine, we’re running a global organization out of California. We decided to outsource manufacturing. On the distribution side, we’re doing the same thing to get the product closer to our customer. We have a relationship with UPS and we’ve worked with GENCO, but we’re in the initial stages of putting product in Forward Stocking Locations (FSLs). From a risk standpoint, that cuts days out of our supply chain process to get the product to our customers. It was an internal inertia that we had to overcome to take those steps. Getting the inventory closer to the customer is one of the greatest risk mitigation factors you can do.
Russell: As it stands today, risk management in the past, under the sports medicine model, was: build more inventory. That was how you managed risk. That changed, and continues to change, as the cost increases, as the price of freight increases, and especially when you’re in a situation when you’re in the Eastern Standard Time Zone. And currently, we do not operate in FSLs or Third Party Logistics because in the past we’ve been able to accommodate based on the amount and value of the inventory. We’re at a tipping point where a lot of things, including philosophies of the business, are changing, particularly because hospitals now require sets to come in 24 to 48 hours before surgery. As the rules and the game changes, I think companies like Arthrex and others are changing their philosophy in how they adopt outsourcing and FSLs.
What tools help you with consignment and visibility?
Plunkett: Our partnership with UPS. Our vision is to have a model where inventory from our suppliers would go right to a UPS facility which would keep inventory, receive sets from hospitals, clean the sets, replenish the inventory, inspect the instrumentation and replace it as necessary. We would fully outsource that whole process. We also use WebOps, which allows us to schedule the surgery and get full transparency.
Russell: There have been a lot of advances in scanner technology. The intelligence in the scanners will now immediately notify you if a product is expired and will not allow you to move forward and scan another part until you’ve taken a level of rectifying action. You can also build in intelligence that will tell you that this part is not meant to be in this location, but in, say, Texas. We can now take that product and move it immediately. There are also less-intelligent scanners, which essentially go around your neck. That way you can pull someone who isn’t necessarily part of your audit team, train them quickly and send them to work on a large audit.
Saraiya: One of the challenges we’ve had is that we’ve used a lot of tools that didn’t allow reps to perform reconciliation while they were in the field. We’ve worked with our IT people to develop a platform to allow that. And then as soon as they have access to the internet, which isn’t available in all hospital systems, they can perform the reconciliations. At that point, you can instantly know the exposure and if you have to increase inventory by a couple of days or a week, you can do it at that time.
Questions about this article? Email Julie Vetalice.
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Julie Vetalice is ORTHOWORLD's Editorial Assistant. She has covered the orthopedic industry for over 20 years, having joined the company in 1999.
