Backed by fresh capital and unified by a refreshing vision, Vyaire Medical demonstrates a masterclass in supply chain management.
You may not think you know Vyaire Medical, but if you or someone you love has ever needed help breathing—with assistance from sleep apnea masks, respiratory devices for premature babies, pulmonary function monitors, ventilators, and more—you know Vyaire.
While the Vyaire name is new, products from innovators such as Jaeger™ respiratory diagnostics tools, AirLife® nebulizers, and Bird® mechanical ventilation equipment have long set the standard for respiratory monitoring and care. Until 2016, these and countless other devices were part of the ubiquitous Becton Dickinson (BD) med-tech business.
Created as a joint venture between BD and global firm Apax Partners, Vyaire is taking its place as a brand-new company, solely focused on leading the respiratory care device market. The venture encompasses BD’s Respiratory Solutions business, and estimates annual revenues in the area of $800 million.
With manufacturing and distribution facilities in the U.S., Mexico, Brazil, Germany, and China, Vyaire’s supply chain team is tasked with managing a complex chain in a growth environment and transforming fragmented efforts to a true source of value. That’s a big undertaking for a firm that manufactures and markets over 27,000 unique products.
A Look at the Respiratory Device Space
This is a big market in the healthcare industry. Grand View Research’s Therapeutic Respiratory Devices Market Analysis stated that globally, the therapeutic respiratory devices market was valued at $8 billion in 2014. Researchers anticipate that by 2022, it will reach over $19 billion.
One of the biggest drivers for the major increase in market size is the growing geriatric population subset. According to estimates published by the World Health Organization, the generational subset of 60 years and above is expected to rise by 841 million in 2014 to reach 2 billion in 2050.
While the rapidly growing geriatric population base is the key driver, another, less fortunate driver is also contributing to the growth of the market. There are increased incidences of chronic respiratory disease conditions among the population—60 years and above and otherwise. This is in large part due to unhealthy lifestyles.
Increased prevalence of respiratory disorders such as sleep apnea, asthma, and Chronic Obstructive Pulmonary Disorder (COPD) are the main disorders treated by therapeutic respiratory devices, though there are more.
As of 2014, the U.S. was the dominant market for therapeutic respiratory devices, and it doesn’t look like that will change anytime soon. More than 18 million adults have sleep apnea in the U.S., and an estimated two to three percent of children have it. The WHO estimates that COPD is the fourth leading cause of death in the U.S. with only about half of the affected population diagnosed which is thought to be about 24 million.
A growing elderly population with these complications listed above is the main driver, but an increase in innovations and the desire for home remedies and portable devices has pushed the market for respiratory devices even further. For example, the want for rapid relief in the sleep apnea market is partly responsible for the boost in segment growth.
As Baby Boomers get older and the demand for home health increases, expect this market to continue its upward trajectory.
18 Months and a World of Change
Only founded 18 months ago, the leadership team at Vyaire Medical identified four key operating platforms upon which to focus: airway management, operating consumables, respiratory diagnostics, and ventilation. It takes a supply base of over 7,500 SKUs of products either manufactured or purchased by Vyaire to make the products in these lines.
“As you can imagine with that many SKUs, we had to work cross-functionally across the various businesses,” explained Tamanna Prashar, VP of Vyaire’s Global Supply Chain. “Vyaire prioritized the creation and rollout of a sales and operating planning process. This process is sponsored by Dave Mowry, President and CEO; Dave Stafford, CFO; and Tom Whalen, CSCO. It requires collaboration with marketing, sales, customer service, distribution, R&D, and engineering.
“An objective S&OP where we connect what the sales team is doing all the way back to all the different levels of the supply chain, back to the distributors of the raw materials so that we had a key-in as far as what were we selling, buying, and what were we producing. That really set the tone of our business from a strategic standpoint as well.”
That cross-functionality is central to the OneVyaire approach, a single-point of service designed to make doing business with Vyaire Medical as convenient for the customer as possible.
As Chief Supply Chain Officer Tom Whelan put it, “the lines operated individually, and we’ve pulled those under one set of processes, S&OP being the key one. We pulled in the distribution and customer service pieces of it, all playing in together as OneVyaire versus separate groups of each of the four different entities as they had been in the past.
“It’s that combination that lets us leverage those efficiencies as well as the customer-facing processes.”
That unification was the beginning of the transformation from a fragmented supply chain to a seamless one.
Whalen added, “We created a single vision to become OneVyaire, but now we are looking to have an impact on all aspects of the business as we’re going forward.”
Perhaps nowhere else is that impact more apparent than on Vyaire’s bottom line.
“We started as an organization with the gross margin at 30 percent, and as Tom brought his leadership on he challenged us to be transformative as we thought of gross margin and a target 70 percent over the next five years,” Prashar revealed.
“One of the key things that we started to understand as we did that is, 70 percent seemed like a really good stretch goal, but it also forced us to look at what we were moving where, how we were producing our products, and how we could be more efficient.”
A strong category strategy was needed to neatly stratify the company’s supply base. Suppliers are segmented and risks evaluated across carefully chosen KPIs, including financial health and their ability to further Vyaire’s financial growth priorities.
In addition to performance improvements and increased customer satisfaction, supply chain efforts contributed 10 percent to the total cost of supply chain operations on last year’s EBDTA bottom line.
Sea Changes and Strategies for Success
Mike Brennan, Vyaire Medical’s VP of Distribution and Customer Service, pointed out that the company is designing its distribution approach to meet the needs of direct value relationships with independent dealer networks and direct hospital networks as well as traditional large hospital distributor networks.
“Historically it was more of the purchase orders that would be placed on a fixed schedule and we’d drop it into a bigger distribution center and leveraging bulk shipping,” he began.
“Now it’s very tailored to each of our sub-customer channels. We have more complexity in our distribution centers and more sub-processes; we’ve leveraged more technology and more strategic services from our providers and distribution than we have in the past.
“We also rebalanced our distribution network to be more customer-focused in terms of proximity, turnaround time, and delivery, versus having big, centralized distribution centers that would leverage internal cost benefit. We’re placing our forward inventory closer to these key customer points to be very competitive. It’s been a sea change for Vyaire over the last 12 to 15 months.”
Although it’s still early days, the team’s transformational approach is paying off.
Said Whelan, “[i]nstead of saying we want to move from an organization with this kind of gross margin, this type of supply chain activity, distribution strategies and so on, we want to actually become best-in-class at a much faster rate. We set goals that cause us to look at the business in a transformational manner versus creating small, incremental changes.”
The result: a Vyaire Medical that is completely different after a year and a half of operation.
“We have processes, tools, communication mechanisms, escalation processes, ways that we work together with our partners that were never in existence before,” he added.
“You don’t see that happening within such a short period of time, and I think that transformational view and approach is really making the difference. When you look into the next few years it will continue to make that difference throughout the organization itself and drive its success.”
Vyaire Medical is a new company that has been around for more than 65 years. And while our name may be new to you, our products have been used in and around your medical center for decades.
Today, we manufacture and market more than 27,000 unique products for the diagnosis, treatment and monitoring of respiratory conditions in every stage of life.
We are a singular, focused company offering products in four areas: respiratory diagnostics, ventilation, airway management and operative care consumables.
Vyaire was born of innovative brands that include AirLife®, Vital Signs®, Bear Medical Systems, Pulmonetic Systems, Sensormedics™, Viasys™ and many others; and we bring decades of industry leadership, clinical experience and unrivaled expertise.