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Guest Blog: Medical Devices: Does Supply Chain Trump Innovation?

Supply Chain Health Care

At first glance, when considering the production of medical devices, the key driver should be innovation, at least in theory. However, with recent changes and amendments to taxes and regulations, the key driver has changed. Today, the entire chain of patient care must be considered as key factors in decision-making.

Why is supply chain management so critical? Although the pharmaceutical industry has some of the most developed supply chains worldwide, operational excellence has not been high on the agenda for the medical device industry until now. And considering that the supply chain includes everything from the multi-million-pound MRI machine right down to scalpels and syringes, it inevitably affects all medical staff and institutions right to the core.

Through effective supply chain management, massive benefits can be seen for all parties, on all fronts. As a global economy, we are in the midst of the worst financial crisis in generations. While some countries are starting to recover, many are still hemorrhaging money they do not possess, leaving little opportunity for investment and healthcare expenditures. However, as a general trend, population numbers tend to be inversely proportional to GDP—this means less money for more patients.

With less money to spend, governments are forced to opt for patient care solutions that are “good enough.” Despite gains for the patient, it is rare for a new medical innovation to reduce cost, especially when first brought to market, while the investment costs are being recouped. On that basis, paying for new treatments, therapies, and equipment is increasingly becoming a luxury, not a right. Luxury items, of course, sell in fewer numbers. This sends costs virtually uncontrollably upwards, even as diminished volume reduces revenue.

In an industry with slashed budgets—and with the rising cost of commodities and ever-increasing regulations to be satisfied (and paid for)—the expense of innovation is becoming increasingly out of line with available funds. Through improved supply chain management, you are focusing on products already available, striving to reduce costs for products that will fit the “good enough” category—the products that require little additional investment, the ones that can drastically improve profit margins because they sell in larger volumes. These are the products that simultaneously bring more affordable healthcare to the patient and increase overall revenue for the supplier.

It’s not only the current economic climate that is impacting industry. It’s the current physical and political climates too. In 2011, we had already seen several crises across the globe, from the tsunami in Japan to the uprisings in Libya and many other parts of the Middle East. In other words, two of the main centers for the technology industry (development/manufacturing and petrochemicals, respectively) are in a state of extreme stress. By definition, this stress has been transferred into the supply chain across virtually every industry, across the globe.

Through smart supply chain management, robust plans with competitive procurement strategies and fallback plans can be put into place to account for these issues. This drives costs down and causes minimal disruption, which keeps clients happy and, more critically, keeps more patients alive.

What do the healthcare providers want? According to a 2010 Eyefortransport (EFT) Healthcare & Life Sciences Supply Chain Study, clinics, hospitals, and healthcare providers highlight “extreme pressure on cost controls” as the primary challenge to the supply of medical devices.

Supply Chain Challenges

Equally important was inadequate forecasting, and to a lesser degree, suppliers unwilling to change operations to match priorities; poor visibility and poor ordering systems were also cited as key issues.

Do better business—give them what they want. To tackle these issues is to satisfy, even delight, the customer—the healthcare providers. Taking an agile approach to supply chain management means investing in better tracking systems, routes to market, and ordering systems. Manufacturers can focus on what is already available in catalogs to reduce costs, increase profit margins, provide orders more expeditiously and robustly, make more sales, and care for more patients. It may not have the same glitz as bleeding edge technological development. But with a core foundation in place, the funding required for modern medical device innovation will be there, with the space required to make it bigger and more successful than ever.