Medtronic CEO and Chair Geoff Martha [Photo courtesy of Medtronic]
Medtronic is closing at least five manufacturing sites, consolidating distribution centers and stopped doing business with approximately 200 suppliers as part of a push to improve its operations and supply chain.
That’s according to a presentation by Medtronic Chair and CEO Geoff Martha at the J.P. Morgan Healthcare Conference today emphasizing the focus on profitability at the world’s largest medical device manufacturer.
“One of the biggest opportunities for us to leverage our scale and drive leveraged earnings over time is with our global operations and supply chain,” Martha said. “We spent nearly $11 billion on cost of goods sold last year. That’s a lot. And over half of the company’s employees are involved in global operations and supply chain.”
Medtronic is “also beginning to work on network and capacity optimization,” Martha said. “We’re in the process of closing over five manufacturing sites this year, and we’re consolidating eight distribution centers down to two super distribution centers.”
Martha and his presentation materials did not name specific sites. Medical Design & Outsourcing asked Medtronic for more information, including locations and closure dates, but the company declined to offer details.
“We have no specifics to share right now,” spokesperson Erika Winkels emailed. “Consistent with operations best practices, we are always evaluating our manufacturing and distribution footprint for efficiencies that improve our performance.”
In an interview after he joined Medtronic in 2022, Supply Chain EVP Greg Smith said to expect a reduction in the company’s suppliers and a greater focus on strategic suppliers.
Martha’s presentation today offered some supplier reduction results, including exiting approximately 200 nonstrategic suppliers. He also said a completed metals request-for-proposals (RFP) process yielded savings of approximately 10% and that a similar RFP process for plastics is just beginning.
Culture and incentives initiatives — specifically what Medtronic called “lean processes and performance culture” — have achieved a 5% labor productivity improvement. At the same time, Medtronic used automation and digitalization technology to launch 28 automated inspection programs, eliminating human inspection at eight locations.
Medtronic has also implemented demand planning software to improve accuracy and said backorder reductions have been reduced significantly, improving product availability.
Future initiatives include automation expansion, productivity gains and waste reduction from real-time data analytics and connectivity, reducing finished goods and raw material inventory, active SKU management and “enabling and empowering” Medtronic’s 45,0000 global operations and supply chain employees “as problem solvers with aligned incentives.”
Medtronic suppliers have offered other cost-saving ideas, and the device manufacturer plans to accelerate execution of those initiatives.
“We’ve put in place consistent [key performance indicators, or KPIs], we put in place automation and forecasting systems that not only drive cost efficiency but will allow us to bring down our working capital levels as we move forward,” Martha said. “… We have increasing confidence that we can deliver consistent cost-out in excess of inflation. This will be a driver in our gross margin improvement strategy — not the only one, but a meaningful one. And we look forward to sharing more of the progress as we move forward.”
Related: Martha also elaborated on what he sees as Medtronic’s three highest-growth opportunities. Read the full story on MassDevice.
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