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Orthopedic supply chains are inherently complex to manage and demand close collaboration between OEMs and suppliers. Each stakeholder depends on the other involved parties to identify areas of potential improvement and anticipate inevitable challenges.
“Building bonds with the partners you’re working with is essential because things are going to go wrong,” said Kris Carter, Operations Manager at Total Joint Orthopedics (TJO), a Salt Lake City-based OEM specializing in implants for hip and knee replacements. “When those situations arise, having strong relationships helps you navigate them successfully.”
Effective collaboration doesn’t come easily, however. Designing partnerships to create and share value requires a strategic and intentional process. Plus, every relationship between OEMs and suppliers is unique, noted Karl Manrodt, Ph.D., Professor of Logistics in the Department of Management at Georgia College and State University, where he serves as Director of the Master of Logistics and Supply Chain Management program.
“You need to think strategically and seriously about what type of relationship you want,” he said.
Dr. Manrodt is part of a research team that originated at the University of Tennessee and studied progressive outsourcing relationships over the last 15 years. The team codified their findings into the Vested methodology, a concept based on five rules that can help OEMs establish long-lasting and collaborative relationships with contract manufacturers and suppliers.
- Focus on outcomes, not transactions
Transactional relationships are concerned solely with output, like the price and volume of parts delivered. Collaborative partnerships focus on achieving outcomes, like reducing costs or improving efficiency.
Research has shown the value of this collaborative “game theory,” or the concept that partners who work together to solve a problem achieve better results than individuals playing against each other. If that’s the goal, Dr. Manrodt noted, then supplier partnerships must be designed to encourage innovation and improvement.
“Most suppliers know how to help their customers more than their customers are willing to hear,” Dr. Manrodt said. “Listening to them and rewarding them for helping you overcome challenges will make you a leader in your supply chain.”
- Let the Experts Do Their Jobs
Of course, these outcomes must be clearly defined upfront. TJO provides its contract manufacturers with design drawings, models and inspection criteria sheets, along with delivery schedules and price targets.
But there’s danger in being too prescriptive with supplier expectations, Dr. Manrodt warned. Focus on what needs to be done and let the experts — supply partners — determine the best way to do it.
“If the OEM tells the supplier what to do, then there’s an issue,” he said. “OEMs should focus on communicating what they want done, not how suppliers are going to do it.”
- Set Clearly Defined and Measurable Outcomes
Effective communication is key to establishing measurable outcomes and holding suppliers accountable to them.
For example, TJO schedules brief weekly calls with suppliers, convening operations, quality and product development teams to review open orders, examine recent issues and discuss pending changes or new developments. “Once you get to a cool, steady state, you’re just checking in and talking shop about what’s going on in the business,” Carter said.
TJO takes a deeper dive during quarterly business reviews to evaluate each supplier’s performance in terms of average lead times, on-time delivery percentages, pricing increases, quality issues and other trends that impact TJO’s business. Carter prefers these meetings over the supplier scorecards that the company previously used.
“Scorecards can be a bit of a trap. It creates a lot of work, and there’s no value if you’re sending documents but not having much conversation around them,” Carter said. “By getting stakeholders in the room for quarterly business reviews, we can hash things out more effectively.”
Dr. Manrodt noted that facilitating productive conversations in these supplier meetings requires a mental shift from a “me” to a “we” approach as partners work together to solve the same problem. “You need to be retrained to think differently,” he added.
One example from Dr. Manrodt’s research showcased this tactic in action after Procter & Gamble (P&G) outsourced its facility management to Jones Lang LaSalle (JLL). Charged with reducing costs, JLL executives shared several ideas, but P&G shot down every suggestion.
As tensions and frustrations mounted, JLL’s executive stood up and said, “You say you want innovation, but you won’t accept change!” P&G’s leader knew he was right, and they both started to laugh — instantly changing the tone of the meeting. The next time JLL suggested an idea, P&G embraced it.
- Optimize Pricing Model Incentives
Flexible pricing models incentivize suppliers by sharing risk and reward — as opposed to setting a flat price per transaction, which maintains the status quo. In other words, the pricing structure should reward suppliers for making improvements. If OEMs make more money, suppliers ought to make more money, too, Dr. Manrodt said.
Another example from Vested research highlights McDonald’s Plan to Win, a collaborative strategy based on the belief that everyone in McDonald’s system should succeed because the sum is greater than the parts. McDonald’s supplier pricing model reflects this philosophy by letting suppliers share in the company’s success, rather than just focusing on providing the lowest price.
When one of McDonald’s beef providers developed a new way to make hamburger patties in half the time, driving down costs and boosting throughput, they could have kept the secret to themselves to improve their own margins. But because the mentality of winning together was incentivized into the supply chain, the processor called the rest of McDonald’s beef providers to share the innovation and the profits, making the entire system more profitable.
- Insight More Than Oversight
While transactional relationships often look back at suppliers’ performance metrics, concentrating on what went wrong, collaborative partnerships look forward to possible solutions and improvements.
This is where mistakes happen when OEMs work with suppliers, according to Dr. Manrodt. Their oversight is negative: “You didn’t hit this target. Your quality was terrible.” Nothing positive comes from that. “They’re looking for faults instead of looking for insight on working together to find opportunities for improvement,” he said. “Where are we headed, and what can we do differently?”
As economic conditions shift and new supply chain challenges arise, this forward-looking approach to collaboration is critical to navigating change. “Getting together and talking about future expectations allows both parties to figure out ways to be more effective,” Dr. Manrodt said.
For example, when the COVID-19 pandemic crippled global supply chains, weekly meetings and close relationships with suppliers kept TJO ahead of the curve. “We saw the warning signs a little sooner, and that allowed us time to make adjustments and implement new strategies to mitigate the long lead times,” which multiplied tenfold within a month, Carter said.
These conversations spurred new ideas to help TJO mitigate supply chain challenges by booking manufacturing slots ahead of demand, ordering raw materials in advance and holding inventory at various stages of production. By looking ahead at potential market fluctuations and new product launches, TJO incorporates supplier capabilities into its long-term planning. And vice versa — suppliers also consider how TJO’s growth could impact their long-term strategies: “Do they need to buy more machines, invest in new technologies or hire people to keep up with our demand?” Carter asked.
Whether launching new orthopedic products or simply trying to navigate market fluctuations, communication and collaboration can help orthopedic device companies achieve faster lead times, improve operational efficiencies, reduce costs and achieve faster time to market.
When both parties are vested in achieving these outcomes together, collaborative partnerships create win/win victories that allow stakeholders to achieve more together than they could have accomplished apart.
