Blog

Managing Supply Chain Risk in Your COVID-19 Recovery

As the pandemic has unfolded over the last eight months, it has brought to light supply chain vulnerabilities across industries. Some have been temporary as suppliers adjust to increased demand. Others have more wide-ranging consequences as they create disruption or significantly lengthen lead times.

Of course, the type of product moving through the supply chain matters in risk management and recovery planning. For example, both canned corn and personal protective equipment (PPE) were in short supply in the early days of the pandemic. Only one of these two fulfills an urgent need in the public health crisis.

Analyzing supply chain risk

Understanding how the supply chain is affected during this time has been critical across all industries, and especially in medical device manufacturing. Broadly speaking, there have been four major types of supply chain risk affecting the movement of devices since March.

These include:

• Demand surges: Spikes in demand for certain products have strained supply chains built for efficiency over expediency.
• Production capacity: Social distancing and capacity considerations have the potential to decrease production for labor-intensive manufacturing processes.
• Shortages: Some raw materials and physical components have been in short supply, especially those sourced from India, China and other major players in the global supply chain. Shutdowns and lockdowns can affect availability—and are likely to continue to pose threats to supply chains.
• Transportation and storage: Transportation routes and warehousing can be affected by distribution capacity and labor shortages.

To add complexity, these supply chain threats can be fluid. Consider the shifting bottlenecks that can affect production and lead times if, for example, a physical component shortage is resolved but social distancing requirements still constrain production capacity.

Added pressure in COVID-19 recovery

In medical device manufacturing, there is an added layer of pressure on top of these supply chain risks: the revenue and case coverage consequences of shutdowns on elective surgeries in 2020. As OEMs seek to accelerate COVID-19 recovery in late 2020 and early 2021, now is the time to be strategic in evaluating new methods and processes for greater efficiency and risk management.

While risk management in the supply chain has always been essential, the scope of the 2020 disruption is on a scale of its own. Supply chain resiliency will need to be a broad, global focus, eventually touching export restrictions, transport methods, supply chains built for efficiency over resiliency, and much more.

Over the next six to twelve months, though, OEMs must focus on immediate supply chain risk management as well as on their firms’ recovery as they move into 2021. Here are four key considerations in supply chain risk management in the time of COVID-19 as well as a strategic solution to accelerate the shift to greater resiliency.

#1. Embrace an evolving inventory footprint.

As elective surgeries got underway again in June and later, there was some uncertainty in inventory flow in and out of hospitals. Lead pressure increased on critical items. As demand for devices and sets has increased, OEMs have struggled with inventory to support surgeries.

In 2021, inventory visibility is likely to become a more strategic consideration as forward-thinking OEMs and industry leaders embrace a more flexible inventory footprint and approach to reverse logistics. Centralized inventory management can be effective in reducing costs while boosting inventory visibility and managing a smaller footprint to drive higher ROI.  .

#2. Evaluate dual sourcing.

The pandemic revealed supply chain vulnerabilities resulting from global dependency on goods and components from China. Companies in sectors as different as retail, tech, and med device manufacturing have all been affected by shortages in China resulting from the pandemic. In an interview with The Atlantic, the Institute for Supply Chain Management’s CEO Tom Derry noted, “…there’s almost no industry sector—and when I say that, I mean manufacturing and nonmanufacturing—that isn’t reliant on China in the United States.”

To mitigate risk, OEMs should consider how to dual source components and raw materials. Evaluate and update any strategic sourcing plan to include potential procurement partners in other countries when and where possible.

#3. Advocate for and maintain transparent communication. 

In a highly complex supply chain, communication and coordination are paramount to success. During this time, OEMs must maintain open lines of communication with all inbound and subtier suppliers. This communication should guide how suppliers are planning resources and should keep all parties focused on the outlook ahead to avoid disruption or plan for alternatives when disruption does occur.

#4. Be more strategic in resource planning.

During and after COVID-19 recovery, OEMs will need to be increasingly strategic in managing relationships with subtier suppliers. Suppliers should always be carefully evaluated for expertise and reliability. Contract suppliers without specialty industry experience may not be able to effectively manage their own risk. When this is the case, OEMs introduce additional risk into their inbound supply chains.

In addition, the number of subtier suppliers in the inbound supply chain can elevate risk, as it becomes more difficult to manage variability, quality, communication, and assembly schedules.

Millstone’s Tier 1 service

Millstone’s Tier 1 services and capabilities can help OEMs manage supply chain risk during and after COVID-19 recovery. Tier 1 clients turn the role of supply chain management over to us, meaning Millstone:

• Sources and purchases components from highly regarded, industry-expert contract manufacturers
• Maintains communication and coordinates assembly schedules
• Handles inspection and assembly into finished goods
• Augments clients’ labor capacity
• Reduces multiple purchase orders to a single PO

Tier 1 contract services can help an OEM directly address the present risks in the supply chain, from sourcing to coordination to labor constraints, while cutting overhead costs and creating more cash flow via a single consolidated invoice.

At a time when supply chains across many industries are strained, OEMs must strike the right balance between risk and reward in accelerating COVID-19 recovery. With an expert outsourcing partner and a comprehensive service like Tier 1, OEMs can be positioned to emerge from this period stronger and with greater supply chain resiliency.

At Millstone, we get it. 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.