Operational Excellence in the Medical Device Industry

Operational Excellence in the Medical Device & Orthopaedics Industry

Sales & Operations Planning SummitSeptember 15-16, 2011 | InterContinental | Bostonhttp://www.theiegroup.com/SOP_Boston/Overview.html

Dan Dodd, Vice President of Operations and Supply Chain

Presentation Structure

• Defining operational excellence• The opportunity in the medical device industry• The barriers• The dynamics of the industry• Key changes in the landscape• #1 reason S&OP does not achieve potential

Operational Excellence – Two Keys

5

24 month Demand, Supply, & Inventory

plans

ManagementBusiness Review

DemandReview

SupplyReview

ProductReview

Finance IRReview

Start(Begin Month)

MRP

• Executive led• One plan aligned

with financials

Doing the Routine Routinely

Sales & Operations Planning

Modern operational excellence is 75% lean and 25% S&OP in terms of effort/focus, but

S&OP comes first because it sets the direction

S&OP Lean Six-Sigma

How Well Does It Work?Danaher stock significantly outperforming:• General Electric• Berkshire Hathaway• Dow Jones• Even Microsoft

Cooper Industries prior to Danaher attempted acquisition, underperforming to Dow Jones

Cooper tracking to Danaher since

The Opportunity in Med Device

The opportunity for operational excellence is significant

Medical device/orthopaedic companies, avg=2.1 ||Other

Zimmer

Stryk

er

Medtro

nic

Smith

& Nephew

Johnso

n and Jo

hnson

Integra Li

fescience

s

Synth

es

Strau

mann

TeleflexDell

Hewlett-Packa

rd

Cooper Industr

ies

Danah

er02468

10

1.1 2.3 2.5 1.1 3.6 1.9 1.2 2.1 2.9 42.6 15.3 7.8 5.9

Inventory Turns

The Barriers/Current Focus

Zimmer

Stryk

er

Medtro

nic

Smith

& Nephew

Johnso

n and Jo

hnson

Integra Li

fescience

s

Synth

es

Strau

mann

Nuvasiv

e0%

20%

40%

60%

80%

Gross Margin

The great margins are going to SGA (37%) and R&D (6%)

Is the SG&A and R&D paying off?

Market share is stable – is it all hot air?2004 2005 2006 2007 2008 2009 2010

0%10%20%30%40%50%60%70%80%90%

100%

Other(1)ZimmerWrightStrykerSmith&NephewDePuyBiomet

Key Industry Dynamics

Cost

Delivery

Quality

Cost is #1 forHigh-tech, CPG, etc

MedDevice

Required and increasing government controls have meant the industry moves slowly, including the adoption of new practices, such as six-sigma… but this is changing

A Changing Landscape

Operational excellence is coming• 55% of practices are now

hospital owned (up from 30% in 2003)

• IP for 75% of devices expired/ing

• More outpatient and commodity surgeries….don’t need the rep in the OR

Compensation

S&OP

#1 Reason For Lackluster S&OP

More than one plan!...which is relevant to all industries

Next Steps In Medical Device

S&OP •X 1Lean Six-Sigma •X 3

Thank you!