In 2021, the size of the global medical devices market was pegged at around $450 billion USD (Precedence Research, Fortune Business Insights) and is forecasted to grow to $700 billion within the next five to six years. With a market sector of this size, where failure to ship finished products on time could impact someone’s well-being or interfere with a health care provider’s ability to make an accurate diagnosis, a seamless supply chain operation is essential for building a robust supply chain.
External factors such as shortages or defects in electrical, mechanical and technology components, technology failures and cyberattacks are well-known supply chain realities that have been addressed. Not surprisingly, supply chain professionals recognize how these issues contribute to kinks in the supply chain and have been able to garner the resources of time, money and personnel to minimize their occurrence.
Internal supply chain factors such as better demand planning, change management, seamless communications, and good quality control, however, are not well addressed. In fact, the inability to recognize them as an issue might explain why finger pointing and the blame game tend to be the usual responses when dealing with internal supply chain issues. Yet these factors are essential to the business and should be at the heart of building and implementing an efficient and effective supply chain. Accomplishing this goal would require a thorough assessment of internal processes and operations of all departments and stakeholders (including suppliers) involved with the supply chain of an organization.
Weak links in the internal supply chain
Weak links in the internal supply chain come from a variety of sources, most often from ineffective planning and management. Consider these examples:
- Lack of employee training: In addition to formal training, it is important for employers to offer training and education in logistics, project management, strategic planning, lean management, inventory control, procurement, and continuous improvement.
- Poor communication and a silo mentality: With so many moving parts in supply chain operations, a comprehensive process for sharing information is critical. But it’s not just communicating information that is important, a cultural shift that ensures all involved are working as a team to achieve a common goal is essential too.
- Inadequate purchasing practices: It’s not as simple as placing orders. Weak links occur when companies don’t engage in sound planning, forecasting, sourcing, and cost negotiations including creativity in terms and conditions.
Improving internal supply chain operations
Organizations are challenged to improve their supply chain operations as quickly as possible in today’s post pandemic world. To meet that challenge, supply chain managers should consider these important steps:
- Improve forecasting. Without sales orders in hand, forecasting is a tenuous game. Supply chains tend fall into the bullwhip effect, where small fluctuations in demand at the retail level can lead to larger impacts at the wholesale, manufacturing and raw material supplier levels. “Demand planners” can align with sales team to develop Make to Order and Make to Stock strategies. Perform SKU (Stock keeping Unit) level forecasts and capacity analysis to ensure enough raw materials from suppliers are planned well ahead. It’s incumbent upon supply chain operations team members to work together to align supplies, personnel and timelines before making promises to customers.
- Implement Agile manufacturing. A commitment to a rapid and flexible response to customers is essential. With the exception of the captive shop, medical device and parts suppliers have other customers vying for time on production lines. Adopting an Agile Manufacturing methodology in which teams respond to changes as they occur instead of adhering to an inflexible plan will lead to on-time manufacturing and order fulfillment.
- Increase frequency and quality of communications. How is the demand forecast communicated internally and externally (with suppliers)? Are e-mail chains adequate or should software programs be well integrated so that affected parties can review purchase trends and RFQs to determine whether orders should be increased sooner rather than later? Good communication practices with suppliers leads to trustworthy relationships and their timely support. The Sales and Operation Planning (S&OP) process brings together the key players to look ahead a month, year or even longer to review and revise sales plans and develop right strategy for production and delivery. S&OP helps strengthen lines of communication and the supply chain team should take full advantage of it.
- Put the right internal team in place. Supply chain teams are comprised of individuals from many disciplines including data analysts, production, compliance, manufacturing, quality control and engineering. Together, they need to be meticulous when it comes to sourcing, production and distribution management. Supply chain managers should also look for developing superior “soft skills” when it comes to collaborating with customers, suppliers or even within various internal functions. Those skills include constant learning, active listening, learn on the fly, managing change and networking extensively with all the stakeholders (scmdojo.com).
- Make best use of data available: Healthcare supply chains are highly transactional. Data lies everywhere from order intake, planning, sourcing manufacturing to final delivery. A good data analysis can lead to the right insights and meaningful actions. For example, through extensive research, the forecasting team can deliver the most accurate picture of the customer demands and then advise the manufacturing team on the production floor of that demand and the promised due dates. Manufacturing can then react well to this data in terms of capacity and raw materials planning. The same goes for the quality control team and the compliance team, which regularly monitors various production and customer feedback data as per FDA QSR (Quality System Regulation).
Don’t overlook the Issue to Resolution (I2R) mechanism
Once all the basics are in place, it is easier to detect and resolve a supply chain issue by employing Issue to Resolution (I2R) methodology. An I2R mechanism has three components: First is early detection of supply chain problem; second, is defining a process for developing a solution; third is implementing the solution into action. Internal processes can include, but are not limited to, systematic analysis of issues related to product or process improvements, documenting the issue-to-resolution process and communicating lessons learned. In addition, issue resolution is highly dependent on having the right team in place and an empowerment from the top to perform quick resolutions to issues.
One example might be parts arriving late from an overseas supplier on a consistent basis. The root of the problem may be insufficient lead times, perhaps the parts supplier is having issues sourcing raw materials, maybe there is labor shortage. Adjusting purchase order release dates, helping to find new raw material sources or offloading some assembly work to another site, at least temporarily, can help solve the problem.
Rethink supply chain design
The COVID pandemic and the resulting supply shortages unmasked internal process deficiencies. They include oversights in planning and forecasting operations, leading to slower response time and the eventual worst-case scenario: the COVID supply chain shutdown and resulting business closure. Onshoring or “reshoring” to the U.S. to help ensure a steady electronic supply pipeline may be a lesson learned that merits consideration despite any political or economic drawbacks.
Managing a global supply chain is more complex when not sourcing solely from U.S. partners with time zone, language issues and lead time lags adding to the mix. There will be challenges that are harder to overcome and sometimes beyond a company’s control, like overseas factory shutdowns due to a pandemic outbreak or container ships anchored for weeks off the coast waiting for their turn to be unloaded.
Lean inventories and adhering to a just-in-time manufacturing methodology may work for other industries, but the opposite tends to be true with the medical device industry. This is evident from PPE, testing kits and the ventilators shortage during the onset and peak period of the COVID-19 pandemic.
Today, it’s important to rethink supply chain design considering product demand trends, supplier lead times, manufacturing/workforce capacities and geo-political risks.
Embrace changes with proper quality control
The medical device supply chain is complex and often inflexible to changes. Currently, when the world is facing material shortages and part delays, supply chain teams should embrace for changes. They should quickly react to “Change Requests” from their suppliers such as use of alternate materials. These changes should be quickly and thoroughly reviewed by R&D and Quality teams before implementing production. Ensure that FDA mandated good manufacturing practices are always followed while implementing such changes, but that should not be roadblock for finding creative and innovative solutions for handling supply chain issues.
Set benchmarks for internal supply chain operations
The experience of other businesses, including competitors, can serve as a valuable benchmark. What are other successful companies in the same business sector doing to stay ahead of any supply chain interruptions? What is their record for shipping orders on time or ordering from supply chain partners? Are there the same lags or does there appear to be a smoother operation in place? Set benchmarks after comparing results from other companies in similar product sectors but be certain to avoid an apples and oranges analysis that can jeopardize the accuracy of your business intelligence.
Once identified, set Key Performance Indicators (KPI) for supply chain operations and tweak when necessary. Implement leading and lagging indicators to KPIs to monitor and control at right time.
Additionally, learning from other industries and experts, medical device Supply chain professionals can stay ahead of the curve. Firms that maintained sufficient “safety stock,” vs. relying on just-in-time inventory practices, and companies that were able to hold on to their workforces (as wage hikes put pressure on them) have done a better job of dealing with current supply chain issues says Joel Sutherland, a professor of supply chain management at the University of San Diego (Forbes). Tesla gets a nod for its more vertical integration model than other automakers, allowing the electric car producer to pivot more quickly for example when it came to semiconductor chip sourcing. That also reduces dependency on outside sourcing.
The supply chain turmoil caused by the pandemic exposed many internal supply chain weaknesses in terms of people, process and systems. C-level executives need to give the right attention to it, and this is best time for supply chain managers to take a fresh look at their internal supply chain operations. Take steps to understand and acknowledge issues and take actions to build a robust supply chain.
About the Author:
Sanjay Gupta has over two decades of experience in global supply chain management. Currently, he is VP of Integrated Supply Chain at Imbed Biosciences, Inc. He also held various supply chain leadership roles at Accuray Inc, Philips Medical Systems and Maersk Line. Gupta earned a Master of Engineering in Supply Chain Management degree from Massachusetts Institute of Technology, Boston MA. For further information, contact [email protected]