Missing Links

Like most rock stars, David Lee Roth thrived on rumor and innuendo. In his heyday, the narcissistic Van Halen frontman and ultimate ’80s “bad boy” never quashed the hearsay that often hounded the band during its rabble-rousing rise to fame. Amid all the rumblings and reputed scandals—the sex, the drugs, the trashed dressing rooms—Roth was unusually reticent. The lack of colorful commentary was quite out of character for the flamboyant, larger-than-life performer, considering his penchant for shameless showmanship and self-promotion (which indubitably spawned the comical but fitting nickname, “Mr. Bigmouth”).

On the surface, Mr. Bigmouth’s occasional bouts of silence seemed paradoxical, but in truth they were pure marketing gold: Dummying up on Van Halen scuttlebutt only added to Roth’s rock-god persona and consistently kept the band’s name in newspaper gossip columns. As Diamond Dave himself revealed in his 1997 memoir “Crazy From The Heat,” “Who am I to get in the way of a good rumor?”

More importantly, why would he want to? Some of the tales truly were spectacular and helped contribute to the band’s overall legendary myth; their veracity, for the most part, was irrelevant. Fans didn’t care whether Roth really hooked up with three beauties from the “California Girls” video, smoked a joint the size of a baby’s arm, or had his private part insured by Lloyd’s of London. The mere thought of such debauchery resonated with the throngs of pimply-faced adolescents who worshipped Roth and chose to live vicariously through him.

Globalization and the growth in medical device outsourcing has complicated supplier quality in recent decades. Image courtesy of Cadence Inc.

Not every rumor was flattering, though. There were countless reports about Eddie Van Halen’s alcohol abuse, Roth’s testy relationship with his bandmates and the diva-like contract demands that included herring in sour cream, Stolichnaya vodka, one pound of Tupelo honey, a changing room with two full-length mirrors, and a bowl of M&Ms without any brown candies. The presence of even one brown M&M, rumor had it, was sufficient legal cause for Van Halen to peremptorily cancel a scheduled appearance without advance notice (and usually an excuse for the band to embark on a destructive, costly rampage). During a show at Colorado State University in Pueblo, Roth reportedly caused $85,000 damage to a backstage area after discovering brown M&Ms in the band’s hospitality room.

In his memoir, Roth admits trashing a university dressing room after discovering the banished-colored candy in his M&M bowl. But he contends the damage totaled just $12,000 from an overturned buffet table and kicked-in door; most of the destruction, he claims, was caused by heavy staging that sank through the school’s new arena floor.

Roth wasn’t surprised by the sinking stage, since the presence of brown M&Ms usually portended some sort of technical problem with the show. As Roth explained in “Crazy From The Heat,” the “no brown M&Ms” contract clause was incorporated into Van Halen’s performance agreements for a practical rather than whimsical purpose—to provide the band with an easy way of determining whether all technical specifications of a contract had been carried out.

“Van Halen was the first band to take huge productions into tertiary, third-level markets. We’d pull up with nine eighteen-wheeler trucks, full of gear, where the standard was three trucks, max. And there were many, many technical errors,” Roth wrote. “The contract rider read like a version of the Chinese Yellow Pages because there was so much equipment, and so many human beings to make it function. So just as a little test, in the technical aspect of the rider, it would say ‘Article 148: There will be fifteen amperage voltage sockets at twenty-foot spaces, evenly, providing nineteen amperes…’ This kind of thing. And article number 126, in the middle of nowhere, was ‘There will be no brown M&Ms in the backstage area, upon pain of forfeiture of the show, with full compensation.’ “

“So, when I would walk backstage, if I saw a brown M&M in that bowl,” he continued, “…well, line-check the entire production. Guaranteed you’re going to arrive at a technical error. They didn’t read the contract. Guaranteed you’d run into a problem. Sometimes it would threaten to just destroy the whole show. The folks in Pueblo, Colorado, took the contract rather casual. They hadn’t read the contract, and weren’t sure, really, about the weight of this production; this thing weighed like the business end of a 747. They didn’t bother to look at the weight requirements or anything, and [the stage] sank through their new flooring and did eighty thousand dollars’ worth of damage to the arena floor. The whole thing had to be replaced. It came out in the press that I discovered brown M&Ms and did eighty-five thousand dollars’ worth of damage to the backstage area. Again, who am I to get in the way of a good rumor?”

Since body-blocking the M&M rumor mill (but remaining mysteriously mum on his true feelings for the brown-colored candies), Roth inadvertently cemented his status as a supply chain management wizard. The candy contract clause, much to Van Halen fans’ likely dismay, was inspired not by typical rock star misdemeanor excess, but rather the desire to ensure a high-quality end product.

Beyond the M&M Clause
Show business conceivably is one of the only industries that could successfully turn a beloved piece of candy into a tripwire for supplier quality. The concept would crash and burn spectacularly in the medtech arena, where technical errors can have disastrous, even fatal consequences.

The U.S. Food and Drug Administration (FDA) requires medical device manufacturers to evaluate and select suppliers, contractors and consultants based on their ability to establish and maintain quality requirements that lead to viable products or services. Competent suppliers—as Roth artfully discovered—can help OEMs produce superior goods and maintain their competitive market advantage.

Finding the right supplier, however, has become infinitely more difficult since Van Halen’s glory days (M&M clauses no longer suffice). Globalization, innovation, cost pressures and a fast-paced business environment have forced many medtech companies to reconsider the best allocation of their prized supplier quality management resources.

Over the last 15 years, orthopedic implant firms have become quite adept at harnessing the power of complex global supply networks. By leveraging the comparative advantage of various geographic regions as well as a global footprint (for multinationals), companies have developed more agile, responsive and cost-effective supply chains. Smith & Nephew plc, for example, is acquiring an orthopedics distributor in Turkey and has steadily added sales representatives in Mexico since 2012.

Stryker Corp., which boasts an impressive grid of worldwide contractors, is also a supplier—its Sustainability Solutions division provides single-use medical device reprocessing and remanufacturing services to customers worldwide. Last year, Irving, Texas-based group purchasing organization Novation honored the division for helping more than 680 of its members save $75 million in supply costs and divert more than 2.3 million pounds of medical waste from landfills.

“The top OEMs have a worldwide presence and there’s been a stated desire with at least a few of them to have local supply. If somebody is in China or South America or Europe and they have a supplier that is close by then there’s some competitive advantage that supplier has,” explained Walter Gacek, vice president of business development for Franklin, Mass.-based Tegra Medical, a contract manufacturing and assembly firm that entered the Costa Rican device market three years ago. “It goes back to the basics—if you can be physically closer to the OEM there are a lot of advantages to that. One of the biggest advantages is freight costs but there’s also inventory control, inventory management and lead times, which helps cut down on transit times. There’s also the technical aspect of being close to an OEM. If you’re making products for somebody that is down the street and there are issues, concerns or questions, it’s a lot easier to interact with those folks on a face-to-face basis than if they are across the country or across the world.”

Proximity doesn’t necessarily guarantee quality, though—supply chain kinks can turn up within any link, whether they be down the block or Down Under. Zimmer Holdings Inc. is attempting to prevent such a snag with Greatbatch Medical; the two companies are embroiled in a lawsuit over Greatbatch’s desire to sell its Swiss manufacturing plant and move production to existing facilities in Fort Wayne, Ind., and Tijuana, Mexico. Zimmer’s suit, filed last fall in federal bankruptcy court, claims the move violates a provision in its standard supplier contract that prevents dealers like Greatbatch from moving production without the company’s approval. Zimmer is asking the court to require Clarence, N.Y.-based Greatbatch to make enough specialized surgical instruments to maintain short-term supply (saving the orthopedic implant behemoth millions of dollars in potentially lost profit), and delay the move until Zimmer can inspect the North American production plants, and apply for and receive approval from various countries where its items are sold.

Preventing—or at least minimizing—supply chain troubles requires effective evaluation and management programs. Numerous supplier control frameworks and methodologies exist to help companies build an agile, multi-faceted model that comprises a disciplined process, optimal key resources, versatile tools and complete stakeholder visibility.

One of the most important aspects of ensuring supplier quality is matching available tools and techniques to supply chain complexity. This could mean increasing the number, frequency and duration of supplier evaluations, for example, or better integrating compliance, performance and criticality data (the latter benchmark measures the impact of a supplier’s performance on the overall supply chain based on “best intended use” queries). Smith & Nephew includes sustainability objectives in its assessment of suppliers, measuring their performance with respect to environmental, social and regulatory compliance. The company also has begun implementing a global supplier sustainability questionnaire that requires contractors to provide evidence of their sustainability commitment on various issues.

“It’s not as simple now as a customer issuing a P.O. to somebody that they know 20 or 50 miles away and getting the parts,” noted Tom O’Mara, executive vice president of Autocam Medical, a Kentwood, Mich.-based manufacturer of precision-machined components for medical applications. “We see a lot more sophistication in supply chain management and strategy. Purchasing departments are becoming more organized, and the better companies all have great systems for managing suppliers, particularly with respect to data. Companies develop and monitor ‘scorecards’ formeasuring quality, delivery, service and cost, and those that are committed to the use of objective data are the ones that will have the most efficient supply bases in the future. There is a tremendous effort to optimize the supply base.

These decisions will likely be based more on objective performance data versus past experience or whether or not someone is a good guy. Certainly, relationships will always matter and that’s what we like about the medical industry, but the tie-breakers will come down to data-driven performance. That’s what makes it brutally fair.”

And efficient. Fact-based assessments can help device companies choose vendors based on risk, thus minimizing their vulnerability to potential disruptions or product recalls. Generally, the data includes such criteria as compliance (can infrastructure support the scope of supply?); on-time delivery performance, price and quality; criticality (the impact of performance on the overall supply chain); and external factors like resource shortages, regional stability or criminal activity (counterfeiting or raw material adulteration) that provide analysts with an industry-wide perspective of the supply chain.

Data analytics can help medtech companies better prioritize and direct their resources to the most deserving suppliers. Without the data, companies risk disproportionately distributing their time and money between the haves and have-nots—over-allocating resources, for instance, on well-performing vendors and underfunding the slackers. While many companies understandably focus their efforts on strategic supply partners, the industry’s leaders set aside a considerable portion of their resources to help the worst-performing contractors realize their full potential.

Resource prioritization is key to a “risk-based approach” to supplier quality management. The notion literally is as simple as it sounds: Companies rate suppliers based on risk, with the highest-risk vendors receiving the greatest attention and resources. Risk can include matters like product quality, financial stability, spend volume and sourcing.

A Myriad of Choices
Most, if not all, orthopedic implant OEMs have supplier evaluation programs in place to help them choose vendors. Though each company’s process differs based on individual needs, the industry’s leading firms share some common denominators, rating potential product development partners based on their quality systems, technical abilities, creativity, pricing, design for manufacturability, inventory management, certifications, time-to-market and experience level. Biomet Inc. judges its suitors partly on their production and inspection equipment technology, engineering resources, and electronic commerce capability as well as their knowledge of/proficiency in Biomet-specific computer-aided design language and format. Similarly, Medtronic Inc. favors compliance with local, state and federal environmental regulations, including but not limited to Battery and Accumulator Directive 2006/66/EC (European Commission); Packaging Directives 94/62/EC, 2004/12/EC and COM Decision 97/129/EC; Registration Evaluation Authorization and Restriction of Chemicals regulation 1907/2006/EC; RoHS (Restriction of Hazardous Substances) EU 2003/95/EC and China; and Waste Electrical and Electronic Equipment Directive 2001/96/EC.

Both companies also fancy sub-tier supplier management, a skill that has become virtually mandatory in recent years due to international sourcing and the blossoming of emerging markets like China, India and Brazil. Consequently, the ability to manage a global supply chain is now equally as crucial, since most large implant manufacturers have established operations in these developing regions to grow profits and expand their customer base. Suppliers that can support emerging market expansion and penetration increasingly will win contracts, experts contend.

“Emerging market supply chains are evolving. Most OEMs are leaning on their proven suppliers in the United States and Europe to provide ‘bridge’ support to emerging market expansion and penetration,” said James Schultz, executive vice president of ECA Medical Instruments Inc., a Thousand Oaks, Calif.-based designer and manufacturer of single-procedure torque limiting surgical instruments and kits. “Leveraging current supply chains’ infrastructure and locations is the first step to achieve successful migration. Application of local content and suppliers to support broad market adoption is occurring where risk can be managed and quality and continuity of supply assured. Building brand and gaining share is paramount and where the focus is today, orthopedic OEMs want the mindshare of local doctors and healthcare officials. This takes major investments in training, education, awareness and business development.”

Supporting emerging market ventures, however, requires a considerable amount of human and financial capital—resources that some suppliers either may not have or are unwilling to subsidize. In some cases, the support entails an investment in OEM-level quality systems that can deliver both product performance and economic advantages.

“OEMs have significantly increased their quality expectations in the past several years, requiring substantial investment on the part of their Tier-1 outsourcing partners,” revealed Alan Connor, president and CEO of Cadence Inc., a contract manufacturer of surgical devices headquartered in Staunton, Va. “Many suppliers are not in a position to make this investment. OEMs will need to seek partners who have already made the investment in OEM-level quality systems and that have the infrastructure and financial strength to continue to develop. OEMs will also need their Tier-1 partners to take over the management of a larger number of Tier-2 suppliers that are unable or unwilling to make this investment. Quality systems and the ability to manage Tier-2 suppliers have become much more important. At the same time, customers expect responsiveness and creativity. The really small players are unable to support the overhead required by OEMs. The really large players, are generally, not able to be nimble in response to customer needs.”

Audits can help companies weed out resource-challenged suppliers. By definition, audits evaluate a potential ally against specific standards, identifying non-conformances in manufacturing, shipment, invoicing, engineering change and quality processes. Although they are remarkably productive if conducted properly, the practice can be fairly superficial, assessing only one of the various management systems that impact business reliability and performance.

Such laser-like focus often is warranted, particularly when companies need explicit services. An OEM searching for a contract sterilizer, for example, would be better served conducting a critical process audit that assesses a supplier’s core competency rather than a wide-ranging, mock FDA audit that is significantly more expensive and less focused. In the context of required services and available budget, that mock FDA audit could pay for several critical process reviews of different vendors. As one industry expert reasoned: “Should you spend $10K on a mock FDA audit of a contract sterilizer when, for that same $10K, you could hit five different suppliers by spending $2K to audit the contract sterilizer’s sterilization processes, then another $2K on a different supplier’s critical activity for you, then another $2K on a third supplier and their critical activity, and so on.”

Companies that need a wider range of services, obviously, should use traditional supplier audit models, which generally are reserved for key, strategic partners. A broader supplier evaluation approach provides medtech firms with the flexibility to address topics critical to either the company or industry; in healthcare, those matters could include the prevention of cross contamination, documented process robustness, change management, customer complaint management, and appropriate materials standards.

Partnering on Quality
Supplier quality is a two-way street. A mutual commitment to quality requires both vendors and their contracting partners share data, expertise and perhaps most importantly, a responsibility to manufacturing excellence. Suppliers must be open and honest in their dealings with OEMs from the start of the relationship, revealing their shortcomings and weaknesses as well as their ingenuity and technological prowess. “Planning for success ‘at the beginning’ provides the opportunity for organizations to elevate quality initiatives in partnership with the thought innovators and engineers as they begin any new endeavor,” ECA’s Schultz told Orthopedic Design & Technology. “ Cost/risk can be mitigated at the front end when quality is elevated as a business driver within the organization at the planning stage. Think of quality as a General in a military unit. You want to talk to him before the war, not after.”

Indeed, pre-battle planning can help minimize setbacks and win the war, but the proliferation of attack plans can make strategizing difficult. OEMs and contract manufacturers each have their own quality management systems, and while these programs generally are rooted in universal guidelines like ISO 9001, 13485 and European Union Medical Device Directory Annex II, they nonetheless can be considerably different, convoluting potential partnerships, industry observers note.

“Quality systems are pretty well defined. Every OEM has a very well-defined quality system as do most contract manufacturers. Most are ISO and/or FDA-registered and there are quality systems that go along with those,” Gacek said. “In almost all cases, you have to have a robust, good quality system just to be considered, that’s the minimum requirement for entry. Where challenges come in is where suppliers and us have different quality systems, and how do you mesh those two? They might have certain requirements that align nicely with what we do, they might have requirements that are their specific requirements that we have to figure out how to adapt to and there are rare cases where the requirements from the OEM are broader and we have a little more latitude in helping define the quality program. So the best way to address that is early on in the conversation when you’re talking about a new product or project. There might be some room for some latitude, negotiation on some things and some things that are non-negotiable, that are requirements. Defining all those things up front and early is key.”

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Globalization and the growth in medical device outsourcing has complicated supplier quality in recent decades. Companies that once let their suppliers handle raw material quality now find themselves depending on those same vendors to manufacture, sterilize, package and ship their finished product. The accelerated pace of business is prompting medtech firms to align themselves with suppliers that can help them lower costs, improve speed to market and maximize quality. Finding the right partner, however, extends well beyond geography, geniality and convenience, focusing on the practicality and conventionality demanded by an industry that largely is unforgiving of medical errors. Brown M&Ms might not be an effective gauge of medtech supplier quality, but they’re still an enemy of the healthcare gods. As Diamond Dave once quipped, “You got a brown M&M? Just askin’.”