The Supply Chain Evolution

Medtech firms must make strategic changes to their supply chains to capitalize on new opportunities.

Change is never easy but it’s necessary for survival. In nature, organisms can take their time adapting to change, evolving into more advanced versions of themselves over generations or millennia.

Businesses, however, don’t have that kind of time—they must adapt quickly to change or risk surrendering their marketplace advantage.

Globalization and technological advances are reshaping the ways in which companies operate and grow. Healthcare firms have had to become particularly adept at makeovers due to paradigm changes like aging populations, reform efforts, preventive care treatment, and growing middle classes in emerging markets.

To capitalize on the new opportunities in healthcare, medtech firms must make strategic changes to their supply chains. Companies have successfully addressed such concerns as regulatory compliance, product security, damage and spoilage through collaborations, IT investments and better in-house expertise.

Melanie Alavi

Melanie Alavi

Still, there are challenges companies have yet to overcome. Melanie Alavi, director of global healthcare strategy at UPS, discussed some of the challenges confronting medical device companies with Medical Product Outsourcing.

She also shared her views on potential solutions as well as the market forces driving the changes in supply chain management. Her conversation with the magazine follows:

MPO: What trends/market forces are driving changes in supply chain management in the medical device industry?

Melanie Alavi: Changing demographics, new product innovations, increasing regulatory demands, and downward pressure on reimbursement are driving changes in supply chain management in the medical device industry.

The combination of an aging population, a growing middle class in emerging markets and increased urbanization translates to a greater global demand for healthcare services and need for medical devices overall.

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Medical device companies have to accommodate that growth within the confines of regulations imposed by countries.

The number of people 65 and older around the globe is projected to triple by mid-century, from 531 million in 2010 to 1.5 billion in 2050.

With respect to growth in emerging markets, in 2020, healthcare spend in China is expected to be at $1 trillion, but in 2011 it was only $357 billion. That growth will come from a burgeoning middle class coupled with an aging population.

While global demand is increasing, medical device companies continue to have to accommodate that growth within the confines of the regulations imposed by the countries with which they do business.

Since 2011, when the UPS Pain in the Chain survey was first fielded globally, regulatory compliance has been the top supply chain concern for medical device manufacturers, mirroring the overall healthcare industry.

Regulations such as European Good Distribution Practices and European Medical Device Directives are requiring medical device manufacturers to look more closely at how the packing and storing of their goods may affect their overall performance and ensure that their use will not be adversely affected during transport.

While China has had Good Supply Practices (GSP) in place for drug distribution since 2000, there has not been, until recently, similar regulations guiding the distribution of medical devices in China.

New GSP guidelines that were released at the end of 2013 will require medical device companies, depending on the device classification, to keep accurate records of procurement, inspection, storage, sales, inventory management, return and replacement, temperature and humidity, inspections, and disposal of nonconforming products for specific lengths of time.

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Patients, providers, and manufacturers want to connect with each other with increasing immediacy.

Another trend has to with technology. With continued advancements in technology, patients, providers, and manufacturers want to interact and connect with each other with increasing frequency and immediacy. Both to provide a better user experience through immediate and convenient communication as well as to save costs, medical device companies are increasingly investing in and/or acquiring technology companies.

In addition, technologies such as 3D printing is changing the existing medical device supply chain model, helping to reduce inventories and finished goods distribution costs. The pace at which technology evolves will continue to change the face of healthcare.

MPO: Please discuss some of the major challenges currently confronting medical device suppliers. How are suppliers overcoming these challenges?

Alavi: In today’s rapidly evolving healthcare marketplace, logistics decision makers are grappling with a number of challenges while simultaneously planning for new opportunities in a growing number of markets. It’s an exciting time for the industry, but companies must take calculated risks and develop supply chain strategies that position them for success.

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Contingency planning and risk mitigation need to take center stage for healthcare companies, including medical device suppliers.

Contingency planning and risk mitigation need to take center stage for healthcare companies, including medical device suppliers.

Healthcare is reaching new corners of the world and the middle class is quickly expanding in today’s increasingly connected marketplace. With this growth, supply chain networks are becoming more complex and contingency planning has never been more important.

In the 2014 UPS Pain in the Chain survey, only 26 percent of healthcare logistics executives cite contingency planning as a top issue, likely due to competing priorities on their radar such as compliance, product protection and cost management, coupled with the belief that disruptions are too unlikely.

But in regions where there have been high-impact events in recent years, ranging from the earthquake in Haiti to the nuclear meltdown in Japan, executives report that disruptions have a high impact on their operations.

In Asia-Pacific, 34 percent of those surveyed report having more than 25 percent of their supply chain impacted by unplanned events. Twenty-two percent of healthcare logistics executives in Latin America also report disruption to more than 25 percent of their supply chain.

One issue we see in the industry is many companies think of large-scale natural disasters when they think of unplanned events, but oftentimes an event such as a power outage can threaten a company’s operations and bottom line.

Contingency planning is particularly important when developing operations strategy and planning for future expansions. Having an alternate distribution facility and additional transportation capability is vital if an unplanned event occurs.

When a network is being evaluated for optimization and efficiency, it is a great opportunity to discuss strategies to build in resiliency at the same time. In many cases, optimization and business continuity initiatives complement each other.

At UPS, we work with our healthcare clients to develop these strategic plans, based on our in-depth knowledge of emerging healthcare markets and regulations, along with our experience in contingency planning and risk management.

Collaboration and partnerships were deemed top strategies for healthcare companies to address challenges, including complying with regulations; supply chain cost management; and global market access, in order to get ahead in the marketplace.

MPO: Please discuss some strategies for successfully managing a medical device supply chain.

Alavi: With the Patient Protection and Affordable Care Act levying a 2.3% device tax, the healthcare supply chain must industrialize. Finding new efficiencies means looking at every aspect of the user experience and successfully harmonizing it with the needs to  save costs.

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Care providers are paying more attention to how their medical device shipments arrive.

Furthermore, care providers are paying more attention to how their medical device shipments arrive. Oversized boxes, excess packing materials and unsustainable choices can undermine a shipper’s reputation as an efficient partner.

As cost pressures, regulatory oversight and global market access demands continue to grow, so does the need for medical-device manufacturers and distributors to form strong partnerships to optimize supply chain strategies.

MPO: What are the advantages of outsourcing supply chain management to a third-party vendor?

Alavi: As more healthcare companies look to go global, providing safe, reliable logistics will become even more important to meet growing demands. Just as important is complying with regulations across borders that are often complex and time-consuming.

Shipping delays, packaging breaches and other risks must be effectively planned for as much as possible before they happen to ensure product protection.

Partnering with a world-class 3PL with innovative solutions to mitigate risks and navigate a complex regulatory environment allow medical-device companies to spend more time focusing on core business objectives.

UPS’s holistic approach to logistics, including innovative solutions, consultative expertise, warehousing, sophisticated global transit and distribution networks and more, make UPS a perfect problem-solving supply chain partner for medical device customers.

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Partnering with a trusted 3PL for expertise and solutions improves supply chain visibility.

Furthermore, UPS continually invests in its global healthcare network to serve medical device customers around the world. UPS operates 49 fully compliant, healthcare-dedicated facilities — about 7million square feet — in strategic global locations.

In addition, UPS has 36 Field Stocking Locations (FSLs) in the U.S. that are compliant in support of the medical device industry, enabling our clients to get inventory closer to the point of care and providing greater supply chain visibility and product access for the industry.  With this recent enhancement, med device manufacturers can reach 80% of U.S. hospital beds within four hours.

MPO: How can suppliers, manufacturers, etc., improve/increase supply chain visibility?

Alavi: A number of leading global healthcare corporations and small businesses alike have found that the most effective, timely and efficient means of achieving supply chain integration is to work with a global logistics leader, such as UPS.

Partnering with a trusted 3PL for consultative expertise and solutions is an effective way to increase supply chain visibility. UPS’s tracking and monitoring systems such as UPS Proactive Response, UPS My Choice, UPS Quantum View and UPS Flex Global View give customers ample visibility throughout the supply chain, the ability to address potential issues before they happen, and a more optimized experience end-to-end for medical devices. goldbrown2

This interview first appeared on and was republished with permission.

Michael Barbella is the managing editor of Medical Product Outsourcing.

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