The results of a study, carried out by Lowendal UK, in conjunction with the Medical Device Council website, has produced results that make worrying reading for the pharmaceutical industry, finding that large pharmaceutical companies are losing millions of pounds every year because of a failure to keep track of vital hospital consignment stock. In an industry worth more than £1 billion this is a real concern, and something that needs to be urgently addressed.

The comprehensive study discovered an average discrepancy of between 10 to 15 per cent of consignment stock being unaccounted for at any one time, a disturbing finding.  What companies need to understand is that the financial implications to firms are as significant as the practical problems this issue poses to hospitals of all sizes.  Pharmaceutical companies really do need to address the issues sooner rather than later. 

Consignment inventory management is not only good practice but clearly vital if pharmaceutical companies are to save millions of pounds by keeping track of their stock and ensuring that hospitals are fully aware of what surgical tools they have in house at all times. 

Companies lose huge sums of money on capital allowances, insurance premiums and maintenance costs while possibly over-inflating balance sheet entries as a result of depreciating incorrectly because assets might no longer exist. A recent change in legislation also means that this issue could leave a potential disclosure risk for executives now responsible for certifying the accuracy of financial data. 

For hospitals it means many box sets of key surgical equipment worth up to £30,000 each could be missing, poorly maintained or in need of updating. Without proper auditing/management assumptions are made regarding the condition or level of consignment stock which often turn out to be very different in reality. For NHS hospitals on tight budgets, it is vital the problem is rectified as soon as possible.

The survey also discovered hospitals can no longer rely on companies to solely keep track of inventory managed as consignment, considering the point at which it is managed appears to be shifting from central locations to point-of-use. 

For pharmaceutical companies the increase in savings could enable them to operate with a competitive advantage in the market. With responsibilities concerning consignment inventory not set down, it is little surprise that the frequency and performance of auditing and cycle counting varies significantly.  

This could mean it takes place on a monthly basis or simply not at all. Without a fixed program in place to deal with the issue, financial and practical problems increase and when it becomes a matter of urgency for them to be addressed it will be ten times harder than if they had been managed properly the whole time. 

A large proportion of sales reps from pharmaceutical companies find themselves as the primary drivers of setting inventory levels and auditing. But this is time-consuming work that pressurises the sales reps when their focus should be on selling their stock. Many sales reps consequently feel they do not have enough time to carry out regular complete checks as they travel from hospital to hospital across the country.

One attempt to solve the problem has been to manage consignment inventory through spreadsheet-based asset registers. But despite a huge amount of time and resources spent on developing and maintaining the spreadsheets, these can often fail to achieve the necessary requirements of keeping control of stock. Integration problems with other systems and spreadsheets containing calculation formula known only to the person responsible for their maintenance are just two of the issues currently causing problems.

A more successful and foolproof way in which to solve the problem is hi-tech and designed to ensure companies are not left out of pocket.  A ‘swat team’ of specialists is sent in to companies to perform a full audit and reconciliation of all stock for the purpose of introducing cost saving measures after the results are determined.  One particular example of the success the ‘swat team’ of specialists can have on a company financially is that of one American IT company based in France with its European headquarters in the UK.  This particular company discovered from the results of the ‘swat teams’ audit and reconciliation that it was paying tax on 9322 assets it no longer possessed.  Realising they were paying tax on items they no longer had allowed the company to save hundreds of thousands of Euros.

Another area that the ‘swat team’ could identify is the mixing of stock from rival competitors in with a company’s own stock. After one audit performed at a hospital in France on consignment stock one company found competitors’ items in their own boxes.  There are two issues here.  One is an issue of safety; if the surgeon is looking for a particular component and expects to find it in a particular box, there may be serious consequences for the patient if the exact component is not present.  A competitor’s product may be found in the box, but this might not be the exact fit necessary for the surgeon’s purposes.  The other issue is commercial; if a company’s box is filled with competitor’s equipment and classed as “full” by the hospital then the hospital will not reorder any new equipment from the supplier.  Thus the supplier will lose out on any additional revenue.

Lowendal UK are one such company that offer the ‘swat team’ service mentioned above.  Lowendal UK launched its fixed asset data validation service in the UK in 2005 after buying French company Clementz, who specialise in the monitoring of fixed assets.

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