How You Can Drive Superior Supply Chain Resilience Beyond 2021
At the forefront, evolving business models and a steadily growing demand for medical devices is driving growth in the industry. North America incidentally holds the largest share in the global market for minimally invasive medical devices. However, behind the scenes, medical device manufacturers have always faced challenges to some degree, in managing suppliers and their supply chains. Building supply chain resilience into the business model is the need of the day. When the pandemic hit, the medical device sector was one of the most affected and one of the most essential sectors in the world. As the world re-emerges from the effects of the pandemic, disruptions caused by ripple effects from the pandemic still worry the industry.
This article uncovers some strategic decisions you can take to drive superior Supplier and Supply Chain Resilience in 2021 and beyond.
Medical device manufacturing can be a complex process since most medical devices require a host of different kinds of parts which are made from various different custom-made materials. Manufacturers may source pre-made parts or the raw materials to produce the components of the device on their own. So in effect:
Manufacturing Process: Suppliers to End Users
Top Challenges faced by Medical Device Manufacturers:
Raw Material Shortages: The pandemic impacted demand and supply at all levels of the medical devices industry. The result has been delays, materials shortages and an undercurrent of unstable business relationships. Reuters reports shortages in plastics, metals, glass and electronics that sub-tier suppliers supply to manufacturers. When the sub-tier supplier is unable to deliver on time, manufacturers have found themselves bound by contract to wait till supplies arrive, which has meant waiting up to five months for a piece of medical equipment, in contrast to a maximum waiting period of six week prior to 2020. Manufacturers who had the flexibility of sourcing from alternative suppliers, found that alternative suppliers were also running short of materials. Such delays have been devastating in the medical devices industry since the healthcare system is dependent on a steady supply of medical devices and aids.
Surge in the need for transport of goods and also the cost of transport: In 2020 many of the orders for non-essential medical devices, placed pre-pandemic were either put on hold or cancelled altogether. Only essential devices, PPEs and equipment used to treat respiratory conditions like Covid-19, took center stage. As a result as vaccines have been rolled out and hospitals have begun conducting non-essential medical procedures, the demand suddenly picked up. This sudden rise in demand has led to a surge in the need for transportation facilities. Cost of transport via, Road, rail, water and air, also shot up, resulting in truly slim margins, if any, for manufacturers.
Disruption in Demand and hence Production forecasting: The wildly varying demands and expectations brought about by the pandemic has afflicted demand forecasting over the past year and a half. Businesses have had to rethink their strategies and core data models used to determine a forecast. In essence, medical device manufacturers have had to change their business models in order to keep up with the changing demands, some of which have been caused by customer hoarding. Lean and agile processes were set aside in a frenzied effort to ensure product deliveries. Although pandemic conditions have justified hoarding of supplies, components and medical devices – the end result is not: turning a major profit. Rather manufacturers will be in a slightly better position, although with little or no gains.
Tightening regulations and greater end user expectations about the quality & safety requirements of medical devices: The FDA’s QSR update, EU MDR, EU IVDR revisions and more, rolled out in 2021 have mandated that medical device manufacturing be a lot more transparent, traceable, possess higher quality standards and follow practices that would ensure positive healthcare outcomes in both the long and short term. This has meant that certain quality standards that were ok prior to the pandemic are no longer ok today. If the manufacturer had stocked up for future orders during the pandemic, and the quality of their stock was no longer acceptable, the manufacturer would then have to rid themselves of the extra material and purchase all new stock – resulting in losses.
Lack of visibility: As we’ve already discussed raw material shortages, visibility is a major factor, which goes hand in hand with sub-tier supplier performance. Visibility has actually been a problem for manufacturers even before the pandemic. One of the reasons for this has been the tier-1 supplier’s lack of trust in the manufacturer, with regard to disclosing the identity and real-time status of sub-tier suppliers. If manufacturers do not know who their tier-2 and tier-3 suppliers are, visibility becomes a problem all the way downstream, i.e. adversely affecting client deliveries.
Driving Superior Supplier and Supply Chain Resilience:
Digital Transformation: Since real time visibility is essential to keep production and deliveries on track, there is a major push within the industry to utilize supply chain management platforms that use IoT – to enable real-time reporting and Artificial Intelligence to run data analytics and enable more accurate forecasting. PwC US and numerous other management consultants agree, that these kinds of platforms must be used across the supply chain from the supplier end, through manufacturing, additional transformational process (like sterilization and packaging, if the CM does not do these activities in house), up until the delivery end. While this is an effective solution to not having real-time visibility, it does take time and effort to implement across the entire supply chain, especially when there are multiple suppliers, multiple channels and multiple channels through which parts and the products have to move through. So when you choose a supply chain platform, choose one that can handle all channels. The effectiveness of the platform lies in your ability to ensure that the platform is implemented at each and every stage of your supply chain.
Liquidity and Inventory: The remaining months in 2021 and beyond is sure to see more spikes and declines in the demand for medical devices. Forecasting will be difficult during this period. Having some liquidity will go a long way in procuring materials that have multiple uses. Such materials that are regularly used in production of one or more devices, will help keep the delivery of products on time. In addition, liquidity will help you stock up on high-demand or high-value supplies for the short-term. Maintaining slightly higher inventory levels during times of uncertainty is a smart move, to avoid complete stock-outs. Liquidity can also help you with making your deliveries, by engaging priority transport for your devices at slightly higher rates, rather than delivering after your agreed deadlines.
Supplier Strategies: Localization and Diversification: It is therefore extremely important that manufacturers pay special attention to the suppliers they work with. When suppliers do not provide accurate updates with regard to sub-tier suppliers, planning ahead becomes redundant. This is why, it is firstly important to build strong relationships of trust between all tier 1 suppliers. That way they are at ease to provide accurate updates with regard to sub-tier suppliers. Secondly, with numerous challenges facing overseas transport (caused by Covid-19, regulatory updates and trade barriers), shifting to engaging with more than one local supplier will help solve a number of supply issues. Local suppliers will be able to deliver more easily and at high quality standards. This also indirectly contributes to the American economy. So having a diverse group of suppliers, will enable your business to keep running regardless of the circumstances.
Logistics Management: The past few months have seen numerous transportation restrictions and complex issues owing to the pandemic. To overcome logistics issues, try to utilize alternative shipping points: in case of shut-downs or congestion at ports, tucking services etc. If you don’t have the expertise to engage on-demand alternate channels, get help from a freight forwarding agent. Find someone that’s been recommended and has experience dealing in products in your category. If your medical devices need special handling, be sure that your forwarding agent understands the specifications for transport.
Thinking ahead: Forecasting and risk mitigation: Although forecasting is difficult during these times, using advanced AI data analytics systems and real time data derived from a well-connected supply chain platform will enable not only forecasting but also steps to mitigate potential risks detected in the supply chain. Such platforms can also be used in conjunction with the your Quality Management System (QMS), that’s responsible for tracking and documenting various production steps as required by regulatory requirements such as the FDA under the ISO 13485 or EU IVDR etc.
Delivering high quality medical devices against all odds:
At this juncture medical device contract manufacturers have undergone a series of internal changes to handle never-before seen challenges in the market, the economy, and the entire supply chain. At Instrument Technology Inc. (ITI), we pride ourselves on our commitment to deliver high quality, with integrity, intensity, innovation and involvement! We’ve used the same expert-vetted recommendations that we’ve just discussed, in our processes to build superior supply chain resilience! This enables ITI to deliver on time, every time for our customers. ITI’s strong expertise in production and engineering of medical devices has brought numerous medical device concepts in to reality and delivered them to end users in record time.
