Medical Device EMS Providers: Are You Offering These to OEMs?
Approximately eight months into the COVID-19 era, the medical device industry is still coming to terms with the effects the pandemic continues to have on manufacturing. As of this writing, the number of hospitalizations in the U.S. reached over 85,000. According to the University of Washington’s Institute for Health Metrics and Evaluation, the U.S. can expect at least 110,000 deaths in the next two months alone. Facing such drastic figures, medical device OEMs are facing unprecedented pressure to meet the urgent demand for products such as test kits and ventilators, while simultaneously reducing production costs and product launch times.
EMS Usage on the Rise
Moving forward, EMS providers are expected to play a pivotal role in helping their OEM partners. In fact, according to a new report from Precedence Research, the medical device EMS market size is expected to grow at a compound annual growth rate (CAGR) of 11.4% from 2020 to 2027, increasing from $53.71 billion to $97.52 billion. Part of this growth will stem from the need for EMS providers to continue expanding their portfolio of services related to design and production in order to remain competitive. Engineering, component production, assembly, and even full-service capabilities are becoming increasingly common — and with potentially hundreds of thousands of human lives at stake, they will become absolutely necessary in order to help OEMs reach their ambitious goals.
A Problem With Last Time Buys
A service capability that is still not commonly offered, however, is one that aids OEMs in the acquisition of last time buys. As profit margins continue to narrow against increasing responsibilities, many EMS providers simply do not have the on-hand capital necessary to complete unexpected last time buys on behalf of their customers, and often have no choice but to pass the burden on to them. Additionally, EMS providers who do accept last time buy inventory also must have the capabilities to securely store it — often resulting in annual carrying costs as high as 30% the original cost of the inventory. Such scenarios often create confusion, and in the worst cases, can result in significant friction between customer and service provider.
New Solutions
Partstat offers EMS providers 2 alternative strategies ideal for long-term platforms. The first is an Inventory Reduction strategy. In it, we will convert inventory to immediate cash by purchasing inventory off an EMS provider’s balance sheet and move the obligation to purchase the inventory to their OEM customer (while avoiding SOX issues).
The second strategy is a Go-Forward strategy. As last time buy dates are issued, we will use our own capital to purchase all of the end-of-life inventory needed to complete the OEM’s build directly from the component manufacturer. Both strategies enable EMS companies to provide OEM customers extended terms, save on annual inventory carrying costs, and improve free cash flow. They also preserve working capital for both the EMS provider and OEM.
Partstat EOL Last Time Buy Solutions have several additional benefits for the OEM customer, as well. For example, Partstat will also store all of the end-of-life inventory on the OEM’s behalf and ship it directly to the EMS provider as needed, preserving limited warehouse space while saving customers an average of 42% in annual inventory carrying costs. Last time buys also allow OEMs to lock in a price for the entire term of the agreement, which eliminates the risk of component price inflation typically seen in an EOL inventory market. Many EOL Last Time Buy Solution customers have even been known to see significant bulk purchase discounts that improve margins further.
A new business landscape for the medical device industry necessitates drastic changes to the norm, and EMS providers will need to continue to find new and innovative ways to add value for their OEM customers. In this search, the OEM need for security against unexpected last time buys should not be overlooked.