Managing the Impact of Cross-Border Issues on Med Device Supply Chains

supply chain image transit

For decades, business schools taught the lessons of Just-in-Time (JIT), or lean manufacturing, famously applied by Toyota in the 1970s and expanded around the globe from there. JIT showed that when companies coordinated orders of raw materials and components with their production schedules that they increased manufacturing efficiency and decreased waste.

JIT has proved itself a valuable concept in supply chain management—that is, if you’re not dealing with cross-border issues that disrupt availability of supply.

The sudden restrictions on products that were instituted during the pandemic are largely gone, but managing the cross-border shipping of manufacturing supplies continues to cause headaches in many C-suites. The concept of “free trade” isn’t mentioned much these days due to the restrictions on Russian trade and the U.S. tariffs on Chinese imports. And one can’t forget that components shipped from your tier one supplier may not be restricted, but parts from a tier two supplier could have problems at customs.

This is especially true in the medical device industry. Supply chain obstacles due to border restrictions affect not only profits, but also the end users of those products who need them for their own health and welfare. “With many goods, from electronics and medical equipment to clothes and furniture being made in China, it is difficult to maintain open supply chains as long as geopolitical conflict intensifies and economic and security risks are high,” writes Darrell M. West of the Brookings Institution.

Taking a Proactive Approach to Cross-Border Complexities

There’s no easy solution to fixing a problem that can keep a vital component in your supply chain stacked in a port warehouse for weeks. For visibility into the supply chain, many companies address cross-border complexities with trade management software that’s regularly updated with the latest import/export compliance information.

However, software is no guarantee that the slightest overlooked detail won’t foul up a cross-border shipment, delaying production and increasing costs. Ultimately, disruptions can be avoided by relying on your software combined with using your experience in importing and exporting products to identify those key details that could create a roadblock.

For example, while you may have determined that a component from Germany is better priced than those available from other countries, current data may indicate supply chain issues, pointing you instead toward a French component which, while more expensive, can be counted on to arrive when you need it. This analysis reflects the concept of the agile supply chain, using current data to balance what’s needed from suppliers with short-term forecasted projections. It also includes information such as supply chain kinks that may be affecting suppliers, as well as new cross-border regulations that can slow down delivery.

This approach is just as relevant for components that are already on order from a supplier when a new restriction threatens to impede the order. One of the rules of agile manufacturing is that as soon as that type of problem is identified, alternative suppliers are lined up that can fill in. The lesson in both cases is that leveraging your digital capabilities using advanced analytics will help your business respond more quickly and accurately to disruptions and keep your supply chain moving.

So will constant communication. As Omni Logistics’s Carlos Escorcia wrote in a recent issue of Supply & Demand Chain Executive, “When it comes to cross-border shipping, there is simply no such thing as too much communication.” In fact, proactive communication with onsite and remote management, suppliers, carriers, and border officials is the best way to avoid supply chain issues.

Developing an overall assessment of supply chain risks and focusing on where border restrictions might cause delays before they occur can prepare Med Device companies for possible disruptions. To assess your company’s own supply chain risks, start with Dynamic’s Supply Chain Risk Scoring self-diagnostic tool.

The Chip Shortage May be Abating, but Med Device Companies Must Maintain Vigilance

microchip close up

While many industries — notably medical devices companies — have had to continually adjust their supply chains, or even delay production, to deal with an international shortage in semiconductor chips these past three years, that situation seems to be abating. Bain & Company, for example, recently reported that “some companies are starting to see relief.” And many observers were encouraged by the passage this past summer of the CHIPS and Science Act, which calls for the investment of more than $52 billion in U.S. semiconductor manufacturing, research and development, and workforce training, as well as another $24 billion in tax credits for chip production over 10 years.

This investment is intended to protect overall manufacturing. At present, only 12% of chip factories are in the U.S., while 75% are in East Asia. Reducing microchip imports will help stabilize medical device supply chains, which have been vulnerable to suppliers based in only one part of the world.

Looking forward to the implementation of the CHIPS Act, the Advanced Medical Technology Assocation (AdvaMed), the world’s largest trade association representing medical device manufacturers, is advocating that the U.S. government prioritize the delivery of chips to the medical device industry. World leaders outside of Asia are also playing their part. Having seen the threat that the microchip shortage had on products that protect their own citizens’ health, the European Commission recommended its member states address the chip shortages immediately and work with chip manufacturers to prioritize producing semiconductors for healthcare.

Preparing for Future Shortages

But those developments, while positive, don’t mean medical device manufacturers — nearly 80% of whom have reported production delays — no longer have to worry. Lessons from the past three years indicate not only a need for vigilance, but also for preparation.

Given the importance of chips used in medical devices, which must be reliable and able to handle power spikes, maintain security, and comply with privacy regulations, finding alternative vendors remains an issue, especially when the chips in question are “mature” — older and not as cutting-edge as the latest chip designs. Chip manufacturers would prefer producing newer microprocessors with a greater profit margin, and may not be interested in the medical technology market, which only uses about 1% of microchips sold.

One such manufacturer, Baxter International, which has several products that use multiple semiconductors, has lobbied its suppliers to prioritize manufacturing chips for the medical device industry in order to keep up with the demand from patients and healthcare providers. Other companies, such as Hologic, which uses only a few hundred chips per month in its production process, have had to reduce their use of microchips while working with their technology vendors.

The message: Given the experience of the past three years and despite encouraging signs, maintaining readiness remains critical in order for medical device companies to reduce the impact of another supply disruption. Here are some suggestions for how to prepare:

Reduce Supply Vulnerability – A survey by Deloitte showed that 70% of medical technology companies received more than half of their semiconductor chips from one vendor. Buying large volumes from one supplier can provide significant discounts, but it obviously leads to problems when that vendor can’t deliver their promised shipments. Regular supply risk assessments can help find developing issues before they become problems, as well as increasing supply inventories and finding alternative vendors before they’re needed.

Maintain End-to-End Visibility Throughout the Supply Chain – According to Gartner, supply chain forecast accuracy has improved as more companies incorporate analytics into their production. But a deeper, end-to-end visibility helps get an accurate picture of both future customer demand and component inventories. Supply reliability solutions that align with a vendor’s system may not have prevented the chip shortage but they could have alerted medical technology companies earlier in the crisis.

Partner With a CMO – Original equipment manufacturers developing partnerships with contract manufacturing organizations (CMO) closer to target markets can simplify inventory management, according to Ralph Tricomi, director, market development for Web Industries. Ideally the partner CMO has the market knowledge and supplier relationships to acquire the microchips needed to continue production.

Increase Awareness of Medical Technology – As AdvaMed has shown, advocating for medical device manufacturers to receive its supply of microchips is critical. Maintaining communication with governments whether through trade groups or individually about the essential nature of microchips in medical devices and the impact of the shortage on public health is essential, even as the shortage eases.

With chip manufacturers building more factories and capacity, and the CHIPS Act boosting U.S. production, the worst of the recent shortage is probably over. This microchip crisis may not be the last one to impact medical device manufacturers but it’s probably safe to say that the industry is better prepared for the next one.

Adopting a Sustainable Mindset to Combat Medical Device Waste

green medtech

Sustainable business practices allow companies to acknowledge and address environmental issues while also creating value, increasing revenue, and gaining cost savings. Environmentally aware organizations typically integrate a sustainability mindset into all of their activities, embedding it into their corporate strategy, purpose, and culture.

In the medtech industry, the sustainability conversation often begins with the problem of medical waste and the role of disposable plastic packaging to ensure the safety of patients and healthcare workers, as well as how to balance a sustainable approach with health and safety.

Many experts believe it is essential for medical device developers and manufacturers to embrace sustainability in order to ensure regulatory compliance and future profitability. “Sustainable medical devices are better for the environment and attractive to consumers and can provide cost savings, investor interest, and improved brand and competitive advantage,” notes a recent Medtech News article.

However, a sustainable approach to medical device production is not limited to discussions about disposable packaging and whether or not the device is recyclable. Instead, it means considering “how to reduce carbon emissions, energy and water use, and material waste across its entire lifespan, from design and material selection, to supply chain, to manufacturing and distribution,” said Medtech News.

The Lowest Possible Environmental Impact

Developers and manufacturers must consider all of these factors, as well as the safety and usability of the devices for patients and end users. They should “strive to achieve products with the lowest possible environmental impact throughout the product lifecycle without compromising performance, patient safety, functionality, aesthetics, quality, or cost,” notes the pharma industry news publisher On Drug Delivery.

According to these sources, an “eco-design” approach to device development and manufacturing could include:

  • The use of eco-friendly device materials
  • Designing “small” to minimize the use of unnecessary materials
  • Designing to maximize use of existing technologies, such as wireless technology
  • Manufacturing processes that minimize energy and water use
  • Minimal packaging using recyclable or degradable materials
  • Designing devices to ensure easy disassembly, facilitating reuse and recovery of device components at end of life

Medical device manufacturers and distributors, as well as healthcare companies, can also benefit the environment by finding a thoughtful and effective waste management partner. These partners will help ensure that discarded items are destroyed properly and in a sustainable manner, says Medical Device + Diagnostic Industry (MD+DI).

Sharing the Vision

According to MD+DI, the right waste management partner will:

  • Have a shared sustainability vision with its customer
  • Offer customized solutions for the customer’s needs
  • Take a dedicated, personalized approach to recycling and beneficially reusing waste that would otherwise end up in landfills
  • Offer enhanced data tracking and reporting of waste stream management and how efforts align with financial sustainability and corporate goals

The Dynamic Technology Solutions team heard plenty of buzz first hand this past year at industry events, including the Women’s Business Enterprise National Council conference and the Diversity Alliance for Science conference, about the need for businesses to adopt an environmental, social, and governance (ESG) perspective and how ESG is more important than ever. Medical device developers and manufacturers must embrace sustainability strategies and practices or else risk being left out of future business opportunities with companies that are prioritizing ESG.

Here’s another recent Dynamic Technology Solutions story on sustainability and ESG:

The Supply Chain Connection with ESG Performance