In most industries, not having a product in stock means losing a sale, losing revenue, possibly upsetting a customer, or receiving a bad review on social media. For medical device manufacturers, not having the right device in the right place at the right time – an out-of-stock situation – can put patients at risk. For this reason, manufacturers of medical devices try at all costs to avoid stockouts. To prevent this from happening, manufacturers have created complex distribution and supply chain models that ensure the right device is delivered on time to the right hospital or healthcare provider. However, as has been evident over the past two years of disruption, even a well-designed supply chain model can fail and stock-outs will indeed occur. Is it possible to really plan for every variable that can go wrong? What strategies have been tested during the pandemic? What are some of the new ideas that have emerged?
Multi-Procurement and Proximity Providers
A strategy that has been successfully leveraged over the years by many supply chain leaders is dual sourcing or multi-sourcing. When a problem occurs, modifying a product component to include a pre-approved backup vendor can help ensure business continuity and delivery of the device to the patient who needs it. However, revalidating and certifying multiple raw material or component suppliers to support existing product and process specifications requires time and resources. In turn, this must be considered early in the design process, given the complex quality testing, verification, and seeking one or more regulatory approvals.
Additionally, finding new sources after a stock-out or shortage can help meet short-term demand, but will require additional budget to cover expedited shipping costs, unless these backup vendors are available. premises in the market you serve. In this case, using onshore partners or outsourcing suppliers closest to customers can help ensure delivery and availability of critical components, on time and on budget.
Develop relationships with suppliers
Supply chain managers who build strategic relationships and maintain open and frequent communication with their suppliers and partners seem to handle supply chain disruptions better than others. Conversely, manufacturers who share production requirements and changes in demand on an ongoing or periodic basis allow all parties to plan better and adapt to changes more quickly. A global life sciences company has categorized its suppliers into 3 levels: strategic, core, and everything else in between. Maintaining relationships with all your suppliers is important, however, in this case, prioritizing the time, type of information and frequency of interaction with the different levels of suppliers has proven beneficial for them.
In another case, a diagnostics manufacturer was able to create a strategic relationship with a major supplier long before the pandemic hit. Then, when the shortage occurred, they assisted the supplier in sourcing the required stock from a subcontractor with the aim of storing two years of stock in anticipation of the increased demand for test kits. Again, everyone benefited. Leveraging this long-term relationship has allowed the provider to stay in business and in good standing with investors.
Digital demand planning and forecasting
Similar to supplier relationship management, managing customer relationships and understanding when demands will change can improve production planning and delivery of essential life-saving products. Today, many medical device companies take advantage of short-term demand forecasting in ERP and schedule production in 30, 60, and 90 day increments. While these just-in-time (JIT) inventory planning efforts have proven effective in the past, today these strategies fall short of anticipating disruptions and optimizing supply chains for greater success. agility, resilience and efficiency. Going forward, the goal is to extend the forecasting timeline even further to a 6-9-12 month horizon and build a solid plan around multiple scenarios – optimistic, realistic, pessimistic – based on multiple factors known and unknown. Leveraging digital demand forecasting solutions allows businesses to build a plan around multiple factors allowing them to quickly adapt their strategy and pivot the business to keep products coming out. This means that when the business encounters a small hurdle, it is able to continue operations with minimal disruption.
Managing the risk of stockouts and supply chain capacity is not an exact science. However, new strategies have emerged that help manufacturers focus on what matters most, where potential shortcomings may occur, and measure the impact of failures and the results that emerge as a result of those failures. In other words, you shouldn’t plan workarounds for every situation, but you should develop workarounds and fallback strategies for the areas that pose the highest risk to the business.
An example is that of semiconductors. In the past, medical device manufacturers did not stock a large inventory of chips. According to a 2019 AdvaMed survey conducted by Deloitte, 13% of respondents said they had no stock of chips at all. However, in a recent survey conducted earlier this year, more than 70% of respondents said they had recently increased their semiconductor inventory levels.
Deliver on production promises
Whatever approach your company chooses, the common thread that leads to the success of all these strategies is maintaining the openness of information and the collaboration of actors throughout the supply chain, the manufacturer and suppliers to customers and partners. Days of operational silos are not only costly for the business, but also taxing on operations and hindering the ability to deliver products to patients. Providing insight and awareness of delays before they occur can help the organization adapt, make course corrections, and take advantage of alternative strategies. It’s not a question of if, but when a problem arises with a supplier. Will your team be ready to react quickly and execute the alternative strategy? More importantly, can you drive the business forward and deliver on your promise to the customer?
About the Author
Jennifer Petrosky has 20 years of experience in the life sciences and enterprise software industries. She joined QAD in October 2020, as Director, Global Life Sciences Marketing. Jennifer earned her BS in Chemical Engineering from the Georgia Institute of Technology and her MBA from the McColl School of Business at Queens University in Charlotte, North Carolina.