Medtronic Conference Summary Company Overview - **Company**: Medtronic (NYSE: MDT) - **Date of Conference**: September 10, 2025 - **Key Speaker**: Greg Smith, Executive Vice President of Enterprise Operations Key Points and Arguments Supply Chain and Operations - Medtronic's supply chain was decentralized with four manufacturing teams and nine supply chain organizations before 2021, leading to inefficiencies [3][4] - Stabilization of the supply chain took approximately two and a half years, with significant foundational work required [5][6] - Over 250 personnel were deployed to suppliers to resolve issues during the pandemic [5] Cost of Goods Sold (COGS) - COGS is primarily composed of materials (60%), labor, and burden [8] - Initial cost savings were mainly from supplier negotiations, but now focus has shifted to improving productivity across all cost buckets [9][10] - Gross savings from materials have increased from 2.5% to over 5%, with inflation now at 3% [11][14] Material Purchasing and Supplier Management - Medtronic improved its preferred supplier base from 40% to 68%, enhancing leverage and cost structure [18] - The company has implemented a Value Added Value Engineering (VAV) team to optimize product designs and reduce costs [19][20] - Savings from preferred suppliers can vary, with some yielding single-digit savings and others high double-digit savings [23] Labor and Manufacturing Efficiency - Medtronic has adopted a lean manufacturing process, the Medtronic Performance System, across all facilities to standardize operations [26][27] - The company has achieved almost double-digit productivity improvements in factories [16] - Labor costs are seen as a risk due to statutory increases in certain countries, particularly Mexico [30][60] Burden and Overhead Management - Burden includes overhead costs such as engineering and infrastructure [32] - Automation and AI are being utilized to reduce manual inspections and improve efficiency [33][86] Logistics and Distribution - Medtronic has taken over its distribution network, closing five third-party distribution centers and opening new ones [37][40] - The logistics cost is estimated to be 2% to 3% of sales, with 60% attributed to COGS [39] - The company aims to minimize touches and maximize shipping efficiency [37][38] Tariffs and Geopolitical Risks - The company is actively managing logistics to optimize tariffs and has a strong focus on country of origin for products [52][54] - Geopolitical events pose significant risks to supply chains, and Medtronic is aware of its tiered supplier risks [91] Future Outlook - Medtronic anticipates continued improvements in gross savings through ongoing programs and initiatives [90] - The company is focused on balancing fixed cost investments with potential demand, particularly for new product launches [81][85] AI and Technology Integration - AI is being integrated into various processes, including demand planning and manufacturing execution systems [86][87] - The goal is to achieve zero-touch order processing and improve overall productivity [88] Additional Important Insights - The company has a robust pipeline of programs aimed at achieving the targeted 5% gross savings [70][71] - Continuous improvement and transformational programs are essential for driving down material costs and enhancing productivity [90] - The management team is supportive of initiatives that align with the company's strategic goals [67]