In today’s medical device industry, device manufacturers are facing a changing landscape characterized by global competition, shortened product life cycles, reduced lead times, and an increasingly crowded playing field. With the addition of new regulatory requirements and healthcare reforms worldwide, the current business environment presents many challenges to device makers.

The economic downturn, in which raw material producers downsized capacity and slowed output, created gaps in material availability for medical device manufacturers. Then, as a recovering economy generated greater demand, FDA standards grew increasingly stringent, creating pressure to control quality reinforcement down through the entire supply chain. Increasingly rigorous quality standards met reduced production capacity, testing the industry’s resourcefulness. Going forward, new approaches will be required to build relationships with suppliers who share the priorities of the medical device industry and possess the capabilities to ensure timely delivery with no adverse effects. 

The Problem of Purchasing Controls

Recent purchasing control issues afflicted a number of industries and affected consumers: these include lead-contaminated paint on toys, melamine contamination of milk, and titanium-alloy segregation in medical devices. Thousands of adverse events and recalls of massive proportions resulted. Ensuing investigations revealed that insufficient supplier controls were a significant factor in a number of the incidents.

The supply chain stands to receive unprecedented scrutiny in today’s medical device industry. For FDA, supplier controls represent a top quality hot topic. Specifically, raw materials are increasingly a cause for concern. More than one-third of all 2010 production and process controls (P&PC) subsystem warning letter cites are associated with regulation of material purchasing controls and acceptance activities (Sections 820.50 and 820.80). FDA continues to add dozens of new field inspectors and contracts with yet more inspectors to increase the agency’s capacity to review purchasing controls and acceptance activities, as well as other quality system matters. The medical device industry cannot afford to pay less attention to quality topics than FDA.

Recent history has generated considerable concern about the effectiveness of controls through the layers of suppliers to the device industry. Kimberly Trautman (medical device quality systems and GMP expert, Office of Compliance, CDRH, FDA) suggests that the industry should consider when, not if, additional events will occur. FDA’s position is that device manufacturers must be accountable for the identification and mitigation of risk in all tiers of their supply chains. FDA has acknowledged that, as the medical device industry continues to grow worldwide, the agency’s oversight ability has become strained despite added resources. FDA inspections and authority often extend only to the finished device manufacturer, yet manufacturing of materials, critical components, and entire devices are often outsourced; increasingly such outsourcing goes overseas. In response to these realities, FDA puts its efforts into controlling the entities over which it has jurisdiction: the finished device manufacturer. In turn, FDA demands that device manufacturers ensure selection of “only those suppliers, contractors, and consultants who have the capability to provide quality products and services.¹ The finished device manufacturer is ultimately the party legally responsible for compliance with the quality system regulation and for assuring the safety and effectiveness of the finished device, a point once again emphasized in an August, 2011 FDA Supplier Quality Management Congress presentation by Trautman.   

Caveat Emptor

Working within the comprehensive parameters set by FDA, the medical device industry needs to manage its supply chain with unprecedented vigilance. Device manufacturers must take responsibility for the condition and quality of items purchased. It is imperative to identify and mitigate risks in the supply chain. Purchase decisions for devices, raw materials, and services must be made with consideration to risk-based principles. Poor purchasing decisions lead to circumstances where companies will not meet regulatory or quality requirements, and will be subject to damage to their reputation and potential litigation.

The industry has witnessed a series of costly and dangerous failures resulting from the dilution of device manufacturer standards down the supply chain. The buyer of materials must indeed beware of superficial quality measures and undocumented changes.

An approach that emphasizes prevention represents a viable solution. By investing in supplier relationships premised on stringent purchasing controls, the device manufacturer considerably diminishes the likelihood of a hugely expensive failure and recall with liability. The 1:10:100 rule holds that a dollar spent on prevention of a quality problem forestalls the expenditure of $10 on correction or $100 to rectify a failure.

Purchasing controls can take many directions in the effort to achieve greater stringency. One promising approach: focus energy on building partnerships with suppliers with the demonstrated capability to provide acceptable product.

Strategic Change

In Japan and Germany, single sourcing is common and relationships can be decades long; suppliers are considered an extension of the customer company’s operation. American firms have historically not taken this approach. American device manufacturers generally work with approved supplier lists that have grown large, and, consequently, difficult to manage.

In the past, device manufacturers commonly worked with multiple suppliers for the same material to minimize the possibility of a supply shortage or to bring down material price through competition. Today, short-term cost savings are used to justify the multiple-supplier, purchase-order-to-purchase-order method. Such near-term savings, however, come with a high potential price: failures that can literally put a device manufacturer out of business.

In dealing with suppliers, it is critical that a device manufacturer know how the supplier’s systems have evolved in response to medical device industry needs. Additionally, procedures used to determine acceptability of suppliers must be unambiguous, according to Trautman. The ASL should itemize specific products and processes for which the supplier is approved, not just the name of the company. A supplier that has been approved for one product or process, should never be assumed to be approved for everything.

For many device manufacturers, the solution may well lie in developing truly collaborative partnerships rather than merely buying commodities. This orientation focuses on long-term thinking and minimizing of risk. Such engagement gives the device manufacturer the ability to actually drive changes at the supplier. The notion of partnership delivers benefits to the supplier as well, with the device manufacturer able to understand how its processes impact the supplier and adjust its expectations and approaches accordingly. Both businesses can perform better and achieve greater success as a result of this dialogue.

An Evolving Relationship

This real-world example explores the genesis and evolution of a device manufacturer’s partnership with a raw material supplier. The device manufacturer is a small- to medium-sized establishment that produces implants and instruments for the orthopedic and spine markets. The company’s customers include several major orthopedic device OEMs; the company also markets its own line of spine devices. The company both manufactures and procures devices, is ISO 13485 certified and FDA registered, and has been in the industry for almost two decades.

In recent years, the device manufacturer concluded that it possessed minimal leverage in applying controls to melt sources. More than 95% of a typical melt source’s business is outside the medical industry; the melt sources have little incentive to change. Furthermore, device manufacturer did not buy directly from the melt sources and lacked direct access and contact. These concerns coincided with multiple adverse events involving material purchasing and affecting companies across the device and pharmaceutical industries and their supply chains. The company decided to take proactive steps to improve controls over the raw materials that are critical to meeting product quality requirements.

In the first quarter of 2009, the device manufacturer faced a situation in which it was coming close to materials shortages resulting from issues with its main supplier. The company felt the time was right to begin conducting business with a new raw materials source. The foundation was laid for a highly engaged business relationship, a partnership, with the new supplier.

The device manufacturer revised specifications to require melt source and melt process validation, independent test lab verification, and an approved supplier list of melt sources. Every raw material lot was subject to certificate verification through an inspection plan. The new supplier stated that they could fulfill all the new requirements, and additionally offered to have the material pretested by a major OEM-approved lab. This meant the device manufacturer could end its practice of cutting and sending out test samples from their received material, a process that had delayed stocking of the material for two weeks.

The device manufacturer challenged the new supplier to “bullet-proof” material controls to prevent mixing or sending incorrect material. In response, the supplier developed a unique statistical process control system tailored to the device industry. Statistical process control can be employed as a validation activity that helps deliver understanding of the magnitude of change. In this instance, customized IT and MRP system controls automate error proofing of certification, verification of mechanicals and chemistry, restrictions, and more. Custom software that uses control plans can include detailed requirements for various “inputs,” for example, inspection plans and test results. The computer logic passes or fails each step of product realization. When certain criteria are met, security is triggered to escalate the issue to appropriate personnel in the organization. In the supply chain, particularly important considerations would include restrictions and exceptions. A “No China Titanium” restriction offers one example. In another example, information could be input to specify a supplier’s qualification only for heat-treating and not for sterilization. When the system controls all this information, only data that meet established criteria will automatically flow through. The automation minimizes the need for manual intervention and accompanying human error.

This system controls what is supplied and where it is sourced, literally stopping the process if the wrong combination is entered, constituting what is essentially an approved supplier list imbedded in the supplier’s IT system. Any requirement for an outside lab test is included in the customer profile. The program also has a function that requires entry of actual material test results if any specification requirement is unmet; the material is locked down and cannot be shipped without overriding the system. As of late 2011, the supplier’s custom quality management IT system has “patent pending” status with the U.S. Patent and Trademark Office.

Additionally, advanced product quality planning (APQP), a process successfully employed in other industries including automotive and aerospace, was incorporated into the partners’ business process. Cross-functional teams mapped the administrative process step by step, developed a failure mode effects analysis (FMEA) ranking scheme, and employed several other quality tools. Upon completion of the extensive analysis, the supplier revised and developed improved work instructions and forms. This partnership proved to be innovative by applying quality controls to the administrative function.

These and other shared initiatives strengthened a partnership that should continue to generate mutual benefits. The companies identified business several factors that contributed to the success of the endeavor. Both firms entered into the partnership with full management support. Both organizational cultures valued teamwork and cooperation. Both parties committed to short- and long-term goals and structured contractual agreements and business processes accordingly. The partner companies recognized and worked toward their common best interest.

A Collaborative Approach Holds Value

A long-term relationship with a trusted partner minimizes total cost. Both partners can increase their competitiveness. For the supplier, guaranteed business fosters the creation of long-term plans for growth and resource requirements. Device manufacturers benefit from greater speed to market as vendor-managed inventory (VMI) reduces lead times. Both parties save time and money as administrative costs decrease and shipments are consolidated. Most importantly, device manufacturers benefit from reduced risk when medical-grade material is a core competency of the supplier.

In the example partnership, the device manufacturer had selected a material supplier whose interests and systems align with the medical device industry and with the FDA expectations by which the industry must abide. The supplier partner had invested in the development of stringent processes and tools to address the specialized needs of device manufacturers. The partnership achieved greater levels of control, ensured timely delivery, and maximized regulatory compliance. In the longer term, these supply chain management approaches help support the FDA mandate for TPLC accountability and establish a process for efficient product development, increasing the speed of bringing successful products to market while managing risk.

Peter Johns is the supplier quality assurance manager at Pioneer Surgical (Marquette, MI). Bob Khin is the quality assurance director at Banner Medical (Carol Stream, IL).

Reference

[1] Preamble to the 1996 QS Regulation, Comment #106

Image from iStockphoto

More on this Topic

Interested in learning more best practices for supplier-OEM relationship optimization? Join the producers of MD+DI at a Supplier Quality Assurance and Purchasing Controls conference. Go to www.mddi-suppliercontrols.com.