Perspective: Today’s Medical Device Supply Chain – Part 1: Industry Innovator

When we hear the buzzword “innovation” in the medical device sector, we usually think of cutting-edge, life-saving treatments and technologies. However, a key driver of innovation in the device space is supply chain organizations, which have the critical responsibility of moving manufactured devices, equipment and supplies along a continuum of interdependent, often multinational stages, from order through to delivery. The supply chain is critical to lowering costs and improving patient outcomes, and is directly linked to integral healthcare issues, such as the shift to a value-based care model, improved clinical performance, reducing risk and getting the most out of electronic health record integrations. With the global market for medical devices valued at approximately $522 billion as of 2017 and forecast to exceed $700 billion by 2023, proactive innovation by supply chain organizations will be paramount in order for supply to keep up with demand.

Device supply chain organizations are responsible for moving millions of fragile, expensive, life-saving medical devices and equipment to all corners of the globe each day. At the same time, they are constantly striving to manage costs as device companies of all sizes grow and consolidate. They must also weather the storm of ever-evolving device regulations along the supply chain, ranging from HIPAA regulations to the FDA’s Global Unique Device Identifier system. They also are faced with integrating rapidly evolving digital technologies such as IoT-powered tracking tools and artificial intelligence. All of these moving parts must work together cost-effectively, accurately and efficiently to ultimately give a company a competitive advantage.

To gain perspective on the key issues impacting today’s evolving medical device supply chain, the Community Blog spoke with Larry Smith, who retired in 2017 from his role as Vice President, Global Supply Chain at Becton Dickinson and Co. (BD), a $16 billion medical device, biosciences and diagnostics company that he joined in 2001. Smith, with a 40-year career in the diagnostics and device space, served previously as Vice President of Global Supply Chain Management for Dade Behring, a $1.5 billion clinical diagnostics company that was formed from the merger of four separate companies (acquired by Siemens in 2007). Prior to this, he spent 18 years at DuPont. Smith is still active in the industry, teaching operations and supply chain courses to undergraduate and MBA students as a part-time adjunct professor at Rider University in New Jersey, as well as consulting and speaking at industry events.

Three Key Issues Impacting the Device Supply Chain

At BD, Smith managed a supply chain team of about 2,000 people in more than 50 countries around the world. In his view, there are several key issues impacting the supply chain that medical device companies of all sizes need to keep in mind especially as they grow, expand into developing markets, and as the industry continues consolidating:

1) Support Company Growth: Companies have to build a supply chain that can support company growth over time, both on a regional and global basis. During Smith’s 17-year tenure at BD, the company grew from $3 billion to $16 billion in global sales. “At the end of the supply chain, the last thing a customer sees is the product coming to them. Is it on time, is it the quality that they want, is there no damage, and were they invoiced properly?” These end-user concerns are critical no matter the size of the company, he says.

2) Cost Reduction: “Supply chains are always under pressure to figure out new and better ways to do things, new partnerships to develop, to try and reduce what your spend is in the supply chain, in distribution, transportation and customer service,” says Smith. In some cases this requires IT resources, or outsourcing some functions to a third party logistics company, or in-sourcing a function.

3) Service Levels: Supply chains need to ensure that they are always increasing the service levels to customers. Expectations, especially over the last decade, have really gone up, says Smith. “People expect nowadays to buy something in the morning and have it delivered in the afternoon,” he says. We’re not quite to that point yet in the medical device industry, as that is primarily a business-to-consumer trend, rather than a business-to-business trend. However, the same mentality applies, for example the expectation of no backorders, getting products exactly on time with no damage, and invoiced the right way, Smith explains. “We call that the perfect order,” he continues. Device companies have to grapple with providing this increased level of service in a cost-effective manner.

Smith also emphasizes that device companies need to be thinking ahead, to prepare for changes that are coming. An important potential game-changer is Amazon, which has already made aggressive moves into the medtech supply chain sector. There are a number of theories about how the Internet giant will impact this space, says Smith. Will it totally disrupt this industry, as it has done with other industries, or will that prove to be much more difficult due to the challenging supply chain regulatory environment?

Stay tuned …

The potential “Amazonification” of the medical device supply chain is the topic of the upcoming Part 2 of this post. Will Amazon have the resolve to invest in the competencies and infrastructure necessary to meet the regulatory demands of healthcare logistics?

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