Is Supply Chain more important than technical innovation for medical device manufacturers in 2011?

At first glance, when considering the production of medical devices, the key driver should be innovation, at least in theory. The rose-tinted viewpoint that focusing on what can be created or improved upon that will improve lifespan or quality of life for the patient, improve the success rate for the surgeon or ease the strain for the clinicians and technicians is the cornerstone of the success of medical device industry is not necessarily the case anymore. Whilst this used to be the case, in the highly developed global medical industry many stakeholders are involved across the entire chain of patient care; Everything from medical device manufacturers to logistics solutions providers right through to healthcare and local authorities, regulatory bodies, insurance companies, care providers, hospital management teams, Primary Care Trusts... the list goes on, and we haven't even mentioned doctors, nurses or patients themselves! The framework in which patient care exists and that medical devices form a pillar of is infinitely more complex than it was 30 or 40 years ago, and so too medical device companies must also look beyond the obvious 'keep innovating' mantra to ensure long-term success, both in business and revenue terms and most importantly - in terms of delivering the best care to the patient.

Why is supply chain management so critical?

Until now, whilst the pharmaceutical industry has some of the most developed supply chains worldwide, operational excellence has not been high on the agenda for the medical device industry, and considering this is everything from the multi-million pound MRI machine right down to scalpels and syringes, this inevitably effects all medical staff and institutions right to the core. Through effective supply chain management massive benefits can be seen for all parties, on all fronts. Let's look at why this is the case in a little more detail:

Economics - Budget cuts - Rising Costs (commodities, regulation, inflation)

As a global economy, we are in the midst of the worst financial crisis for generations. Whilst some countries are starting to recover, many are still haemorrhaging money they do not possess, leaving little opportunity for investment and healthcare expenditure. However, as a general trend, population numbers tend to be inversely proportional to GDP - This means less money for more patients. With less money to spend, governments are forced to opt for 'good enough' solutions for patient care. It is a rare occurrence for a new medical innovation to reduce cost, despite gains for the patient, especially when first brought to market while the investment costs are being recouped. On that basis, paying for new treatments, therapies and equipments is increasingly becoming a luxury, not a right. Luxury items of course sell in fewer numbers, which in turn spirals costs virtually uncontrollably upwards, whilst simultaneously brings in reduced revenue as a result of diminished volume. Not only are we faced with an industry with slashed budgets, but with the rising cost of commodities and ever-increasing regulations to be satisfied (and paid for) the expense of innovation is becoming ever-more out-of-line with available funds. By investing in improved supply chain management you are investing in products already available, striving to reduce costs for products that will fit that 'good enough' category, that sell in larger volumes, which can drastically improve profit margins on products that require little additional investment, bring more affordable healthcare to the patient, whilst increasing overall revenue for the supplier.

Deliverability, Speed and Robustness

It's not only the current economic climate that is impacting industry - it's the current physical and political climates too! At the time of writing 2011 has yet to reach the halfway mark, yet has already seen several crises across the globe - from the tsunami in Japan to the uprisings in Libya and many other parts of the Middle East, two of the main centres for the technology industry (development/manufacturing and petrochemicals respectively) are in a state of extreme stress. 1

By definition this stress has been transferred into the supply chain across virtually every industry, across the globe. Through smart supply chain management, robust plans with competitive procurement strategies and fallback plans can be put into place to account for these issues. Again, driving cost down and causing minimal disruption, which keeps clients happy and, more critically, more patients alive.

Regulation and Legal Intervention

Of course regulation is necessary and important, but equally they are often accused of overstepping the boundaries of patient care and are put in place to avoid legal ramifications. It is an unfortunate side-effect of the internet and the modern legal system that patients regularly try to self-diagnose, resulting in many frivolous - but expensive - lawsuits. These cases are all the more likely to succeed with new-to-market medical devices and are more likely to occur with an ineffective supply chain resulting in a lack of the appropriate equipment. Moreover, a 'good enough' device will have a much longer-term, more robust track record, making it much less likely for any challenges against the equipment to succeed.

What so the healthcare providers want?

According to the Healthcare & Life Sciences Supply Chain Stud, 2010 by eyefortransport, clinics, hospitals and healthcare providers highlight 'Extreme pressure on cost controls' as the primary challenge to the supply of medical devices.
Biggest Supply Chain Challenges

35%

30%

25%

20%

15%

10%

5%

0%
Extreme pressure on cost controls Inadequate forecasting Physician preference (hospitals, clinics etc) Suppliers Poor visibility Poor ordering Warehouse Inventory Distribution Waste unwilling to throughout systems or management management management management change supply chain protocols and disposal operations to In-house product storage

Equally important was inadequate forecasting, and to a lesser degree suppliers unwilling to change operations to match priorities, poor visibility and poor ordering systems were also cited as key issues.

Do better business - Give them what they want!

To tackle these issues is to satisfy, even delight, the customer - the healthcare providers. By taking an agile approach to supply chain, by investing in better tracking systems, routes to market, ordering systems and 2

by focusing on what is already available in your catalogues costs can be reduced, profit margins increased, provision of orders can be faster and more robust and, in turn, more sales are made and more patients are cared for. It may not have the same wide-eyed-child excitement of bleeding edge technological development, but with a core foundation in place, then the funding required for modern medical device innovation will be there, with the space required to make it bigger and more successful than ever.

If you are looking to boost your medical device supply chain performance through increased transparency, competitive differentiation and end to end collaboration, find out more about LogiMed 2011. LogiMed will take place in Germany on 18th - 20th October - visit www.LogiMedEurope.com, email LogiMed@wbr.co.uk or call +44 (0) 20 7368 9465 for more information.