The Doc Prescribes Warehouse Outsourcing

February 10, 2014

The Problem

Medical technology and device manufacturers are faced with many costly factors that go into warehousing their products. The burden of the overhead costs included with leasing and managing a facility — utilities, insurance against loss or damage, inventory tracking, shipping coordination, payroll for personnel, and not to mention the responsibility to oversee all of these processes which can produce many inefficiencies.

All of these are reasons why companies should consider outsourcing their warehousing, including a prominent, leading worldwide medical device business headquartered in the Midwest. This 65-year old company acquired a West-Coast based company, which was a distributor of GE OEC Surgery products and SKYTRON Healthcare products.

Due to the dramatic increase of products, the parent company needed to consolidate where they were located. The result of this meant that the parent company had to ship the acquired products to its warehouse location in Jacksonville, Fla., costing approximately $115 per unit. Individual orders were then shipped from that warehouse to the customers, a method that lacked efficiency.

The Solution

In order to improve their efficiency and cut costs, the parent company consulted a transportation partner to implement a “drop-ship” program.

How this type of operation works is that the transportation partner warehouses the products near the manufacturer’s production location. They are responsible for inventorying each box when it comes in and managing that inventory — then they ship it on demand when customers order the product. The transportation partner works as an extension of the manufacturer.

Results

The “drop-ship” program offered the manufacturer a cost-effective and hassle-free way to fulfill orders, while eliminating the need for a warehousing facility and the overhead burdens that go with it. The parent company realized a savings of 25-45 percent based on the ultimate location of the client and cut transit time in half simply by keeping their products near where they were made and offloading the shipping responsibilities.

The medical device company could do what they do best — research and development and sales, while the transportation partner focused on warehousing. The medical device company reaps the profit from the opportunity and was able to become more efficient, which enable them to conduct more business.

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