Overcoming Supply Chain Disruptions and Market Challenges During Covid-19

Since COVID-19, unprecedented supply chain disruptions have affected medical device development and manufacturing along with nearly every industry that relies on complex network of logistics to design, develop and produce products for end-users.
 
The medical device industry, which uses a vast array of suppliers, distributors and manufacturers in its supply chain operations that produce parts, components and products for surgeons and patients, has been especially challenged over the last 18 months.
 
The pandemic has impacted the industry in several ways. It caused many hospitals and healthcare facilities to reduce or curtail elective procedures as a way to minimize potential exposure to coronavirus among healthcare workers and patients. Some hospitals and healthcare facilities were unwilling to acquire excess inventory, hold onto product inventories or stockpile supplies in anticipation of future needs. As a result, with fewer elective procedures being performed, demand for single-use surgical instruments and other devices used primarily for the elective market dramatically decreased.
 
Despite the availability of COVID-19 vaccines, outbreaks have continued to stymie efforts to resume elective surgeries for patients, and supply chain disruptions continue to domino. In certain geographies, hospitals were filled to capacity with critically ill patients. Many patients themselves have delayed routine medical care since COVID, even in places where outbreaks are relatively low.
 
As elective surgeries begin to return to near normal levels, a sudden increase in demand for product has left manufacturers struggling to meet the demand as the market rebounds. Many steel mills shut down during the pandemic, resulting in shortages of raw materials and supply bottlenecks. The resulting backlogs impact everyone along the supply chain. They are likely to resolve in time, most likely sometime in 2022, leading to more stabilization in the market, but normalization will happen gradually.
 
In addition, contract manufacturing organizations (CMOs) have seen many suppliers raising prices on materials in high demand. Customers may resist CMOs passing those costs along, putting CMOs in a difficult position. Cost pressures are impacting the entire supply chain end to end, negatively impacting revenue and growth margins.
CMOs need to stay ahead of the market and manage supply backlogs and material shortages for their OEM customers. Three key considerations can help CMOS effectively address supply chain disruptions and challenges:
 

• Communicate frequently. Transparency and consistent communication go a long way in managing customer expectations around production delays and missed timelines. There will be inevitable supply shortages and price increases for materials as the market experiences fluctuations that continue to strain the supply chain. As CMOs, it’s our role to keep the customer apprised of the factors that are having an impact. It’s even more critical if market forces or supply backlogs will potentially impact timelines and lead times. Contractors need to make sure their customers are aware of these factors that can impact delivery and profit margins.
• Collaboration and communication go hand-in-hand. In the current climate, you simply cannot overcommunicate with customers, especially when there are cost challenges, material shortages, shipping delays or other disruptions. Those must be addressed head-on; don’t be reluctant to have the difficult conversations. Our customers have been very understanding and willing to work with us when we explain a situation, offer solutions and involve them in the process and decision-making.
• Plan ahead. As CMOs, it’s important to work with our original equipment manufacturer (OEM) customers to understand what projects are on the horizon so we can assess and evaluate the needs as early as possible. Planning as far in advance as possible can help manage backlogs and material shortages. Try to get a handle on material needs in particular, as this continues to be a key factor driving supply chain delays. Contractors that put systems in place early on to mitigate risk for their workforce are also less likely to experience labor shortage impacts from the pandemic. The pandemic also showed us the value in cross training personnel to perform essential roles in the event of a future pandemic. Scenario and crisis planning can go a long way in preparing for a threat such as COVID.
• Design for supply chain. Given the market, it’s prudent to work with OEM customers to consider alternative materials or engineering processes in anticipation of shortages, backlogs or delays. The reality today is we do need to optimize the supply chain. We have to be more agile and flexible—can we move production temporarily to a location that won’t be as affected by supply chain disruptions, or switch to alternative material sources or engineering processes to work more efficiently during this critical time period?

 
Despite the current climate’s challenges, many CMOs are investing in capabilities and expanding operations to support their OEM customers who want supply chain consolidation. OEMs increasingly want to do business with contract manufacturers who have capacity to move quickly to scale production and streamline services that will simplify the supply chain while meeting customer needs in an evolving market.
 
In April 2021 our company announced plans to expand our full-service medical contract manufacturing operations in Costa Rica. We expect to open the new manufacturing facility later this year with operations beginning in early 2022. Our 32,000 square foot facility will have a clean room assembly facility within the manufacturing center, allowing us to better respond to our customers’ needs with cost-effective, full-service contract solutions for complex medical assemblies. 
 
Full-service suppliers who can support product and process development, component manufacturing and assembly are likely to have a competitive edge, especially in light of supply chain vulnerabilities.
 
Contract manufacturers who can expand their global footprint will also be in a position to better serve customers and remain cost competitive as a full-service preferred contract partner.
 

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Steve Santoro is executive vice president of MICRO, a full-service contract manufacturer of precision medical devices, injection/insert/metal injection molding, fabricated tube assemblies, sub-assemblies, and complete devices located in Somerset, NJ.