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The Supply Chain Reckoning for the Med Device Industry – and What Comes Next

An unprecedented year is coming to a close.

Among many other things, it’s been the year of supply chain reckoning in the medtech industry.

The first warnings came in February as shutdowns in China created pressure on sourcing, and the disruption only accelerated from there. As it did, it brought to light supply chain vulnerabilities in this industry (as well as in many others).

Some have been temporary, as suppliers adjust to increased demand or emerged from shutdowns. Some relate to particular suppliers or materials that are currently in high demand during the pandemic, like resealable pouches, tubes and swabs used in COVID-19 testing kits. Other vulnerabilities have been revealed as significant and lasting—and as the industry looks to build greater supply chain resilience, these vulnerabilities will need to be addressed for business continuity and future agility.

In November, a new industry survey from Supplyframe found that nearly 75% of leaders at many med device companies in North America believe it will be a year or more before their supply chains fully recover from the effects of 2020. Many of the survey respondents indicated that the procurement function in their firms had tended to be reactive to supply chain challenges as they occurred, and not proactive in developing more supply chain resilience.

The supply chain risk is manifold: survey results identified the top risks as supply shortages, lack of alternatives, and delays in production or changes to lead time.

Change that compounded supply chain complexity

The med device supply chain has always been complex, but its underlying complexity has been compounded by the pressures of 2020, including:

• Demand for materials used in personal protective equipment and test kits currently needed for the public health crisis
• Difficulty in forecasting demand in a business environment that has changed more rapidly than ever before
• Capacity and labor restrictions that have arisen from necessary adjustments because of social distancing, contributing to longer lead times for materials and components
• Delays in moving goods by traditional means as a result of travel restrictions, quarantine guidelines and other changes to distribution

In addition, there have been temporary changes that have altered how inventory flows in and out of hospitals as a result of capacity and prioritization needs. One of the key changes has been, for example, that more orthopedic surgeries are taking place at outpatient facilities, day surgery centers, or ambulatory surgery centers (ASCs). Whether or not these types of changes remain after the public health crisis ends may determine what additional pressures and changes to inventory flow will influence the supply chain.

With nearly a year of perspective, there is a consensus emerging in the industry that a new approach to supply chain planning is necessary to build resilience, accelerate business recovery, and prepare for unforeseen future challenges.

A new approach to coordination and collaboration will help med device companies build more resiliency into their supply chains moving into early 2021. Given the still-unfolding present, let’s take a closer look at how OEMs can embrace this new approach now to prepare for 2021 as well as future disruption.

Reevaluate the supplier network strategy

Many supply chains in the med device industry are built upon a network of contract suppliers. When these contract suppliers are high quality, reliable and offer transparency, the supply chain can flow smoothly.

Not all suppliers are created equal, though, and many respondents to the Supplyframe survey echo what we at Millstone have emphasized before: industry expertise and high supplier qualifications are essential for improving supply chain resiliency. Put simply, build a trusted network of suppliers and maintain (and demand) transparency from yours. This sort of robust network can help OEMs more quickly adapt to changes in demand and availability.

Improve supply chain visibility

Strategic management and supply chain resilience are going to hinge on better visibility into the full supply chain. Real-time visibility creates transparency that can benefit every step of the supply chain, from inbound through assembly to finished goods, distribution, and ultimately the patient.

In a rapidly fluctuating business environment, accurate forecasting is more important than ever before. During and after this time, OEMs, their procurement teams, and their network of suppliers will need to understand forecasts and how to use them to make more informed decisions about their supply chains. This has been a challenge as many traditional inputs have changed and as new pressures on materials have popped up in sometimes unanticipated ways.

Refining forecasting accuracy and creating greater visibility will certainly be key in 2021 and beyond. So will transparency and communication with the network of suppliers and with OEMs’ customer bases.

Maximize inventory utilization

Building more supply chain resilience will take time. Many med device manufacturers are under serious pressure to recover revenue lost during the shutdowns of elective surgeries in March, April and May of 2020. Demand on inventory is high as OEMs and distributors stretch to cover cases.

Because lead times can be lengthy, especially for orthopedics, many OEMs are constrained in case coverage by access to instruments and sets for these procedures. Savvy OEMs are turning to new ways to maximize inventory utilization, including reverse logistics programs that can reclaim unutilized, sellable inventory from the field and redeploy it where demand is high. They are also turning to a more centralized model of inventory management that can provide more visibility and greater responsiveness.

As the med device industry moves in 2021, forward-thinking med device manufacturers are embracing an emerging new reality. Outsourcing with an expert partner can create synergy that drives better inventory visibility and control and builds better supply chain resilience during recovery.

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.