Supply Chain: Medtech’s Transformers

In today’s evolving global healthcare marketplace, medical device companies are under pressure to introduce innovative products, serve customers in new markets and contain costs. As the global economy continues to recover, healthcare logistics executives around the world are examining their current supply chain strategies to determine whether they are structured to succeed in a changing business landscape.

UPS recently released findings from its 2013 Pain in the (Supply) Chain survey, an annual survey which examines the top healthcare supply chain and business trends, concerns, successful strategies and future investment plans of healthcare logistics executives worldwide. Input was received from more than 440 logistics decision-makers at medical device, pharmaceutical and biotech companies in North America, Western Europe, Latin America and Asia-Pacific. Some key findings indicate a sense of urgency to implement transformative supply chain strategies to respond to regulatory changes, cost containment and growing issues around security and integrity.

This article provides a snapshot of key findings from the survey and implications for healthcare executives. It also notes interesting differences based on findings from medical device executives compared to their pharmaceutical and biotech peers.

Understanding the Supply Chain ‘Condition’
Fifty percent of healthcare logistics executives worldwide still are feeling the impacts of the recent economic downturn. The numbers skew a bit higher in the United States, at 60 percent, one of the highest percentages globally.

Healthcare companies also are struggling to stay ahead of a rapidly changing regulatory environment in global markets. This year, more regulations not only are the top business issue, cited by 48 percent of those surveyed, but also a barrier to global expansion, as cited by 47 percent of respondents.

Diagnosing Top Supply Chain Concerns 
Regulatory compliance, product protection and cost management all were cited as top supply chain concerns by those surveyed. Interestingly, for the first time since the inception of the survey in 2008, product security surpassed cost management as a top supply chain concern, with 53 percent citing it as a top issue. For the medical device industry, however, concern levels over product security were lower than in the pharmaceutical and biotech industries.

Product protection: As products become more complex and supply chains grow, product protection, including both product security and product damage and spoilage, is a top issue, with 53 percent and 43 percent of those surveyed citing these as top supply chain concerns, respectively. While 40 percent of executives in the medical device industry are concerned about product security, 33 percent are concerned about product damage and spoilage. These results are not surprising given the different nature of the products versus pharmaceuticals, but other factors are likely also at play. Medical device manufacturers may be seeing success in managing product protection challenges through current supply chain strategies they have in place. When it comes to product security, however, 40 percent is still a high concern level, indicating that there is room for improvement.

Cost management: Globally across the healthcare industry, product security surpassed cost management as a top supply chain concern for the first time. While this could be due to increased cost efficiencies, 51 percent of those surveyed remain concerned about cost. Executives in the medical device industry are more concerned about cost than their counterparts in the pharmaceutical and biotech industries at 53 percent. But while their concern is slightly higher, they also report the most success in managing costs, with 46 percent believing they successfully addressed cost management. Looking at specific strategies medical device companies have used to become more cost efficient, 63 percent have used logistics and distribution partnerships, which is almost 20 percent higher than their counterparts in the pharmaceutical and biotech industries.

Regulatory compliance: In addition to increased regulations being cited as the top business concern, 63 percent of respondents said regulatory compliance is a top supply chain issue for the third consecutive year. Despite this, executives still are planning to expand globally; top markets include China (27 percent), the U.S. (21 percent), Brazil (18 percent) and India (13 percent). In a global marketplace where regulations and legislation change often and vary across countries and markets, it is vital to business success to understand and stay ahead of local and global regulations. Whether a company enhances regulatory expertise with in-house resources or engages a third-party logistics provider, being prepared to meet evolving regulations is essential for success in
existing and new markets.

The Role of Technology in Future Strategies
The UPS survey also examined successful strategies that healthcare decision-makers have implemented to address top supply chain concerns. Technology investment is a theme across these successful strategies.

Over the past 18 months, 74 percent of those surveyed made technology investments to increase efficiencies and improve competitiveness; this jumps to 84 percent when it comes to plans over the next three to five years. When asked about specific technology investments, order management and web ordering systems are the top two planned investment areas. 

Technologies that address product security and product damage and spoilage also are high on the list of planned investments. In the next three to five years, 52 percent of survey respondents plan to invest more in temperature-sensitive technologies, 59 percent plan to invest in serialization technologies and 48 percent plan to invest in security-specific technologies. These findings not only further emphasize the growing importance of product protection in the global healthcare industry, but also reinforce companies’ forward-thinking and planning despite the difficult economic environment.

While most of the technology investments in the medical device sector are similar to those in the overall healthcare industry, there are a few interesting differences. Of those surveyed in the medical device industry, 73 percent plan to invest in web
ordering systems over the next few years, significantly leading both the pharmaceutical and biotech industries.

Decision makers in the medical device industry also do not plan to invest as heavily in serialization and security-specific technologies as their counterparts in the pharmaceutical and biotech industries, but they do see significant jumps when comparing past investments in these areas versus future planned investments. Specifically, over the past 18 months, only 33 percent of those surveyed in the medical device industry invested in serialization technologies and 23 percent invested in security-specific technologies. These planned investments jump to 53 percent and 38 percent respectively over the next few years.

Pathways to a Healthy Future
Along with technology investments, healthcare executives also are exploring the use of new distribution channels—a solution in which the medical device industry leads the pharmaceutical and biotech industries. Over the past 18 months, 58 percent of executives in the medical device industry report increased use of new distribution channels and models. Their counterparts in biotech and pharmaceutical companies reported usage at 44 percent and 50 percent, respectively.

Looking ahead, 71 percent of medical executives plan to leverage new distribution channels and models for better efficiencies and to improve competitiveness. Eighty-six percent plan to invest in new technologies and 79 percent plan to tap new global markets to expand their customer base.

As revealed by this year’s survey findings, healthcare logistics decision-makers are preparing their supply chains for the healthcare industry of tomorrow. As your company plans for a healthy future, it’s critical to ensure that your supply chain is equipped to deliver on key business goals and stay ahead in a highly competitive marketplace.