How healthy and optimized is your healthcare supply chain?
Today, the medical device industry’s rapid pace of change and supply chain challenges are at an all-time high. In fact, never before has the industry faced such significant pressures, which are both directly and indirectly impacting medical device supply chains.
Three key challenges facing the industry:
1. U.S. FDA Final Rule for the Unique Device Identification (UDI) System
In September 2013, the FDA announced a final rule regarding UDI to track all medical devices in the healthcare supply chain. The goal of the rule is to improve patient safety and the quality of information in the supply chain.
As a result, by September 2020, all Class I, II, and III medical devices must have a UDI. The extent of effort required to prepare medical device supply chain systems and processes cannot be underestimated.
2. 2.3% Medical Device Tax under the Affordable Care Act of 2014
To help subsidize insurance under the new law, a new 2.3 percent tax, which was effective at the start of 2013, is being assessed on every medical device sold. As a result, medical device manufacturers are looking to supply chain managers to help them offset the costs of the new tax.
3. More Intense FDA Scrutiny and Audits
The once-rapid cadence of new product introductions common in the 1990s and early 2000s has slowed markedly. More intensive FDA scrutiny has increased the costs of bringing new products to market. As a result, medical device manufacturers are more selective about the products they’re commercializing.
In addition, the FDA recently released enforcement data on trends in its inspections of medical device manufacturing plants from 2010-2012. The data reveals a sharp increase in violations: the number of warning letters rose 84% in three years.*
These challenges, together with the pressures of managing complex supply chains would stress even the highest-performing supply chain. However, as a group, medical device supply chains are characteristically fragmented. Many manufacturers struggle with moving inventory through their supply chains in a timely fashion, holding months to well over a year of field-based inventory. The result? Costly inventory expirations and write-downs, lost revenues and customer service issues that squeeze profit margins.
Weak links like these in medical device supply chains cost billions every year. Experts estimate that supply chain costs account for more than 40 percent of medical device costs. The good news? Given the scale of spending – an estimated $122 billion per year – even small improvements can free up funds to invest in other areas of the business.
Six steps to an optimized medical device supply chain
If you’re a medical device supply chain executive looking to eliminate costs and waste -while delivering products intact to ensure the best possible patient outcomes – you can take steps now to improve supply chain agility, inventory accuracy and cost control.
The secret? Treat your supply chain as a strategic asset, align it with your business strategy and optimize it to deliver more patient value and enable smarter decisions. Whether you’re looking to make small, incremental improvements or re-engineer your entire supply chain, consider these six steps to an optimized medical device supply chain.
1. Understand and comply with government and FDA regulations
Do your packaging, transportation and distribution systems meet all requirements for safely moving products through the supply chain? Make sure you understand and comply with:
- FDA regulations 21 CFR 820 and CFR Part 11 for electronic records
- FDA’s Final Rule on UDI
- Good Manufacturing Practices (CGMP) measures to ensure product integrity, from manufacture to warehousing and transport
- C-TPAT certification to ensure supply chain security
- International industry standards: ISO9001, ISO13485 (Medical Device Quality Management System), IEC 61215 and IEC 61646
Protecting the condition and integrity of products may mean tightly managing product packaging, controlling access to critical components, implementing processes to ensure sanitation, monitoring temperature/climate conditions while goods are in transit and heightening security for cross-border activities. Consider partnering with a third-party logistics provider experienced in handling, tracking, storing and transporting sensitive medical products.
2. Streamline to reduce costs and drive efficiency
In most cases, there medical device supply chains can always be simplified. Look for ways to improve efficiency, from sourcing, production and fulfillment to product postponement, packaging and reverse logistics. Implement systems to:
- Process and ship orders more efficiently
- Manage and report on performance
- Align with network requirements
- Optimize for cost and service
- Centralize shipment planning and execution
- Redesign/re-engineer your network using network optimization/planning tools
- Track products and events using visibility tools to comply with UDI
- Co-locate packaging and warehousing or use shared warehouses to cut costs
- Implement continuous improvement initiatives to accelerate quality
- Develop and implement systems to improve inventory accuracy
3. Flex to meet changing transportation and distribution requirements
Do you have systems in place to warehouse, fulfill and deliver orders across distribution, retail, end-user and primary care channels? If not, consider taking action so that you can meet changing transportation and distribution requirements.
For example, explore ways to:
- Make sure your warehouses are compliant, secure and able to distribute components and products where they’re needed
- Make provisions for products that require temperature or climate controls
- Integrate transportation modes to ensure you have the capacity you need to get products to their destinations. This could mean combining common carriers, a dedicated fleet and/or a private fleet.
4. Establish platforms and tools that provide much-needed visibility
Do you have the visibility you need to align inventory levels with supply and demand and stay on top of delivery status? Control Tower tools can provide end-to-end visibility across geographies and supply chain partners, making it easier to centralize demand data, track medical devices and maintain records/history.
5. Infuse your operation with Lean guiding principles and practices
Leverage Lean guiding principles and practices to optimize quality, eliminate waste, and adapt to changes in demand and manufacturing and distribution schedules. Consider cross-training your workforce so that you can allocate employees strategically to adapt to schedule and demand changes. Consider making Lean principles and practices part of the fabric of your organization.
6. Team up with a logistics partner to simplify supply chain operations
Whether you’re managing surgical instruments, test kits or large diagnostic devices, medical devices are increasingly complex. As a result, every aspect of logistics is more challenging. Consider working with a partner that can support these operations, along with configuration, assembly and postponement. When you look for a partner, choose one that’s willing to work collaboratively and share supply chain expertise and best practices with your organization.
These six steps can help you lower total delivered cost, get supply chain partners in sync, distribute products across multiple channels, and deliver a better experience for all customers and patients.
Could you benefit by optimizing your medical device supply chain? To find out how you can eliminate waste, simplify packaging, warehousing and distribution and get the visibility you need to track product status through every link in your supply chain, download the Inbound Logistics article on Controlling the Costs in the Healthcare Supply Chain now.
Written by Bennett Ortiz, Sr. Director of Healthcare, Ryder Supply Chain Solutions
Bennett Ortiz is Director of Healthcare Ryder System, Inc., a Fortune 500 global transportation and supply chain management solutions company. He is responsible for Ryder’s Healthcare vertical with a focus to deliver supply chain solutions for IDN’s, Medical Device. and Medical Equipment & Supply companies to meet their unique needs. Mr. Ortiz has spent over a decade in the medical device industry in large part innovating and delivering unique supply chain solutions to improve inventory management, SIOP, and logistics.
*http://www.fda.gov/downloads/AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/CDRH/CDRHTransparency/UCM395850.pdf
