samedan logo
 
 
 
spacer
home > pmps > summer 2015 > change for the better
PUBLICATIONS
Pharmaceutical Manufacturing and Packing Sourcer

Change for the Better

Business as usual in the European medical device sector supply chain is over. Companies are facing three key trends that are compelling them to re-evaluate their operations and supply chain strategies: the move towards value-based healthcare; intensifying cost and margin pressure; and stricter regulations. While these challenges are not new, they are gaining pace and gathering momentum.

When responding to these trends, companies are being forced to act outside their comfort zones and devise new, innovative methods of working. In Europe, achieving such a transformation is no easy task for one major reason: the region is not a one-size-fits-all market. There are significant disparities within this sector with the mature Western markets on the one hand, and burgeoning Eastern markets on the other.

New layers of complexity and cost are, therefore, being added to the medical device supply chain at a time when pressure from governments, payers, healthcare providers and patients to cut costs has never been greater. European manufacturers must find new approaches to reduce costs while still guaranteeing the expected high service levels.

Changing Drivers

So how are the three key trends outlined above really affecting the state of the medical device industry?

Value-Based Healthcare
A major shift in how medical devices are being purchased is under way in Europe. This move is driven, in large part, by a transition towards value-based healthcare, including the drive to provide higher return on investment.

Device-buying decisions used to be made by just two people – the patient and the doctor – and delivered on a traditional fee-for-service model. However, the need to rein in healthcare costs has changed all that.

The world is transitioning to a 5P model, meaning that five different parties are involved in the final purchase decision: the patient, the doctor, the provider (hospital/clinic), the payer (insurance company, government or other entity) and the policy-maker (government).

Manufacturers are now unable to just replicate their current structure when introducing a new product, but need to tailor its supply chain attributes, capabilities, service levels and cost structures so that they synchronise better with product profits.

Intensifying Cost and MarginPressure
Recent economic woes have permanently changed the profit structure of the global medical device industry; no longer do we see profit margins close to 40%. This new structure has led to a greater focus on economic measures in the healthcare sector as a means of reducing costs.

This new downward pricing pressure from all payers is causing price erosion and commoditisation across a broad range of medical products. Low-value disposables are most affected by this trend. However, high-value cardiology devices, such as stents and pacemakers, are also experiencing growing cost pressures.

Moreover, because of the new financial constraints, the institutions that pay for medical devices are not buying into innovations and upgrades unless their marginal value to patient outcomes significantly exceeds their cost. Therefore, with reduced payer support, decreasing product values and increasing economic cutbacks, the pressure is immense to improve supply chains in ways that reduce cost and improve efficiency, without sacrificing product integrity.

Stricter Regulations
Companies in the medical device sector face a situation whereby the current risk-based regulation system is undergoing review and is likely to change. Discussions have begun as to whether to create a centralised regulatory system, similar to the US FDA style, which would make the device approvals process in Europe considerably more stringent.

The proposed new rules – the European Medical Device Regulations – have generated their fair share of controversy. Critics of the proposed regulations include the medical device industry and its investors, who worry that the new legislation will make the European approval system as tough as the FDA’s.

Global concerns for patient safety have pushed regulatory agencies around the world, including those in Europe, to begin developing regimes for tracking medical devices throughout the supply chain – all the way to the patient. The FDA, one of the staunchest proponents of such tracking, issued regulations requiring manufacturers to assign a unique device identifier (UDI) for all medical devices, which would be used to track them through the supply chain. Phased implementation is under way in the US, with first-level deadlines beginning this year.

The idea behind the UDI is to create a globally harmonised medical device identification method that would simplify product recalls and improve risk control in areas such as counterfeit prevention and diversion. As they emerge, the new tracking/reporting requirements present significant challenges for the healthcare sector, particularly within the supply chain.

The difficulty lies in setting up a system that can track a product all the way to the patient. Product is easy to track as it moves through the supply chain, but once it gets to the hospital, tracking the product’s final use is problematic. Hospitals are not set up to conduct this level of tracking. But the rules cover the supply chain from end-to-end, so hospitals must become part of the solution.

Innovative Approaches

Despite these pressures, a range of approaches are emerging to help manufacturers tackle supply chain challenges.

Tailored Transportation
In the medical device sector, not all products or markets are equal – meaning that leading device manufacturers are faced with a scenario where they must restructure their supply chain networks and processes to embrace segmentation.

This includes tailoring transportation and warehousing to the type and category of medical device, and at the scale of distribution required in each country. Low-value, high-volume consumer medical devices may be transported by ocean and long-haul road freight, with selected highercost modes reserved for ‘emergency’ situations – for example, when a standard, slow-mode shipment misses a checkpoint or encounters a hold-up. From a network perspective, these same products may be distributed via regional distribution centres or cross-dock facilities located in closer proximity to the end market.

Speciality and high-value devices would be shipped using premium, faster transportation modes – such as air or express services – and might be distributed from a single global or regional distribution hub, directly to the hospital or ward. This could include an end-of-runway approach, where critical parts or products are located at a central air hub at a major European airport, ready to move on the next flight out whenever necessary.

An alternative distribution method would be to utilise forward stock locations, which are small shared-user warehouses located close to the usage point, to ensure rapid response to hospitals. Both of these methods would significantly decrease the amount of inventory in the system.

Dealing Direct
To reduce costs and increase profits, manufacturers are also beginning to look at serving certain customers directly. The decision to choose this distribution method – as opposed to going through a distributor – is highly reliant on several factors, including cost of product, security needs and number of final distribution points.

As more and more companies consider serving their customers directly, it has become apparent that there is a mutual interest between manufacturers and their customers (in this case, healthcare providers) to create these direct bonds. Hospitals benefit from product knowledge coming directly from those who make the products.

Not only can manufacturers collect more accurate sales and customer usage information, this approach means that they can get direct customer feedback about product performance and service satisfaction. On the other hand, the distributor model does not allow for any connection with the end customer and, as a result, manufacturers lose visibility and control over the product once it leaves the manufacturing plant.

Furthermore, a direct model not only improves the security of the supply chain – by reducing the number of intermediaries handling the product – but it also reduces cost by switching from a service fee, based on the cost of the product, to one based on the true cost of distributing the medical device.

Shared Services
Manufacturers are now more than ever seeing the amount of supply chain duplication that occurs within the healthcare sector. Medical device manufacturers typically sell to the same community of customers – hospitals, clinics and doctors’ offices, for example – resulting in running a number of parallel supply chains to service each group.

Under a shared services solution, multiple manufacturers house their product with a single thirdparty logistics (3PL) provider in a collaborative network of facilities and transportation capacity. The sharing of these transportation, distribution and warehousing systems streamlines the supply chain for manufacturers and their customers.

Outsourcing Partnerships
Finally, manufacturers in the medical device sector are now looking at outsourcing their logistics activities and operations to a 3PL with expertise in managing healthcare supply chains. This move enables the manufacturer to focus on its core business – developing and producing medical devices.

This type of partnership is extremely advantageous, giving the manufacturer the capability and flexibility required to deal with the complexities of the European market: including its different products, regulations, customer requirements and infrastructure. By partnering with a 3PL, a manufacturer can capture significant cost savings generated by a streamlined, optimised supply chain – which is critical in meeting the rising cost pressures under which the sector operates.

The different areas of saving potential can be substantial, depending on the solution. By becoming the supply chain orchestrator, and managing the country-specific distribution operation end-to-end, the 3PL provides visibility into, and control of, product flow, coordinating and tracking deliveries, and managing other logistics service providers and distributors – all to ensure timely, accurate and cost-effective delivery to the end customer.

From Change to Opportunity

Manufacturers in the medical device sector are being forced to re-evaluate their operating methods. They are now considering how current trends in the industry will affect their business model and margins, and what solutions are available to them.

Companies are now coming to terms with the fact that the pressures they are facing will only intensify over the coming years. They must now act more efficiently to transform their strategy for managing the supply chain as a whole.

The time has come to re-think the European medical device supply chain model. Leading manufacturers are doing just that, by working with their logistics service providers to re-engineer their supply chains to embrace outsourcing solutions, shared services and other alternatives.

Meeting the twin challenges of reducing costs and delivering on service commitments is by no means an easy task. However, with the right partnerships, it can be done in a manner whereby everyone wins, including the ultimate customer – the patient.

Note
This article is adapted from the white paper Adding value and reducing costs: Transforming the European medical device supply chain, available online at: www.dhl.com/eumed-devices


Read full article from PDF >>

Rate this article You must be a member of the site to make a vote.  
Average rating:
0
     

There are no comments in regards to this article.

spacer
Susanne Amholt is DHL’s Vice President for Business Development, Life Sciences and Healthcare Mainland Europe. She is responsible for the company’s life sciences and healthcare supply chain across Europe, the Middle East and Africa, where she works with key clients to develop flexible, innovative and customised logistics solutions. Susanne has more than 20 years’ experience within this industry, placing her in a strong position to discuss supply chain strategy.
spacer
Susanne Amholt
spacer
spacer
Print this page
Send to a friend
Privacy statement
News and Press Releases

Annual General Meeting of Gerresheimer AG approves dividend increase to EUR 1.20 per share

Duesseldorf, June 24, 2020—Payment of a dividend of EUR 1.20 per share was approved at the virtual Annual General Meeting of Gerresheimer AG.
More info >>

White Papers

The Importance of ADCC in Assessing Clinically Relevant Differences

Sartorius Stedim BioOutsource Ltd

Biosimilars have caused a revolution in the development of biologic drugs. The model for biosimilars is a combination of speed to market and low cost; these are fundamental to any biosimilar development project. The biosimilars pathway to approval is not always without difficulty, biosimilars are still relatively new, and as each new applicant is reviewed we are learning more and more about these molecules.
More info >>

 

 

 

©2000-2011 Samedan Ltd.
Add to favourites

Print this page

Send to a friend
Privacy statement