Executive Briefings

MedSurg Finds a Niche In Surgical Supplies

Considering what MedSurg Industries is up against in the surgical-supply business, it needs all the help it can get.

MedSurg, the Herndon, Va.-based division of Isolyser Co. Inc., has found its niche in the customized surgical tray market. It makes kits containing everything a surgeon requires to conduct an operation, from gowns and towels to disposable instruments. Each tray is packed according to the hospital's own requirements, its contents arranged in strict order for maximum accessibility.

With $60m a year in sales, MedSurg faces a handful of much bigger rivals. Companies such as Baxter HealthCare and Maxim Medical not only supply trays, they make what's in them. MedSurg is the only player in the business that is not also a manufacturer, said Scott McMartin, vice president of sales and marketing. In many cases it buys from the same companies against whom it competes for kit sales. "Our competitors are essentially manufacturers trying to protect market share by vertically integrating," he said.

The role of the kit supplier has taken on added importance with the elimination of sterile supply warehouses by hospitals. That places a new emphasis on service - the one area in which McMartin feels MedSurg can compete. He argues that only MedSurg has the neutrality to build kits with what surgeons really want, not products that merely enhance the bottom line of suppliers. "MedSurg can't play a price game," he said.

One of MedSurg's value-added services is barcoding by universal product numbers (UPNs). The program helps to optimize hospitals' supply chains by weeding out the use of multiple suppliers and excess inventory. McMartin cites recent studies showing an annual price tag of $23bn for the movement of products into U.S. hospitals. "About half of that is waste," he said.

The UPN program requires a sophisticated information-systems solution, as do other aspects of the medical supply chain, including consignment programs, vendor-managed inventories and make to order. To fill that requirement, MedSurg looked to the MK Group, the Islandia, N.Y.-based applications business unit of Computer Associates International.

The MK Manufacturing product is an ERP package with a tightly integrated warehouse management system (WMS). It contains more than 40 functional modules, ranging from analysis of demand patterns to order-taking, according to Gary Layton, vice president of marketing with MK.

Scott McMartin expects his software providers to deliver the same level of
value-added service that MedSurg offers
its own customers.

For MedSurg, the system's selling point was its flexibility. It had to allow for a product whose packaging is constant, but whose internal configuration varies sharply between hospitals, even individual surgeons.

MedSurg's distribution requirements are equally complex. It ships to distributors as well as direct customers. It employs both make-to-stock and make-to-order strategies. The level of its safety stocks must reflect actual usage, not some vague forecast.

MedSurg further needed a state-of-the-art application that would help to minimize, if not eliminate, finished goods inventories. Old-style materials requirement planning (MRP) programs don't work because they automatically assign a future date for shipping to every item that comes off the line. "By definition, every order we get has to be shipped immediately," said McMartin.

For a company that lives or dies by the quality of its customer service, response time is paramount. "The competition is pretty sophisticated," said McMartin, "but most customers say we're much faster in terms of order changes."

Cost-control is another prime factor in the company's continuing success. MedSurg acquired the MK Manufacturing system in October 1997. Since that time, said McMartin, its sales of around $60m a year have remained constant. But its annual inventory investment has dropped from $9m to $6m.

So far, MedSurg has managed to hold its own against the competition, in an industry where the number of players continues to shrink. It has become the sole provider of trays to eye surgeons using Bausch & Lomb products. But the company's future success depends on its ability to resist a price-oriented strategy, in the face of relentless pressure on hospitals to cut their cost of supplies.

"If we can help our customers become better at supply-chain optimization, that's the value we bring," said McMartin. "But we don't have time for that if we're busy getting profitable."

Systems will play a crucial role in that effort. McMartin, who previously worked for the MK Group, expects his software providers to deliver the same level of value-added service that MedSurg offers its own customers. They must also have a thorough understanding of the medical-supply business.

MK, he said, is strong on customer support, especially when it comes to making modifications to the basic package. "It's not just the physical product," he said. "It's the product and the company behind it."

Added Layton: "It's as simple as making an ongoing commitment to the client to support its business through its various changes."

Considering what MedSurg Industries is up against in the surgical-supply business, it needs all the help it can get.

MedSurg, the Herndon, Va.-based division of Isolyser Co. Inc., has found its niche in the customized surgical tray market. It makes kits containing everything a surgeon requires to conduct an operation, from gowns and towels to disposable instruments. Each tray is packed according to the hospital's own requirements, its contents arranged in strict order for maximum accessibility.

With $60m a year in sales, MedSurg faces a handful of much bigger rivals. Companies such as Baxter HealthCare and Maxim Medical not only supply trays, they make what's in them. MedSurg is the only player in the business that is not also a manufacturer, said Scott McMartin, vice president of sales and marketing. In many cases it buys from the same companies against whom it competes for kit sales. "Our competitors are essentially manufacturers trying to protect market share by vertically integrating," he said.

The role of the kit supplier has taken on added importance with the elimination of sterile supply warehouses by hospitals. That places a new emphasis on service - the one area in which McMartin feels MedSurg can compete. He argues that only MedSurg has the neutrality to build kits with what surgeons really want, not products that merely enhance the bottom line of suppliers. "MedSurg can't play a price game," he said.

One of MedSurg's value-added services is barcoding by universal product numbers (UPNs). The program helps to optimize hospitals' supply chains by weeding out the use of multiple suppliers and excess inventory. McMartin cites recent studies showing an annual price tag of $23bn for the movement of products into U.S. hospitals. "About half of that is waste," he said.

The UPN program requires a sophisticated information-systems solution, as do other aspects of the medical supply chain, including consignment programs, vendor-managed inventories and make to order. To fill that requirement, MedSurg looked to the MK Group, the Islandia, N.Y.-based applications business unit of Computer Associates International.

The MK Manufacturing product is an ERP package with a tightly integrated warehouse management system (WMS). It contains more than 40 functional modules, ranging from analysis of demand patterns to order-taking, according to Gary Layton, vice president of marketing with MK.

Scott McMartin expects his software providers to deliver the same level of
value-added service that MedSurg offers
its own customers.

For MedSurg, the system's selling point was its flexibility. It had to allow for a product whose packaging is constant, but whose internal configuration varies sharply between hospitals, even individual surgeons.

MedSurg's distribution requirements are equally complex. It ships to distributors as well as direct customers. It employs both make-to-stock and make-to-order strategies. The level of its safety stocks must reflect actual usage, not some vague forecast.

MedSurg further needed a state-of-the-art application that would help to minimize, if not eliminate, finished goods inventories. Old-style materials requirement planning (MRP) programs don't work because they automatically assign a future date for shipping to every item that comes off the line. "By definition, every order we get has to be shipped immediately," said McMartin.

For a company that lives or dies by the quality of its customer service, response time is paramount. "The competition is pretty sophisticated," said McMartin, "but most customers say we're much faster in terms of order changes."

Cost-control is another prime factor in the company's continuing success. MedSurg acquired the MK Manufacturing system in October 1997. Since that time, said McMartin, its sales of around $60m a year have remained constant. But its annual inventory investment has dropped from $9m to $6m.

So far, MedSurg has managed to hold its own against the competition, in an industry where the number of players continues to shrink. It has become the sole provider of trays to eye surgeons using Bausch & Lomb products. But the company's future success depends on its ability to resist a price-oriented strategy, in the face of relentless pressure on hospitals to cut their cost of supplies.

"If we can help our customers become better at supply-chain optimization, that's the value we bring," said McMartin. "But we don't have time for that if we're busy getting profitable."

Systems will play a crucial role in that effort. McMartin, who previously worked for the MK Group, expects his software providers to deliver the same level of value-added service that MedSurg offers its own customers. They must also have a thorough understanding of the medical-supply business.

MK, he said, is strong on customer support, especially when it comes to making modifications to the basic package. "It's not just the physical product," he said. "It's the product and the company behind it."

Added Layton: "It's as simple as making an ongoing commitment to the client to support its business through its various changes."