The COVID-19 pandemic exposed vulnerabilities in the medical device supply chain, from lack of end-to-end visibility to an inability to shift when a supplier can’t meet a critical need, delaying production.
But while inefficiencies were laid bare for many in 2020, unexpected disruptions come in many forms, including transportation failures, natural disasters, cybersecurity breaches and product recalls. These disruptions can hit medical device companies hard. Within a 10-year period, supply and demand disruption can cost manufacturers up to 38% of one year’s earnings, McKinsey found in a 2020 study.
The rise of just-in-time supply chains and pursuit of greater operational efficiencies have increased susceptibility to these risks. Product reliability and quality suffer as a result.
To build a resilient supply chain, medical device manufacturers should embrace four key characteristics: agility, visibility, cost optimization and productivity.
Medical device manufacturers need to be able to move quickly when conditions change. And conditions changed very quickly in 2020, often from week to week and even day to day. Using real-time production and resource planning for inventory, people and equipment is one way manufacturers can deliver products on time, even in uncertain markets.
From planning to delivery, siloed operations must become a thing of the past. This will ensure greater business continuity. Manufacturers need to protect against unexpected supplier disruptions, such as key suppliers failing or logistic shutdowns preventing shipments. This means building redundancy into their network to keep production lines running. They need a fast but effective supplier qualification process to develop alternative sources and integrate domestic manufacturing options.
Manufacturers should also invest in becoming connected factories, making their manufacturing process more agile and adaptable by integrating new technologies such as AI, Internet of Things (IoT) and mixed reality to improve Overall Equipment Effectiveness.
Visibility – or lack thereof – has contributed greatly to medical device manufacturers’ vulnerabilities during the pandemic, especially in the early months. The inability to see the supply chain from end to end, forecast lead times, evaluate capacity and understand exposure to risk put manufacturers in a difficult if not impossible position in terms of planning production and aligning teams.
Manufacturers need real-time inventory visibility to optimize resources, fulfillment and production planning. They need to be able to adjust labor capacity and logistics in real time based on cross-channel inventory levels, raw material availability and other critical requirements to meet customer expectations. Manufacturers also need to de-prioritize historical data and instead leverage AI and other technology to project a clear view forward with visibility up and down the supply chain.
Efficiency that doesn’t compromise quality is key to medical device manufacturers’ ability to navigate change. They need to embrace technology that reduces downtime of business-critical assets, improves OEE and maximizes equipment lifecycle.
They also need to right-size inventory levels based on customer demand and capacity constraints to prevent both overstocking and stockouts. And with the increased demand for customization in the medical device industry, such inventory optimization is even more critical. In many cases, variations must be produced and stocked to meet demand, which is hard to forecast without sophisticated analysis and forecasting tools.
Manufacturers can also reduce fulfillment costs with technology that helps them optimize order routing and transportation planning, and conduct real-time freight monitoring.
People are critical to building a resilient supply chain. Boston Consulting Group outlines key roles – demand and supply planners, line schedulers, capacity planners and procurement managers – that demand the right data and tools to respond quickly to a supply chain shock.
Beyond those with a direct hand in planning, supplier management and procurement, manufacturers need the right people on the right projects for optimum performance. But with social distancing requirements, sick workers at home and a rise in remote work, manufacturers have a responsibility to better utilize their workforce, improve safety and reduce errors to drive productivity.
The right tools can:
- Improve decision-making with a single source of truth
- Break down siloes to drive collaboration and improve productivity
- Optimize HR programs, while reducing costs
Where to start
Gartner found that 70% of the Top 25 companies in the world for supply chain excellence have set up center-of-excellence teams for supply planning, procurement and logistics, and 90% have made significant investments in planning and visibility solutions.
With an eye on how it will affect patients, as well as the business’s health, medical device manufacturers should start with an evaluation of risks, including:
- Supplier health, reliability and diversity
- Distribution networks
- Production processes
- and more
They must invest in data that helps them look forward, invest in a business continuity plan in case of crisis, and vet and identify alternative suppliers as part of contingency plans. And they must pursue technology that helps them develop the four key characteristics discussed: agility, end-to-end visibility, cost optimization and employee productivity.
McKinsey found that building a resilient supply chain can have a sustainable financial impact, including:
- An increase in productivity by 20% to 40%
- A reduction in raw materials, finished goods and work in progress inventory by 10% to 30%
- A decrease in lead time by 20%
- Improved Overall Equipment Effectiveness (OEE) by up to 30%
It’s not just about the pandemic. It’s about being ready for future shocks, small or large, which, as we’ve learned in 2020, can come when we least expect them.