By Kyle Forcier
The enduring semiconductor chip shortage has forced medtech manufacturers to reduce or pause device manufacturing. Almost 80% of Deloitte survey respondents reported experiencing extended product lead time due to supply chain disruptions. The delays have become so bad that more than three-quarters of companies are seeing customers turn to alternative types of patient treatment.
Adding to the supply chain conundrum: hospital financial difficulties. More than half of hospitals are projected to have negative margins in 2022, with losses in the billions of dollars. That means healthcare systems will be cutting costs and likely buying less new equipment.
These supply chain challenges, rising supply costs, and customer spending limitations create a difficult situation for medtech manufacturers. In the uncertain economic situation, medtech companies must prioritize revenue optimization. Accomplishing this requires favorable contract negotiation and execution, effective partnerships with intermediary channels, and end-to-end supply chain visibility.
Origin of the Chip Shortage
The pandemic fueled the chip shortage by creating workforce challenges that forced manufacturers to decrease production or even shut down. Staffing shortages continue as companies struggle to hire qualified employees. Additionally, inflation and rising fuel prices drove up the cost of manufacturing and shipping, and Russia’s invasion of Ukraine affected the availability of materials.
But the shortage has deeper roots than supply chain disruptions. The recent explosion in semiconductor demand depleted a consistent stock in an ecosystem already in a precarious position.
The cracks in the U.S. semiconductor market began to appear in the 2010’s when companies focused more on research and development and underinvested in production, making it hard to respond to market challenges. This situation led to the passage of the CHIPS and Science Act of 2022. The law is designed to strengthen domestic chip manufacturing through grants, research investments, and tax credits. The legislation’s impact will take time, though, so medtech companies need to shore up revenue now.
7 Steps to Achieving Commercial Excellence
The following steps can help medtech companies strengthen their revenue streams amid the uncertainty surrounding the semiconductor shortage.
1. Map the Transaction Process
Since each company’s supply chain is unique, company leaders need to identify each step and player involved in their process.
A complete environment scan is necessary to identify and prioritize targets for improvement and create a strategy to boost performance.
2. Identify Inefficiencies & Seek Improvement Opportunities
Once companies map the transaction process, they should flag inefficiencies in day-to-day processes, such as:
- Transaction points where loss of revenue occurs through overpayment
- Improperly priced sales
- Inaccurate payments
- Points where the company loses visibility into routine activities
These could be caused by siloed operations or reliance on other organizations for data. Companies should also identify inefficiencies in manual processes, specifically those requiring significant time and a high potential for human error.
Particular areas of operations to examine include:
- Pricing and contracting
- Offer and contract development
- Compliance and analysis
- Validation and membership management
Assessing the entire revenue management process allows teams to pinpoint and prioritize improvement needs, starting with the simplest and most impactful problems.
3. Identify Resources & Tools
Once the company produces a remediation plan, it must identify the resources and tools required to address problems and improve efficiency. People and process changes may be necessary.
Companies should ensure the right people are assigned to each task and create streamlined and efficient workflows. Some interventions may require technology. For example, investing in automation allows teams to stretch resources and improve results.
4. Get Specific
Eliminating inefficiencies while improving visibility requires more than a generic overarching plan—specific strategies are imperative. As medtech contracts grow more complex, organizations must customize revenue management processes to the type of contract and its contents.
Automation may be appropriate for high-volume devices with thousands of rebate claims a year, while more complex contracts or high-value devices require a manual review. Assessing each scenario helps companies dedicate the right resources to each to gain the best and most efficient outcome.
5. Prevent Revenue Loss
Companies should act quickly to stop revenue loss around the highest value or volume products and target problems with straightforward solutions.
Stemming losses caused by more complex issues may require more time and investment, but addressing the largest and simplest problems will provide immediate ROI in the interim. Some common culprits causing the heaviest areas of revenue are ineffective price validation practices and improper management of chargebacks and rebates.
6. Manage the Operating Team
Cross-functional visibility and accurate information-sharing among departments are critical to optimizing revenue performance. Departments working in silos result in lost time, lost productivity, and, ultimately, lost revenue.
Real-time visibility and communication help identify urgent issues, prevent important items from being overlooked, and guide process improvement. Team management is one area where technology can help by centralizing information and making it easily accessible.
Establish metrics to measure performance and continuously monitor them to ensure improvements continue over time. Revenue management and process improvement are moving targets. Priorities, procedures, staffing, budgets, and technological capabilities may change, so monitoring key performance indicators measures success and identifies when changes are necessary.
One common need for all these steps: data. Data drives revenue management from beginning to end. More information empowers companies to make better business decisions and prepare for market fluctuations, even unexpected ones. While budgets are tight, technology investment makes crucial data accessible. Revenue management systems can help analyze current circumstances, identify trends, and anticipate future needs.
Remedies to the semiconductor chip shortage are in process, but relief will take time. Medtech manufacturers must be forward-thinking to deal with the current challenges. By following these seven steps, companies can weather the storm.