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Letters

Letter from Dennis Clark, CPO

Central Fabrication: Thinking Lean

I regularly get asked what I consider the greatest advantage of using central fabrication. While there are many, I feel one sticks out as the biggest – lower overhead and less investment in inventory, equipment and staff. Today's reimbursement environment forces us to create companies that are lean. Using central fabrication allows companies to pay for only what they use – if you are slow then you aren't paying staff that is sitting around. And a much overlooked advantage is the fact that you don't pay for waste. You only are billed once even if it takes five sheets of plastic to pull a test socket. Material waste is a cost that can deplete a company by increasing the overall cost of a device, increasing inventory levels in anticipation of fabrication waste and therefore tying up much needed cash flow.

Cost of capital is another issue to consider. Many of the companies we service have front-end CAD systems. They use us for fabrication support to defray the cost of a carver or CNC milling machine. Unless you can keep the milling machine busy 8 hours a day, I argue there is no need for it (the only exception being when same day service is required). To put some numbers to it – a milling machine is roughly $70,000 while a BK foam carving costs only $50. It would take approximately 1400 carvings to equal the cost of the milling machine. If an average office does 50 carvings a month, then it would take about 28 months to equal the cost of the milling machine. While that doesn't appear to be a long time, consider that during that time you also pay for repairs, upgrades, and staff to run the machine. But more importantly, what happens if technology improves and renders this machine useless? By using a central fabrication center you eliminate the startup and maintenance costs and risk of technological obsolescence.

Companies that are "Thinking Lean" into the future are the ones that will survive the test of time and prove to be the most profitable. Their goal will be to lower overhead costs, eliminate material waste and free up cash flow. Using central fabrication will help orthotic and prosthetic companies meet these goals.

Andy Steele, CPO MBA

Clark & Associates Prosthetics & Orthotics

Posted: 07/25/2005

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