|Exhibit 1: Healthcare Success with Core Supply Chain Issues|
|Photo courtesy of UPS|
Regulatory issues, whether they be with FDA or the hurdles of entering a new market, consistently rank among the largest challenges for medical device supply chains, according to UPS’ 2015 Pain in the (Supply) Chain survey results. While some jockeying occurs between cost management and product protection (damage, spoilage, even anti-counterfeiting maneuvers), the top three answers remain steady and have so in the eight years that the report has been released. This is an indicator that device companies of all sizes have not yet implemented best practices to solve the steady stream of fluctuating supply chain challenges.
The levels of success that firms experience dealing with those three challenges shifts from year-to-year, says Robin Hooker, Director, Healthcare Marketing, UPS. This year's results can be seen in Exhibit 1. Hooker adds that in areas where medical device companies have chosen to focus their energies, like collaborative logistic efforts, the segment has outperformed its peer groups: pharmaceuticals and biopharmaceuticals.
This year, for the first time, the UPS survey also explored specific ways that companies and firms seek to reduce costs. Due to fluctuating fuel prices, the number one answer was optimizing transportation costs. Tied for the second most cited cost-cutting measure: gaining better inventory visibility and consolidating the total number of transportation providers.
Scrutiny of the supply chain extends beyond OEMs and their transportation providers. Hospital systems also seek to reduce spending on supply chains.
Cardinal Health recently completed a national survey of hospital executives, in which 85 percent of respondents said that their health systems are currently working to identify or implement new ways to reduce supply chain waste and related costs.
“I’d say that we’re seeing a trend in which health systems want ways to better leverage data and analytics, and to promote transparency and efficiency in the supply chain,” says Mike Duffy, President of Hospital Solutions and Global Supply Chain at Cardinal Health.
Shriharsha Parampalli, Senior Consultant for WNS, says that better leveraging data could eliminate some of the problems his company sees in the orthopaedic supply chain, including a dearth of timely, accurate information related specifically to pricing. A recent study, Parampalli says, showed that orthopaedic surgeons “drastically underestimate the cost of the device to be implanted in the premium (over $5,000) category.” That misguided estimate has profound implications for the supply chain, as well as the end-consumer. Parampalli says that pricing opaqueness leads to a distorted view of supply chain costs and difficulty in unbundling supplier product price from overall procedure costs, which would help minimize wasteful expenses.
Cardinal is working with integrated delivery networks (IDNs) to identify these hospital systems’ aggregate spend across care sites, to locate areas of potential cost avoidances. Then, Duffy says, they work together to rationalize product portfolios and manage system-wide formularies so there is more control over the supply chain.
Major Pain Points
Tommy Russell, Manager, Global Field Operations for Arthrex, acknowledges a number of individualizing factors that make orthopaedic supply chains unique versus other industries, including the tight windows for delivery and the life or death nature of inventory. But many pain points are shared across all OEMs and are already familiar to most of the industry.