Supply chain management may rarely be glamorous but it is essential to the survival of any industry that needs to physically transport a product to a customer in a safe and timely way.

In the case of medical devices, the importance of this process is heightened by the knowledge that lives are on the line, as Kevin Stout, executive director and founder of the Medical Device Industry Supply Chain Council (MedSC), explains: "It’s not like, say, delivering an iPad that, if it arrives late the chances are it’s not going to be the end of the world. If you are a surgeon carrying out a procedure and the device you need is not there, it can be the difference between a patient living and dying."

The consequences of lax supply chain traceability were starkly highlighted last year by the scandal around faulty silicon breast implants supplied to hospitals by French firm Poly Implant Prosthesis. The ongoing fallout from that scandal led to the European Commission in September proposing a tougher clinical evidence and inspection regime on device manufacturers, including more unannounced factory inspections and sample testing.

And even away from such hopefully one-off mishaps, medical device logistics and supply chain management is going through something of a revolution. The development in the US of a ‘unique device identification’ system promises to transform the supply chain landscape. Meanwhile, globalisation and global austerity are providing deep, ongoing challenges for the industry.

Globalisation of the medical devices industry

"When you look at most manufacturers of any size, 50% of their operation will be in the US and 50% outside," says Stout. "So, for the biggest companies we probably find 75% of their business is going to be split between the US and Europe.

"If you are a surgeon carrying out a procedure and the device you need is not there, it can be the difference between a patient living and dying."

"There has been huge globalisation of the medical devices industry in recent years, with the emerging economies and the BRIC nations – Brazil, Russia, India and China – coming much more to the fore.

"Not only do you no longer have single markets but, in very big countries like India, you almost have markets within markets; you can be selling into the equivalent of 20 jurisdictions.

"So, one of the challenges of the supply chain is simply trying to take your product around the world, especially given that in some new markets there may be high requirements but not necessarily high volumes. So it is about building capability commensurate to the volume of that market."

A corollary of this trend is that the industry is experiencing significant consolidation, merger and acquisition activity with local partners.

"We are seeing a lot of M&A activity and building up of the top line", says Stout. "This, in turn, can create challenges around integration of the supply chain, something that is a huge issue right now."

A further backdrop is simply the challenge of ongoing cost pressures around the globe.

"Supply chain people have, of course, always been very focused on cost, but we are seeing things being squeezed tighter," says Stout. "There is also a real challenge around the regulatory aspects of working in an increasingly globalised environment. In somewhere like China, for example, the regulatory environment will be very different to that of the US.

Increasing complexity of medical devices

"Another issue is the increasing complexity of devices, including the development of more combination products. So, for example, you might have an IV bag containing fluid or a drug-eluting stent – are these drugs or devices? And therefore who regulates them? There are also different rules for biological drugs and devices," he adds.

"The development in the US of a ‘unique device identification’ system promises to transform the supply chain landscape."

As well as M&A, there is a growing appetite for partnering, outsourcing and collaboration. Just in October, for example, supply chain giant DHL showcased a new €14 million so-called ‘end of runway’ facility in Leipzig, Germany, designed to better link its outsourced supply chain operations with the DHL Express transport network.

"When it comes to partners, it is partially down to the culture of the two organisations," argues Stout. "There have to be good internal controls but the big thing is there has to be a cultural fit. This is not an environment for risk takers; there has to be a good cultural fit, proven capability and knowledge of the industry.

"Technology has become another huge issue because visibility is such a key concern. It is vital to be able to know where a product is at all times. So you need the technological capability to demonstrate you can know that and that it can be communicated to you in real time. If the product is not there you can lose the patient."

He continues: "The downside risk is very significant. With some devices, especially high-value ones, you also need to be looking at the hospital the device is being shipped to. Some hospitals are not great at inventory management, yet they want everything there tomorrow. So the manufacturers may often find they have to make up for the deficiencies of the hospital set-up.

"You can therefore get a system where the manufacturer even takes over the inventory management to make sure the device can be got there on time and tracked all the way."

Legacy of the millennium bug

For most of us, the technology scare that all our devices were going to grind to a halt at the turn of the milliennium because of being unable to cope with the ’00’ in the year 2000, turned out to be a damp squib. But for the supply chain it was a seminal moment that has continued to have resonance to this day.

"There is a real challenge around the regulatory aspects of an increasingly globalised environment."

"In many respects, Y2K saved our industry," says Stout. "Before that, a lot of the industry was still relying on very outdated systems; there was even a lot of manual tracking. It forced most companies to upgrade their systems and move to single platforms, and the culture that engendered within the industry has stayed with it ever since. There is a lot of focus on inventory visibility.

"There have also been huge advances in how companies communicate with each other. Probably around two thirds of device companies use SAP platforms, so it is perfectly feasible for distributors to build systems that can talk to each other. Therefore you can be in touch with two or three organisations at a time through one system rather than having to rely on multiple links to every single company."

The future of supply chain dynamics

For the future, Stout predicts there is a growing recognition on all sides that economic austerity is here for some time to come, if not permanently.

"There is a recognition that there is no more money and there will be no more money," he says. "Hospitals do not have money, distributors do not have money and manufacturers have less money.

"This means that organisations have to be more creative and, even though times are incredibly difficult, look for opportunities for new ways of working.

"There is going to be much more outsourcing of things such as the manufacturing supply chain, which in turn will create new challenges."

"Providers, too, are going to have to get better at supply chain dynamics. They are going to have to get better at planning, distribution and manufacturing. It will not just be about partnering, although that will remain important, but also self-preservation because people will not be able to continue to push the burden upstream."

Within this, the appetite for partnering, merger, collaboration or even acquisition will show no sign of abating, Stout forecasts.

"There will be a drive towards more collaboration, and not just primary interactions between providers, manufacturers and the sales force," he claims. "There will need to be more involvement of supply chain and logistics experts. Providers are going to need to work more closely with their supply chain side to take cost out of the inventory.

"There will be more partnerships. Not everyone is going to be able to do everything. Pharmaceutical companies are becoming much more like drug development companies, perhaps not even making the actual product any more. So there is going to be much more outsourcing of things such as the manufacturing supply chain, which in turn will create new challenges, especially in areas such as counterfeiting.

"The security and control of the supply chain will continue to grow and become more and more important; how you guarantee the source of your supply, the quality and the quantity," Stout adds.

Business continuity factors

Within this, business continuity factors have always had an important role to play when it comes to supply chain management, and will continue to, predicts Stout. Whether it’s dealing with the fall-out from a natural disaster such as Hurricane Sandy or the severe disruption that accompanied an event such as the 2005 oil storage depot explosion at Buncefield in the UK, continuity and consistency of supply is something that remains a hugely important talking point, especially in an environment where margins are tight and supply chains are generally kept quite lean, argues Stout.

"Continuity and consistency of supply remains a hugely important talking point."

"You can have any number of plans in place but you do also need contingencies for major disasters, which may sometimes involve needing to create temporary partnerships," he says. "You cannot anticipate absolutely everything, so there has to be an element of creativity and flexibility involved."

There is also likely to be an evolution around data management, he forecasts.

"There will be more replacement of inventory with information. It will become less about the physical assets in your pipeline – your trucks and so on – and more of a focus on real-time information. The automotive industry, for example, has been going down this route and medical devices will, I expect, follow.

"It will be about a high-value, low-volume situation, rather than moving truckloads of devices."