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Roundtable: Field Service and Logistics

Refinements in technologies and practices make aftermarket activities profitable for medtech manufacturers.

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Sidebar:

It hasn't been all that many years since medical device manufacturers discovered that their parts and repair services for capital equipment could be a valuable commodity to their customers.

Since that time, medtech field service and logistics have continued to evolve, offering increasingly sophisticated technologies for field support and even creating a lively market for third-party logistics providers. For this issue's roundtable discussion, MX called upon a panel of experts to provide their views about recent ad­vances and current trends affecting medtech strategies for field service and logistics (see sidebar).

MX: A decade or so ago, a lot of device companies would not have thought to consider field service and logistics a competitive business area or a profit center. Have most of them evolved since then?

Michael Aviotti: Cardinal Health employs a number of different models where service is a business or support center. Service is part of the lease for our dispensing products, so it's in essence a cost in that model. But on the infusion products side, it's a business model. Service for us is not a cost center or a profit center, I call it a business center.

Warren M. Gitt: At Hill-Rom, service is both a profit center and a cost center. There's a greater tendency for the repair service to be a profit center, so there's more emphasis on that.

Donna McBride: Because our firm is an outsourcing business, most of the companies we deal with view logistics and service as a P&L center. But for some, it's also a competitive advantage.

How do medical device companies plan the area of field service and logistics? Is it strictly a head count and a guess at revenue and costs, or is there more to it?

Nemetz: Our strategy is based on service being the major P&L center for the corporation. We're the major annuity stream for Toshiba. Service looks out over a long-term period of four or five years because we have our contracts. So, the strategic direction of the company has a lot to do with where it wants to take the service organization.

Gitt: I think that companies base their service planning on whatever history they have plus forecasts for sales activity—and then try to in­crease penetration to the installed base of equipment so as to get more service dollars.

One thing that's happening today that wasn't 5–10 years ago is customers going to Web portals to find out what's going on with their service orders, to order parts online, things of that nature. That's an additional cost and planning requirement.

McBride: This varies. Technology is enabling field engineers to be more productive. Engineers outfitted with handheld equipment can instantly scan a device and perhaps place a replenishment order while they're on-site. Our clients often come to us looking for recommendations on how to balance, for example, their inventory-carrying costs against the response-time requirements of their clients.


Intelligent Device Management

How has the technology of remote instrument monitoring, or remote diagnostics, evolved?

Nemetz: It's improved immensely. Our service engineers use the Blackberry to code their calls and order parts and notify us of where they are within the service call. And our Innovision headquarters facility has equipment to control all the remote diagnostics of our products. It's basically over phone lines to protect proprietary information, but we can get into almost all the systems at any time.

Aviotti: With our infusion products, which are wireless devices, we put a server into the hospital network. We have a piece of software on the server that tells if there's any software or hardware problem with the server or the applications on it. Then we can remote in to see what's going on.

On the dispensing side also, we have agents on all the equipment and on the major console. We can look at the hardware and software condition remotely via the Internet before we dispatch any service tech to the customer's location.

McBride: I think certainly there's a significant move toward sophisticated handhelds for technicians in the field. And definitely a move toward paperless communication. Also, because of the accessibility of more and more instrumentation via the Web or other type of interface through which remote monitoring can be done, technicians are better equipped and better prepared when they get to the point of service, without so much diagnostics being required.

Then there's a move to drive all the data the monitoring equipment acquires automatically into some central processing point, perhaps through the nurse's station or directly into some kind of interface with the enterprise resource planning (ERP) system at the hospital.

With respect to the attempt to be paperless, how does recordkeeping work in an environment with a lot of handheld devices, no laptops, no use of paper? Are people still able to keep track?

Gitt: If you set it up appropriately with bar codes and scanners and can move the data directly from the handheld into the ERP system, then it's not as difficult as one might think.

McBride: It probably improves the quality of the information that's stored, because it's been scanned in. You get more information, and it's probably more accurate. It also improves productivity, including that of the field engineers, because the self-diagnosis results in a higher first-time fix rate.


Customer Relationship Management

Should companies be paying more attention to customer relationship management (CRM), and should they be using CRM systems?

Gitt: Having the right kind of system in place to gather complaint information just makes sense: the more a company uses a system that helps it gather information about problems immediately and intelligently, so that it can be properly responsive, the greater the probability it is going to have happy customers.

Nemetz: I believe the reason we've been very successful in terms of customer satisfaction is not all the technology but our organizational structure. With the right organizational structure in place from top to bottom, the service engineer has support from a specialist, from an area manager, from backup support, and from a customer support manager.

McBride: With us, in many cases the customer interface is still handled by our client. The role we as an outsourcing firm would play is to provide the client's call center with real-time information to allow it to have conversations with customers based on up-to-the-minute data.

Manufacturers have to decide whether to maintain in-house staff for service and logistics or outsource all or part of it. Is there an advantage to one strategy over the other?

Gitt: I think it's a question of an organization deciding whether it has a core competency to provide service. A lot depends on whether it's a small organization that's just evolving into a significant market share or a large organization that can foot the bill to do this stuff right itself.

Outsourcing is becoming much more common, but companies don't go into that lightly.


Logistics

Larger companies might decide to have an in-house service and logistics group. Can emerging companies match them in this area?

Aviotti: We have the critical mass because of all the equipment out there. We looked into outsourcing service, but because of our size, we can do it more competitively than we could ever outsource it for.

Smaller companies may have to outsource because they don't have the critical mass to get the kind of coverage and service they want to provide, and it'll be a little more expensive than having their own in-house group.

Nemetz: I know there are a lot of good third-party companies out there, but when you get into the high-technology areas like computed tomography and magnetic resonance imaging where the advances come every couple of years, customers like the fact that the OEM has the background, the engineering, and everything else that may be needed to take care of that product.

Companies in some medical device sectors seem to have a parts depot every five miles to ensure timely delivery. How do differences among various sectors affect logistics and the postmarket supply chain?

McBride: It is driven somewhat by the size of the company, type of inventory, its ability to support forward positioning of inventory, whether it has a field engineer network that is in-house, and its delivery commitments to clients—it really depends. Things are changing, and the economy is driving this, as some companies are drawing back on size because they have fewer resources. They still have client base to preserve, so they tend to focus on core competencies and outsource other pieces.

Gitt: Whether it's a depot, trunk stock, or forward-positioned, inventory is largely based on three or four parameters. One is the criticality of the equipment—what it means to the end-user ultimately for it to be down. The second thing is the cost of the parts. Third is the size of the equipment in question.


What Comes Next

Where are things going in terms of companies responding to ongoing competition, the economic climate, and changing customer demands?

Nemetz: What we're trying to do is produce the most highly technical diagnostic imaging product we can. To hold down the cost of service support, we're just going to have to be as efficient as possible.

Aviotti: With all the CRM data we collect, all the input from customers, we continue to improve the product. Really, the way we're going to reduce cost is to continue to build quality into the products so there are fewer failures and less servicing.

McBride: The things we can bring to the table, I think, are innovative ideas on how to potentially make the field engineers more productive by doing spare sharing and device-specific kitting, so that they're sure they have the right part every time they go out on a service call.

Gitt: I think the current economic climate is going to cause end-users to take a hard look at whether they could extend the life of the product they have in use. If that's the case, then it places an additional burden on the service provider.

Copyright ©2008 MX
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