The lowdown on logistics29 May 2013
Logistics and distribution are essential parts of the quality proposition of any medical device company, but changes in regulation and global economic factors pose challenges in the drive for efficient, effective and secure logistics processes. We speak to consultant Bruce Stanley about how companies can successfully navigate the regulatory landscape.
The market for medical devices is increasingly global and companies face big challenges in ensuring that their products reach customers in all markets as quickly as possible and in the best condition. Quality, speed and efficiency in the supply chain are essential ingredients, not least because they define how a company is perceived by its customers.
As a result, logistics has become central to the performance of any medical device manufacturer, and as companies place more emphasis on it, they realise that it has become increasingly complex.
"There are many challenges to overcome in the logistics space, especially for global entities, particularly in the area of quality," says Bruce Stanley of The Stanley East Consulting Group. "Consumers are looking at the cost of products, but they want the product to be truly what it claims to be and to comply with global quality standards. The big question is how to meet those standards and get products to their destinations more quickly.
"Sustainability is also crucial in terms of product development, medical waste and where to send waste products. There are also traceability concerns, especially after the events of the last few years when questions have been raised about whether goods are real or counterfeit. With these many different issues that are essential to the level of service a company provides, we have seen logistics become an extension of the quality programmes of large companies."
Stanley has more than three decades' experience in the healthcare industry, during which he has worked on contract management, legal process engineering, supply chain, customer service and compliance projects. His company now works to help biotechnology and medical device companies build sustainable solutions to address key business issues and increase efficiency - and logistics is a prime focus.
During his time in the business, Stanley has seen regulations change dramatically, and the latest round of industry regulations regarding supply chain integrity and medical device tracking are among the most significant in terms of their impact on logistics. However, local regulations in key jurisdictions can also shape strategy and investment decisions.
"In my 30 years in the industry, I have seen logistics become much more than the physical distribution of products," remarks Stanley. "It is now a key partner in the medical device industry. In the last ten years, the focus on supply chain logistics has led companies to realise that they should analyse it in much more detail. Everyone is moving between manufacturing sites for cost reasons - shifting production from China to Vietnam, for example - and that raises the question of where logistics providers should go. Should they follow their customers or should they set up regional centres?
"We are seeing different countries implement manufacturing quotas and import duties, and these can prevent companies from realising the cost savings that logistics experts want," he adds. "So there may be a need to change the mix of where people are and how often they move to new manufacturing sites. Logistics teams need to look at economic trends, processes, locations and how the regulatory landscape is changing."
Mapping the regulatory landscape
Companies in the medical device sector, just like their counterparts in every other industry, are chasing efficiency. Low-cost jurisdictions offer an obvious source of efficiency, but the changing regulatory landscape - as well as high rates of economic growth that can rapidly push up costs - can make it hard to predict how sustainable these cost savings will be in the long term.
"Companies have to consider quotas and import tariffs when they look at moving to lower-cost sites," explains Stanley. "They have to think more broadly and take into account the impact these regulations might have on the cost of logistics. The best logistics-thinkers understand regulations, quotas, healthcare reforms and device-registration procedures. Regulations across the world play a big part in determining the efficiency of a supply chain. Experience tells me that companies must have people on the ground in the places they want to distribute to and manufacture in."
Local knowledge is important because understanding local regulation involves more than knowing the letter of the law. It requires knowledge of how regulations work in a practical sense and an understanding of what drives the development of the regulatory regime.
"You must have people on the ground who know the market and know the rationale behind quotas and tariffs," says Stanley. "Each market is different - there is not one single global market. Each country has unique needs, even when you are talking about mature economies like the US or the different countries in Europe. You need consultants that have a narrow focus.
"Some medical device companies are better than others in understanding these trends and how they impact on costs. Some are very good at staying close to the people who ultimately pay for healthcare in different countries and, therefore, have a better view of the trends in regulation."
Policy and product
The key focus of medical device companies is on creating the right product, but that effort is only worthwhile if it can be delivered to the end-users in a cost-effective way. It is therefore essential not to underplay logistics.
"You can have the best product in the world but you need to stay close to the policymakers in each region or country where it is sold in order to have effective manufacturing and logistics operations," explains Stanley. "It is about policy as much as the quality of the product. You must understand each region's policy on healthcare, how it changes and what drives that change."
"Start-up companies often turn to external consultants as their experts on different markets. Larger companies usually have staff on the ground, but it is important for them to understand that external consultants have the advantage of being unbiased about what they hear about developments in each market. But a lot depends on the uniqueness of a product and whether it is a high-value item."
A detailed understanding of key markets and a presence on the ground to help anticipate future developments in the regulatory space are, according to Stanley, the best ways to put the detail into a global logistics policy. It is this higher level of detail that boosts efficiency and makes for better strategic decisions.
"Some global companies also have customers with facilities all over the world, and these customers often want logistics people to meet their needs across the world," says Stanley. "That is difficult when there are so many differences between jurisdictions. That is why it is important for logistics people to stay close to the policymakers in every region. The industry is no longer as simple as making a product and shipping it."
"A key issue at the moment is that barriers to bringing in products are being put up in countries where the economy is not doing so well, as they are trying to protect their domestic industry. In this case, it may be cheaper to put a facility on the ground in these jurisdictions rather than rely on imports. So, as you can see, logistics strategy has a big impact on economic well-being and the investment decisions that a company has to make.
"The key message is keep a close eye on public policy or you could make a terrible mistake. The cheapest place to manufacture a product may not be the cheapest place to ship from."