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Facing the Biggest Risks of the Pharma Device Supply Chain

If 2020 was the year of reckoning for medtech supply chains, 2021 will need to be the year of resilience. 

We recently delved into the vulnerabilities revealed in these supply chains, noting how a perfect storm created unprecedented pressure on firms to address resilience during and after recovery. The reality is that the strain on healthcare systems around the world will continue for some time, creating increased demand, changing inventory flow, and contributing to material shortages. 

Prioritizing supply chain resilience

In this rapidly evolving and highly disrupted market, a more integrated and strategic approach to the supply chain has become an imperative. As a December 2020 McKinsey report noted, the potential exists for other threats and shocks to the supply chain: It’s a matter of when, not if. In fact, research from the McKinsey Global Institute shows that shocks lasting more than two months occur every 3.7 years, and over a decade. These shocks can cost medtech companies nearly 40% of a year’s earnings.  

Clearly, prioritizing supply chain resilience also prioritizes business resilience. 

While applicable to medtech in general, this priority is especially important in the pharmaceutical industry. As innovation accelerates and competitive pressure increases, many companies are still embracing a reactive approach to their supply chains. They’re certainly in good company: in November 2020, 75% of medtech firm leaders reported that their supply chains are constantly in reactive mode. 

Pharma supply chain innovation

As the link between the lab and the patient, the supply chain is as important a target for innovation as devices themselves. According to a recent PwC report, this is a link that often underperforms in the pharmaceutical industry. Highly complex, these supply chains pass through many stages, touchpoints, and partners, often without tight integration. As a result, they are underutilized and inefficient, lagging behind the product and device innovation that is occurring. 

In its report, PwC predicts that these supply chains will transform in three ways over the next 10 years: 

• They will fragment as new modes and models are introduced for different product types and patient segments, and as healthcare delivery changes along with technology innovation.
• When built with resilience and purpose, they will serve as a point of differentiation—helping forward-thinking firms to gain an edge. 
• They will evolve with greater visibility and data to become a two-way information flow from lab to patient, rather than the one-way flow of traditional supply chains.

Medtech and pharma supply chain pressures

The pressures of 2020 affected supply chains in four main ways. In a recent article, we revealed these as risks of: 

• Demand surges, as suddenly increased need for products or components overwhelmed supply chains originally built for efficiency over resiliency
• Strained production capacity, as social distancing and other health and safety protocols limited throughput and staffing for labor-intensive manufacturing processes
• Shortages of raw materials or physical components, either from areas affected by the pandemic and its lockdowns, or for items suddenly in demand elsewhere
• Transportation and warehousing, as lockdowns affected the movement of goods from one place to another across the world

In addition to these risks, other forces are at work raising pressures on pharmaceutical device supply chains. These include: 

• Product innovation, as new product types and (sometimes) shorter product lifecycles introduce more complexity into manufacturing and distribution
• Changing healthcare delivery models, which expand distribution networks and accelerate the ongoing shift toward demand-driven supply chains
• Increasing regulatory and public scrutiny, which create challenges for ensuring compliance and managing risk 
• Increasing competition and market pressures, which affect the bottom line.

Five key challenges of the pharma device supply chain

Supply chain refinement is already a priority for device manufacturers. For many, though, these changes have been incremental, as in exploring dual sourcing or moving toward supplier consolidation. To meet the challenges of today and tomorrow, it’s time for a new approach to address the key challenges of supply chain resilience. These include: 

• Lack of coordination. Supply chains must be flexible and coordinated and, according to PwC, move away from the current model designed for peak sales volume and high volumes of raw material and finished goods. 

• Agility. As innovation blossoms, so must the approach to supply chains. Increasing complexity in manufacturing is likely to create greater complexity in distribution, which can ultimately drive up cost. OEMs must be strategic to focus on their core competencies of device design and marketing. They can seek to engage the innovation and agility necessary for delivery via outsourcing, as it may be cost-prohibitive to hire in-house. 

• Supply chain visibility. End-to-end visibility is becoming a greater concern. In November, nearly two-thirds of industry leaders noted that accurately predicting supply and forecasting demand had become very difficult. IT integration in medtech lags behind other industries, hampering the ability to translate demand effectively through the business. Here again, outsourcing can be the fastest route to a solution by introducing greater visibility into inventory and its movement through the field. 

• Lack of preparedness. Where will the next disruptive event come from? And when? The industry can prepare for the next challenges by moving away from supply chains built for efficiency and instead place a greater emphasis on resilience by examining criticality along two dimensions: criticality to the patient and criticality to the business. 

• Warehousing and distribution. The traditional approach to the device supply chain and distribution function can lock up working capital in raw materials, finished goods, and facilities. This can hamper the development of a more flexible approach, preventing an OEM from being able to scale with demand. 

Solving the supply chain challenge

The supply chain challenge may be an imperative, but it is extraordinary difficult for pharma device companies to solve alone. This is where outsourcing can provide access to expertise, a broad industry view, and the flexibility to advance innovation and foster growth. An expert outsourcing partner can help a device manufacturer manage the risks of planning, sourcing, making and delivering, as well as bring rigor to the process of identifying and evaluating supply chain risks. 

At Millstone, we understand the challenges. We believe that quality drives patient success and that the expertise of a trusted outsourcing partner can help at this critical time. That’s why we’ve perfected all the capabilities medical device manufacturers need to get to market. Today we offer post-manufacturing and aftermarket services to more than 50 customers, including some of the top 10 orthopedic companies in the world. We are constantly evolving our processes and services to help OEMs achieve sustainable success. We offer clean room packaging, medical device specific warehousing, finished goods distribution, loaner kit management, advanced inspection and reverse logistics services—all with an unparalleled focus on quality.

What could we help you do better? Learn more at https://millstonemedical.com.