Health-care providers face extraordinary cost pressures today, due in large part to declining reimbursements for services. As a result, they are seeking opportunities to reduce costs without diminishing the quality of patient care. Medical devices are prime targets for these cost-cutting measures, and health-care providers are asking manufacturers for significant price reductions. What can manufacturers do to meet those demands?
They can start by eliminating significant waste and inefficiencies in the medical-device supply chain. To do this, medical-device manufacturers will have to make seven key improvements in their supply chains. The first three are operational improvements, and the last four are "cultural" shifts in how manufacturers and logistics service providers think about the medical-device supply chain.
On the operational side, the supply chain needs to be more streamlined, reducing the number of touch points so that there is less product handling. Next, there needs to be more transparency, so companies can better track products as they travel from the manufacturing plant to the patient; this will require a significant investment in technology in order to see a product's entire path through the supply chain. Third, companies will need to provide more resources for compliance to meet growing regulatory requirements. Deep expertise in health-care logistics is key to staying ahead of increasingly complex and critical regulatory changes—changes that are happening very quickly. In just the last five years, for example, our third-party logistics (3PL) business has seen a 300 percent increase in regulatory inspections of medical warehouses.
The next four adjustments relate to changing the culture of the medical-device supply chain so it will be better aligned to meet the new and growing challenges in health care. To begin with, the supply chain must be more flexible in its network design, to create new solutions that accommodate the growing shift in care from the hospital to more cost-effective locations, including patients' homes. Next, supply chain decisions must be more insightful, making better use of technology to establish clear demand signals that optimize inventory levels. Supply chain partners should be more collaborative, working together to create more effective shared warehousing and transportation strategies. Finally, all organizations in the medical-device supply chain need to be more nimble to manage the constant change in product complexity, regulatory compliance, transportation, warehousing, and points of care.
Implementing any one of these improvements will be difficult, and combining all seven into a cohesive strategy will be extremely challenging. But it is possible, and indeed will be essential to success in the new and fast-changing world of health-care delivery.
A three-part prescription
To implement the operational improvements mentioned earlier, creating new efficiencies and cost savings, medical-device manufacturers will need to take three actions.
1. Consolidate freight across manufacturers to improve efficiency. Based on our experience, approximately 65 percent of freight in health care today is transported via less-than-truckload (LTL) services. While the remaining 35 percent is transported as full truckloads (FTL), the trucks themselves are rarely full to capacity. In our experience, trucks typically operate about three-quarters full. Manufacturers that ship in truckloads do gain some time and cost savings compared to LTL, but significantly less than would be achieved if the trucks were running at full capacity. The most effective way to run at full capacity is to combine shipments from multiple manufacturers whose products are bound for the same destinations.
In addition to greater efficiency and cost savings, consolidation offers other important benefits. Because there are fewer product touches than in a traditional LTL approach, there's less opportunity for potential damage and claims, resulting in fewer shortages and losses. Plus, driving full trucks reduces transportation's impact on the environment. Fewer aggregate miles are driven, requiring less fuel and lowering greenhouse gas emissions.
2. Take advantage of multitenant warehouses to further improve efficiency. Traditionally, the warehousing of medical devices has been fraught with waste and inefficiency. In essence, each manufacturer creates its own supply chain infrastructure, building warehouses that typically have excess capacity from the start. These warehouses may only be 60-70 percent full at any given time, yet 100 percent of the infrastructure cost has to be maintained.
In fact, I have seen two manufacturers located side-by-side in the same industrial park, each with half-full warehouses. I've also seen a manufacturer with two full warehouses situated just a few miles apart. Neither scenario has ever made sense. In today's environment of relentless cost pressures, it's unsustainable.
As with transportation, the answer for warehousing is consolidation—in this case, combining inventory from multiple manufacturers in the same, shared facility. Doing so eliminates redundant expenses. This is especially important when it comes to the highest-cost services in health-care logistics, such as regulatory expertise. Medical-device regulations change constantly; rather than maintain their own experts, manufacturers that store products in the same facilities can share the regulatory costs with others. The same holds true for information technology (IT), which is another critical and high-cost function that manufacturers can share when they utilize a common warehousing infrastructure.
3. Eliminate excess inventory. Inefficient transportation and warehousing both lead to a common problem in health care: too much inventory sitting on the shelves instead of taking care of patients. Stories abound of nurses who hoard supplies on the hospital floors to make sure they never run out. Now magnify that to the warehouse level, and it becomes clear just how big the excess inventory challenge really is.
No wonder low inventory turns are a chronic problem in health care. For comparison, consider inventory turn rates in industries where supply chains operate far more efficiently. In consumer electronics, for example, the average inventory turn is 44. In the automotive industry, it's 10, and in consumer packaged goods, six. But in medical devices, the average inventory turn is just over two.
It's no surprise that maintaining excess inventory is rampant in health care. After all, patients' lives depend on these products, so health-care providers require high fill rates.
But there's a better way to achieve the necessary level of inventory availability than carrying the needless costs of hoarding products. It starts by creating full visibility and tracking of products, from one end of the supply chain to the other. In order to be able to take meaningful action based on your field inventory data, it is critical to get visibility at point of use. Finally, it's essential to build a warehousing and transportation infrastructure that can quickly act on this data, always maintaining the most efficient levels of inventory and then being ready to deliver products quickly, efficiently, safely, and cost-effectively to the point of care.
Driving success by the numbers
Building efficient supply chains can help medical-device makers save a significant amount of money in the changing world of health care. For example, by implementing best practices such as those outlined in this article, our company helped one medical-device manufacturer save more than US $2 million in transportation costs and $250,000 in regulatory costs in just 24 months. Another manufacturer achieved a total cost reduction of $550,000 over a 16-month period—with near-zero freight claims, a 5 percent decrease in transit times, and a reduction of variability within its supply chain.
For medical-device makers, achieving such dramatic cost improvements will not be easy. They will have to undertake the operational changes—becoming more streamlined, gaining more transparency, and focusing more resources on compliance—discussed earlier, as well as make the cultural improvements—becoming more flexible, more insightful, more collaborative, and more nimble—required to support those operational changes.
In the long term, it will be well worth the effort. As medical-device manufacturers come under increasing pressure from health-care providers to reduce costs, the supply chain can become a greater, more reliable source of new efficiencies and savings. Just as important: Improving health-care logistics can be a key not only to lowering costs, but also to improving the care of patients. Dollars saved today in the health-care supply chain can be redirected to research and development to improve or develop new medical devices tomorrow.
Container flows at dozens of U.S. East Coast and Gulf Coast ports shuddered to a simultaneous stop this morning when dockworkers launched a promised strike over pay levels and job automation.
The action is affecting work at major locations such as New York/New Jersey, Savannah, Houston, Charleston, Norfolk, Miami, Baltimore, Philadelphia, New Orleans, Jacksonville, Boston, Mobile, Tampa, and Wilmington. That broad span of geographic locations will affect imports and exports for industries spanning retail, automotive, agriculture, food and beverage, and manufacturing, according to an analysis by Overhaul.
Those impacts are forecast to grow rapidly with each additional day the strike continues, since more than 100 vessels are estimated to arrive at the 36 affected ports this week alone, according to analysis by supply chain visibility provider Project44. The recovery from that backup could take some time, as some shippers estimate that for every one week of strike, it will take 4-6 weeks to fully recover, the firm said.
Because of the sudden stop, logistics providers today are quickly reaching out to shippers and other clients to plan for future cargo movements. Specifically, the strike immediately froze a range of work such as the movement of import and export containers and the loading and unloading of containers, according to German maritime transportation provider Hapag-Lloyd AG. “As a result of this situation, which is beyond our control, we will need to adjust our services or temporarily suspend operations as conditions evolve. Our priority remains the protection of your cargo during this period,” Hapag-Lloyd AG said in a note to shippers.
Despite those large impacts, the timeline is unclear for finding a resolution of negotiations between the union—the International Longshoremen’s Association (ILA)—and the port management group, United States Maritime Alliance (USMX).
Under those conditions, retail and manufacturing groups have renewed their calls for their White House to step in and force workers back on the job while negotiations resume.
One of those voices came the National Retail Federation (NRF). “NRF urges President Biden to use any and all available authority and tools — including use of the Taft-Hartley Act — to immediately restore operations at all impacted container ports, get the parties back to the negotiating table and ensure there are no further disruptions,” NRF President and CEO Matthew Shay said in a release. “A disruption of this scale during this pivotal moment in our nation’s economic recovery will have devastating consequences for American workers, their families and local communities. After more than two years of runaway inflationary pressures and in the midst of recovery from Hurricane Helene, this strike will result in further hardship for American families.”
Perfect Planner, a cloud-based platform designed to streamline the material planning and replenishment process, and Flying Ship, an unmanned ground-effect maritime cargo craft, took home the second annual “3 V’s of Supply Chain Innovation Awards” tonight at the Council of Supply Chain Management Professionals (CSCMP) annual EDGE Conference in Nashville, Tennessee.
This awards contest is hosted by Supply Chain Xchange and 3 V’s framework creator and supply chain visionary Art Mesher. It serves to recognize those companies that have created technology or automation solutions that exemplify Mesher’s 3 V’s framework of “embracing variability, harnessing visibility, and competing with velocity.”
Business Innovation Award
Art Mesher, creator of the 3 V's Framework (left) and Rick Blasgen (right), former CSCMP President and CEO, present Tom Biel (center), CEO of Perfect Planner, with the 3 V's Business Innovation Award.
Susan Lacefield
Perfect Planner won the 3 V’s Business Innovation Award for its software solution that uses artificial intelligence to automatically generates daily "to-do lists" for material planners/buyers. All the “to-do’s” are ranked in order of criticality. The solution also uses advanced analytics to understand and address inventory shortages and surpluses.
The two other finalists for the Business Innovation Award were AutoScheduler AI, a predictive warehouse optimization platform, and Davinci Micro Fulfillment, which provides a micro fulfillment service out of a network for small distribution centers across the United States.
Best Overall Startup Award
Flying Ship was awarded the Best Overall Startup Award. The company has designed an unmanned flying ground-effect maritime vessel. Although the Flying Ship looks like a small aircraft or large drone, it is classified as a maritime vessel because it does not leave the air cushion over the waves, similar to a hovercraft.
According to Flying Ship CEO Bill Peterson, the craft is 75% less expensive than a traditional aircraft and “faster than anything on water.” The prototype has a wingspan of 6.5 feet and can be scaled up to deliver 10,000 pounds of freight to “anywhere with a coastline” using autonomous systems.
The other startup finalist included Arkestro, a predictive procurement orchestration solution, and Provision AI, an optimized replenishment and transportation scheduling solution.
On Monday morning at CSCMP’s 2024 EDGE Conference, Darcy MacClaren, chief revenue office, digital supply chain, at technology company SAP, lead a lively discussion with a panel of women supply chain leaders on how to recruit, retain, and empower future supply chain leaders.
Panelists included Cindy Cochovity, executive vice president of strategic development at software company FreightPath; Heather Dohrn, chief commercial officer at trucking company Dohrn Transfer Company; Jennifer Kobus, senior vice president of supply chain planning and operations at retailer Ulta Beauty; Ammie McAsey, senior vice president of customer distribution experience at pharmaceutical company McKesson; and Michelle Williams, a supply chain teacher at Clyde C. Miller Career Academy, a high school in St. Louis, Missouri.
Touching on more than just the challenges they faced in supply chain as women, the panelists spoke about creating “destination" companies—places where top talent can work, grow, and thrive. According to MacClaren, younger workers “want more than just competitive compensation—they want to feel appreciated, involved, and inspired. They seek a workplace with a strong, inclusive culture that aligns with their values, offers meaningful work, and provides an opportunity for growth and development.”
The panel covered an array of topics including how to inspire the next generation of talent, strategies for engaging and coaching young professionals, how to attract diversity, and how to address change management. In addition, they shared personal experiences that helped them achieve their leadership roles and ended with some key takeaways for the audience members.
Here’s a snapshot of action items from the discussion:
1. Ensure a diverse slate of candidates for open positions.
2. Leverage internal and external networks to find diverse candidates.
3. Nurture and mentor new hires to help them thrive.
4. Remain authentic, vulnerable, and transparent as a leader.
5. Advocate for yourself and your career progression, not just for your team.
6. Seek out mentors and advocates, especially other women in leadership positions.
7. Open doors and bring others in, regardless of your own position.
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Supply Chain Xchange Executive Editor Susan Lacefield moderates a panel discussion with Supply Chain Xchange's Outstanding Women in Supply Chain Award Winners (from left to right) Annette Danek-Akey, Sherry Harriman, Leslie O'Regan, and Ammie McAsey.
Supply Chain Xchange recognized four women who have made significant contributions to the supply chain management profession today with its second annual Outstanding Women in Supply Chain Award. The award winners include Annette Danek-Akey, Chief Supply Chain Officer at Barnes & Noble; Sherry Harriman, Senior Vice President of Logistics and Supply Chain for Academy Sports + Outdoors; Leslie O’Regan, Director of Product Management for DC Systems & 3PLs at American Eagle Outfitters; and Ammie McAsey, Senior Vice President of Customer Distribution Experience for McKesson’s U.S. Pharmaceutical division.
Throughout their careers, these four supply chain executive have demonstrated strategic thinking, innovative problem solving, and effective leadership as well as a commitment to giving back to the profession.
The awards were presented at the Council of Supply Chain Management Professionals (CSCMP) annual EDGE Conference in Nashville, Tenn. In addition to the awards presentation, the leaders discussed their leadership philosophies and career path during a panel discussion at the EDGE conference.
The surge of “nearshoring” supply chains from China to Mexico offers obvious benefits in cost, geography, and shipping time, as long as U.S. companies are realistic about smoothing out the challenges of the burgeoning trend, according to a panel today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
Those challenges span a list including: developing infrastructure, weak security, manual processes, and shifting regulations, speakers said in a session titled “Nearshoring: Transforming Surface Transportation in the U.S.”
For example, a recent Mexican government rail expansion added lines to tourist destinations in Cancun instead of freight capacity in the Southwest, said panelist Edward Habe, Vice President of Mexico Sales, for Averitt. Truckload cargo inspections may rely on a single person looking at paper filings on the border, instead of a 24/7 online system, said Bob McCloskey, Director for Logistics and Distribution at Clarios, LLC. And business partners inside Mexico often have undisclosed tier-two, tier-three, and tier-four relationships that are difficult to track from the U.S., said Beth Kussatz, Manager of Northern American Network Design & Implementation, Deere & Co.
Still, dedicated companies can work with Mexican authorities, regulators, and providers to overcome those bottlenecks with clever solutions, the panelists agreed. “Don’t be afraid,” Habe said. “It just makes sense in today’s world, the local regionalization of manufacturing. It’s in our interest that this works.”