How the Right Logistics and Repair Vendor Can Drive Supply Chain Value

Over 80 percent of medical device companies in the United States have fewer than 50 employees, and the majority of those people are innovators and entrepreneurs, not logisticians or technicians. Once a new product hits the market, the manufacturers and distributors must comply with a plethora of detailed regulations.

Compliance and supply chain management requires experience and specialized knowledge, so many companies turn to professional supply chain management companies for help with logistics, service, and compliance. Preferred medical service supply chain partners enable medical device businesses to scale and expand into new areas since they have the logistics capabilities, infrastructure, and team in place to support the growth of new product lines.

100 Percent Quality and Reliability 100 Percent of the Time
Two industries vulnerable to bad publicity, lawsuits, and government intervention are food suppliers and medical supply companies. That makes sense: food contamination and medical mistakes can cost lives. Supply chain and quality problems also affect investor and consumer confidence.

Consider Chipotle’s supply chain problems in 2015. The U.S. Food & Drug Administration (FDA) investigated a series of e. coli outbreaks linked to the restaurant chain. Chipotle restaurants in 11 states were affected and 43 locations closed temporarily. The stock market and customers punished the company with falling share prices and a steep decline in same-store sales in 2016.

Medical device manufacturers face similar challenges. In 2017, the FDA recalled 465,000 pacemakers after the firmware was found to be vulnerable to hackers. A number of other factors also prompted recalls, according to Stericycle ExpertSolutions’ Q4 2017 Recall Index:

• 25.7% – Software issue
• 23.7% – Mislabeling issue
• 16.4% – Quality issue
• 7.2% – Manufacturing defect

Logistics Partners Help Manage the Important Three-Legged Stool
Any medical third-party logistics partner (3PL) must have the physical and data infrastructure in place to achieve 100 percent quality in all processes and work. This requires close coordination between the three major departments involved—operations, quality, and engineering. They must work together as a unit, and a vendor with experienced staffers in these departments can add value and drive quality and innovation.

If you take away even one leg of this stool, it collapses.

1. Operations: Quality and reliability are the keys to success in medical applications. A “small” 0.025 percent failure rate can cost lives, so there is no room for error. The entire team must be committed to 100 percent accuracy in parts selection, quantity, and assembly, and be empowered to speak up.

“If you see something, say something” is the operative phrase. Select a logistics partner who has a staff dedicated to the account and encourages them to identify problems and suggest solutions without fear of repercussion.

2. Quality: Quality control staffers verify every instance of the product throughout the process. They have to verify and certify the product before it moves to the next stage. Like operations personnel, the quality staff should be alert to potential problems, no matter how small.

For instance, an unbundled group of cables shipped together in a box could be a hazard if they become tangled. An end-user in a hurry might tug too hard on an individual cable and accidentally damage it. This seemingly small issue could cause big problems if that cable fails during a medical procedure. It’s something that experienced quality technicians would notice, flag as a problem, and work with operations to correct.

3. Engineering: During configuration, logistics partner engineers have a primary responsibility for testing the devices’ material and work construction. Generally, when working with medical devices, a 3PL partner won’t have the specific expertise to develop engineering processes. Instead, the company will follow guidelines provided by the medical device company or contract manufacturing partner.

Logistics partner engineers look for ways to improve processes and share their suggestions with the company. When there’s a problem, engineers of both companies often collaborate to identify the root cause of failures. It’s critical that a 3PL partner’s engineering staff be both highly experienced and accessible at all times.

Partners in Traceability and Problem Solving
Traceability is increasingly important in the healthcare sector because the FDA has put a spotlight on the distribution chain. The FDA requires that all medical device manufacturers develop a written procedure for tracking certain medical devices throughout distribution and establish an audit program to ensure compliance. Final distributors must keep records of patient information, and a device must be tracked throughout its “useful life.”

In a recent incident, a medical device company’s manufacturing vendor mixed up lot numbers on several thousand parts. Lot numbers have to be consistently labeled on the part, the bag, and shipping box, but the manufacturer’s problem caused inconsistent labeling. When an end user returned a defective part, the lot number on the actual part didn’t show up in the logistics partner’s system—a huge red flag. The 3PL stopped all shipment of parts until the source of the problem could be identified and corrected.

The value-add in this case is obvious. The medical logistics partner’s quality control department flagged a problem and reacted quickly to quarantine the parts, developed a sampling plan to assess the damage, then helped the medical device company create and implement a solution.

Without that quick action, the company could have lost traceability on a large number of parts and been unable to respond quickly if a number of the same items failed. That situation would likely have attracted regulatory attention or sanction.

Logistics Partners Provide Global Supply Chain Solutions and Specialized Expertise
The U.S. Department of Commerce (DOC) lists medical devices as one of the country’s top export opportunities, citing “promising markets” in Asia and Latin America in particular. In 2014, the U.S. exported approximately $45 billion worth of medical devices. Between 2007 and 2012, exports of surgical and medical instruments grew by 27.5 percent. The DOC expects the United States to remain “highly competitive” globally. It credits that success to a culture that encourages innovation and the medical device industry’s embrace of global markets.

Global expansion increases market reach but also increases distribution and supply chain complexity. Traceability requirements expand to include import/export regulations, labeling, and product classification codes. Many countries establish high barriers to entry to protect both the population from unsafe devices and domestic manufacturers from foreign competition.

For example, India recently increased duties on medical equipment and devices. The basic customs duty is 7.5 percent, with a 12.5 percent additional duty, and another 4 percent special additional duty. The increased duties apply to devices (surgical instruments, pacemakers, etc.) and to parts for medical devices. In 2015, Turkey banned the import of almost all refurbished parts, including those used in medical devices.

Participation in the international market requires learning a new trading language called the “Harmonized Commodity Description and Coding System.” It uniquely identifies products based on their size, composition, and characteristics using “HS & HTS codes.” The Indian government uses this system, but adds extra code requirements to create a system unique to India. Incorrect codes disrupt the supply chain by delaying customs clearance and may trigger fines. Repeated violations can get an importer banned entirely from some countries.

Any company considering expansion should look for a supply chain partner with in-country experience in trade compliance, language, business culture, and stocking locations. Forward stocking locations can help a company meet or exceed service level agreements with end customers. With many locations in-country, the vendor will have readily available stock and can service end-users quickly and efficiently. A logistics partner’s ability to deliver a needed part within a two- to four-hour period anywhere in the world gives any medical device company a huge competitive advantage.

Logistics Is the Key to Global Success
Logistics is the glue that holds the supply chain together and keeps products flowing seamlessly across international borders.

A global, end-to-end supply chain partner offers screen, test, and repair services that ensure product quality. Products only ship once 100 percent quality is achieved because anything less might trigger an investigation that temporarily stops manufacturing—or shuts the doors entirely.

A logistics partnership is a way for medical device companies to focus on their strengths and delegate their weaknesses. According to the U.S. DOC:

Compared to several other industries including automotive, defense, and telecom, the medical device industry invests a higher percentage of yearly revenues into product innovation. This reflects the competitive nature of the industry, and constant innovation and improvement of existing technologies. 

The added value provided by experienced medical supply chain management partners can help a small company with a big idea grow into a successful, viable enterprise. 

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Matthew Riehl is general manager, Columbus GSC, for Flash Global, which designs and implements service supply chain solutions for rapidly expanding businesses, including medical device companies. He has a record of accomplishment in the development, implementation, and operation of high-volume, time-sensitive distribution.