Medical Device Company Considerations for Shipment Inventory and Related Sales Process
The advantages of this model for the company are as follows. Greater overall product visibility, especially in new markets and locations, reduces inventory costs as items are owned by the third party, doctor or hospital, instead of the business, the business supports physician or hospital for sales channel, proof of market for new and unproven products to test sales activity before large production loans, and establish brand reputation and its global recognition.
Disadvantages of this model for the business include the fact that revenue is not recognized and payments are received from a third party after the inventory is sold to the end user and not when it is shipped to the third party. For example, the company will recognize revenue when the survey has been completed and its product has been used, and then receive payments after that date. The company will have an investment for the cost of shipping new inventory to the various consigned locations. As the company still owns the inventory, any damage to the products will always be borne by the company versus the third party, i.e. the doctor’s office or the hospital. The potential lack of visibility into third-party operations can lead to inadequate or missing controls around inventory.
Benefits of this model for the third party include, a wider display range can increase traffic and associated volumes, the third party only has to pay the business when the returnable goods are sold, the third party does not is not responsible for producing inventory that is ultimately sold. And the downsides of this model for the third party include the costs of stocking goods on consignment, particularly if it takes a long time to sell, and potentially the difficulty of segregating own inventory from consignment inventory.
For consigned inventory and sales to be successful for all parties to these arrangements, it is important to develop strong relationships, communication and coordination for all parties involved. Best practices include defining all applicable terms in a contract for each party’s responsibilities, using technology to track inventory levels and sales execution, working with the company’s sales and marketing group company internally and with respective third parties to ensure communication controls to determine sales. timely movement, periodic reconciliations of stock levels between parties, periodic physical inventory counts performed by a company at all recorded locations.
Overall, this is a good way to grow the overall geographic footprint and associated sales base. It is essential that the company has procedures and controls in place to ensure that there is coordination in tracking stock levels and that associated movements are made to ensure an accurate overall report. Do not hesitate to contact us if you have any questions.