The Path Forward for Supply Chain Success

Supply chain issues are abound in medical devices. According to The Health Industry Distributors Association, 8,000-12,000 containers of critical medical supplies are delayed an average of 37 days throughout the transportation system. Clients are experiencing the same issues. Significant delays, rising prices, service failures, and much more are creating stress throughout the system. These issues are not abating in 2022, yet the needs are surging with the rise in COVID-19 cases and previously delayed surgeries and treatments. How did we get here, and how can these supply chain challenges be resolved?

Unfortunately, there are no quick fixes. The current supply chain debacle has been festering for years, and there is no magic wand to fix it. From 2012 to 2018, the U.S. trade deficit doubled in medical equipment, making the nation more dependent on outsourced production. During the pandemic, the extended supply chains exacerbated the situation. Case in point: When Chinese manufacturers shut down in early 2020, the United States was still booming but as American cases skyrocketed and demand surged for medical equipment, the ports were empty and domestic manufacturers were temporarily closed.

Material shortages began occurring more frequently as the supply disruptions worsened, causing the supply chain to spiral totally out of control. For example, in Asia, product is loaded on container ships at the ports, shipped across the Pacific, unloaded at U.S. docks, and then handed off to a driver to transport to its next stop. Eventually, it arrives at a warehouse, where it’s unloaded, stored, and reloaded to ship to its final destination. The typical transit time was 13 weeks before the pandemic but COVID-19-induced delays at each step of the supply chain are now exacerbating the situation.

The repercussions of a global supply chain were perhaps best illustrated by when the Ever Given container ship became stuck in the Suez Canal for six days in March last year, delaying sea traffic and rerouting cargo freights. The ordeal created further disruption to already tangled supply chains. The Texas storms also caused further supply chain disruption, negatively impacting medical devices—specifically any requiring plastic. Labor shortages further exacerbated the situation.

The delays remained amid the economic recovery and vaccine rollout. As the world recovered, demand for goods and services skyrocketed. China produced and shipped containers, and the ports have been unable to catch up due to widespread labor shortages at the docks and entire transportation system. The backlog was so dire that a request was made to slow container ship traffic so the port congestion and environmental issues would ease. Even if the ports could increase capacity, there are other hurdles that must still be overcome: a significant shortage of drivers and chassis (the latter not produced in the United States), empty containers (without an efficient route back to China, they now litter southern California), full warehouses, and labor shortages. Essentially, the supply chain is completely out of alignment.

Supply chain disruptions will likely persist well into 2024 and beyond as hospitals, healthcare providers, and medical device companies continually pivot to address the market’s immediate needs, creating further disruption and misalignment. Consider the consequences of a hospital worker using a substitute product—while it meets patients’ needs, the facility’s purchasing department may not be aware of the substitution and therefore will not order an adequate supply of the replacement product, thus creating a future shortage. Additionally, when products are not available, purchasing departments will order from backup vendors even though the original supplier is still working through its backlog and shipping past due products. This creates duplicate demand in the global supply chain, and that demand is currently being exacerbated because customers are ordering more product than they need (erring on the side of caution). It’s become a vicious cycle that is difficult to break.

Clients and colleagues have realized they have accepted far too much risk in their supply chains. A European client, for example, thought it had a backup vendor to its China supplier because it had a secondary source in India; but when the pandemic began, neither supplier could deliver the requested materials. Another client had identified a backup source but did not utilize this source on an ongoing basis. Hence, when COVID-19 created major supply chain disruptions, the backup source was busy and had to prioritize its current clients. Successful clients are re-evaluating their supply chains, rethinking sourcing options, re-evaluating partners and backup strategies, and reshoring/near-shoring when and where it makes sense.

Manufacturing locale has become an important strategic topic in supply chain boardrooms. Progressive clients are quietly moving production capabilities closer to the customer in an effort to create a more resilient and responsive supply chain that can meet evolving requirements. Although supply chain issues will eventually subside (at least temporarily), these clients realize they must take control and redesign their supply chains to meet changing customer needs.

According to healthcare consulting firm Kaufman Hall, 99 percent of all hospitals and healthcare systems have reported challenges in procuring necessary supplies due mainly to shortages of key items and significant price increases. Instead of adding to this statistic, successful companies are deciding where to produce, what to produce, and which customers to prioritize. Thus, they are better able to meet surging demand and are improving service levels and supporting positive patient outcomes. In addition, they are better able to scale, expand operations, find new partners, and collaborate with existing partners to find innovative solutions.

In addition to re-evaluating supply chain strategies, proactive companies are quickly adjusting and improving their planning and procurement processes to support changing needs. For example, a life sciences manufacturing client expected its sales to double but was concerned about delivering its product. Although the Sales team had a clear financial forecast, Operations was fuzzy on the products that were targeted for market. To align Sales with Operations and deliver the sales plan, the company rolled out a sales, inventory, and operations planning process (SIOP or S&OP).

The first priority of the SIOP process was turning the dollar forecast into a product forecast. Not only did the organization review historical sales patterns and growth rates by customer and item, it also reviewed sales orders, quotes, customer inventory agreements, and feedback and insights from customers, executives, and sales and marketing teams. Executives agreed upon a 12-month rolling forecast process, and then translated that forecast into one that made sense to operations.

The client converted the forecast from dollars to an equivalent base unit of measure. Operations calculated labor and equipment requirements for producing the bulk product, bottling to customer specifications, and completing the supporting quality processes. After finalizing staffing and capacity levels, the company determined long-lead time material requirements and reviewed its global distribution network. SIOP enabled this organization to meet its growth plans in a scalable and sustainable way.

In order for companies to realign their supply chain and take advantage of once-in-a-lifetime growth opportunities post pandemic, they must digitize their supply chains. They should start with a strategy to determine the technologies that best support their path forward because resources are not limitless. There are best practice strategies, technologies, and techniques to improve production, material, distribution, procurement, and inventory planning processes to get the right product to the right place at the right time at the right cost. There is also significant opportunity to collaborate with customers and suppliers to manage inventory throughout the end-to-end supply chain for win-win results. For example, an adult incontinence manufacturer I once worked for partnered with Cardinal Health to proactively manage inventories and deliveries to its distribution centers to achieve award-winning service and inventory results for both companies.

Although the global supply chain will not realign anytime soon, all hope is not lost. Proactive companies will rapidly assess and develop new strategies to realign their supply chain, implement proactive production and material planning processes such as SIOP/ S&OP, and leverage modern ERP systems and related technologies to digitize their supply chain and meet changing customer needs. There will be significant growth opportunities for proactive companies after the pandemic. 

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Lisa Anderson is the founder and president of LMA Consulting Group Inc., a consulting firm specializing in manufacturing strategy and end-to-end supply chain transformation that maximizes the customer experience and enables profitable, scalable, dramatic business growth. She is president of the Inland Empire Chapter of APICS, the leading trade organization of supply chain management. Anderson recently released Future-Proofing Manufacturing and the Supply Chain Post COVID-19 as an e-book.