By Kyle Forcier
Medtech manufacturers today grapple with challenges related to revenue optimization and the downward pressure on pricing. Relying solely on product innovation is insufficient to maintain competitiveness. Achieving success in the market requires immediate process improvements.
Most medtech executives believe revenue issues like pricing and quoting inaccuracies are costing their industry billions of dollars. Inflation is straining manufacturing costs, and supply chain disruptions are causing pricey delays. At the same time, healthcare providers are dealing with their own financial pressures and demanding lower equipment pricing terms.
To navigate market challenges and maximize revenue, medical equipment manufacturers must increase channel and sales insight.
Key Equipment Manufacturing Challenges
Let’s break down some of the major hurdles facing medtech manufacturers.
- Supply chain obstacles
Industries lost $82 million to supply chain disruptions in 2022. While these losses are less than in previous years, the supply chain remains tight. Geopolitical instability continues to influence material availability and drive up prices while inflation and increased production costs cut into margins. With the rapid technological improvements and fluctuating economic conditions, semiconductor shortages will likely reemerge, impacting many devices and equipment that rely on semiconductors to operate. Four in 10 medtech executives believe supply chain disruptions are a top factor affecting revenue in 2023. Companies must adjust business practices to enable agile reactions.
- Health system budgets
Health systems are struggling financially. Operating improvements are more sluggish than forecasted, with high labor and material costs and Medicaid disenrollment straining margins. System leaders searching for cost-cutting opportunities will likely push medtech suppliers for better pricing and reimbursement terms. Considering this downward pricing pressure, manufacturers must fortify their revenue processes.
- Revenue optimization hurdles
Medtech manufacturers face many hurdles impeding revenue optimization. More than three-quarters of executives report customers facing pricing discrepancies or incorrect invoicing at least some of the time. These instances result in damaged customer relationships and missed revenue opportunities. Other obstacles include ineffective quoting and pricing processes, inaccurate demand forecasting, complex contracts, and improper rebates and incentives.
Medtech manufacturers can overcome these challenges by enhancing the following three areas.
1.Indirect channel visibility
Increasing visibility and control of supply chain data with distributors is the first step for revenue optimization. Company leaders must map the entire product journey to understand their channels and identify areas of lost revenue, such as improperly priced sales to the end customer that can ultimately lead to inaccurate chargeback and rebate payments, financial reporting, and sales compensation. From there, medtech companies can pinpoint problem areas to improve.
With the global nature of medtech, properly managing sales through the distributor channel is imperative. Comprehensive processes to manage indirect sales data allow manufacturers to obtain better predictability, accountability, and transparency across the organization. With this knowledge, companies can anticipate and react to shortages or delays and identify bottlenecks.
Supply chain visibility enables the comprehensive data analysis necessary to create accurate demand forecasts. Predicting demand requires more than incoming order numbers and other lagging indicators. Companies need leading data, including channel and regional demand, supply chain movement, parts availability, real-time sales, trends, and current contract portfolio information.
Companies can analyze this data to monitor and anticipate demand fluctuations and build informed production, marketing, and pricing strategies.
3. Price management
The right pricing strategy drives revenue growth. But determining the right price involves many factors, including manufacturing costs, margin targets, customer size, and order volume. To set a reasonable rate, medtech manufacturers must also understand market conditions, such as competitor offerings and overall demand. Supply chain visibility enables more informed pricing guidelines, contract templates, and profitability requirements, allowing salespeople to make optimal contract quotes.
Setting prices is a delicate balance. Increasing financial pressure will drive health systems to be more demanding in negotiations. To meet customer needs without eroding prices, manufacturers must build more sophisticated pricing strategies—such as customer segmentation—and offer contracts with incentives, volume discounts, and rebates.
Creating effective payment strategies is only one side of the equation. Companies must effectively execute contracts. Complicated pricing structures can result in incorrect billing, like charging the wrong price or miscalculating rebates, resulting in rebills, customer relationship damage, and lost revenue. Companies must build an effective contract management process to apply the right price at the right time. Additionally, manufacturers must verify that customers have delivered the required outcomes to qualify for rebates and incentives.
How Data Management Drives Success in Medtech Manufacturing
The most critical component for channel visibility, forecasting, and pricing? Data. But with the increasingly global nature of commerce and technology, managing channel and sales information presents significant challenges. Traditional spreadsheets are no match for current data volume and supply chain complexities.
Many tech and life sciences leaders struggle to turn data into actionable insights—more than 60% say they cannot consistently obtain meaningful market intelligence. Medtech manufacturers must thoughtfully consider adopting technology to help them manage data and remain competitive.
Supply chain data exists in many disparate places and different formats. Manual processes take extensive time, money, and resources. Even then, data may still be overlooked, outdated, missing, incorrect, or inaccurate. Manual gathering efforts, though intensive, often generate delayed and flawed results.
Technology streamlines data management by continuously and automatically gathering, formatting, and organizing data in a central repository for comprehensive analysis. Merging pricing, quoting, business opportunities, historical transactions, and point-of-sale information enables sales and finance teams to manage complex, nuanced contracts.
Increasing visibility into the complete set of contracts helps finance teams efficiently and effectively identify the applicable purchase price by analyzing contracted terms, customer compliance, and applicable discounts and rebates. This review results in more accurate invoicing and faster revenue recognition.
Moreover, AI analysis incorporates data enrichment and external market factors, enhances inventory accuracy, and uncovers market patterns to strengthen demand forecasts. With comprehensive internal and external insights, companies can make informed planning decisions and react to market changes.
Technology also empowers sales teams to increase the quote-to-order conversion rate. With real-time business intelligence, equipment manufacturers can seize business opportunities by quickly generating and approving competitive quotes aligned with pricing strategies.
Equipment manufacturers face a challenging road ahead with persistent supply chain disruptions, tightening customer budgets, and intricate contracts that continue to pose obstacles. Data management is the key to success, with channel and contract visibility providing the critical perspective and agility to respond to market trends, adjust processes, and optimize revenue.