844-SUMMATE

 

10 Mullikan Way
Newburyport, MA 01950

Why Supply Chain Efficiency Must Become Increasingly Important to the Orthopedic Trauma Device Industry

August 27, 2018

 

 

 

One of the most basic elements in business school is to learn product and industry cycles.  It’s macro economics 101.  So what I am going to say here isn’t rocket science.  

 

All industries are subject to the laws of this cycle.  Outside factors are of course influential.  Technology and innovation, market demographics, patient demographics, and in the case of the medical market, payer changes, all are very important. 

 

Classically, the only factor in direct control of the suppler (OEM) side of the analysis is technology and innovation.  While innovation still occurs and is invested in, the marginal improvement in outcomes gained through hardware innovation overall is tightening.  It is especially flattening out in the trauma market, where the basic technology (plates and screws) has been maturing for years.  This is reflected in the growth of this market, which because of price pressure is seeing lower growth rates, even though the volume steadily rises.  Profit is getting squeezed.  And getting squeezed hurts.

 

The reason for this, over and above the maturing technology (esp. in trauma), is that demand elements on the hospital/ASC side are changing in the market.  Its driven by many factors but the two biggest are, in my opinion:  bundled/capped payment structures and a change in the balance of power in surgeon influence on purchasing decisions.

 

Bundled payments incentivize hospitals/ASCs ("buyers") to holistically look  at all costs associated with treatment of patients to maximize profit.  Using information technology such as cost bench marking have eliminated the many “loopholes” that historically drove prices up for surgical implants.  It's becoming much harder to “hide” non-market rate costs in complex product mixes.  The buyers are getting more informed, sharper, and smarter in negotiating contracts.  And, they are ganging up.  This is driving prices down, or at least slowing the rates of price increases.

 

The shift of the balance of power with regard buyer purchasing decisions has also been very influential.  This has been driven mostly by the purchase of surgeon practices by the buyers.  Surgeons are no longer private practice “customers” of the hospital, they are employees.  This makes for a subtle yet powerful change in who calls the shots on what products are used.  Hospitals are enforcing consolidation of product, and leveraging this for lower costs. Surgeons don’t get whatever they want anymore.  

 

I could try to write a thesis on all of the other factors influencing the trauma market, but I’d be in over my head in no time. I will leave that for the smart people.  I could be completely wrong. This is just a simple sales rep’s opinion based 15 years in the field.

 

 

So, where does the OEM device industry turn in its search for profits?  Operations. More specifically, the supply chain.  History (especially recent history) shows that those companies in maturing industries that leverage technology to master supply chain efficiency shall win in the market.  And the OEM trauma market has a very expensive and long, messy supply chain.

 

And how might the OEM trauma supply chain be fixed and made more efficient? 

 

Automation.  

 

As I have noted and described in great detail in my previous articles (all posted on LinkedIn), the implant supply chain is long, error prone, costly for OEMs and therefor expensive for buyers.  Most of the reason for this is that its almost entirely manual.  And, the reason for that is that its initiated manually.  Pens, papers, sticky notes, 2-3 manual data entry steps between upwards of 3-4 people are the hallmarks of the trauma implant supply chain.  Its stuck in the 1950s and is wasteful and often inaccurate.

 

 

 

 

 

A chain is only as strong as its weakest link.  And in this case the weakest link is the very first one  - distracted, manual usage documentation. 

 

 

 

 

 

 

 

 

 

 

 

The problem is solved by scanning at point of use.  This means scanning implant usage from the field, during surgery, as they are used.  The digitization of the  usage information at during the case in the operating room will open up vast downstream efficiencies for the entire industry.  It literally enables fixing the entire implant supply chain problem and is a win for both the OEMs and the HCPs. It must be a platform, as well.  buyers will not tolerate a goat rodeo of “siloed” solutions to the problem, with different carts, scanners and systems all over the place.  

 

 Its an absolutely fantastic opportunity.  And Summate has developed a total solution to do this.

 

But, its not necessarily going to be led by the buyers.  The OEMs need to take the point on this. 

 

The hospitals have one achilles heel, and it is a significant one:  personnel.  In my opinion years of underinvestment in the “back office” support of the O.R. (SPD, materials management and supply chain services) has created in some cases an institutionalized workforce that would have difficulty managing their own complex trauma supply chains, even with digital tools.  I think this is changing, and there are many hospitals which could implement this in a heartbeat.  I have worked with them, they are fantastic.  However, there is a lot of dysfunction (especially in the large urban HCPs.)  They would need help.   This is the opportunity for partnership the trauma device OEMs should welcome and take advantage of.  

 

Some would argue that the losers in this are sales reps.  I would partially agree.  Crappy sales reps that sit on business and don’t have the skills to manage a very sophisticated customer base (orthopedic surgeons) are going to lose.  Smart sales reps, that are talented, will gain. The best use of their time is not counting and filling screws and plates in sets - its building relationships and solving problems for their customers.  That wont go away.  There would be more time for that.  And, using your skills to interface with smart people is  much more fulfilling than restocking sets in the basement of the hospital.  

 

From UPS to Krogers, from Walmart to Amazon - it doesn’t matter which industry you pick.  Transactional scanning and data management has revolutionized them all.  History shows us over and over that scanning at point of use provides HUGE benefits to whatever industry it touches.  Its an immutable fact.  

 

The timing is right for supply chain automation for the OR implant supply chain.  Get on the bus!!

 

 

 

Phil Sayles

Summate Technologies, Inc.

www.summate.NET

phil.sayles@summate.NET

844-SUMMATE / 617-571-1058 c

Share on Facebook
Share on Twitter
Please reload

Featured Posts

2 Birds with One Stone: Set Mapping for UDI Compliance and Digital Management of Orthopedic Trays

February 12, 2019

1/2
Please reload

Recent Posts
Please reload

Archive