ERP Systems for Medical Manufacturers Going “Hybrid”: Incorporating Cost Control with Value-Added Processes

Cost management in the medical device manufacturing (MDM) industry, although necessary, is often not openly talked about—who wants to be the one to say, “We need to make a life-saving device cheaper.”? And more often than not, it’s not even possible. But cutting expenses isn’t the same as cutting corners, and oftentimes MDMs must think out-of-the-box when it comes to cost management, and that means going hybrid: if it isn’t always possible to trim the costs of producing a quality medical device that rarely yields a high profit margin, then it is possible to change everything else around the product to optimize the value of the company and its product to delivery high value patient outcomes.

Yes, managing costs is one way to optimize the value of your product, so we will discuss ways to do that; however, we’ll also discuss evolving ideas to create value in a landscape that is changing more quickly every year.

Managing Your Production Line:
Which is the best supplier to use? What’s the ideal expenditure for labor, equipment and materials that will still yield the highest profit margin without sacrificing quality? How do I robustly manage the quality of each device that leaves our facility? These questions can become paralyzing, especially when the end users’ health and well-being depend on your decisions. You may not be able to use cheaper materials, but you may be able to partner with new-to-market suppliers who are hungry to compete in an ever-growing market. If you aren’t strategically using your ERP system to negotiate favorable terms, select dependable suppliers and reduce procurement, then it’s time to start. Your system will provide you with valuable supplier performance, pricing and delivery schedules so you can do more valuable research into ensuring quality and GMP (Good Manufacturing Processes).

With a modern ERP system, your production line becomes much more predictable: it optimizes resources, minimizes downtime, and delivers quality devices. An integrated set of quality control processes into your ERP ensures that defective products are identified and addressed early in the production cycle, preventing costly rework or recall.

Managing How, When, and Where Your Employees Work:
Gone are the 9-5 work hours and the Monday-Friday workdays. Companies today are not only retaining the work-from-home philosophy that became a necessity during the pandemic but are also adopting innovative hybrid workstyles that custom fit their corporate productivity needs. Hybrid workstyles like hiring employees with transferrable skills who can adapt to a constantly changing work environment, adopting a 4-day work week or a flexible schedule work week, working under a self-management or “distributed authority” structure just to name a few¹. So how can you select which work style(s) will reduce labor costs? That’s a job for your ERP system which can manage your labor costs by optimizing workforce skills and productivity, tracking hours worked, and identifying areas for efficiency improvements. Medical device manufacturers should take a closer look at their existing organizations and reinvent their traditional business and operating models to adapt to the future. (KPMG white paper)

Monetizing Value-Added Services:  Configuring the Costs of Implementing Value-Added Services to Your Existing and Future Products:
Even if profit margins are high, to stay competitive more companies are integrating a range of services that supplement their core products—it’s either that or risk losing market share to those companies that do.¹ Whether manufacturers are partnering with other companies, setting up services as separate entities, or ultimately folding them into their own company, they are now managing both business to businesses (B2B) as well as adding in more business to consumer (B2C) needs to better ensure patient outcomes for the end users of their devices. An ERP system that provides cost visibility and analysis as well as data analytics into current and future trends is vital to helping manufacturers manage these new value-added services from inception to implementation. Innovative technologies such as enterprise automation and decision intelligence tools such as AI/ML help companies better manage and evaluate costs for the care journey of each device area, and in each market they operate in, to determine what their future business should look like. And these technologies keep abreast of the competitive landscape, instituting a robust process to monitor disruptive trends and identify strategic partners¹.

A Moment to Discuss Data (Costs) Transparency:
To remain relative in the medical device industry you need the capabilities enabled by the latest ERP technologies that provide real-time financial and operational data to track the costs of each stage in the production of your medical device(s). This data is vital in understanding your cost breakdown and identifying areas for improvement. You can shave hours or even weeks by allocating or re-allocating costs to specific products or projects. Also, your ERP system can mine through terabytes of historical data to analyze trends in your processes in a matter of seconds, allowing you the opportunity to improve on your processes immediately.

Overall, medical device manufacturers may not have the luxury, like other industries, to simply look at cost control—not with the products they produce or the regulatory compliances they must obey to produce them. The better approach is a hybrid one: one that incorporates value-added services, innovative partnerships and cost processes. Honestly, there’s no way a single individual, or even a committee of individuals, can do this hybrid approach without the help of a modern ERP system. But manufacturers that do will chart a more successful course in the medical device industry, establishing a higher standard for others to follow.

1: Medical Devices 2030 – Making a Power Play to Avoid the Commodity Trap