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Enterprise Cost Reduction in the Medical Device Industry

Life Sciences Company seeks relief from growing pains, finds immediate $40 million in savings

Abstract

Using a patented process, the company primarily develops bone allografts for spinal column repair and processes tissues for other orthopedic procedures, as well as for urological and cardiovascular applications. It has annual revenue of about $140 million.

The Challenge

Since the company's inception in 1998, it has experienced significant growth—from less than $5 million in revenue in its first year to more than $130 million by 2002. The founder and the inventor of the patented technology was originally trained as a biologist and did not have the business experience to manage such tremendous growth. With diversification from the core tissue processing business, the cost of starting new operations began to significantly outpace revenue growth. As significant losses began to mount, the company realized that without a dramatic change in cost structure, its financial future would be in jeopardy.

How We Helped

We worked with the company to review its entire operational cost structure, including developing an understanding of the company's short-term and long-term business strategy in relation to the current financial condition. We analyzed all areas of the business, including manufacturing, donor recovery, distribution, warehousing, real estate, information technology, research and development, sales and marketing, human resources, finance and purchasing. Within each of these areas, we interviewed all key personnel and analyzed available data on costs. At the project's conclusion, we provided observations of the current situation, the implications facing the company in each particular area and a recommendation regarding the future structure and appropriate spend. We also produced a blueprint for a new organizational structure and an implementation plan to realize each recommendation. 

We were able to deliver this in-depth analysis and present the client with an approach to returning to profitability in a very rapid fashion by providing know-how in each business function as well as industry knowledge to the project team. The entire project took less than eight weeks.

Solution

Our recommendations identified nearly $40 million in savings for the client in the first year alone. This represented a greater than 50-fold return on the fees invested by the client for the project. Our team helped the client identify savings opportunities throughout its entire operation: 

  • Capital expenditure reductions
  • Personnel reductions
  • Operations divestiture
  • Real estate consolidations
  • Other strategic areas

In addition to cost savings identification and implementation planning, our team assisted the company with banking negotiations. As a result of the client's financial difficulties, the organization's primary lender was considering calling the loan. Our recommendations and assistance in the negotiation process convinced the financial institution that the company's long-term outlook was still viable. If the loan had been called, the client would have been exposed to serious cash flow issues and a potentially devastating capital market reaction.

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