Alex Saric, Ivalua

Great Medical Devices Require High-Functioning Supply Chains

By Alex Saric
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Alex Saric, Ivalua

Recalls for failure are chronic in the medical device industry. The sources of those failures could originate anywhere in the supply chain. Fixing supply chain issues is ultimately the responsibility of the instrument’s maker.

Last year, the FDA issued a recall for the Edwards SAPIEN 3 Ultra delivery system. It followed reports of 18 patient injuries, including one patient death, that resulted from using the product. The device, which is part of the company’s transcatheter heart valve system, is used to replace diseased aortic valves without open heart surgery.

The reports that began coming into the company and the FDA claimed that the system’s balloons would sometimes burst during implantation procedures, resulting in life-threatening complications. The conclusion, according to the FDA: Using the product could lead to serious adverse health consequences, including death.
Exactly how the balloons came to burst or where their latex material originated wasn’t detailed in the agency’s finding. But without committing to a program of field corrective action to resolve the issue, most hospitals would be unwilling to continue using the system as a result of the clinical and financial liabilities it spawned.

However, the SAPIEN 3 issue was just one of 49 separate device recalls issued in 2019. The reasons varied from case to case. They included malfunctioning alarms, dislodged marker bands, foreign particles, incorrect software coding, exposed wires, circuit cracks, short circuits, faster than expected medication delivery, and contamination, as well as leaks, design flaws, inaccurate displays, and incorrect assembly.

Medical devices, like most sophisticated consumer and industrial equipment, are the products of supply chains that can sometimes be lengthy, with multiple tiers of suppliers contributing to the final product. Quality issues can and do occur at each step of the process and with every link in the supply chain. But the buck stops with the device maker, who is ultimately held responsible for the finished product and its performance.

That responsibility is enforced in a variety of ways including an excessive amount of private litigation, higher customer standards and stronger government regulations. Those regulations demand increased visibility into the supply chain whenever product issues or recalls arise. And the cost of failure is quite high. A recent report by McKinsey estimated that adverse events cost the medical device industry between $2.5 and $5 billion a year—a significant amount of which is due to material failures originating somewhere in the supply chain. As a result, many companies are looking for supply chain partners to help them satisfy the heightened demands of both the regulators and the healthcare profession. That’s more easily said than done.

One of the most important issues facing the healthcare industry is the lack of global standards for data interchange, work processes and control capabilities. One example: While bar codes are now ubiquitous in consumer goods, unique identifiers are not universal in the healthcare business. In response, the FDA plans to fully secure electronic product tracing to facilitate a step-by-step supply chain for drug products. But in medical device systems, some of the basics of quality control are still at an early stage.

The problem, in many cases, is that the relationship between the buyer and seller in these relationships is actually antagonistic, or at least conducted at arm’s length, rather than being collaborative. Each party has its own transaction costs, process costs and uncertainty costs, frequently leading to higher than necessary inventory levels, different product codes and conflicting administrative arrangements. Beyond that, there is often a lack of trust—a reluctance to work as partners or to share sensitive information. Business secrets as well as confidential information are still very much a part of commerce today. Besides, business partnerships change over time and in a volatile economy with high levels of uncertainty and risk, those changes can come about abruptly.

The pattern of a big retailer or manufacturer beating up its suppliers over pricing is a familiar one. Rather than thinking of it as a win-win opportunity, they see it as a zero-sum game, where it is only possible for one party to get ahead if it’s at another party’s expense. But achieving cost reductions or profit improvements at the expense of supply chain partners is often illusory because shifting the costs up or downstream doesn’t usually change the cost to the end user.

In addition, the business objectives and priorities of buyers and sellers in a supply chain are frequently out of alignment—sometimes even in direct conflict. Their organizational designs and company cultures are different. The power dynamics of their relationships are different. Unless the top managers on both sides are clearly committed to driving a collaborative effort, the message that sends to front line personnel is one of indifference. And unless both sides make the appropriate level of resources available to help the collaboration succeed, it will fail.

Yet despite those challenges, the need to improve the functioning of supply chain relationships has never been greater. The growing network of healthcare facilities around the world is making collaboration imperative. In a highly competitive world, supply chain participants need to see one another as partners in a mutual effort get the right product to the right customer in the right market, right when it’s needed. Otherwise both lose.

For a collaborative effort to succeed, it should be made clear from the outset that benefits of the collaboration are to be shared, even though that sharing can be indirect, for example, involving compensation affecting other parts of the relationship. Whichever way those rewards are shared, the strategic interests served by the collaboration should be common to both participants, and both should be prepared to dedicate resources to the effort, including a willingness to overcome differences in culture, organization and terminology. Obviously, good intentions are essential.

But it takes more than good intentions to make it work. It takes a technical infrastructure that makes possible the frictionless sharing of valuable information in real time. It involves connecting data between buyer and seller to make possible end-to-end visibility. It involves breaking down silos, using the same metrics, applying the same performance management systems, and engaging the same team of relevant personnel from both partners. It involves standardizing on routine business processes. It involves setting realistic goals, sharing a viable roadmap, and having the patience to realize its objectives.

Of course, overcoming the obstacles to successful collaboration and committing the resources to making them succeed can be difficult. In fact, most supply chain collaborations have failed for lack of commitment, resources, trust or willingness to change. But commercial success in the medical device field is also difficult. To achieve it, changing the way that supply chain relationships work, as well as the adversary culture which has defined them for so many years, is no longer an option; it’s now a requirement.

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