Even before the pandemic set in, the healthcare supply chain was notoriously complex and fragmented, in a way that created billions of dollars of waste each year. A study from 2015 found that the high cost of supplies (driven in large part by supply chain issues) was the second-biggest expense for healthcare providers.
The situation hasn't improved since. A 2021 study by Gartner found that thanks to disruptions driven by everything from manufacturer consolidation to climate events, achieving cost efficiency in the healthcare supply chain continues to be an outsized challenge. All of this adds to the total cost to serve — which already averages a whopping 37.3% of the cost of patient care.
We know that a lean, just-in-time approach to inventory results in greater agility and efficiency for manufacturers in general, with much less waste and duplication of effort. But that standard can be easier to achieve in some industries than others. And for medical device manufacturers, it's been a particularly elusive goal.
Fragmentation, Poor Visibility and Complicated Logistics
The challenges that are especially acute for medical device manufacturers make up a daunting list.
First there are the erratic and hard-to-predict surges in demand that have become a recurring phenomenon over the past couple of years — spikes and shortages that have affected other sectors but have undeniably placed medical device manufacturers among the hardest-hit.
Another part of the problem is that medical device manufacturing companies may have dozens of small distribution points — making it especially difficult to maintain visibility of products as they move through the chain.
Having the right devices in the operating room, emergency department and sometimes even the primary-care office can be a matter of life and death. And yet it's difficult to accurately forecast what might be needed. Surgeons in many cases can't know for sure what specific parts or supplies they might require until surgery is already under way, so they wind up needing to cover all the bases by ordering multiple sizes for items like replacement knee implants to make sure they'll have the right size on hand. Unused devices then must go through many steps, including decontamination and inspection, before they can be returned to the supply chain.
At the same time, much of the medical device sector has been forced to focus on last-minute, next-day deliveries to stay competitive with current customer expectations. This drives costs even higher and creates unsustainable expectations for the long term.
Medical device manufacturers also must contend with delays and setbacks related to the regulatory approval process. And product recall management — the reverse supply chain — is another very real challenge. Medical devices may be subject to recalls due to safety or quality issues, which may be voluntary or in some cases imposed by the FDA. Handling the reverse logistics involved can be especially burdensome given the fragmented nature of the supply chain.
The Cybersecurity Challenge in the Medical Device Supply Chain
Trying to keep larger stockpiles of components to weather supply chain disruptions has created its own new set of headaches. Instead of relying on one or two known and trusted suppliers, manufacturers wind up adding extra vendors for hardware and software to have more and faster sources of inventory.
All of this creates potential downsides in terms of cybersecurity. As manufacturers expand the number of vendors they do business with, their vulnerability to cyberthreats increases.
Although U.S. companies are required by FDA standards to monitor suppliers for software vulnerabilities, in practice this can be easier said than done, because the source code isn't always easy to access — so there's a danger of flaws in the code going undiscovered.
In this case, there's no substitute for extensive vetting: New suppliers need to have their technology scrutinized and validated from a security perspective before they're brought onboard.
How Collaboration Can Lower Costs and Boost Quality
Fortunately, the right technology combined with forward-thinking ideas can go a long way toward surmounting many of these problems.
One promising approach to addressing cost-to-serve issues is by increasing the amount of collaboration between the various partners within the supply chain for medical devices — including manufacturers, third-party logistics providers and customers. Medical device manufacturers often have a shared base of customers that they're shipping to — with a lot of ultimately wasteful duplication of supply chain assets and resources.
The good news is that manufacturers can reduce these redundancies by creating collaborative, shared solutions — such as using the same logistics service provider or locating a shared warehouse close to the hospitals that the manufacturers serve. Thinking in terms of a shared logistics hub, for example, would mean that instead of half a dozen drivers making the exact same delivery run, a single delivery vehicle might be able to handle it in one trip.
This shared-services approach has already yielded cost savings and other benefits for the pharmaceutical products sector. And it could help rebalance the playing field so that medical device manufacturers can make their products the focus of competition, rather than battling for a razor-thin advantage in delivery.
This is just one example of many innovative ideas manufacturers are embracing to adapt to changing conditions. Underlying it all is better technology. Dynamics 365 Supply Chain Management allows collaboration via customer and vendor portals. And now in preview, Microsoft Supply Chain Insights is designed to facilitate greater transparency and this kind of collaboration, by allowing partners to share real-time data and reporting.
Making Progress with Circular Thinking
One solution to the problem of recall management is to think in terms of circular economy, aka circularity — proactively creating flows to accept end-of-life products for recycling, refurbishment and/or reuse. The value of this is so apparent that a 2022 report from Gartner found fully 51 percent of supply chain professionals expecting to see greater emphasis on the circular economy in the future.
Embracing circularity not only helps meet sustainability goals — it moves you toward having the operational processes for successful reverse supply chain management already in place, so you can handle recalls more efficiently as they arise.
To realize this, you need a modern supply chain management platform like Microsoft Dynamics 365, which gives you the functionality to model and adapt product flows while drawing on the insights of cloud-based data and analytics.
Look to the Cloud
Microsoft has several tools that improve supply chain resiliency, optimizing planning and providing greater supplier and inventory visibility. By connecting internal, partner and market data, you can achieve a unified view that makes it easier to predict customer demand and deliver products on time more consistently. Microsoft's industry-based cloud offerings, like Cloud for Manufacturing, are also great options for accessing digital solutions to challenges like these.
A 2021 McKinsey survey reported that successful early adopters of AI-enabled supply-chain management systems were able to reduce logistics costs by 15%, while improving inventory levels by 35% and service levels by 65% — in comparison with competitors who were slower to embrace these innovations.
With that in mind, one source of help on the horizon is Supply Chain Insights. Microsoft Supply Chain Insights integrates with and pulls data from existing tools, drawing on the power of Azure AI and machine learning to deliver predictive insights and analysis. The result is end-to-end supply chain visibility — including greater awareness of supplier performance, which can prevent workflow disruptions with greater understanding of which vendors are most reliable.
And speaking of more informed decisions: With Supply Chain Insights you can deploy the power of digital twins to help anticipate problems before they arise. Create a model of your supply chain to help you visualize different scenarios and risks, ranging from extreme weather to geopolitical events and more. The payoffs can be substantial: a better understanding of what's possible prepares you to be more agile if the unexpected does occur.
Want to learn more about how Microsoft tools can help you create a more resilient supply chain? Reach out to Columbus today.