Building better supply chain stability in medtech

Historically, lowering material costs has been a key pillar in supply chain management. Keeping costs low, particularly with inflation and global supply chain disruptions, is imperative for gross margin improvement. Fast forward to a world moving past the pandemic, and companies are now prioritizing supply chain reliability. The new focus is on establishing longer-term partnerships and investing in local sourcing. And medtech companies, laser-focused on quality and compliance, are taking notice.

“Medtech supply chain strategies are shifting away from low-cost, single-sourced suppliers. Today, we see manufacturers leverage more local suppliers to hedge against supply chain disruptions,” says Zachary Nelson, management consulting supervisor at RSM US LLP. “It is imperative to consider the entire supply chain when assessing for risk. As part of this, many global clients are rationalizing their sites and realizing lower costs, hiring better employees and deploying automation.”

An increased focus on automation and digitalization

To drive stability, medtech companies are investing more in automation. A low unemployment rate and an industry where niche skill sets are needed, automation can be the solution. Further, many manufacturers see automation resulting in more strategic, data-focused solutions.

“Automation and the use of big data aids companies to identify and close gaps in the supply chain,” says Joe Goldberg, life sciences management consulting leader at RSM. “Many middle market medtech companies have too many products located in many different facilities. By analyzing data, they can determine how best to reorient operations efforts.”

Replacing manual data entry with automation allows medtech workers to focus on higher-value needs. Scanners efficiently move product to digital locations, supply planning uses this data in real time when factoring in sales demand, and purchase orders are then partially or fully filled out for the worker when it is time to replenish.

According to Goldberg, the supply chain areas benefiting most from automation and digitalization include:

• Inventory management
• Warehouse operations
• Logistics and distribution
• Geographical footprint

“Inventory management is a direct benefit of automation. It enables a deep understanding of where inventory is located at any given time,” says Nelson. “With strong data, processes and automation, medtech companies can execute much more efficiently."

Managing uncertainty

An uncertain economic environment can restrict the overall growth potential of midsize companies. The cost of goods has skyrocketed, yet costs can’t always be passed through to customers.

“Companies in the medtech sector are stretched thin trying to meet market demand. This leaves minimal time to focus on expanding their business,” says Goldberg. “Activities like geographic expansion and marketing are then placed on the back burner.”

Improving supply chain management might be on pause as well, to the detriment of the future growth of the company. “The value of analytics allows for a better window into the company's entire supply chain,” says Goldberg. “This promotes cost savings and increased agility in reacting to future disruptions.”

Key considerations

As explained in RSM’s recent article on supply chain and the life sciences industry, companies can take a variety of actions to get started on supply chain improvements. For the medtech sector, these include:

• Conducting basic operational reviews of supply chains to identify areas for improved efficiency
• Investing in supply chain monitoring and reporting from third parties
• Addressing systems and quality processes with integrated digital capabilities, business intelligence and analytics
• Assessing logistics, sourcing and nearshoring opportunities
• Improving regulatory compliance methods through enhanced document control and quality management.

The takeaway

Now more than ever, medtech companies need to understand costs and risks across their portfolios. Companies need to rationalize global facility locations and material sourcing to truly understand where improvement opportunities lie. Only after opportunities are uncovered can supply chain management be enhanced through smart processes, strategic sourcing and data analytics. Successful medtech technology strategies are ones that optimize, automate and analyze business processes. These efforts will drive stability throughout the supply chain and promote growth and profitability for the entire organization.