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4 Headwinds of the Supply Chain Apocalypse ... and How to Overcome Them

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FTI Consulting shares tips on how to overcome challenges in the medtech supply chain.

Labor challenges, raw material shortages, sterilization constraints, and security concerns are four major headwinds of the medtech supply chain heading into the new year, according to a November white paper from FTI Consulting Inc.

“During the COVID-19 pandemic, employees started working remotely and are now used to the benefit and flexibility that remote work offers,” Shannon Mills, MBA, a senior director in the company’s supply chain practice, told MD+DI.

Although there have been efforts to shift to a hybrid model or a return to exclusively on-site, many employers have embraced working only remotely to become competitive and improve the work-life balance.

“But the challenge with remote work for employers is to ensure employee productivity can be measured fairly and communicated well,” Mills said. “Employers must balance accountability with employee retention and satisfaction, which has been a steep learning curve in this new environment.”

To compensate for the lack of employee social interaction, “relational management” is needed, whereby management builds and maintains healthy employee relationships to achieve common goals and a shared vision.

Skilled machine labor will continue to be in short supply for the foreseeable future, largely due to an aging workforce and a dearth of workers under the age of 30. “Technicians that support the machines are in very short supply, thus causing increased downtime, development delays, and decreased process improvements,” Mills said.

For skilled labor, companies can partner with local trade schools and high schools to promote machining and the skills trade.

“Lights-out manufacturing, and automated solutions, such as robotics, tool-life management, and solid change-control process, will help; however, there is a need for good machinists and technicians,” Mills said.

For raw materials, many medtech suppliers rely on single-source suppliers, for which finding alternative sources is impossible or difficult, according to Rick Van der Vegte, a managing director in FTI’s supply chain practice.

“Single-source suppliers are frequently large international conglomerates that serve multiple other industries with commodity products,” he said. “The medical devices/medtech industry is just a small recipient of those materials, making it particularly hard for medtech manufacturers to receive the priority they deserve.”

Van der Vegte noted that supply agreements are frequently breached due to global instability of flows that are mainly caused by geopolitical unrest and trade wars. “If not considered and planned for adequately, patient supply is at risk for multiple product categories,” he said.

To alleviate the availability of raw materials, Van der Vegte recommends that medtech companies start with an internal review of key suppliers and who they in turn rely on. “It is beneficial to assess the risk level and begin finding alternatives to lower single-source risk or commodity risk,” he said. “The raw materials or suppliers that inevitability remain at high risk should be approached differently through collaboration across the value chain.”

Currently, each medtech manufacturer is trying to solve the multi-tier supply chain challenges in isolation, according to Van der Vegte. “Each is building safety stocks or securing updated supply agreements,” he said. “However, this leads to practices that do not favor the industry as a whole because the demand far exceeds the supply. Instead, high-risk medtech suppliers should have common incentives, rather than view the ability to supply as a competitive edge against competitors or industry peers.”

Governmental influence is increasing in the availability of raw materials, with the intent to continue providing patients with products at fair prices, “but more importantly create consistent patient access to products from a variety of manufacturers,” Van der Vegte said.

Meanwhile, the medical device industry should continue to remain aware of any potential disruptions that may cause delays and shortages in sterilized equipment.

“FDA is working with the industry to identify the feasibility of alternatives like vaporized hydrogen peroxide and nitrogen dioxide for scale-up as a replacement to ethylene oxide,” said lead white paper author Asim Nasir, a senior consultant in FTI’s life sciences practice. “As FDA engages with the current sterilization facilities using ethylene oxide to manage emissions, there is an emphasis on prioritizing innovation.”

Security systems are also at risk from ongoing threats of cyberattacks. “However, with proper preventative action and protocols, the industry can be proactive to avoid potential security disruptions or leaks,” Nasir said.

Mitigation strategies created by the National Security Agency (NSA) are proactive and preventative to lessen cybersecurity concerns. “For example, medical technology companies can establish protocols to update/upgrade software immediately, defend privileges and accounts, establish system recovery plans, leverage modern hardware security, look for potential network intrusions, and transition to multi-factor authentication,” Nasir said. “The industry can also take additional measures and set up systems to protect their companies.”

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