How to Build a Strategic Medical Device Supply Chain
Medical Device Supply Chain strategies have been evolving since the 1990s. It started with the famous “Pick two from: better, faster, or cheaper”. You could not have all three…
Then in the 2000s with the rapid expansion of high-tech companies, the medical device supply chain strategy umbrella expanded to include better, now, cheaper, agile, global, different, custom, green, lean and so on. With so many variants it was difficult to prioritize.
Today, finding the right medical device Supply Chain Strategy (SCS) formula involves pinches of each element according to your company`s business strategy. The business strategy outlines the competitive advantages that an organization should embody once it has decided how it will compete. So, each SCS is unique and there is no “one size fits all”.
It is valuable to tailor the performance “formula” to specific demand types, distribution, and customer groups. Companies that get this formula right enjoy 50% higher revenue growth and 20% higher profitability (Strategic Supply Chain Management – Cohens and Russel 2013- 2nd edition).
The formula`s recipe starts being defined during New Product Introduction (NPI) and requires lots of alignment of client, engineering, suppliers, etc. NPI can be a value-creating initiative, but oftentimes, a lack of sourcing, planning and communication can ruin even the most innovative new product.
I have gathered 5 ideas to start creating a Strategic Supply Chain during NPI:
1- ) Align and Strengthen core business functions to make key decisions
Upstream decisions made during NPI can significantly impact the timeframe and cost of a product over its lifecycle. Early in the process, some decisions will need to be made and shared because they will impact the total cost of the product and client satisfaction questions will need to be answered, including: What is the process up to the launch? Are all designs finalized? Are the designs ready for manufacturing or introduction to key suppliers? Is there a firm BOM? What are the critical parts? Where will the final product be manufactured? What are the predictable volumes? Where are the distribution channels located?
If parts are not predictable and the team is under pressure to get the device to market, compromises will need to be made, like rush production fees, expedite shipments, etc.
Gather key stakeholders to plan, align and execute together. With a strong team (sales, marketing, and R&D, manufacturing, sourcing, and financial), it will be easy to develop a repeatable process and avoid surprises. Once the product moves to manufacturing and ramps to target volumes, it is difficult to change plans, find new suppliers, or cut expenses.
Are you thinking this effort is too much for NPI? No, it is not because this is when you can identify, predict and address possible collisions with finance, commercial and organizational functions during a high-pressure environment.
2- ) Understanding the product BOM categorization
During this phase Supply Chain should categorize each part of the BOM by strategic importance and difficulty to understand and predict supply risks. With this data, a study can be conducted to optimize cost, focus on critical parts, key suppliers and plan for a wider launch.
This video does a good job of summarizing multiple sources on planning & developing supply chain strategies, here are four main BOM categorizations:
Critical/Core Competency Materials
High strategic importance and high supply chain difficulty require strategic partnerships for longer periods of time to ensure availability and quality.
High Supply Chain difficulty and low strategic importance demand attention so an effort is made to ensure these items are fulfilled.
High strategic importance and low supply chain difficulty call for collaboration to maximize both cost savings and reliability.
Low strategic importance and low supply chain difficulty materials require suppliers whose priority is cost reduction and are best purchased at arm`s length.
Bringing sourcing knowledge closer to the point of design, allows trade-offs such as reducing material expenses to happen earlier. The cost to qualify a critical parts supplier or shift to a new location is incredibly high.
3- ) Supplier Collaboration
All too often suppliers are selected during the NPI process due to unique capabilities, personal relationships, and geographic proximity, as opposed to solid data and information on the supplier’s capability to meet and deliver on specific specifications and performance requirements.
To really drive improvement and establish a solid supply chain foundation from the start, organizations need a clear, comprehensive, well-defined matrix/database listing all the suppliers, components, competencies, and their performance. An internal supplier database which links supplier segments (i.e. partnership, phase out, etc.), risk scores, and supplier competencies (i.e. electronics, plastics, etc) into a searchable index is a key tool for NPI.
During the development of critical parts, it is important to analyze suppliers’ capabilities deeply. Ask the basic question: Does this supplier have the capacity to meet future quality, delivery, and volume demands? Is there space for supplier collaboration?
Don’t be shy. Invite suppliers over and get them involved from the beginning. They are experts who can provide valuable engineering feedback, reduce cost, and introduce system solutions that can help all of the chain.
4-) Cost Management
Effective cost management strategies should be applied into the earliest stages of product design process and collaborating on cost analysis cross functionally. Here are some requirements for effectively managing NPI costs to meet target cost goals.
- Set and manage cost targets and get them right the first time, before products or parts go into production. Quickly evaluate the cost of new product design alternatives so engineering can focus more on innovation and less on cost analysis;
- Identify the real cost drivers behind a product design and minimize engineering changes later in the release cycle where they will cost more to address;
- Create should-cost estimates to be used to support vendor selection, quote validation and supplier negotiation.
Identifying the desired profit margin and maximum allowable cost to meet that margin upfront emphasizes cost in the design phase and distributes competitive pressure across the supply chain. When all team members understand targets and key budget drivers at the start, these factors will be included in decisions about the product from design to production and shipping.
5-) Spend time on risk analysis
Understanding risk and more importantly having an appropriate risk management plan can prevent both cost and schedule over run and in the case of many supply chain projects ensure continuity of supply. Recognize where the project fits in the risk versus speed spectrum versus cost. Align upfront risks of going fast, returns, brand reputation, high supply chain costs versus loss of share, loss of pricing power, missed windows, changing tech, etc.
The rapid pace of product development has driven faster cycle times, putting more pressure on teams to keep up. Supply Chain has the power not just to optimize speed and control costs, but also to determine customer satisfaction by anticipating demand and executing a strategy to fulfill that demand.
I hope these 5 ideas are useful and help you build a strategic medical device supply chain during NPI. I would enjoy hearing feedback and additional ideas from readers.
Image: StarFish Medical
Vanessa Del Castillo Faria is the Supply Chain Manager at StarFish Medical. Vanessa has extensive experience working in the electronics industry and in a retail non-profit cooperative. She holds a Master`s degree in Global Management.
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