Shaking the supply chain25 November 2020
The successes and challenges faced by original equipment manufacturers amid the Covid-19 pandemic have been attributed almost equally to their reliance on contract manufacturers and their distance from them, so what really makes the difference? And how are different companies meeting the rapidly changing demands of a world trying to recover? Jack Sandahl, global sourcing fellow at Boston Scientific, offers his personal views on what sets the most effective manufacturing strategies apart in times of crisis.
Historically, medical device manufacturing has been sheltered from the extremes of economic cycles due to the nature of the customer base. Even in economic downturns people need medical care, so revenue is relatively sustainable – unlike many other industries that rely on consumer confidence and spending.
While the global Covid-19 pandemic has interrupted commercial supply chains around the world, the medical device industry has experienced unprecedented impacts in demand for products as hospitals shifted away from non-essential surgeries and elective procedures to focus on pandemic readiness.
As government officials in multiple countries started to declare emergency measures and hospitals placed restrictions on medical procedures, the demand curve fell very steeply for many medical products. At the same time, it went steeply upward for products such as ventilators and personal protection equipment. The imposition of global travel restrictions also affected the medical device industry by complicating supply networks. As international distribution frequently relies on commercial air flights, the lockdown period affected the ability to position product inventory in distribution centres and medical clinics.
A supply chain event that might be comparable to Covid-19 in terms of its impact was the terrorist attacks of 11 September 2001. In this case, all air traffic was immediately grounded, and the reduced ability to move materials and products through the supply chain had an immediate effect on factories and customers alike.
However, while the 9/11 attacks halted commerce, the impact only lasted for a relatively short amount of time, as ground and then air transport resumed within the next 10–12 days. While risk management and business continuity programmes address floods, earthquakes, hurricanes and even political turmoil, the impact of the pandemic across medical product supply chains resulted in levels of uncertainty that had never been seen before.
Over the longer term, this is further complicated by the fact the pandemic has been a much more gradual event, which will likely stretch into next year. In many ways this makes Covid-19 a more challenging situation than 9/11 for supply chains.
On the front end, the pandemic affects each country differently as governments assess the timing and scope of policies and procedures for public protection. With no one global entity setting the rules, the industry is left to assess and prepare for potential supply chain disruption based on the impact on each nation or market area. Large, multinational original equipment manufacturers (OEMs) with offices and manufacturing sites in many countries have an advantage in these situations, as they have more access to localised public policy and market intelligence. These large entities also contain global supply chain organisations to collect data and provide effective forecast and strategic response planning. Without those capabilities, smaller medical device companies are more likely to struggle to respond effectively.
That said, OEMs of all sizes have extensive product distribution networks, including global distribution centres and products stocked in hospitals ready for use. While medical device supply networks are lean and nimble, the dramatic shifts in demand and the uncertainty over recovery timelines require extensive and continuous consideration of the volatile demand environment.
In February and March 2020 supply chain analysts shifted into high gear to assess future demand, providing critical information for customer support and financial performance. This sort of forecasting is an inexact science even in more stable periods, and trying to predict near-term and longer-term demand during a pandemic means juggling many unknowns.
While accuracy is important, agility and flexibility in supply chain response is a key competitive advantage, as the outlook is constantly changing. In the coming years, advancements in artificial intelligence, machine learning and predictive analytics will continue to drive the industry towards improved responsiveness to demand changes. The trend is towards centralised collection, automated analysis and strategic reaction to demand trends on a global basis. The supply chain ‘control tower’, where more accurate and timely information can be used to make decisions, will be essential in supporting optimal customer service and financial performance.
During the first months of the pandemic, however, as demand – and demand forecasts – changed, the effects began to cascade down to the supplier network. First, medical device factories affected by changes in demand began to request adjustments in supply from the sourcing network. Solid supplier partnerships and timely communication of increases or decreases in demand are vital to managing these Covid-19-driven variations. An increased level of engagement and frequency in sharing forecasts is key to synchronising the material supply chains and production. A slow, inefficient response to changing supply chain forecasts will result in shortages or costly excess inventories, both of which affect performance. In addition, it is essential to request and track information from the supply base regarding business continuity plans, operational mitigations and financial health during the pandemic period. Significant disruption can occur in factories if labour or engineering support are affected, and companies that are not financially robust can introduce risk into the supply chain if no viable alternatives exist. Strategic partners should be open and provide operational information, and other channels also exist for assessing financial health.
Indeed, the globalisation of medical device manufacturing has greatly increased the significance of timely and efficient communication to minimise financial impact and optimise supply and performance. Just as managing the deceleration of supply chains as demand fell required responsiveness from all parties, effective collaboration will prove vital to accelerating the supply chain to meet demand during recovery.
In both cases, the broad impact and high level of uncertainty creates challenges. A solid customer-supplier relationship is essential, as it allows companies to share information about preparedness and partner on the best supply chain solutions. These relationships are built over the long term, and a crisis is not the best time to start.
Resilience against risks
Some may argue that the continued globalisation of medical device manufacturing has introduced risk into supply chains. In reality, medical device manufacturing has mirrored other industries in outsourcing non-core technologies to the best partners worldwide, enabling innovation, product development and value-based supply. With international manufacturing networks in place, a global supply base is essential to reduce risk, and to be near and responsive to market fluctuations and technology needs. While Covid-19 resulted in massive demand shifts, in the long term it does not fundamentally change the advantages manufacturers have with international operations and sourcing. Medical device manufacturing will continue to expand geographically to important markets where medical technology is needed, and continue to source both globally and locally based on robust, cost-effective sourcing strategies.
As with any case of supply chain disruption, the pandemic has resulted in common supply chain and manufacturing challenges, alongside other issues that are unique to medical product manufacturing and distribution. While there is no single function or tool that will reduce all supply chain risk or guarantee success, the best results will be achieved through fundamental analysis, execution and response to change. A sourcing strategy and process for selecting and partnering with suppliers is essential to managing responsiveness and risk to achieve the best value. An effective sourcing organisation will report to the highest executive levels of management.
Medical device manufacturers will continue to assess supply chains and partner with the best to achieve quality, cost and service goals. While medical device companies may strategically change product portfolios and make supply chain adjustments in response to Covid-19, the pandemic does not fundamentally change the direction or goals for development of global supply chains.
Social distancing for manufacturers in the UK
• You must maintain social distancing in the workplace wherever possible.
• Where the social distancing guidelines cannot be followed in full in relation to a particular activity, businesses should consider whether that activity can be redesigned to maintain a 2m distance or 1m with risk mitigations where 2m is not viable.
• Mitigating actions include:
– further increasing the frequency of hand washing and surface cleaning
– keeping the activity time involved as short as possible
– using screens or barriers to separate people from each other
– using back-to-back or side-to-side working (rather than face-to-face) wherever possible
– reducing the number of people each person has contact with by using fixed teams or partnering (so each person works with only a few others).
• Where the social distancing guidelines cannot be followed in full, even through redesigning a particular activity, businesses should consider whether that activity needs to continue for the business to operate and, if so, take all the mitigating actions possible to reduce the risk of transmission between staff.
• Social distancing applies to all parts of a business, not just the place where people spend most of their time, but also entrances and exits, break rooms, canteens and similar settings. These are often the most challenging areas to maintain social distancing and workers should be specifically reminded.
Source: UK government
While medical device OEMs might want to continue developing their global supply chains, there’s increasing political pressure to incorporate more domestic manufacturing capabilities. Covid-19 has led to high-profile shortages of a number of critical medical devices and, while many countries have attempted to ease shortages by leaning more heavily on imports, GlobalData has seen an increase in domestic manufacturing of many devices – particularly by non-specialist producers in sectors like the automotive and air transport industries.
Tina Deng, senior medical devices analyst at GlobalData, believes the “crucial reality” is that the demand for medical devices has proved to be much higher than what domestic manufacturers can deliver.
“From a risk-analysis perspective, relying on imports of essential medical devices is a serious threat to public health security,” says Deng. “GlobalData expects a noticeable trend towards moving from a dispersed supply chain back in favour of domestic production for key medical devices.
“Domestic manufacturing of essential medical devices can not only overcome trade barriers, but also ensure product quality and market stability.”
Too many ventilators?
Evidence that demand forecasting is an inexact discipline is currently spilling out of US federal warehouses. As of August 2020, manufacturers such as General Motors, Ford and Phillips were working with medical device OEMs and contract manufacturers like General Electric and Ventec Life Systems to produce around 100,000 ventilators, and there were close to 100,000 ventilators going unused in stockpiles across the country. States are even returning devices they no longer need.
That’s despite the fact that US case numbers continued to surge through the summer. But, as the standard of care changed from intubating patients to combining a number of non-invasive treatments, the projected ventilator demand fell from one-third of hospitalised patients in the spring (peaking at 20,000) to fewer than one-quarter by August (less than 10,000). Even so, the same Institute for Health Metrics and Evaluation projections suggest that approximately 30,000 ventilators will be needed to support US patients through the winter.
The excess wasn’t entirely accidental, as the US’s $3bn order was explicitly for twice as many ventilators as would have been required in the worst-case scenario, which didn’t account for states procuring their own ventilators or sharing any of the estimated 62,000 ventilators across their various hospital systems. As a result, the national stockpile, which stood at 10,000 in April, contained almost 100,000 in August, having distributed approximately 15,000. Whatever happens next, ventilator OEMs have a new risk to strategise around: a completely flooded market.