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It’s never a simple task for orthopedic companies to predict market forces that impact demand for the devices they manufacture. A global pandemic, significant regulatory changes, materials shortages and skyrocketing inflation have upped the difficulty level for even the industry’s most experienced and knowledgeable leaders.
Changing the way that supply chains are run is inherently inflationary, and costs have been on the rise for the last couple of years. Regulatory barriers have increased worldwide, most notably the European Union’s Medical Device Regulation (MDR). The net result is an increase in supply management costs and uncertain inventory levels.
“The rippling effects of multiple events over the last several years have wreaked havoc on supply chains, forcing many OEMs to adjust just-in-time manufacturing strategies,” said Gianfranco Viola, Director of Global Sales & Marketing at Lincotek. “This poses challenges on multiple levels.”
Viola stressed that just-in-time manufacturing is a strategy associated with huge benefits, but also significant drawbacks — especially in times of uncertainty.
“It has the obvious advantage of minimizing inventory, thus reducing financial burdens,” he said. “Unfortunately, as many of us have experienced recently, the practice doesn’t work well when supply chain disruptions occur. Contract manufacturers must address these issues and provide OEMs with solutions that guarantee business continuity and resource optimization.”
The current challenges associated with unpredictable supply chain issues also present opportunities for contract manufacturers that are prepared to help OEMs keep pace with the increased demand for devices while maintaining streamlined inventories.
Communication and Collaboration
OEMs and contract manufacturers should work together as partners rather than customers, and understand their successes are intertwined. “We must collaborate to anticipate their challenges, rather than react to them,” Viola said. “Developing accurate forecasts has become even more important.”
Collaborative planning sessions and detailed action plans that address various “what if” scenarios are paramount. “When we plan with our customers for what could happen, we minimize and distribute the risks of disruptions and optimize inventory levels,” Viola said.
Managing supply chain operations is a critical business element of orthopedic manufacturing, said Jeremy Nelson, Vice President of Operations and Supply Chain at Exactech. “A cross-functional team dedicated to design, regulatory, quality, operations manufacturing and supply monitoring is needed to develop a robust process,” he explained.
Nelson advised contract manufacturers to over-communicate with OEMs, get involved with their monthly sales and operations planning (S&OP), and develop their own robust S&OP and integrated business planning processes.
“That’s how they’ll become aware of impulse buying and demand swings among various companies,” he said. “Staying close to OEMs and maintaining open lines of communication to understand their current supply needs is always a good idea.”
Mach Medical’s Co-Founder and General Manager Stephen Rozow described production lead times as “sacred” and emphasized the importance of meeting them.
Most factories are run to a leveled load to optimize overhead absorption and cost. However, Mach Medical’s long view of demand, which includes a method for capturing less mature aspects of the sales pipeline, leverages supplier agreements in ways that allow the company to accelerate capacity expansion and maintain lead-time promises.
Steady increases or decreases in demand provide relative stability in the S&OP process and its operational execution. However, abrupt inflections often require extra time to absorb and adjust to the changes.
COVID was one of those abrupt inflections, creating sudden changes in supply chain metrics that took time to address. Mach Medical invests in predicting and contending with sudden shifts in demand, a practice that was especially helpful during the height of the pandemic.
“We use an S&OP process that updates the demand forecast on a 12- to 18-month horizon and correspondingly updates our capacity utilization, capability needs and material and outside processing needs,” Rozow said.
The pandemic reinforced the notions that S&OP cycles need to include a level of scenario planning based on foreseen macro risks so that appropriate action can be taken and adjustments made quickly, according to Rozow.
Brandon Miller, Lincotek’s Director of Commercial Product Development, highlighted the need for geographic redundancy to maintain supply chain resiliency. He also pointed to the diversification of vendors and secondary sources as an important takeaway from the pandemic.
According to Miller, smaller OEMs often focus on cultivating strong relationships with a single vendor because of volume discounts, better pricing and shorter lead times. However, the manufacturers are left empty-handed if the vendor suddenly shuts down operations.
“This possibility has always been part of the supply chain management conversation, but COVID put it at the forefront of discussions,” Miller said.
Many OEMs view device packaging as a trivial detail in their commercialization strategy. It’s not. The upheaval that took place in the packaging market is just one reason.
“That line of thinking changed when packaging materials were back ordered during COVID,” Miller said. “A national backorder of Tyvek puts OEMs and contract manufacturers at the same disadvantage. Packaging innovation and creativity will become a larger issue in product development and lead-time discussions.”
Tapping Into Technology
Automating supply chain management or augmenting manpower with automation is a key process improvement opportunity, according to Nelson. “The more you can make processes less people-centric, reduce the amount of manual labor and automate tasks where possible, the better,” he said.
Mach Medical automated much of its engineering processes so the upfront work involved with translating customer specifications into executable manufacturing is minimized without compromising quality requirements. The company has developed a manufacturing platform called High Velocity Manufacturing (HVM), which delivers products at lead times of three weeks and in economic lot sizes as low as one unit.
Attempts to maintain just-in-time inventory transfers the burden to contract manufacturers, but Mach Medical, through HVM, has addressed drivers of inventory fluctuations at the root cause and continues to engineer them out of its processes.
“HVM would not work without the attention we pay to the S&OP process,” Rozow said. “We spend significant time getting the bigger picture right so that capacity, capability and supply levels are optimized to meet our customers’ needs. This required investing in resources, learning and systems.”
OEMs should seek contract manufacturers that can recommend solutions to problems and educate them on new production technologies that can help them keep up with the increasing demand for their products.
For example, Viola said, additive manufacturing is a reliable and consistent method for volume production during uncertain times. Contract manufacturers that harness its capabilities are better able to manage the ebbs and flows of unpredictable demand.
“If additive manufacturing can cut the cost of goods sold and production timelines, contract manufacturers need to provide OEMs with that information,” he added. “Many product development teams have little experience with cutting-edge production technologies.”
Miller said that additive manufacturing can help OEMs overcome current industry challenges, such as long lead times and high inflation, by significantly reducing scrap and the inefficient production of certain complex geometries.
“As additive manufacturing expands with new materials like PEEK and carbon fiber coming online, more implant classes and families — beyond titanium and plastics — will be impacted,” Miller said.
Nelson emphasized that the fewer links in the supply chain, the more control an OEM has over its manufacturing. “It’s best to vertically integrate critical process steps such as coating, 3D printing and sterilization,” he said.
He also noted that OEMs should expect their contract manufacturers’ adoption of sophisticated technology to extend beyond manufacturing processes to impact supply chain visibility.
Contract manufacturers need to understand supply and demand’s daily, weekly and monthly cadence. They must work with technology to monitor customer demand. Ultimately, Nelson said, they must exhibit flexibility, adaptability and scalability.
