In the life sciences industry, customer service and supply chain leaders face the challenge of maintaining margins to absorb soaring costs while keeping providers satisfied and away from the competition. However, a recent study from PWC revealed a staggering statistic: 60% of publicly traded medical device manufacturers failed to maintain margins over the last three years.
In talking with these leaders in life sciences companies, four common issues impacting their margins stand out: Mergers and acquisitions, supply chain disruption, medical device excise tax, and employee turnover in customer service.
4 Common Issues Impacting Margins in the Life Sciences Industry
Spinoffs, acquisitions and divestitures
Whether a company is acquiring to grow its business or streamlining to sharpen its focus, success in both instances requires operational efficiency and increased attention to customer care throughout the transition. When companies are spun off from the parent, those divisions now need to invest in their own infrastructure because they are no longer supported by the parent company. Conversely, when divisions or whole organizations are acquired or divestitures take place, there is typically a strong appetite to absorb the revenue streams, increase access to markets and avoid a surge in hiring of lower value roles.
Companies may keep the existing field sales representatives but other back-end processing functions such as customer service, payables or field service may be candidates for consolidation.
Supply chain issues
By their very nature, medical device products are critical. When they are needed for a procedure, that device must be in the right place at the right time. This pressure can lead some to store excess or “just-in-case inventory” that, in turn, ties up cash flow that might have been used for grander cost reduction initiatives. Many are turning to technology to increase visibility of order demand, track the real lifecycle from order to fulfillment, and ensure errors are avoided or at least fall under the Gartner best-in-class rate of 1.6%.
Medical device excise tax
A study done by AdvaMed in January 2015 found job loss, the inability to hire and increased costs were the most impactful results of the medical device excise tax on the life sciences industry in 2014. The study found that the tax resulted in the loss of 14,000 industry workers in 2013, with an approximately 4,500 jobs lost in 2014. Furthermore, the industry expected to forgo hiring 20,500 employees over the next five years. Considering both jobs lost and jobs not created, the tax will result in 39,000 fewer industry jobs.
On the cost side, one company estimated the tax is costing an additional $250,000-300,000 per year in direct costs. With increased costs and shrinking margins, companies are looking at ways to cut costs in other areas. Order processing costs have been able to be successfully reduced by adding automation — cutting the cost of processing sales orders by 50% on average.
Employee turnover in customer service
In conversations with VPs of supply chain and customer service, it’s becoming increasingly apparent that customer service representatives (CSRs) today are often highly educated, sometimes even to MBA level. The role can require detailed analytical and planning skills, yet manual activities such as order entry often requires a significant amount of time. These CSRs are both expensive, hard to recruit, and likely to leave if they are stuck entering data and do not perceive themselves as adding value or growing their skill set. Therefore, it’s important to foster business processes that engage CSRs. They want to be in a position where they feel their efforts can improve patient outcomes.
Order Processing Automation: Just What the Doctor Ordered
Hiring freezes, growing order volumes and the need to remain competitive are driving many in the life sciences industry to make some changes — enter order processing automation.
Electronic order management solutions allow companies to automate every phase of order processing — from the moment an original document is received to the creation of a corresponding business document in the ERP system. In doing so, life sciences companies have a single solution at their disposal that can help them overcome virtually all of the industry’s biggest challenges.
Through the use of electronic workflow, OCR technology and paperless archiving, order processing automation allows life sciences companies to:
- Increase order processing speed up to 65%
- Retain customers by keeping up with SLAs
- Accelerate customer inquiry response time
- Improve real-time access to reporting any analytic information
- Lower order transaction costs up to 60%
- Prevent lost orders and delayed deliveries
- Reduce disputes and improve DSO
- Foster a more productive, satisfying environment for staff
Learn more about the impact order processing automation has had on the industry in our new eBook:
4 Amazing Esker Launches in Medical Device Manufacturing.