MedTech Manufacturers Can Get More from Their Existing Assets

Today’s economic environment and regulatory pressures demand that medical technology manufacturers do more with their existing U.S. facilities. Margin pressures from reimbursement rates, coupled with supply chain disruptions in specialized raw materials and sterile packaging, are forcing leaders to improve productivity without compromising compliance.

There are four main reasons MedTech manufacturers are considering productivity improvement efforts.

• They need increased throughput from their equipment and labor.
• They need more production capacity to meet growing demand across product families while maintaining good manufacturing practices (GMP) and sterility requirements.
• They’re carrying excess product, which ties up inventory space and working capital and risks expiration. But they can’t cut too deeply without risking patient care or raising regulatory concerns.
• They face frequent production interruptions due to quality holds, regulatory inspections, sterilization capacity limits, supply chain disruptions, and shortages of highly specialized components.

One lever companies are pulling to increase productivity is to invest in capital improvements. However, they may want to reconsider capital investments as the first solution. Capital as a response has made sense for most of the last 15 years. It has been cheap, with the weighted-average cost of capital (WACC) for the average S&P 500 company just under 6 percent. But, between rises in the cost of debt and cost of equity capital, the WACC is now more than 10 percent.

Optimize Before You Capitalize

Before investing in capital improvements, competitive MedTech firms are focused instead on getting more out of their existing assets, trained team members, and compliant systems. Naturally, improved throughput can lower COGS, reduce overtime, and even increase revenue if your plant is over-scheduled. What’s more, companies can unlock hidden capacity and improve working capital through some relatively small investments in time and expense:

• Map out your value stream. Better understand your processes and product bottlenecks. This is the first step and key driver to identifying improvement opportunities.
• Determine your priorities. Companies have to assess, and sometimes re-assess, what matters most: productivity vs. capacity and patient needs vs. working capital (inventory). With a strong discipline on prioritization, companies remain focused on achieving the top few priorities that will have the most impact.
• Explore new production scheduling methodologies and software optimization capabilities via advanced planning and scheduling (APS) in concert with your manufacturing execution system (MES). These digital tools can also strengthen electronic device history records (eDHR) and audit readiness.

Yes, you’ll probably need to invest in capital eventually. But the most competitive companies are first maximizing the combination of their existing validated assets, talent, compliant processes, and advanced software. Your board, executive team, and employees will appreciate the jump in profitability and resilience. And regulators and patients will value the enhanced reliability.