The Orthopaedic Manufacturing Technology Exhibition & Conference (OMTEC) in Chicago last week presaged the future of healthcare: cost cutting. While cost cutting may not surprise anyone following the healthcare debates across America, there was an interesting twist. The talk was not about price controls or single payer systems. It was about the supply chain.

There were eighteen individual conference sessions and nine of them were about saving costs in purchasing, manufacturing, distribution and other popular supply chain concepts. In a time of recession, a cost cutting focus may be no surprise on the front page of the Wall Street Journal or on the nightly news, but healthcare and orthopaedics haven’t had to tackle these issues previously. The orthopaedics industry is characterized by innovation and high margins. New products and product availability were king; costs and supply chain efficiency were not.

OMTEC has been a leader in this trend. The 2008 conference included five sessions that more or less targeted supply chain efficiency and cost containment. However, even then there were differences in emphasis. While past discussions about supply chain focused more on time to market and product launch efficiency, this year the sessions included Supply Chain Finance Best Practices and RFID for Managers which highlighted how RFID is being used to automate distribution processes, cut costs and reduce inventory. These topics would be common in an automotive setting, but indicated a new trend for the healthcare and orthopaedic industries.

The fact is that healthcare growth is subsiding across many segments. The orthopaedic industry has experienced a 12% compound annual growth rate for two decades, but predictions for 2009 are half that number. This is creating more competition and giving more power to buyers. I spoke recently to the supply chain director of a leading medical device manufacturer and he lamented his challenges with inventory. He is responsible for it, but has no visibility to millions of dollars in inventory once it leaves the distribution center. It is in the trunks of cars, in hospitals, but is not accurately tracked. He needs to cut his inventory costs, but needs to first know where it is.

RFID is being used today by three of the top five orthopaedic implant manufacturers and the other two have evaluated the technology. The benefits are straightforward. RFID automatically identifies inventory in the supply chain and accurately reports its status to back-end systems. In loaners or consignment programs, it has shown replenishment productivity improvements of 80% and can cut billing reimbursement time and cost at the same time.

The ability to move product faster through distribution and better manage inventory reduces cost. This is how orthopaedic implant manufacturers can continue to post strong earnings even as growth rates decline. RFID and other supply chain technologies will lead this change the same way it did for other maturing industries in the past such as consumer electronics.