Medtronic is the world's largest stand-alone maker of medical devices, with seven autonomous business units, more than 44 manufacturing facilities and 50 distribution centers worldwide. Its stated mission is "to create products that alleviate pain, extend life and restore health," says Tom Ellefson, project manager of supply chain process improvement. To achieve that goal, however, the company needs a supply chain that is as innovative as the products it supports.

Like all manufacturers, Medtronic needs to get the right product to the right place at the right time, in immaculate condition. The difference is that a service failure can jeopardize the health or life of a patient. In addition, the company must deal with the requirements of making and moving extremely high-value products, while ensuring the best use of limited working capital.

A significant portion of Medtronic's supply chain is operated on the consignment model. "We own it but can't control it," says Ellefson. To keep costs down while ensuring the best possible level of service, the company utilizes tools such as enterprise inventory optimization, whereby it seeks to match demand by end customers with the right amount and location of inventory system-wide. In such an environment, collaboration with supply-chain partners is essential. Ellefson expects to see increased sharing of demand data by customers, with forecasts percolating down to the individual hospital instead of stopping at the regional level.

For that moment, Medtronic's enterprise inventory optimization effort is focused on improving operations within the company's four walls. In future, it plans to venture out into the field, jointly setting inventory levels with key customers. The effort eventually will extend beyond consigned product to hospital inventory, Ellefson says.

Information technology is a major contributor to the program. Medtronic utilizes inventory-optimization software from SmartOps, which allows for the holistic viewing of items throughout the supply chain by the use of advanced algorithms. In the process, the company can engage in such economical practices as risk pooling and postponement, to lower capital costs and risk related to the placement of inventory. A number of products lend themselves to the postponement strategy, in which the manufacturer takes a semi-finished item and adds packaging, labeling and instructions geared toward a specific region.

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