Medical device supply chain challenges? Best practices to improve resilience

The medical device industry continues to experience challenges and pressures in managing its supply chain. OEMs, suppliers, and contract manufacturers are all impacted, whether it’s shortages of raw materials, product delays, stockouts and backorder issues, or excess inventory. Heightened competitiveness requires improving supply chain practices, at both the strategic and tactical levels, to address three key areas: gaining greater insight into inventory positions, optimizing your distribution footprint, and assessing supplier risk and concentration.

Gain greater insight into inventory positions

If your business struggles to meet demand, you may not have the right capacity and capabilities in place. Often this is due to a lack of cross-functional collaboration and the absence of a formalized S&OP (sales and operations planning) or SIOP (sales inventory and operations planning) process.

Best practice calls for a cross-functional SIOP team that works together to gain a broader view of product line sales forecasts and inventory needs over a 12- to 24-month window. Your finance, operations, supply chain, sales, marketing, and IT functions should have a seat at the SIOP table, with the process led by an executive-level team member. The focus should be on answering key questions, such as: What product launches are planned? What new capabilities and inventory are needed? Are there cyclical demand patterns to consider? Are there product lines with declining sales for which operations should scale back production? These are the types of questions your SIOP team will want to address.

Consider holding your SIOP meeting on a monthly basis. Establishing this cadence helps integrate it into the organization’s muscle memory. Remember that, according to the Association for Supply Chain Management, successful SIOP relies primarily on behavior (60%) and process (30%). Technology plays a smaller role than you might expect (around 10%). Inventory management solutions like MRP (material requirements planning) software can help manage tactical issues and planning for daily inventory requirements, but they don’t take into account larger capacity considerations: Do we have enough equipment? Do we have enough space? Can we staff an additional shift?  

Keep in mind that if your MRP solution isn’t set up properly and well maintained, it can provide misleading data and hinder your efforts. Variables such as supplier lead times and minimum inventory levels based on assumed or forecast orders need to be managed properly in the system.

A tactical approach to inventory positions and MRP

Confirm your MRP inputs are correct on a quarterly, if not monthly, basis. Supplier lead times, production lead times, customer demand, safety stock levels, reorder points, special customer or supplier considerations — you want to review all of these. Run data analytics on current inventory levels and ensure your minimum and maximum levels are based on actual usage and forecasts, rather than a spread. Day to day, these practices help ensure your system does what you intend it to do.

What are best practices for managing field inventory?

With significant inventory dollars typically invested in field stock, it’s critical for OEMs to know where that inventory is and when it’s being used. Poor visibility into the locations and use of your assets, uncertainty about where inventory ideally should be placed, and inconsistent consign versus loaner decision-making all contribute to underutilization, shrinkage, and missed cases.

Best practice demands a disciplined process supported by systems to monitor field inventory, validate use, accurately determine replenishment needs, and importantly, justify stock that’s out with distributors and customers. Yes, tech solutions help but not without a strong monitoring and planning process firmly in place.

Your monitoring process and support system should include:

• Calculating turn requirements to justify consigned inventory.
• Tracking consigned inventory turns.
• Establishing clear guidelines for distributors around keeping consigned inventory versus returning it to the warehouse and requesting a loaner. 
• Establishing clear guidelines for assigning consigned inventory.
• Maintaining systems and processes to enhance visibility into field inventory.

Communicate with your sales force and distribution base to define your needs and expectations for the inventory management aspect of field stock. To reinforce the importance, consider incorporating it into your compensation structure.

Reassess and optimize your distribution footprint

Is customer demand outpacing your current distribution footprint? Are you uncertain whether your current distribution network is properly positioned to minimize customer delivery time and expense? Are you faced with the need to consolidate your footprint, but unsure which locations are best-suited to support customer demand and optimize network costs?

Whether you’re weighing how to optimize facilities or reduce operations and inventory expense, consider the following best practices:

• Analyze historic customer deliveries against forecasted growth.
• Visualize your inbound and outbound logistics network to uncover inefficiencies and identify opportunities to optimize. 
• Identify optimal locations for warehouse and distribution centers.
• Determine what inventory should be stored where, and at what levels, to best serve customers and sales and distribution teams.

As you think about these best practices, keep your focus on balancing customer service expectations with internal customer service targets and your inventory strategy.

Assess supplier risk and concentration

Manufacturers and suppliers in the medical device space aren’t alone in their supply chain challenges. Increased supply chain complexity, longer lead times due to greater transit distances, production disruptions due to shipment delays, and a range of potential logistics, quality, and compliance issues are causing manufacturing organizations to try to shorten their supply networks — without increasing production and overall landed costs.

Many medical device companies are nearshoring, often to the United States and Mexico, to bring their supply chains closer to their operations and increase oversight and control. The decision to nearshore is complex, and no one-size-fits-all answer applies to all medical device manufacturers.

You’ll want to consider your nearshoring plans product by product, plant by plant, and examine the benefits and risks. What’s your organization’s appetite for risk? What are your customers’ needs and expectations? What other impacts might you see, such as tax or real estate benefits?

Best practices call for:

• Performing a cost-benefit analysis for nearshoring, such as the impact of higher labor costs versus lower logistics costs.
• Evaluating the complexity of each product against the manufacturing capabilities of your nearshore options and regulatory compliance requirements.
• Particularly for CMOs (contract manufacturing organizations), evaluating proximity to market and customer demand and requirements.

Once you make the decision, a detailed plan is critical to qualify and onboard near-shore suppliers, gain regulatory approval, and shift volume over time. Allow enough time to implement your plan.

Qualify additional suppliers

Relying on a single source, especially for critical materials or components, increases the risk of supply disruptions and can constrain your ability to scale up to meet demand if the supplier is at or near capacity.

Best practices include:

• Identifying critical single-sourced materials and components. 
• Reviewing critical suppliers and identifying candidates to be qualified as a second source.
• Developing guidelines for volume distribution between dual sources.
• Maintaining open communication and transparency with suppliers about your dual-sourcing requirements.

Without qualified backup and dual-source suppliers, an unexpected event may mean your business is suddenly facing an 18-month problem. With backup suppliers on board, you’re better positioned to meet demand spikes and weather disruption.

Benefits of a more resilient supply chain

It’s hard to overstate the benefits of a resilient supply chain that can adapt in the face of disruption. Improved inventory planning, optimizing your distribution footprint, and assessing your supply network are just a few factors that contribute to greater resilience. 

• Improved inventory-level accuracy means less excess stock to be written off, less capital tied up in slow moving product lines, and a lower risk of stockouts.
• The ability to proactively adjust forecasts enables faster reaction time to changes in sales volumes.
• Optimizing your distribution footprint can reduce logistics costs and help you properly place inventory for improved order fulfillment and customer satisfaction.
• Nearshoring can simplify your supply chain, lower logistics costs, improve monitoring and collaboration, and help ensure longer lead times don’t impact production. 
• Qualifying backup and dual-source suppliers can lower the risk of supply disruptions and quality and performance issues. You may gain greater negotiating leverage and improve your ability to scale quickly to meet demand.

Taking steps to improve the resiliency of your supply chain helps your organization consistently and efficiently meet customer demand. And as the medical device — and broader manufacturing — industry continue to face supply chain pressures and challenges in such a highly competitive environment, meeting customer demand is crucial to success.