Executive Briefings

Surgical Supply Chain Turns To An Outside Partner for Help

Germany's Maquet seeks better pricing, service and inventory management as it copes with rapid growth in a high-pressure environment.

Time is money, as the saying goes. But in supply chain management, less time often means more money. You pay a price for speeding up the delivery of product to the customer.

Maquet GmbH & Co. KG, the German supplier of surgical and post-operative equipment, doesn't have a lot of choice in the matter. It functions in an environment of constant demand pressures, if not outright emergencies. Maquet's products and spare parts simply must be there when needed. At the same time, the company must maximize cost efficiency without compromising the quality of care.

Maquet is no newcomer to the world of medical supplies. It was formed in Heidelberg, Germany in 1838, as a maker of patient chairs and other healthcare equipment. (The headquarters have been in Rastatt since 1933.) Innovations throughout the company's history include a bubble oxygenator for open-heart surgery, a new model of heart-lung machine, and, most recently, surgical tables and workstations that can be easily moved around the operating theater.

In 2000, Maquet was acquired by Getinge AB, a Swedish conglomerate in the healthcare and life sciences business. That triggered a period of intense growth which continues today. Revenues for the Getinge Group in fiscal 2004 were $1.4bn, $614m of which was contributed by Maquet.

Maquet itself consists of three divisions: surgical workplaces, making operating and surgical tables, surgical and ceiling lights, and pre-fabricated operating suites; critical care, including anesthesia and ventilator systems for operations and intensive care; and cardiopulmonary, including heart-lung machines, oxygenators, disposable materials and other components of workstations for open-heart surgery.

The Maquet supply chain includes direct sales and service units in approximately 25 countries, supplemented by more than 200 dealers and specialist distributors. The buyers are hospitals, with surgeons, anesthetists and nurses the end users. Four "centers of excellence," housing research and distribution, manufacturing and some finished goods storage, are located in Germany, France and Sweden.

Maquet had a do-it-yourself approach to supply chain management until that strategy became increasingly difficult to sustain. Choosing modes, carriers and other logistics vendors, along with the storage of inventory, was mostly kept in house, says global operations manager Gerd Burg. The company's only real partners, in the sense of handling duties outside its corporate walls, were in the area of transportation, and even that was limited.

Change had to come. Rapid growth, the increasingly global nature of the
critical-care supply chain, and plans for further expansion by Maquet all combined to trigger a rethinking of the basic strategy. There was plenty of opportunity to optimize the network, not to mention reduce expensive inventory, but Maquet had no desire to tackle those goals alone.

"We thought we could get better prices and services by going to a professional," says Burg. So Maquet launched the search for a logistics service provider to assume much of the burden.

Its choice was Menlo Worldwide, the Redwood City, Calif.-based provider with substantial operations in Europe. Burg says Maquet already had some familiarity with Menlo, which had done work for Siemens Life Support Systems, acquired by Getinge in 2003. It was therefore comfortable turning over a substantial part of its supply chain to the outsider.

The relationship began in 2004. Global warehousing of spare parts was transferred from Sweden to the Netherlands, where Menlo operates a centralized distribution center on Maquet's behalf, according to Arthur van Gerven, the vendor's general manager. Menlo subsequently took over logistics responsibilities for all three of Maquet's business units, including shipments out of the factories in France, Germany and Sweden to the company's own service centers as well as its army of dealers. Instead of shipping direct to distributors and buyers, Maquet's centers of excellence now route all finished goods and spares through Menlo.

Burg says Maquet faces a particular challenge in getting product on time to certain countries, especially when it's shipping out of multiple plants. With Menlo in the middle, the company can derive greater efficiencies through consolidated shipments and centralized control of the network. In addition, Menlo can compare carriers and freight rates to get the best deals, even as it meets the client's requirements for fast, on-time delivery. "We are not specialists in doing that," says Burg.

Looking to Expand
Both parties anticipate a further blossoming of the relationship. Burg says Maquet is setting up a sales and service unit in China, utilizing a local warehouse that will be run by Menlo. The company also wants to discuss the possibility of using Menlo in the U.S., the provider's home turf.

At the same time, Maquet hopes to streamline its global service network as much as possible. Menlo's existing network of facilities, coupled with its overall volume efficiencies and worldwide representation, can help. "The goal is to get rid of as many warehouses as possible," says Burg.

When all is said and done, Menlo will manage the entire supply chain of Maquet. Burg expects that to come about within two years-"if we stop founding new sales and service units. Longer if we don't."

Judging from its past behavior, the company is likely to keep growing, and Menlo will have to play catch-up. The vendor will also be instrumental in helping Maquet to whittle away excess inventory. There are no specific targets for that program, says Burg, although the company views a 20-percent reduction as feasible. In the world of big-ticket medical equipment, that would represent a substantial amount of cash that no longer weighs down the company's books.

To make that happen, Maquet will need to "assert better control of where our products are, and [launch] some other projects to get a better view of our inventories all over the world," says Burg. Again, it will turn to Menlo for such capability.

Menlo's job is more than reactive. It is expected to make regular suggestions on how to boost customer service while cutting costs in the Maquet supply chain. Says Burg: "They can see, better than we ever could, how far we can improve."

Time is money, as the saying goes. But in supply chain management, less time often means more money. You pay a price for speeding up the delivery of product to the customer.

Maquet GmbH & Co. KG, the German supplier of surgical and post-operative equipment, doesn't have a lot of choice in the matter. It functions in an environment of constant demand pressures, if not outright emergencies. Maquet's products and spare parts simply must be there when needed. At the same time, the company must maximize cost efficiency without compromising the quality of care.

Maquet is no newcomer to the world of medical supplies. It was formed in Heidelberg, Germany in 1838, as a maker of patient chairs and other healthcare equipment. (The headquarters have been in Rastatt since 1933.) Innovations throughout the company's history include a bubble oxygenator for open-heart surgery, a new model of heart-lung machine, and, most recently, surgical tables and workstations that can be easily moved around the operating theater.

In 2000, Maquet was acquired by Getinge AB, a Swedish conglomerate in the healthcare and life sciences business. That triggered a period of intense growth which continues today. Revenues for the Getinge Group in fiscal 2004 were $1.4bn, $614m of which was contributed by Maquet.

Maquet itself consists of three divisions: surgical workplaces, making operating and surgical tables, surgical and ceiling lights, and pre-fabricated operating suites; critical care, including anesthesia and ventilator systems for operations and intensive care; and cardiopulmonary, including heart-lung machines, oxygenators, disposable materials and other components of workstations for open-heart surgery.

The Maquet supply chain includes direct sales and service units in approximately 25 countries, supplemented by more than 200 dealers and specialist distributors. The buyers are hospitals, with surgeons, anesthetists and nurses the end users. Four "centers of excellence," housing research and distribution, manufacturing and some finished goods storage, are located in Germany, France and Sweden.

Maquet had a do-it-yourself approach to supply chain management until that strategy became increasingly difficult to sustain. Choosing modes, carriers and other logistics vendors, along with the storage of inventory, was mostly kept in house, says global operations manager Gerd Burg. The company's only real partners, in the sense of handling duties outside its corporate walls, were in the area of transportation, and even that was limited.

Change had to come. Rapid growth, the increasingly global nature of the
critical-care supply chain, and plans for further expansion by Maquet all combined to trigger a rethinking of the basic strategy. There was plenty of opportunity to optimize the network, not to mention reduce expensive inventory, but Maquet had no desire to tackle those goals alone.

"We thought we could get better prices and services by going to a professional," says Burg. So Maquet launched the search for a logistics service provider to assume much of the burden.

Its choice was Menlo Worldwide, the Redwood City, Calif.-based provider with substantial operations in Europe. Burg says Maquet already had some familiarity with Menlo, which had done work for Siemens Life Support Systems, acquired by Getinge in 2003. It was therefore comfortable turning over a substantial part of its supply chain to the outsider.

The relationship began in 2004. Global warehousing of spare parts was transferred from Sweden to the Netherlands, where Menlo operates a centralized distribution center on Maquet's behalf, according to Arthur van Gerven, the vendor's general manager. Menlo subsequently took over logistics responsibilities for all three of Maquet's business units, including shipments out of the factories in France, Germany and Sweden to the company's own service centers as well as its army of dealers. Instead of shipping direct to distributors and buyers, Maquet's centers of excellence now route all finished goods and spares through Menlo.

Burg says Maquet faces a particular challenge in getting product on time to certain countries, especially when it's shipping out of multiple plants. With Menlo in the middle, the company can derive greater efficiencies through consolidated shipments and centralized control of the network. In addition, Menlo can compare carriers and freight rates to get the best deals, even as it meets the client's requirements for fast, on-time delivery. "We are not specialists in doing that," says Burg.

Looking to Expand
Both parties anticipate a further blossoming of the relationship. Burg says Maquet is setting up a sales and service unit in China, utilizing a local warehouse that will be run by Menlo. The company also wants to discuss the possibility of using Menlo in the U.S., the provider's home turf.

At the same time, Maquet hopes to streamline its global service network as much as possible. Menlo's existing network of facilities, coupled with its overall volume efficiencies and worldwide representation, can help. "The goal is to get rid of as many warehouses as possible," says Burg.

When all is said and done, Menlo will manage the entire supply chain of Maquet. Burg expects that to come about within two years-"if we stop founding new sales and service units. Longer if we don't."

Judging from its past behavior, the company is likely to keep growing, and Menlo will have to play catch-up. The vendor will also be instrumental in helping Maquet to whittle away excess inventory. There are no specific targets for that program, says Burg, although the company views a 20-percent reduction as feasible. In the world of big-ticket medical equipment, that would represent a substantial amount of cash that no longer weighs down the company's books.

To make that happen, Maquet will need to "assert better control of where our products are, and [launch] some other projects to get a better view of our inventories all over the world," says Burg. Again, it will turn to Menlo for such capability.

Menlo's job is more than reactive. It is expected to make regular suggestions on how to boost customer service while cutting costs in the Maquet supply chain. Says Burg: "They can see, better than we ever could, how far we can improve."