Ranica Arrowsmith, Associate Editor02.17.16
Walmart is the world’s biggest company by revenue. It stands for everything big: big money, big stores—and big problems. The company has grown from its foundation in 1962 to a global network of 11,620 stores (at last count), 2.2 million employees, and a whopping $486 billion in revenues in 2014. Walmart has done all this despite its many pitfalls along the way, including front-page scandals such as a major bribery scandal in Mexico (2012), predatory pricing practices, unfair treatment of workers, and even the use of slave labor in Thailand to produce their prawn products (2014). There even exists more than one watchdog organization solely dedicated to keeping an eye on Walmart and its alleged questionable business practices: Wal-mart Subsidy Watch, TheWritingOnTheWal, Making Change at Walmart (formerly Walmart Watch), AgainstTheWal.com, to name a few. But despite the watchful eyes of the public and countless lawsuits over the years (a 2005 estimate put the number of lawsuits brought per year at 5,000), the retail giant persists in its success.
How?
There are many ways to answer that question. The first and most obvious is that the developed world has acquired, partly through the efforts of big box stores like Walmart, an insatiable desire for cheap, non-essential goods. And Walmart even manages to provide the essentials, such as basic food products, at the cheapest prices due to its hefty size and bargaining power with its vendors—business analysts at research and analyst company Gartner note that “Walmart uses its mammoth purchasing power to shape suppliers’ behavior, which also drives down costs.” According to a University of San Francisco report last year, Walmart’s hugely successful fiscal 2014 (a $10 billion increase from 2013) was driven by its “sprawling supply chain,” which moved from number 14 to No. 13 on Gartner’s annual supply chain ranking (Apple and McDonald’s top the list).1 Gartner’s analysts called Walmart a “perennial supply chain powerhouse.”
According to an article by logistics company Cerasis, “Not only has Walmart excelled over the decades in traditional supply chain management but ... [it] is also focused on continuous improvement by investing more into emerging technologies to capture more of the e-commerce market ... .”2 Indeed, logistics through an elaborate and sophisticated digital and web-based network are a major part of what drives any large company’s supply chain. But the human component behind and between the computers is a vital and indispensable part of supply chain considerations. Walmart has 160 distribution centers covering almost 120 million square feet, all of which lie within 130 miles of the stores it supplies. The company has also instituted cross-docking at its warehouses, a method that moves inventory directly from arriving or departing trucks. The people who drive Walmart’s trucks—and indeed the many shipment trucks in America—arguably run the nation. Walmart uses its own trucking fleet and drivers, maintaining high minimum standards for its thousands of drivers, including three years and 250,000 miles of driving experience as well as no preventable accidents in three years.
Despite catchy marketing, America does not in fact run on Dunkin (Donuts). Almost inarguably, America runs on trucks—15.5 million trucks, to be precise. According to truckinfo.net, the United States economy depends on trucks to deliver nearly 70 percent of all freight transported annually, accounting for $671 billion worth of manufactured and retail goods transported by truck in the United States alone. Add $295 billion in truck trade with Canada and $195.6 billion in truck trade with Mexico. Many pundits have noted that when the trucks stop, so does America. If you want to test the theory, just walk into any grocery store two to three days after a major snowstorm. The produce baskets (not just the bread, milk and eggs!) are noticeably bare. If trucks can’t drive, within days, entire regions lose access to perishable goods.
Transportation is just one example of the key human components that drive supply chain. As David Mastromatteo, managing director of Dallas, Texas-based LifeScience Logistics LLC noted to Orthopedic Design & Technology, “A big misconception [about supply chain] is that there is a computer system or program that can fix everything. There are so many complex processes to follow in a healthcare supply chain that I believe most people would be surprised about how many processes are manual and are difficult to cost effectively automate.”
Keeping Things Moving
So, next down the supply chain line of what’s on the shelf—either at Walmart, your grocery store or a hospital—are the transporters who get those items on the shelf. Efficiency in transport is big business in America and indeed the world, and trucks branded with the FedEx and UPS logos, for instance, are well-known sights on U.S. highways and roads.
UPS (United Parcel Service of America Inc.) has been studying the medical device supply chain with an annual survey called “UPS Pain in the Chain” since 2008. Last year, the survey was conducted by research agency TNS between April and June. A total of 421 interviews of healthcare logistics executives were carried out in 16 countries.
According to the survey results, healthcare and life science executives are having success addressing product security and regulatory compliance, citing partnerships with third-party logistics companies as part of a successful strategy. However, product damage and spoilage remains a concern as products become more complex and in-transit monitoring and intervention options are underutilized. Companies are seeing success through partnerships with higher-quality shipping companies and the use of faster shipping service levels, with 63 percent reporting success in addressing product damage and spoilage issues, but opportunities for further improvement remain.
Respondents said that cost management is still a substantial supply chain issue, even though the level of concern is declining year-over-year. Healthcare logistics decision makers report rapid business growth, fluctuations in fuel and raw materials costs, increasing regulations, and new market expansion as the biggest challenges to managing supply chain costs. And finally, contingency planning is an area healthcare and life sciences companies may find hard to justify investments in, based on the limited and unpredictable impact of disruptions to the supply chain. Unplanned events have impacted healthcare supply chains in the last three to five years, but a large percentage of supply chain decision-makers still do not consider the subject important.3
In terms of cost management, UPS claims supply chain optimization for medical devices has to be part of a best-in-class business strategy. “Traditionally, in the orthopedic-device supply chain, deliveries are often sent next-day air in order to make operations in time,” Josh Cannon, director of global healthcare strategy for UPS, told ODT. “However, the most expensive transportation option is not always the most efficient. By engaging in inventory planning, and stocking inventory near demand centers, deliveries can reach their destination in a faster and more cost-effective manner.”
According to Cannon, one of the main points of concern for orthopedic device manufacturers is an excess of inventory. “Orthopedic device transportation is challenged with excess inventory in multiple areas of the supply chain,” he said. “For many manufacturers, upwards of 70 percent of their inventory is located out of their direct control with distributors, sales reps or in hospital consignment. This makes it increasingly difficult to track and manage inventory, resulting at times in product expiration, scraps and write-offs. With multiple price and cost pressures hitting the medical device industry, efficient supply chain and inventory management can be the difference between business gain and loss.”
“Delivery and accuracy are critical,” said Mastromatteo, giving an orthopedic device supplier’s point of view. “Many orthopedic devices are ordered for specific surgeries taking place at fixed times. A breakdown in the supply chain could cause a surgery to be canceled or rescheduled or an alternative product being used.”
Seventy percent of inventory that is out of the direct control of the manufacturer sounds like a frightening prospect, but it is the reality that device makers have to come to terms with. In light of this reality, the importance of maintaining positive relationships with supply chain partners becomes all the more apparent. From the perspective of a manufacturer, the biggest challenge they face is maintaining that fruitful relationship—not because it is an odious task, but because it is a constant one that demands unyielding attention.
“The key word here is relationship,” Christophe Gilson, supply chain manager for Memphis, Tenn.-based contract manufacturer In’Tech Medical Inc. explained to ODT. “We are in the business of building long-term relationships with our supply chain partners and customers. Working with suppliers, reliability is essential—suppliers must hold delivery commitments and rapidly communicate on issues as they arise. They also need to have a crystal clear quality system exceeding industry standards. With our customers, the key is for us to communicate candidly and quickly about volume, lead times and more. The more we know about their needs, the more we will be able to propose manufacturing solutions and productivity improvements.”
Talk To Me, Baby
Both UPS’ Pain in the Chain survey as well as ODT’s collection of responses from orthopedic device contract manufacturers revealed how important cost is to both medtech original equipment manufacturers (OEMs) and contract manufacturing organizations (CMOs). In almost every aspect of medical device manufacturing, cost is of utmost concern to CMOs, who are now competing with manufacturers overseas to produce devices cheaper. But according to Supplychain247.com’s most recent Best Practices column, “suppliers are evaluated and selected not only on the basis of price, but also on indicators of their ability to work as collaborative partners.”4 This relationship-compatibility evaluation is what saves an intricate supply chain from collapsing under the pressures of delivering time- sensitive, highly regulated products such as orthopedic devices and implants.
It is a mistake to expect an orthopedic device CMO to “Just make the part and ship it at a low price,” said President and CEO of Micro Machine Company, Andrew Miclot. “In a regulated industry, many more requirements cause increasing costs to suppliers. Total value becomes more important instead of just pricing. We have strong relationships with customers as a 50-year-old company. They know our strengths and capabilities and we can react quickly. We have relationships where people actually talk to people.”
The way Rockaway, N.J.-based IonBond LLC approaches its supply chain relationships is to make sure it is involved in the device’s design cycle from start to finish and beyond. “As a surface enhancement subcontractor to the machine shops that manufacture implants and surgical instruments for the OEMs, one of the biggest challenges faced is not always being included in the upfront design process,” Plant Manager Dave Neal told ODT. “Early inclusion allows for consideration of what can be coated, how to mask and where to fixture. Additionally, educating both the design and procurement staff on the features/benefits and application process of surface enhancements is an ongoing mission of the supplier. On-site seminars, lunch and learn sessions, and technical summits are great venues for exchanging ideas and concepts. It’s satisfying to see a customer’s eyes light up when they learn about surface enhancement technology and imagine ways they can improve the medical device being developed.”
“Developing trust at the outset of the relationship is critical,” LifeScience Logistics’ Mastromatteo added. “In some cases it is challenging to prove your competence to all stakeholders in the process. Since supply chain touches almost every process in an organization, you need to capture the global view of the entire process from marketing, sales, operations, quality and finance. You cannot just look at your piece of the supply chain. You must understand the whole picture.”
It is important to note just how many ways human relationships affect supply chain relationships. Negotiation, for instance, which affects the constant bugbear of cost, can never be performed by computers; re-contracting with partners very often depends on how well the partners communicated, and even just how fun the conversations were. There certainly are some large companies that are able and willing to use strongarm negotiation tactics to dictate pricing and contract terms in ways that benefit them the most.
However, this does not make for an effective partnership. In a business such as medical device manufacturing, and in particular orthopedic device manufacturing—which is much more niche—fruitful and goodwill partnerships can last for decades if there is mutual respect.
“As is the case with any team dynamics, communication is the key to developing successful supply chain relationships,“ IonBond’s Neal said. “Suppliers must maintain contact with the customer on new technologies being developed to address clinical needs which may be of interest to the OEM. Additionally, good customer-supplier communication allows for on-time product launches when mutually agreed upon dates and forecast quantities are clearly established.“
That is not to say there is no place for a careful evaluation of said supplier relationships and communication: “Supplier relationships are very important to Orchid,” said Nils Hordon, director of global supply chain for Holt, Mich.-based medical device contract design and manufacturing company Orchid Orthopedic Solutions LLC. “It’s not only as a matter of good practice, but it’s critical for high mix/low volume businesses. We have implemented and actively maintain multiple tools to maintain our supplier relationships, such as agreed-to metrics and methods for measuring success, as well as ensuring like methods for communicating—all captured in a scorecard that’s reviewed on a quarterly basis. Good communication and clear metrics are key for productive supplier relationships.”
And as always, at the end of the supply chain for orthopedic devices is a patient. This is the core of the medtech industry. There is always a life that will be improved or saved by the innovation and efficiency that gets the device to them. A 2013 white paper from business management consultant company McKinsey & Company noted that better supply chain performance in the medical device industry not only can reduce costs, it can also improve access, reducing device shortages in developed markets and delivering affordable healthcare to millions more people in emerging markets. Additionally, better supply chain performance can be transformational for safety by making it harder for counterfeit products to enter the supply chain and reducing the human and financial toll of medication errors.5
As Hordon notes, “There is no one big challenge for supply chains today ... The challenge is to manage the multiple considerations to best position the supply base for success, and in turn maximize the value provided by the supplier. The various considerations can, however, have different priorities. For Orchid, quality is the highest consideration.“
References:
How?
There are many ways to answer that question. The first and most obvious is that the developed world has acquired, partly through the efforts of big box stores like Walmart, an insatiable desire for cheap, non-essential goods. And Walmart even manages to provide the essentials, such as basic food products, at the cheapest prices due to its hefty size and bargaining power with its vendors—business analysts at research and analyst company Gartner note that “Walmart uses its mammoth purchasing power to shape suppliers’ behavior, which also drives down costs.” According to a University of San Francisco report last year, Walmart’s hugely successful fiscal 2014 (a $10 billion increase from 2013) was driven by its “sprawling supply chain,” which moved from number 14 to No. 13 on Gartner’s annual supply chain ranking (Apple and McDonald’s top the list).1 Gartner’s analysts called Walmart a “perennial supply chain powerhouse.”
According to an article by logistics company Cerasis, “Not only has Walmart excelled over the decades in traditional supply chain management but ... [it] is also focused on continuous improvement by investing more into emerging technologies to capture more of the e-commerce market ... .”2 Indeed, logistics through an elaborate and sophisticated digital and web-based network are a major part of what drives any large company’s supply chain. But the human component behind and between the computers is a vital and indispensable part of supply chain considerations. Walmart has 160 distribution centers covering almost 120 million square feet, all of which lie within 130 miles of the stores it supplies. The company has also instituted cross-docking at its warehouses, a method that moves inventory directly from arriving or departing trucks. The people who drive Walmart’s trucks—and indeed the many shipment trucks in America—arguably run the nation. Walmart uses its own trucking fleet and drivers, maintaining high minimum standards for its thousands of drivers, including three years and 250,000 miles of driving experience as well as no preventable accidents in three years.
Despite catchy marketing, America does not in fact run on Dunkin (Donuts). Almost inarguably, America runs on trucks—15.5 million trucks, to be precise. According to truckinfo.net, the United States economy depends on trucks to deliver nearly 70 percent of all freight transported annually, accounting for $671 billion worth of manufactured and retail goods transported by truck in the United States alone. Add $295 billion in truck trade with Canada and $195.6 billion in truck trade with Mexico. Many pundits have noted that when the trucks stop, so does America. If you want to test the theory, just walk into any grocery store two to three days after a major snowstorm. The produce baskets (not just the bread, milk and eggs!) are noticeably bare. If trucks can’t drive, within days, entire regions lose access to perishable goods.
Transportation is just one example of the key human components that drive supply chain. As David Mastromatteo, managing director of Dallas, Texas-based LifeScience Logistics LLC noted to Orthopedic Design & Technology, “A big misconception [about supply chain] is that there is a computer system or program that can fix everything. There are so many complex processes to follow in a healthcare supply chain that I believe most people would be surprised about how many processes are manual and are difficult to cost effectively automate.”
Keeping Things Moving
So, next down the supply chain line of what’s on the shelf—either at Walmart, your grocery store or a hospital—are the transporters who get those items on the shelf. Efficiency in transport is big business in America and indeed the world, and trucks branded with the FedEx and UPS logos, for instance, are well-known sights on U.S. highways and roads.
UPS (United Parcel Service of America Inc.) has been studying the medical device supply chain with an annual survey called “UPS Pain in the Chain” since 2008. Last year, the survey was conducted by research agency TNS between April and June. A total of 421 interviews of healthcare logistics executives were carried out in 16 countries.
According to the survey results, healthcare and life science executives are having success addressing product security and regulatory compliance, citing partnerships with third-party logistics companies as part of a successful strategy. However, product damage and spoilage remains a concern as products become more complex and in-transit monitoring and intervention options are underutilized. Companies are seeing success through partnerships with higher-quality shipping companies and the use of faster shipping service levels, with 63 percent reporting success in addressing product damage and spoilage issues, but opportunities for further improvement remain.
Respondents said that cost management is still a substantial supply chain issue, even though the level of concern is declining year-over-year. Healthcare logistics decision makers report rapid business growth, fluctuations in fuel and raw materials costs, increasing regulations, and new market expansion as the biggest challenges to managing supply chain costs. And finally, contingency planning is an area healthcare and life sciences companies may find hard to justify investments in, based on the limited and unpredictable impact of disruptions to the supply chain. Unplanned events have impacted healthcare supply chains in the last three to five years, but a large percentage of supply chain decision-makers still do not consider the subject important.3
In terms of cost management, UPS claims supply chain optimization for medical devices has to be part of a best-in-class business strategy. “Traditionally, in the orthopedic-device supply chain, deliveries are often sent next-day air in order to make operations in time,” Josh Cannon, director of global healthcare strategy for UPS, told ODT. “However, the most expensive transportation option is not always the most efficient. By engaging in inventory planning, and stocking inventory near demand centers, deliveries can reach their destination in a faster and more cost-effective manner.”
According to Cannon, one of the main points of concern for orthopedic device manufacturers is an excess of inventory. “Orthopedic device transportation is challenged with excess inventory in multiple areas of the supply chain,” he said. “For many manufacturers, upwards of 70 percent of their inventory is located out of their direct control with distributors, sales reps or in hospital consignment. This makes it increasingly difficult to track and manage inventory, resulting at times in product expiration, scraps and write-offs. With multiple price and cost pressures hitting the medical device industry, efficient supply chain and inventory management can be the difference between business gain and loss.”
“Delivery and accuracy are critical,” said Mastromatteo, giving an orthopedic device supplier’s point of view. “Many orthopedic devices are ordered for specific surgeries taking place at fixed times. A breakdown in the supply chain could cause a surgery to be canceled or rescheduled or an alternative product being used.”
Seventy percent of inventory that is out of the direct control of the manufacturer sounds like a frightening prospect, but it is the reality that device makers have to come to terms with. In light of this reality, the importance of maintaining positive relationships with supply chain partners becomes all the more apparent. From the perspective of a manufacturer, the biggest challenge they face is maintaining that fruitful relationship—not because it is an odious task, but because it is a constant one that demands unyielding attention.
“The key word here is relationship,” Christophe Gilson, supply chain manager for Memphis, Tenn.-based contract manufacturer In’Tech Medical Inc. explained to ODT. “We are in the business of building long-term relationships with our supply chain partners and customers. Working with suppliers, reliability is essential—suppliers must hold delivery commitments and rapidly communicate on issues as they arise. They also need to have a crystal clear quality system exceeding industry standards. With our customers, the key is for us to communicate candidly and quickly about volume, lead times and more. The more we know about their needs, the more we will be able to propose manufacturing solutions and productivity improvements.”
Talk To Me, Baby
Both UPS’ Pain in the Chain survey as well as ODT’s collection of responses from orthopedic device contract manufacturers revealed how important cost is to both medtech original equipment manufacturers (OEMs) and contract manufacturing organizations (CMOs). In almost every aspect of medical device manufacturing, cost is of utmost concern to CMOs, who are now competing with manufacturers overseas to produce devices cheaper. But according to Supplychain247.com’s most recent Best Practices column, “suppliers are evaluated and selected not only on the basis of price, but also on indicators of their ability to work as collaborative partners.”4 This relationship-compatibility evaluation is what saves an intricate supply chain from collapsing under the pressures of delivering time- sensitive, highly regulated products such as orthopedic devices and implants.
It is a mistake to expect an orthopedic device CMO to “Just make the part and ship it at a low price,” said President and CEO of Micro Machine Company, Andrew Miclot. “In a regulated industry, many more requirements cause increasing costs to suppliers. Total value becomes more important instead of just pricing. We have strong relationships with customers as a 50-year-old company. They know our strengths and capabilities and we can react quickly. We have relationships where people actually talk to people.”
The way Rockaway, N.J.-based IonBond LLC approaches its supply chain relationships is to make sure it is involved in the device’s design cycle from start to finish and beyond. “As a surface enhancement subcontractor to the machine shops that manufacture implants and surgical instruments for the OEMs, one of the biggest challenges faced is not always being included in the upfront design process,” Plant Manager Dave Neal told ODT. “Early inclusion allows for consideration of what can be coated, how to mask and where to fixture. Additionally, educating both the design and procurement staff on the features/benefits and application process of surface enhancements is an ongoing mission of the supplier. On-site seminars, lunch and learn sessions, and technical summits are great venues for exchanging ideas and concepts. It’s satisfying to see a customer’s eyes light up when they learn about surface enhancement technology and imagine ways they can improve the medical device being developed.”
“Developing trust at the outset of the relationship is critical,” LifeScience Logistics’ Mastromatteo added. “In some cases it is challenging to prove your competence to all stakeholders in the process. Since supply chain touches almost every process in an organization, you need to capture the global view of the entire process from marketing, sales, operations, quality and finance. You cannot just look at your piece of the supply chain. You must understand the whole picture.”
It is important to note just how many ways human relationships affect supply chain relationships. Negotiation, for instance, which affects the constant bugbear of cost, can never be performed by computers; re-contracting with partners very often depends on how well the partners communicated, and even just how fun the conversations were. There certainly are some large companies that are able and willing to use strongarm negotiation tactics to dictate pricing and contract terms in ways that benefit them the most.
However, this does not make for an effective partnership. In a business such as medical device manufacturing, and in particular orthopedic device manufacturing—which is much more niche—fruitful and goodwill partnerships can last for decades if there is mutual respect.
“As is the case with any team dynamics, communication is the key to developing successful supply chain relationships,“ IonBond’s Neal said. “Suppliers must maintain contact with the customer on new technologies being developed to address clinical needs which may be of interest to the OEM. Additionally, good customer-supplier communication allows for on-time product launches when mutually agreed upon dates and forecast quantities are clearly established.“
That is not to say there is no place for a careful evaluation of said supplier relationships and communication: “Supplier relationships are very important to Orchid,” said Nils Hordon, director of global supply chain for Holt, Mich.-based medical device contract design and manufacturing company Orchid Orthopedic Solutions LLC. “It’s not only as a matter of good practice, but it’s critical for high mix/low volume businesses. We have implemented and actively maintain multiple tools to maintain our supplier relationships, such as agreed-to metrics and methods for measuring success, as well as ensuring like methods for communicating—all captured in a scorecard that’s reviewed on a quarterly basis. Good communication and clear metrics are key for productive supplier relationships.”
And as always, at the end of the supply chain for orthopedic devices is a patient. This is the core of the medtech industry. There is always a life that will be improved or saved by the innovation and efficiency that gets the device to them. A 2013 white paper from business management consultant company McKinsey & Company noted that better supply chain performance in the medical device industry not only can reduce costs, it can also improve access, reducing device shortages in developed markets and delivering affordable healthcare to millions more people in emerging markets. Additionally, better supply chain performance can be transformational for safety by making it harder for counterfeit products to enter the supply chain and reducing the human and financial toll of medication errors.5
As Hordon notes, “There is no one big challenge for supply chains today ... The challenge is to manage the multiple considerations to best position the supply base for success, and in turn maximize the value provided by the supplier. The various considerations can, however, have different priorities. For Orchid, quality is the highest consideration.“
References:
- “Walmart: Keys to Successful Supply Chain Management.” http://www.usanfranonline.com/resources/supply-chain-management/walmart-keys-to-successful-supply-chain-management/#
- “Walmart: 3 Keys to Successful Supply Chain Management any Business Can Follow.” http://cerasis.com/2015/05/13/supply-chain-management/
- “Eighth UPS Pain in the Chain Survey—Survey Snapshot.” https://www.pressroom.ups.com/assets/pdf/pressroom/white%20paper/UPSS0170_Lite_Appendix_RD20_MEDIA.PDF
- “20 Best Practices for Negotiating and Managing Key Supplier Relationships.” http://www.supplychain247.com/article/20_best_practices_for_negotiating_and_managing_key_supplier_relationships
- “Building New Strengths in the Healthcare Supply Chain.“ January 2013, McKinsey & Company.