5 Strategies for Managing Medical Product Supply Chain Uncertainty

As we enter the second half of 2022, supply chain disruptions, unforeseen delays, and severe shortages continue to make it difficult to fulfill orders for even those medical products with the most predictable demand.
 
At the same time, medical device manufacturers face weak revenue growth of just 3.2% between 2021 and 2026, according to the IBISWorld report, “Medical Device Manufacturing in the US,” putting greater pressure on manufacturers to reduce per-unit costs while increasing margins. Compounding these challenges are information gaps across supply chains that are costing manufacturers lost time, productivity, margin erosion, price reductions, and missed shipment dates.
 
If one thing is clear in this era of uncertainty, it is that traditional demand-driven supply chain management, which delivered solid results in a predictable supply chain world, can no longer keep pace. Instead, medical device companies and contract manufacturers need to adopt adaptive supply chain practices that deliver strong track and traceability while enabling greater agility, speed and scale in response to unpredictable supply chain constraints.
 
At the heart of an adaptive strategy is the use of real-time data to get a true 360-degree view of what is going on across supplier networks. The more accurate and reliable the data, the more it can serve as a shock absorber to the inevitable allocations, delays, and price increases.
 
Following are five data-driven strategies, which provide a framework that medical device companies and contract manufacturers can use to quickly identify and act on supply chain gaps before they cost valuable time, reduce margin, and delay delivery dates.

1. Create an Index of Supply Chain Metrics

If not already in place, the first step is to create an index of supply chain metrics that help quantify and track interdependencies across the supply chain. This enables medical device manufacturers to make more informed end-to-end supply chain trade-offs.
 
It is important to select only those metrics that communicate gaps and how fast they are growing. While metrics can be established manually, the most effective indexes are those relying on track-and-traceability applications that can pull information from the same database shared by the enterprise resource planning (ERP), manufacturing execution system (MES), supply chain management (SCM), and pricing software, since they provide a comprehensive and cohesive view of the business. 

2. Embed Metrics in Supply Chain Processes

Once the metrics have been defined, the next step is to embed them into the organization’s supply chain processes to gain a more multidimensional level of visibility.
 
Medical product manufacturers can leverage their ERP system and a combination of track-and-trace and supply chain integration to embed metrics multiple layers deep into a supply chain and gain greater visibility and control. By embedding metrics in processes, organizations gain the insights into how they can avoid or mitigate potential bottlenecks, including allocations and stock-outs, and gain early warnings of issues within the supply chain that could lead to potential recalls.

3. Apply Advanced Supply Chain Concepts to Understand Why Gaps Occur

Quickly turning data into real-time insights, intelligence, and collaboration helps close costly supply chain gaps. However, the best possible supply chain technique will vary for a given business strategy.
 
Three advanced data-driven supply chain approaches that manufacturers will want to evaluate for their business, if they have not done so already, are vendor managed inventory (VMI), collaborative planning forecasting and replenishment (CPFR), and sales and operations planning (S&OP). 

4. Measure the Gap Between Supply Chain Performance and Demand-Driven Forecasts

Often medical device companies and contract manufacturers will find that their forecasting processes need to be modified to consider how different supply chains are operating today. Demand forecast accuracy (DFA) is one of the core metrics often used to measure the gap between actual supply chain performance and demand-driven forecasts. Using DFA, organizations can more accurately identify and explain what is needed to absorb supply chain shocks better.

5. Assess Supply Chain Decisions Using Uncertainty Metrics Instead of Accuracy Metrics

Inventories for many components and materials are running low across medical device manufacturing supply chains today, so it is critical to understand which suppliers will be the most likely to deliver. Uncertainty metrics measure the risk of a given supplier failing to deliver on schedule, having an incomplete shipment, or delaying or canceling materials deliveries.
 
Many medical product manufacturers use historical data to track past performance, often relying on moving average and projection-based models. Metrics to apply against this data should measure the probability of execution, such as available-to-promise (ATP) and capable-to-promise, enable manufacturers to see which suppliers are meeting commitments regularly.
 
Absorbing supply chain shocks needs to start with a medical device company or contract manufacturer anticipating how the unique risks to their products can be identified and acted on before those risks grow into roadblocks.
 
The five strategies outlined here are being applied by manufacturers of medical devices and components today to gain insights via real-time data into how best to anticipate and respond to supply chain shocks in order to deliver customers’ orders on time—while ensuring quality and maintaining margins.
 

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Louis Columbus is currently serving as principal of DELMIAWorks. Previous positions include product management at Ingram Cloud, product marketing at iBASEt, Plex Systems, senior analyst at AMR Research (now Gartner), marketing and business development at Cincom Systems, Ingram Micro, a SaaS start-up and at hardware companies. He’s also a member of the Enterprise Irregulars.