The Medical Device Industry’s 9 Most Critical Metrics (GuidingMetrics)
In this article you’ll learn the most critical metrics that companies in the Medical Device Industry should track.
The article does not include metrics such as Profits and Sales that are critical to companies in all industries; rather the focus is on metrics more specific to the Medical Device Industry.
By tracking your metrics, you will dramatically improve your business results.
Why? Because not only is the old saying “If you can’t measure it, you can’t improve it” true, but visibility into your metrics allows you to identify WHERE you can make the easiest and most impactful improvements.
For each metric, we will answer the following questions:
– What is the metric?
– What is the average value of this metric?
– Why is this metric important?
Let’s get started…
1. Adverse Events
What is this metric?
This metric measures the number of medical device failures that result in an individual ending up in the hospital, becoming disabled, sustaining life threatening injuries, or possible death.
Average Value
According to a recent report published by PriceWaterhouse Coopers, the number of patient injuries due to faulty medical device products was 28,049 – a four-fold increase over a 10-year period. The majority of the injuries resulted in hospitalization of the patient.
Why is this metric important?
This metric is important because it can point to a quality issue an organization may be having with a specific medical product that is unsafe for medical use. Adverse events can lead to bad press for a company, product recalls, lost sales and lost customers.
2. Inventory Turnover
What is this metric?
This metric measures the amount of a company’s product that is sold in a given time period.
Average Value
The inventory turnover ratio within the medical equipment and supplies industry, according to CSIMarket.com, averages 10.9.
Why is this metric important?
Inventory turnover is important because it relays how fast or slow a medical device company takes to sell its products. The metric can be used to compare a medical device company’s inventory turnover to competitor’s inventory turnover as well as the industry average.
3. On-time delivery
What is this metric?
On-time delivery measures if a product has been delivered to a customer within a time period of a preferred delivery date. It is calculated as orders delivered on time divided by total orders received.
Why is this metric important?
The metric is important because it can demonstrate if a medical device company is delivering products to a client on time to meet their supply requirements.
4. Days of Inventory On Hand
What is this metric?
This metric indicates the average number of days a medical device company may have inventory in stock before it is sold to a client.
Average Value
According to Supply Chain Insights, the days of inventory on hand may range from 119 to 293 among top players within the medical device industry
Why is this metric important?
Days of inventory on-hand is important because it demonstrates whether a medical device company has a handle on the proper amount of products to have on-hand if a client or clients have an immediate or increased need for a medical product that may need to be supplied rather quickly.
5. Percentage of product in compliance
What is this metric?
This metric measures the percentage of products in a company’s portfolio that are compliant with regulatory requirements set by the government including requirements such as establishment registration, medical device listing, premarket notification, investigational device exemption for clinical studies, quality system regulation, labeling requirements and medical device reporting.
Why is this metric important?
This metric is important because it helps companies and their products stay in compliance with government regulations and in turn helps companies produce safe products for the general population. When companies do not comply with set regulations, the government will intervene to enforce the regulations set by the FDA.
6. Cost of Goods Sold
What is this metric?
This metric measures the total costs it takes for a medical device company to manufacture its products, including labor, material costs, rental and utility costs.
Average Value
According to a McKinsey & Company report, the average cost of goods sold for the medical device industry is 41% of total industry revenue.
Why is this metric important?
Cost of Goods Sold is an important metric because the lower the percentage of total revenue it takes to produce a product, the more the company makes in profit.
7. Operating Margin
What is this metric?
This metric provides data on the how much revenue a medical device company has after operating costs are paid including wages, material and equipment purchases, rent, and marketing.
Average Value
The operating margin for companies in the medical equipment and supplies industry averages 2.87%, according to data from CSImarket.com. This represents a YoY decrease of over 1 percentage point, when the average operating margin was 3.88%.
Why is this metric important?
A strong operating margin is important to medical device companies because they must be able to pay for fixed costs such as interest on debt. This metric also provides analysts with data on how much an organization within the medical device industry makes on each dollar of sales they bring in.
8. Gross Profit
What is this metric?
This metric is based on a medical device company’s revenue less the direct costs of producing its medical devices divided by the company’s revenue and indicates the percent of sales the company makes after paying for costs to make the medical device.
Average Value
The gross profit margin for the medical equipment and supplies industry averages 12.1%, according to data from CSImarket.com.
Why is this metric important?
This metric is important because it specifies the amount of money a company is able to invest in other aspects of the organization including research and development for new products as well as marketing.
9. Sales to Fixed Assets Ratio
What is this metric?
This metric is a ratio that measures asset utilization to help a company recognize the need for additional property, plant and/or equipment to help increase its revenue. The ratio is calculated by taking net sales and dividing that by fixed assets.
Average Value
According to a Fulcrum study, the Sales to Fixed Assets ratio for medical device manufacturers has increased from 8.8 to 12.4 over the 5 year review period.
Why is this metric important?
The metric is important because it helps investors understand how a company operating in the medical device industry utilizes its assets.