Ongoing supply chain crisis in 2022 leaves little room for leeway.
Medical devices by nature have longer design cycles and must meet strict compliance requirements. The global semiconductor component shortage has become an acute issue for MedTech companies. The component shortage isn’t affecting just one MedTech device or a single organization. It’s an industry-wide concern that affects hundreds of diagnostics, therapeutics and capital equipment companies producing essential medical technologies — from ventilators and defibrillators to imaging machines, ECG and EEG, to blood pressure monitors and implantable pacemakers.
According to a survey by Deloitte, two-thirds of companies have semiconductors and firmware/embedded software in over half of their products. MedTech’s primary needs are 2nd or 3rd generation chips, placing it in competition with the automotive, industrial and consumer industries for critical chips rather than high tech. All respondents have experienced some disruption to their chip supply chain. The most common disruptions to the supply chain for medical devices are delays, order cancellations and order shortfalls. Delays vary significantly, from 2 to 52+ weeks.
The consequences of these medical supply chain challenges are already making themselves felt. In December 2021, Fresenius Medical Care stated that the negative effect of COVID-19 on its business had been significantly greater than expected. Inflation-related headwinds had an additional impact, so that revenue and net income in 2021 would only be at the lower end of the previously forecast range. GE's healthcare unit reported in January that fourth-quarter revenue of $4.6 billion decreased 4% organically due to ongoing industry-wide supply chain shortages.
Medical supply chain disruption — know your options and prioritize.
You can’t currently prevent a shortage, but you can lessen its impact. And for that, conducting an impact analysis is crucial. It provides clear visibility into the status of your supply and the ability to identify critical components. By reviewing bills of materials (BOMs) and critical shortage lists for each manufacturing site, operations, production and supply chain, teams can first identify the parts that are sourced from high-risk areas and lack ready substitutes, and then prioritize and expedite the material. Parts that are marked as high risk (i.e., single sourced, long lead times, poor supplier performance) during normal market conditions should be elevated in their risk status — depending on the strains placed on the market.
At this stage, working directly with suppliers is key as it creates transparency, accelerates deliveries and gives suppliers the chance to secure gating sub-tier materials. But it’s also the collaboration between the supply chain team and product developers and manufacturing experts that’s pivotal. Together and based on the impact analysis, they can classify risks and prioritize options according to their cost-benefit ratio. How effective which option is depends heavily on the component to be replaced, the supply chain and the product itself.
Strategic Option 1: Drop-In Replacements
When the status of your supply and critical components is at risk, the first step is to look for “drop-in replacement”. Drop in replacement components are defined by having similar parameters to the original component in terms of design and dimension. These alternative parts ensure form/fit compatibility within the incumbent and alternate components and therefore often dispel the need for any design change at the product level. In the best case, the bill-of-material can be easily extended to include corresponding manufacturers and the documentation effort is kept within limits.
Strategic Option 2: Close or Similar Components
The situation is somewhat different with functionally identical components that deviate from the original part in terms of design and size. Minor modifications to the design are not uncommon here, although the extent of the adaptations varies from product to product. Where a resistor can be easily replaced in one device, in another it takes on a functionally critical role in the measurement and must meet special requirements. Such critical-to-function (CTF) components cannot be identified from a Bill of Materials (BOM) alone. Specification comparison tables compare the original components as well as the proposed alternatives. Only then can a reasonable decision be made regarding alternative components.
Strategic Option 3: Redesign
Another option is to redesign the product with parts that are, simply put, readily available. For a long time, this time-consuming and cost-intensive approach was considered a last resort. Especially as a new design often entails a new certification of the product. However, given the state of the supply chain for medical devices, OEMs sometimes have no choice but to go this route to continue manufacturing — even if the redesign will add a couple of quarters to the timeline of a product’s market introduction.
While re-designs are never ideal, they can also be seen as a unique opportunity. In medical technology, the optimization potential of devices and products is often not fully exploited. The reason is a simple cost-benefit analysis: the savings achieved by a new design simply do not pay off compared to the qualification costs. And in the case of complex high-tech devices, the quantities involved are not high enough. If a redesign is unavoidable due to delivery bottlenecks, why not kill two birds with one stone and implement long-planned improvements or new features in the new product design at the same time? This offers the chance to modify an existing design, incorporate new features and updates or optimize the manufacturing process to reduce costs and time in the long-term.
Engineering, supply chain and manufacturing overcoming challenges through collaboration
Whether manufacturers are looking for alternative components or redesigning the product, the supply chain for medical devices must be considered in every approach. Drop-in replacements may no longer be available tomorrow and functionally identical components may exceed budgets. In the industrial supply chain, delivery times, availability and prices are currently changing as fast as the weather. What can be delivered today for X amount will cost twice as much tomorrow or will only be on the market again in two months.
This makes it all the more important to keep a cool head and carefully examine the options in terms of effort and costs. Even the best re-design is of little help if the supply chain is not actively considered during the development phase (“Design for Supply Chain” DfSC). In turn, the overall availability of all components of a product can only be analyzed on the basis of comprehensive supply chain expertise. And finally, the feedback loop between the engineering team and the manufacturing team must be kept open to ensure that a new or adapted product idea can be implemented in practice (“Design for Manufacturability”, DfM). In this scenario, engineering, manufacturing and supply chain are all pulling in the same direction.
Considering all these concepts on your own can be an overwhelming task. Bringing in an external partner with design, technical and manufacturing capabilities can bring valuable insights and knowledge for implementing the suitable design methods, resulting in faster time to market and better product quality at lower costs.
Reimagining strategies in the supply chain for medical devices.
There is no single solution to solve the current supply chain crisis. It’s clear that businesses need to reimagine their strategies and increase resiliency. For example, more and more manufacturers are now building up safety stocks and storing critical components themselves. Here, costs can be planned and disruptions in the global medical supply chain can be better handled, at least in the short term. Setting up a local warehouse of this kind can be an important building block for a resilient supply chain in the future. However, this strategy is of little help to manufacturers in the event of acute supply bottlenecks — especially since not every manufacturer has the necessary resources.
If a company hopes for better prices, waits for available parts and puts off new products, it will not be able to keep up with the competition in the medium and long term. Especially since an end to the supply chain crisis in 2022 is difficult to predict and experience shows that prices won’t necessarily return to pre-pandemic levels. The supply chain for medical devices has changed permanently. It’s time for new strategies — along with new partners to help guide you through it.