Research shows that few device makers have offset the excise tax they began paying in January 2013; here's how they can reduce costs in targeted areas of SG&A in order to maintain profit margins.
How can you be sure that you are getting best value for your pound from your suppliers? Start by looking through our Market Intelligence briefing which covers areas as diverse as Merchant Card Payments and the future of Print. Then drop me an email if you want to discuss these or other areas of procurement in more detail at a.birse@erauk.net.
Medical Device Contract Manufacturing Update – Fall 2018Duff & Phelps
The global medical devices contract manufacturing market was valued at $70 billion in 2017, and is forecasted to increase to $115 billion in 2022, a compound annual growth rate (CAGR) of 9.5%. Read the Medical Device Contract Manufacturing Update Report for market trends impacting the contract manufacturing organizations (CMO).
Staffing Industry M&A Landscape - October 2016Duff & Phelps
In the first nine months of 2016, 94 staffing industry M&A transactions were completed by 87 unique buyers. After a slow second quarter, staffing M&A activity reaccelerated in the third quarter of 2016 as sellers took advantage of favorable market conditions and the ample number of buyers interested in making acquisitions in the sector.
How can you be sure that you are getting best value for your pound from your suppliers? Start by looking through our Market Intelligence briefing which covers areas as diverse as Merchant Card Payments and the future of Print. Then drop me an email if you want to discuss these or other areas of procurement in more detail at a.birse@erauk.net.
Medical Device Contract Manufacturing Update – Fall 2018Duff & Phelps
The global medical devices contract manufacturing market was valued at $70 billion in 2017, and is forecasted to increase to $115 billion in 2022, a compound annual growth rate (CAGR) of 9.5%. Read the Medical Device Contract Manufacturing Update Report for market trends impacting the contract manufacturing organizations (CMO).
Staffing Industry M&A Landscape - October 2016Duff & Phelps
In the first nine months of 2016, 94 staffing industry M&A transactions were completed by 87 unique buyers. After a slow second quarter, staffing M&A activity reaccelerated in the third quarter of 2016 as sellers took advantage of favorable market conditions and the ample number of buyers interested in making acquisitions in the sector.
China Business Report 2013-14 Highlights by AmCham ShanghaiJuha Moilanen (莫寒)
A summary of the China 2013-14 Business Report, published in Feb 2014 by the American Chamber of Commerce in Shanghai.
Edit: Added analysis by Beijing-based IP/IT lawyer, law professor Stan Abrams
Whitepaper: Patent strategies in the 2012 economic environmentSagentia
Difficulties and changes in the macro-economic climate have forced companies to alter the way they carry out their research and development. This, in turn, has had an effect on the approach of many organisations to intellectual property.
http://www.sagentia.com/IP
Mercer Capital's Investment Management Industry Newsletter | Q4 2018 | Focus:...Mercer Capital
Mercer Capital’s Asset Management Industry newsletter is a quarterly publication providing perspective on valuation issues pertinent to asset managers, trust companies, and investment consultants.
Supply Chain Metrics That Matter: A Focus on Brick & Mortar Retail-18 FEB 2013Lora Cecere
The bricks and mortar retailer is being squeezed. Growth is slowing and margin is under pressure. With the rise of e-commerce, the role of the store is being redefined. It is about service and the customer experience. As a result, it is time to rethink the metrics that matter and focus outside-in on the shopper experience.
In this report, we share insights on the current state of bricks and mortar retail and offer our suggestions.
Brick & mortar retailers have weathered an intense decade with the persistent rise of e-commerce. The shopper has changed and recovery from the Great Recession is ongoing, but slow. Our previous Supply Chain Metrics That Matter: A Focus on Retail report focused on the broader industry trends affecting five different divisions of retailers and the challenges of multi-channel retail. This report narrows the focus to three segments of brick & mortar retailers struggling to adapt to the new world.
A retailer is not a retailer. We believe that retailers should be compared by business model. We do not believe that one can throw all retailers together and identify the “most improved” or “best” supply chain. There are too many variables and circumstances affecting the retail landscape to make valid comparisons. In our research, we find that small and well-defined peer groups offer the best way forward for understanding both segment and industry specific trends.
The industry segments analyzed in this report are grocery, mass and specialty. Grocery retailers are involved in the sale of perishable and non-perishable food stuffs. Mass retailers are larger companies focused on providing a comprehensive retail experience to their customers. Finally, specialty retailers are dedicated to specific customers, activities and goods. The companies in this analysis represent both American and global retailers.
Our grocery peer group consists of Carrefour, Delhaize Group, Safeway and The Kroger Co. The mass retailer peer group includes Costco, Metro, Target and Walmart. The choice of specialty retailers was by far the most difficult because there are so many dedicated stores in this category. For this publication, our peer group includes Bed Bath & Beyond, Dick’s Sporting Goods, Foot Locker and Ross Stores. Additional information about all of these companies is presented in the Appendix.
Optimizing Voluntary Strategy via Realigned TPA Engagement and Targeted Inves...Cognizant
For group insurers with voluntary offerings, working with third-party administrators (TPAs) is a double edged sword, one fraught with problems of costs, up- and cross-selling, inadequate data, decoupling challenges and more; IT modernization programs are problematic as well. We offer a framework that enables companies to align their voluntary and TPA strategies.
Substantial changes to SR&ED tax credits on the horizon . . . . . .
(17-Oct-2011) A six-member panel, appointed by the Canadian Federal Government, released its report on the efficacy of various economic-stimulus programs intended to increase private sector R&D and technological innovation.
Mercer Capital's Value Focus: Professional Services Industry | Mid-Year 2015Mercer Capital
Mercer Capital's Professional Services Industry newsletter provides perspective on valuation issues. Each newsletter also typically includes a macroeconomic trends, industry trends, and guideline public company metrics.
Conducted numerous valuation methodologies and thorough research for Steinkeller Solutions, a highly specialized staffing firm focused on Life Sciences, Technologies, Healthcare IT, and Energy. Assessed Bloomberg data, company financials, and company strategy to make an informed strategic sale recommendation to a sponsor to William Blair bankers.
The predictability of financial, accounting-based, and industrial factors on ...Marc Oliveras Villanueva
VII Congrés ACCID - Presentació de la ponència: The predictability of financial, accounting-based, and industrial factors on the success of newly incorporated Spanish firms
By focusing on organizational enablers and robust software engineering practices, e-commerce companies can shorten the development lifecycle, outmaneuver the competition and remain relevant in the eyes of customers.
Selecting a Software Solution: 13 Best Practices for Media and Entertainment ...Cognizant
When selecting commercial off-the-shelf software (COTS), companies in the increasingly digitally-based media and entertainment industry need to develop a detailed advance plan, obtain support from all stakeholders and continuously monitor vendor performance against critical expectations, best practices and business requirements.
China Business Report 2013-14 Highlights by AmCham ShanghaiJuha Moilanen (莫寒)
A summary of the China 2013-14 Business Report, published in Feb 2014 by the American Chamber of Commerce in Shanghai.
Edit: Added analysis by Beijing-based IP/IT lawyer, law professor Stan Abrams
Whitepaper: Patent strategies in the 2012 economic environmentSagentia
Difficulties and changes in the macro-economic climate have forced companies to alter the way they carry out their research and development. This, in turn, has had an effect on the approach of many organisations to intellectual property.
http://www.sagentia.com/IP
Mercer Capital's Investment Management Industry Newsletter | Q4 2018 | Focus:...Mercer Capital
Mercer Capital’s Asset Management Industry newsletter is a quarterly publication providing perspective on valuation issues pertinent to asset managers, trust companies, and investment consultants.
Supply Chain Metrics That Matter: A Focus on Brick & Mortar Retail-18 FEB 2013Lora Cecere
The bricks and mortar retailer is being squeezed. Growth is slowing and margin is under pressure. With the rise of e-commerce, the role of the store is being redefined. It is about service and the customer experience. As a result, it is time to rethink the metrics that matter and focus outside-in on the shopper experience.
In this report, we share insights on the current state of bricks and mortar retail and offer our suggestions.
Brick & mortar retailers have weathered an intense decade with the persistent rise of e-commerce. The shopper has changed and recovery from the Great Recession is ongoing, but slow. Our previous Supply Chain Metrics That Matter: A Focus on Retail report focused on the broader industry trends affecting five different divisions of retailers and the challenges of multi-channel retail. This report narrows the focus to three segments of brick & mortar retailers struggling to adapt to the new world.
A retailer is not a retailer. We believe that retailers should be compared by business model. We do not believe that one can throw all retailers together and identify the “most improved” or “best” supply chain. There are too many variables and circumstances affecting the retail landscape to make valid comparisons. In our research, we find that small and well-defined peer groups offer the best way forward for understanding both segment and industry specific trends.
The industry segments analyzed in this report are grocery, mass and specialty. Grocery retailers are involved in the sale of perishable and non-perishable food stuffs. Mass retailers are larger companies focused on providing a comprehensive retail experience to their customers. Finally, specialty retailers are dedicated to specific customers, activities and goods. The companies in this analysis represent both American and global retailers.
Our grocery peer group consists of Carrefour, Delhaize Group, Safeway and The Kroger Co. The mass retailer peer group includes Costco, Metro, Target and Walmart. The choice of specialty retailers was by far the most difficult because there are so many dedicated stores in this category. For this publication, our peer group includes Bed Bath & Beyond, Dick’s Sporting Goods, Foot Locker and Ross Stores. Additional information about all of these companies is presented in the Appendix.
Optimizing Voluntary Strategy via Realigned TPA Engagement and Targeted Inves...Cognizant
For group insurers with voluntary offerings, working with third-party administrators (TPAs) is a double edged sword, one fraught with problems of costs, up- and cross-selling, inadequate data, decoupling challenges and more; IT modernization programs are problematic as well. We offer a framework that enables companies to align their voluntary and TPA strategies.
Substantial changes to SR&ED tax credits on the horizon . . . . . .
(17-Oct-2011) A six-member panel, appointed by the Canadian Federal Government, released its report on the efficacy of various economic-stimulus programs intended to increase private sector R&D and technological innovation.
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Mercer Capital's Professional Services Industry newsletter provides perspective on valuation issues. Each newsletter also typically includes a macroeconomic trends, industry trends, and guideline public company metrics.
Conducted numerous valuation methodologies and thorough research for Steinkeller Solutions, a highly specialized staffing firm focused on Life Sciences, Technologies, Healthcare IT, and Energy. Assessed Bloomberg data, company financials, and company strategy to make an informed strategic sale recommendation to a sponsor to William Blair bankers.
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VII Congrés ACCID - Presentació de la ponència: The predictability of financial, accounting-based, and industrial factors on the success of newly incorporated Spanish firms
By focusing on organizational enablers and robust software engineering practices, e-commerce companies can shorten the development lifecycle, outmaneuver the competition and remain relevant in the eyes of customers.
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Making the leap from "gatekeeper" to strategic business partner often requires the QA/test group to centralize and standardize the selection of test tools, the development of test processes and templates and the training of testing staff. Only then can it break the organizational silos which typically hobble testing efforts, present a consistent and credible face to their business customers and develop the specialized expertise needed to meet today's testing challenges.
Mercer Capital's Value Focus: Medical Technology | Mid-Year 2016Mercer Capital
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CBIZ Manufacturing & Distribution Hot Topics June-July 2020 NewsletterCBIZ, Inc.
Articles discuss strategies to help manufacturers and distributors expedite their financial recovery as they adjust to the new normal, 2020 insurance planning insights, 3 HCM keys for a smooth transition to the new normal, what companies looking at buying or selling can do now, and "News from the NAM" including the Q2 NAM outlook survey and major markets economic trends.
Cost Analysis ModelsUnit 3 Written AssignmentBUS .docxbobbywlane695641
Cost Analysis Models
Unit 3: Written Assignment
BUS 5110
Managerial Accounting
Unit 3
Introduction
Cost management is important for all businesses and is used to plan and control the budget. This is done by analysing business practices, predicting expenditures in advance and reducing the chance of over spending in relation to income. Using the client provided data for a business involved in the catering and events industry we can evaluate how productive and effective her business is.
Provide an accurate solution.
We can see from the data in the attached costing sheet that the company has a break even point of 3158 events. To come to this conclusion, we calculated the revenue per event (Current revenue / number of events) $22,500,000 / 5000 = $4,500. We also require our Contribution margin (Revenue per event - Variable cost per event) $4,500 - $2,600 = $1,900. To calculate the Breakeven point, we simply take the Fixed cost and divide that by the Contribution margin = 6,000,000 / 1,900 = 3157.89
Hypothetically, if the company decided they’d like to improve their revenue and increase their profits from $3,500,000 to $5,000,000 we can use the data to calculate the number of events required to reach that target. Using the Units to Achieve a Target Income formula (Total fixed costs + Target income) / Contribution margin per unit = (6,000,000 + 5,000,000) / 1,900 = 5789.47 = 5789 events (Walther, L. M. & Skousen, C.J., 2009).
Provide a narrative that defines and discusses the purpose of assigning cost categories of fixed and variable costs.
Operating a business incurs a range of costs. These can be defined as either fixed costs which don’t change in relation to activity and variable costs which do. These costing structures will likely differ between businesses and industries. Companies have even been known to use different costing structures between different internal departments. (CFI., n.d.)
Many fixed costs are going to be unavoidable and come from the simple operational side of your business. Costs such as depreciation, taxes and rent will likely remain unchanged however other fixed costs such as advertising budgets are more discretionary. Variable costs are also able to be altered depending on the size and scale of your business. For example, order quantities can be increased to bring unit costs down however before committing to such decisions forecasting your sales based on this should also be carried out to ensure you don’t end up grossly overstocked (Walther, L. M. & Skousen, C.J., 2009).
In order to maximise profits companies are required to minimise or eradicate unnecessary costs any way they can, ideally with no impact on the quality of the final product. A manager must understand both of these categories and the importance they play in the overall running of the business if they’re ever going to effectively improve the business model, reduce costs and remain profitable.
Provide a narrative that defines and discusses.
4 Ways the Manufacturing & Distribution Sector Can Prepare for the Post COVID...CBIZ, Inc.
Manufacturers and distributors were among the first sectors to feel the impact of the COVID-19 pandemic and may continue to feel its effects during the recovery phase. A number of strategies are discussed that may help manufacturers and distributors expedite their financial recovery as they adjust to the new normal.
What is continuous controls monitoring? Why does ACL Services think you should learn to love CCM technology? How it can assure compliance, reduce risk, detect fraud, and enhance profitability.
For more information, visit www.acl.com/ccm
Startup Outlook 2013: The Impact of the Medical Device Tax on US InnovationSilicon Valley Bank
New medical devices improve patient outcomes, reduce costs, create jobs and contribute to a healthier US economy and balance of trade. For nearly a decade, rising regulatory costs, delays and uncertainty have made it harder for medical device companies to succeed. The Medical Device Tax that went into effect on January 1, 2013 is compounding other challenges that threaten US leadership in medical device innovation. This report is based on responses from medical device startups who participated in Silicon Valley Bank’s annual Startup Outlook survey.
BSBFIM601
Manage finances
DESCRIBE RESPONSIBILITY ACCOUNTING
The process of measuring and reporting
operating data by areas of responsibility.
WHICH OF THE FOLLOWING STATEMENTS
RELATING TO A BUDGET IS NOT TRUE?
It is a detailed plan
It is a management tool
It provides many of the performance targets used
in responsibility accounting
It is prepared on a historical basis
It identifies certain financial and operating
targets
DETAIL 4 DIFFERENT TYPES OF BUDGETS, AND
THEIR PURPOSES.
REVENUE BUDGETS
The revenue budget is a forecast because it is
based on projecting future sales. Managers must
take into consideration their competitors,
advertising budget, sales force effectiveness and
other relevant factors, and they must make an
estimate of sales volume. Then, based on
estimates of demand at various prices, managers
must select an appropriate sales price. The result
is the revenue budget.
EXPENSE BUDGETS
Found in all units within a firm and in not-for-
profit and profit-making organisations alike.
Expense budgets list the primary activities
undertaken by a unit to achieve its goals and
allocate a dollar amount to each. Managers give
particular attention to those that remain
relatively unchanged regardless of volume. As
production drops, the variable expenses tend to
control themselves because they fall with volume.
CASH BUDGETS
Cash budgets are forecasts of how much cash the
organisation will have on hand and how much it
will need to meet expenses. This budget can
reveal potential shortages or the availability of
surplus cash for short-term investments.
CAPITAL EXPENDITURE BUDGETS
Investments in property, buildings and major
equipment are called capital expenditures. These
are typically substantial expenditures both in
terms of magnitude and duration. The magnitude
and duration of these investments can justify the
development of separate budgets for these
expenditures. Such capital expenditure budgets
allow management to forecast future capital
requirements, to keep on top of important capital
projects, and to ensure that adequate cash is
available to meet these expenditures as they
become due
INFORMATION WOULD YOU REQUIRE TO PLAN
AND PREPARE A BUDGET FOR A NEW BUSINESS
Identify
what do we want to achieve?
how will we go about it?
what resources will we need?
how many people?
how much time?
what rates of pay?
what can go wrong and how can we plan for
emergencies
Talk with managers, supervisors, customers,
banks, etc
EXTERNAL FACTORS
Direct costs
Salaries and Wages
Contract Teaching
Casual Staff Costs
Overheads
Consumables
Other Contract & Consultants
Non Capitalised Equipment
Entertainment
Scholarships
Repairs & Maintenance
Travel
Other Direct Costs
TERMS
CAPITAL INVESTMENT
...
The Effect ofDebt Restructuring and Tax Avoidance on Cost of Debt with Growth...AJHSSR Journal
ABSTRACT : Pandemic covid-19 makes limitation of company productivity, so it’s hard for company to pay
their debt. Creditors also provide various waivers, such as restructuring debt.The company's efforts in increasing
the high trust of creditors will be low risk, so the company can improve the effectiveness of controlling action
that is in company. The debt will increase the company's expenses, but the company can finance it by
calculating the cost of its taxation. The purpose of this study was to obtain empirical evidence about the effect of
tax avoidance, good corporate governance, and debt restructuring on the cost of debt with growth opportunity as
a moderating variable during pandemic COVID-19. The objects of this research are the sectors of various
consumption goods companies listed on the IDX for 2019–2021. The results of the study show that debt
restructuring has an effect on the cost of debt.Tax avoidance and growth have no effect on the cost of debt.
KEYWORDS :Debt Restructuring ;Tax Avoidance;Cost of Debt; Growth
The article focuses on the Return on Equity (ROE)as the benchmark .docxmattinsonjanel
The article focuses on the Return on Equity (ROE)as the benchmark for assessing a business’s financial health.
Do you agree with this approach? (Support your response with 2 - 4 examples of financially healthy companies.).
Additionally, this article presents a spreadsheet analysis for commission-based businesses. What approach would you implement for a manufacturer?
How would it differ for a service organization, such as a CPA firm, staffing firm, or consulting firm?
ommission-based organizations’
values are affected by factors that
are not typical of manufacturing or
other retail business entities. One such
example is an insurance agency, which
exemplifies three factors germane to a
commission-based business. First, an
agency acts as an intermediary by pro-
viding the service of arranging insur-
ance coverage between an insurer and
an insured party. Thus, one of the
agency’s most valuable assets is its
client list. Second, the agency has the
fiduciary responsibility of either collect-
ing or arranging for the payment of pre-
miums by the insured to the insurer.
Third, an agency business typically is
not capital intensive, and owners gener-
ally take most of the profits of the
agency as bonuses or salary.
Our purpose in this article is to show
how a simple spreadsheet model can be
used to demonstrate the impact of dif-
ferent operating and capital manage-
ment strategies on the financial perfor-
mance of a commission-based business
such as an insurance agency. The model
is easy to develop and understand and is
flexible enough to allow for numerous
strategies. Instructors can use the model
to isolate the impact of a single strategy
or measure the impact of a combination
of strategies on performance.
The objective of the manager of a fee-
based business is to coordinate the
resources available in such a way as to
maximize financial performance. Man-
agement must determine growth, operat-
ing expenses, investment opportunities,
cash management opportunities, and the
level of profit retention. All of these fac-
tors affect financial performance and will
be considered in the model.
A typical business has various mea-
sures of financial performance that are
used in evaluating its health. Although
various measures have been developed
for evaluation of the productivity and
profitability of a commission-based
business, in this article we focus on the
rate of return on equity (ROE). Owners
and managers affect the numerator of
ROE by controlling growth, operating
expenses, investment opportunities, and
cash management opportunities. Own-
ers and managers affect the denomina-
tor of ROE by determining the profit
retention rate and, thus, the equity posi-
tion of the business. Successful business
owners should strive to maximize ROE,
which serves as a proxy for maximizing
the value of a business.
The Model
The model is a spreadsheet model that
can be used for any commission-based
business, such as an insurance agency,
travel agency, fo ...
Does Your Digital Agency Measure up to Comeptition?Linh Diep
Did you know the average Australian Digital Agency generates $109,335 of net profit per working owner? Or that average staff productivity is 83%? We explore these stats & industry benchmarks in our white paper then highlight how to improve your financial management through our tips and metrics tracking.
Want to download this whitepaper? Click here: http://digitalagencyperformance.instapage.com/
Does Your Digital Agency Measure up to Competition?Linh Diep
Download the whitepaper here: http://digitalagencyperformance.instapage.com/
Did you know the average Australian Digital Agency generates $109,335 of net profit per working owner? Or that average staff productivity is 83%? We explore these stats & industry benchmarks in our white paper then highlight how to improve your financial management through our tips and metrics tracking.
While security servicing providers have performed well in recent years, they face anemic core growth, shifting client expectations, rising pressure on fees, and the potential for disruption. The COVID-19 pandemic and associated recession will put further pressure on the industry. In response, they must be bold in their planning and approach to service delivery.
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2014 Property & Casualty Insurance Industry Outlook: Innovation leading the wayDeloitte United States
On the surface the property and casualty sector appears to be doing quite well, but running an insurance carrier is rarely smooth sailing. The last few years have been particularly difficult for those occupying C-Suite positions, as more fundamental issues are threatening not only short-term results on their balance sheets, but challenging the long-term viability of their operating models as well.
For example, a growing number of insurers are facing significant organizational disruption. Many have made large-scale investments in technology, replacing core systems for claims, policy administration and finance. Their chief challenge now is how to effectively leverage the new systems they’ve put in place and maintain their momentum with additional innovations in personnel, products and culture.
Additionally, ongoing political gridlock in Washington could undermine an already unsteady economic recovery. Not to mention regulatory uncertainty that makes it difficult for carriers to plan ahead and determine operational priorities.
Innovation may ultimately be the key to keep insurers growing regardless of shifting economic and insurance market conditions, as they devise ways to thwart ongoing and emerging competitive threats as well as capitalize on new opportunities.
For more - visit http://www.deloitte.com/view/en_US/us/Industries/Insurance-Financial-Services/039bdd0819e23410VgnVCM3000003456f70aRCRD.htm
Similar to A Playbook for Contending with the Medical Devices Excise Tax (20)
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A Playbook for Contending with the Medical Devices Excise Tax
1. A Playbook for Contending with the
Medical Devices Excise Tax
Research shows that few device makers have offset the excise tax
they began paying in January 2013; here’s how to reduce costs in
targeted areas of SG&A in order to maintain profit margins.
• Cognizant 20-20 Insights
Executive Summary
By now, you have probably read that in March
2013, the U.S. Senate voted 79-20 to repeal the
new excise tax on gross sales of medical devices,
which includes everything from CT scans and
replacement knees to tongue depressors.
While the move appears encouraging for device
manufacturers, there’s a catch: For the repeal to
go through, lawmakers must identify an alter-
native tax source to replace the $29 billion the
excise tax is expected to generate over 10 years.1
Sound futile? Exactly.
Given that the tax is likely here to stay, how
have medical device makers reduced their costs
to compensate for the 2.3% duty they began
paying on January 1? A review of manufactur-
ers’ SEC 10-K filings reveals that they haven’t.
To avoid margin erosion, however, the offsetting
cost reductions must happen soon. An objective,
disciplined approach to SG&A cost reduction can
help manufacturers meet the margin squeeze and
result in healthier businesses.
How the Tax Affects the Medical
Devices Industry
The tax comes at a difficult time for the industry.
High unemployment and the economy’s uncertain
recovery have caused prospective patients to
defer elective medical procedures such as knee
and hip replacements.
Moreover, because the manufacturers typically
draw from an older demographic already covered
by Medicare, they expect minimal new business
from the Affordable Care Act’s pool of newly
insured patients. Unlike other excise taxes — such
as the gasoline tax that funnels funds to road
repairs — the device makers’ tax has no mitigating
industry benefit.
Estimating the excise tax’s effect on companies is
complex. For one thing, the tax applies only to U.S.
sales. For another, it excludes associated services,
such as education and consulting. As a result,
calculating the tax’s impact on individual orga-
nizations depends on the company’s geographic
revenue mix, as well as the mix of device and
services revenues.
Major device manufacturers generate roughly
46% of their revenues outside the U.S. (see Figure
1). Least affected by the excise tax are those
companies with large non-U.S. revenues and
lucrative services revenues. For example, Becton
Dickinson and St. Jude Medical earn less than
half of their revenues from the U.S. On the other
cognizant 20-20 insights | june 2013
2. 2
hand, Stryker and C. R. Bard earn approximately
two-thirds of their revenue in the U.S., making
them more vulnerable to the tax’s impact.2
Equipment titan Thermo Fisher Scientific predicts
little impact on its business because the majority
of its sales are laboratory devices, which are not
subject to the tax. The company estimates its
exposure to result in a tax of only $20 million to
$25 million.3
Breaking out revenues of devices vs. services
adds an administrative burden to pricing and
accounting activities, and there’s no doubt it will
impact the way companies write future pricing
agreements. Bundled pricing of products and
services is likely to change.
It should be noted that the tax burden is especially
high for startup companies. Because the tax
applies to total device sales rather than profits,
young organizations with nascent profits pay dis-
proportionate shares of their profits toward the
tax. In addition, startups tend to earn a higher
percentage of revenues from U.S. domestic sales
and typically earn less service revenue. The result
is that the new tax may lead to increased industry
consolidation and discourage the innovation and
creativity that is often the hallmark of young
businesses.
Attempts to Offset the Tax
Data shows that in the three years between the
Affordable Care Act’s enactment and the date the
tax went into effect, device makers have taken
some steps to offset the tax, such as aggressively
pursuing new business outside the U.S. From 2009
to 2012, the industry grew non-U.S. revenues from
41.5% to 45.5% of total revenues — a surprisingly
large and rapid shift in such a short timeframe
(see Figure 2, next page).
In addition, empirical evidence shows device
makers putting the brakes on hiring. According
to a review of corporate 10-K filings, total
employment among the largest device manufac-
turers reached 183,298 in 2009, the year before
the Affordable Care Act was signed into law. By
2012, the companies’ employment had risen by
6.9% to 195,965. Revenues grew an even healthier
12.3% (see Figure 3, next page). Revenue growth
that outpaces hiring should result in produc-
tivity gains that appear in improved SG&A as a
percentage of sales.
Yet among medical device makers, SG&A as a
percentage of revenues has worsened (see Figure
4, page 4). The industry’s decline in SG&A perfor-
mance between 2009 and 2012 may in part reflect
the expansion overseas. It also suggests that the
productivity gains are showing up elsewhere in
the corporation, most likely in manufacturing.
Device makers’ sagging SG&A cost efficiency also
clearly indicates that the industry’s expansion
through mergers and acquisitions has produced
multiple redundant back-office functions that are
decentralized, nonstandardized and fragmented.
Despite the abundant M&A activity, we don’t see
the SG&A efficiency gains that would indicate
cognizant 20-20 insights
Source: Company 10-K filings
Figure 1
Medical Device Makers’ Non-U.S. Revenues
U.S. Revenues %
Non-U.S. Revenues %
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Becton
St. Jude
Therm
o
Fisher
Boston
Scientific
M
edtronic
Zim
m
er
Stryker
C.R. Bard
3. companies integrating their combined systems
and wringing out the inefficiencies. These non-
optimized SG&A costs are an obvious target for
offsetting the excise tax.
What Device Makers Need to Do
From all appearances, the excise tax is here to
stay, but company options are limited. Few can
pass along the tax costs as price increases. Most
medical product lines are sold in highly competi-
tive markets that preclude marking up prices to
offset the increased tax.
As a result, organizations face one of two choices:
decrease margins or reduce costs. Given Wall
Street’s penchant for punishing companies with
falling margins, the obvious approach is to cut
costs. But the data shows companies have not yet
begun to do so.
To carry out the reductions, manufacturers may
need to reduce their research and development
investments and take a fresh look at marginally
profitable product lines; however, SG&A is the
obvious target. The goal should be a 50%
reduction in costs for activities such as payroll,
general HR support, general accounting, accounts
receivables processing, accounts payables
processing, fixed assets accounting and support
of redundant IT applications.
The industry needs to assess and benchmark
its SG&A functions, document the landscape
— people, processes, systems and costs — and
3cognizant 20-20 insights
Medical Device Makers’ Business Expansion Outside the U.S.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
U.S. Revenues %
Non-U.S. Revenues %
58.5% 54.5%
41.5% 45.5%
2009 2012
Source: Company 10-K filings
Figure 2
Medical Device Makers’ Employment Levels
58.5% 54.5%
41.5% 45.5%
2009 2012
2009 2012
0
50,000
100,000
150,000
200,000
Number of Employees
Medtronic
Thermo Fisher
Becton
Stryker
St. Jude
Zimmer
C.R. Bard
Boston Scientific
Boston Scientific
0
20,000
40,000
60,000
Revenues
Medtronic
Thermo Fisher
Becton
Stryker
C.R. Bard
Zimmer
St. Jude
Up 6.9%
Up 12.3%
Source: Company 10-K filings
Figure 3
4. cognizant 20-20 insights 4
develop plans to reduce costs through stan-
dardization, systems rationalization, increased
automation, shared services and outsourcing (see
Figure 5).
Looking Forward
The time for device makers to act is rapidly
running out. The effect of the new tax is already
rippling through 2013 earnings. Integra Life
Sciences and Cytomedix are among the device
makers that cited the excise tax as a factor in their
decreased margins in the first quarter of 2013.4,5
Engineering giant Smiths Group is mulling plans
to sell its medical division, citing a 10% decline in
operating profits that it attributes to factors that
include the new tax.6
With limited options, companies need to take an
objective and disciplined approach to SG&A cost
reduction that meets the margin squeeze and
results in healthier businesses.
Although SG&A is the target, let’s be clear: we
recommend not cutting sales but focusing on
the general and administrative expenses that fall
within SG&A, such as human resources, finance
and procurement. In general, HR is not a primary
target for cost reduction because it is more of
a “people function” that companies need to
maintain at least partially in the field. As such,
this function does not always lend itself as well to
centralization and automation.
Finance, however, is an important target for cost
reduction. Approximately 60% of companies’
finance and accounting headcount is related to
transaction processing. As such, companies can
generate significant savings by wringing inef-
ficiencies out of finance transaction processes
such as accounts payables, accounts receivables,
fixed assets, general accounting and the payroll
process — whether managed by HR or finance —
and typically with little impact to the customer.
Procurement, too, is a major part of a company’s
cost structure, and any savings from more
effective procurement go straight to the bottom
line. The key in procurement is not to reduce
headcount but to make people more effective.
Strategic sourcing is a critical exercise through
which organizations analyze spending, rationalize
vendors, re-bid contracts and centralize master
data maintenance, both vendor and item masters.
A disciplined approach is essential to identifying
costs that can be reduced. Start by assessing and
benchmarking functions. What systems are used?
How automated are they? To what degree has
outsourcing been used? Are best practices being
utilized?
Once your organization has assessed and
documented the operational landscape, it can
begin making the strategic choice of which
functions to retain and which are candidates for
automation and outsourcing. With the develop-
ment and implementation of a transformation
roadmap, your organization can make the adjust-
ments to offset the excise tax and emerge a
stronger, more efficient business.
Rising SG&A Costs
(percent of revenues)
Figure 4
Figure 5
Cost Reduction Levers
2009 2012
Zimmer 42% 40%
Stryker 37% 40%
Boston Scientific 32% 35%
Medtronic 35% 35%
St. Jude 36% 34%
C.R. Bard 27% 29%
Thermo Fisher 26% 27%
Boston 24% 25%
Total 32% 33%
•Process redesign
•Lean
•Standardization
•Benchmarking
•Best practices
•Tool
enhancement
•New technology
• Workflow tool
•Organizational
structure
redesign
•Rightsizing
•Offshoring
Processes
People
Tec
hnology