It’s a stark reality: The Amazon effect on consumer markets is rapidly trickling over into the operations of other legacy industries. More specifically, within the medical device industry, the rising delivery expectations of consumers has led to increased pressure for professionals to more actively manage their supply chains and deliver better experiences to their own customers. This effect is compelling both medical device manufacturers and logistics companies to quickly change their ways.
As a result, the industry’s supply chain — overwhelmed by more than 150,000 SKUs — needs to undergo a major makeover, or maybe even surgery. A Band-Aid just won’t do the job.
“The medical device supply chain must increasingly be managed like e-commerce supply chains,” an executive at logistics provider XPO Logistics told Global Trade Daily in 2016. “Much of what we provide our medical device customers involves supply chain optimization. A lot of that involves improving the flow of information.”
This shift has been triggered by how all of us now perceive delivery as consumers: We expect it to be efficient and on time. That — coupled with efforts to halt the decline of profit margins, reduce waste and lost inventory, and comply with increasingly rigid regulations — has brought about greater operational complexities than ever before.
Improving visibility is imperative but has historically been a costly endeavor
In 2013, logistics provider DSV declared that supply chain visibility was “the most important bottleneck” in optimizing the medical device supply chain. Four years later, that bottleneck still exists, and it’s more critical than ever to reduce or eliminate it, particularly as shipping expectations ramp up in the Amazon era.
As noted by medical device consultancy Emergo, the struggle to gain visibility into the medical device supply chain involves the teams working on QA/RA, production and product development, and those team members are striving to improve insights into qualification, selection and communication.
Boosting that visibility is a costly undertaking. In 2013, consulting giant McKinsey & Co. reported that the supply chain accounted for more than 40 percent of medical device costs, to the tune of $122 billion. It’s a certainty that those costs have escalated since then.
Complicating the march toward visibility are factors like rapid business growth, fluctuations in fuel and materials costs, troubles with inventory control and “rampant industry consolidation,” according to Josh Cannon, director of global healthcare strategy at UPS. All told, that’s a “prescription for chaos,” he says.
For years, medical device manufacturers and logistics providers paid little attention to supply chain visibility because their gross margins were pretty high, flirting with the 70 percent mark in some cases; the companies were more concerned with product quality, safety and innovation.
But now, end users such as hospitals are demanding improved efficiency and lower costs in the medical device supply chain, while insurers are seeking deeper discounts and federal regulators are stepping up oversight, according to a white paper from logistics provider Exel.
Supply chain visibility helps ensure timely, trouble-free delivery
For many professionals in the medical device supply chain, timely and trouble-free delivery traditionally has mattered more than cost. Timely shipments tend to matter most to the end customer, while trouble-free shipments matter most to the manufacturer and distributor, as operators in the supply chain face rigorous regulatory scrutiny from the U.S. Food and Drug Administration (FDA) and other agencies. That’s not to say, however, that the end customer doesn’t care about trouble-free delivery, since a shipment likely will be delayed if trouble arises.
“The medical device supply chain is a highly fragmented one. It is not uncommon for a medical device company to have small distribution points totaling 40 to 100 locations,” according to Barrett Distribution Centers, a logistics provider. “Trying to track down inventory that could be anywhere from a provider’s warehouse to the sales reps trunk is complex. As a result, the product visibility is lost.”
Barrett says better supply chain visibility — including the tracking of unique device identifiers (UDIs), the keeping of device history records (DHRs) and the monitoring of field stocking locations (FSLs) — will enable manufacturers to pool inventory farther upstream and at fewer sites. That, in turn, will trim expenses.
Visibility is key to reducing waste in medical device supply chains
As pointed out by Trident Consulting, a medical device often will expire or become obsolete while it’s in the supply chain. In some cases, Trident says, shipments to end users might exceed sales by 10 percent to 12 percent because of shrink.
“In practical terms, there are relatively few ways to drive financial accountability for losses to the surgeon or hospital system, because surgeons will dump the manufacturer in favor of another with looser terms and conditions,” Trident says. “Companies that manage shrink, inaccurate inventory, obsolescence and … wastes [related to expirations] down to near-zero will compete well in the new healthcare environment.”
Not acting to improve supply chain visibility is risky for manufacturers and shippers
The U.S. is the largest medical device market in the world, valued at an estimated $155 billion in 2017, according to SelectUSA, a federal job-creation program. In 2015, the U.S. represented about 43 percent of the global market for medical devices. More than 6,300 medical device companies operate in the U.S., SelectUSA says.
If the thousands of medical device makers and shippers in the U.S. ignore the dire need to incorporate visibility into their supply chain strategies, then they face severe risks, such as:
- Falling behind their leaner, more agile competitors, potentially resulting in the loss of customers.
- Ever-decreasing profit margins
- Additional, unnecessary scrutiny from the FDA and other regulators.
- Higher operational costs— a serious issue for an industry where costs already run into the billions of dollars.
The Future of Visibility in the Medical Device Industry
As medical device manufacturers and the logistics providers that serve them respond to the Amazon effect, it’s going to become imperative for them to invest in transportation visibility solutions. The future will include the need to identify carrier performance issues across product line and carriers, will necessitate mode-agnostic platforms, and will require detailed global tracking capabilities from international origin to final destination.
These changes will meet the rising demands of medical device customers and improve carrier accountability, while minimizing waste caused by expiring inventory or suboptimal transportation conditions.
Convey helps businesses improve visibility so that they can exceed customer expectations while also improving operational efficiency. Click here to learn more.