Randy Ahlm, CEO, NPI/Medical
Improving profits is every company’s goal while reducing costs is every company’s challenge. The improving profits part is almost easier: Introduce new products and expand operations into global markets. The drawback is that newer and longer supply chains produce upward cost pressures.
Recent supply chain improvements can provide relief from the cost pressures. One strategy is to shorten the supply chain by minimizing suppliers. The consolidation part is made easier when a supplier stands out by exceeding expectations and delivering on time, whether the product is shipped to forecast, or shipped on a demand-driven basis, without anticipated timelines.
Improving a supply chain requires finding suppliers with the capability to produce parts and procure others, and then assemble, decorate, and package assemblies for delivery. Validation for this statement comes from a senior-level procurement supplier at a top-10 medical device OEM. He recently remarked that his company no longer wants “a bunch of parts” shipped to them. His company wants assemblies and finished products.
The pressure of cost
Hospitals – big medical device customers – provide a perspective on cost pressures. Costs have forced hospitals to take a hard look at their procurement and inventory processes. Changes in internal hospital operations have had significant financial and operational impacts on medical-device manufacturers.
A hospital’s frequent response is to drive down costs within their supply chains. This has been achieved by streamlining inventory management and fulfillment, consolidating bills of material, and minimizing total operating expenses such as transportation, inventory, and manufacturing.
While production and assembly dominate most cost-cutting discussions, inventory plays a significant role in what some call supply-chain optimization. The market is looking for suppliers that can forecast inventory and cut costs in product distribution. Both the manufacturer and end-use customer benefit from inventory storage because it can be considered a return on investment in future sales.
A well designed supply chain can significantly improve margins for customers, support an expansion into new markets, enhance customer experience, and reduce operating costs. The following case studies illustrate how several supply chains were improved through strategic efforts.
The value of the single-source supplier
A major supplier of laboratory products and services for the life sciences was experiencing problems with a molder of silicone diagnostic disposables for DNA sequencing frames. The project was behind schedule and the existing supplier was having trouble making the parts that met print specifications. In addition, the company was dealing with six suppliers, all of which had various limitations, such as a lack of warehouse space, lack of suitable assembly skills, and limited in-house molding. The solution seemed to be the shortest supply chain possible: One supplier.
Today our company serves that function by producing about 60% of required parts and purchasing the rest. Our experience entails progressing from prototyping parts to more complete assemblies. The life-sciences company gets full-scale production, including molding other parts, procuring filters, tubes, and other components, assembling, labeling, packaging, kitting and, finally, shipping to the company’s distribution centers.
The value of on-time deliveries
Another example of supply-chain improvement comes from a company with a facility in the Dominican Republic. The site’s location made shipping time-consuming and expensive. Its on-time deliveries were suffering which caused inefficiency, downtime, and increased inventory costs to follow-on operations.
Several solutions were examined to correct these issues and fortunately one was discovered nearby. The recommended solution was based on past successful experiences with VMI, Vendor Managed Inventory, a logistics concept. The nearby facility had the capabilities to meet all of the client’s needs so we entered a relationship with them to serve as a third party logistics provider. NPI/Medical presented the VMI firm as a solution to the customer.
The client liked the idea so we mapped the specific processes that would speed deliveries and helped write a guide manual for executing operations on the client’s behalf. The logistics solution to late shipments was a monthly shipment including multiple parts from multiple vendors packed at the same time.
Thus, transit time was reduced although inventory continually ebbed and flowed. This satellite warehouse made inventory predictable. Using a min/max system, we were able to carefully monitor inventory levels and strategically ship when needed. As a result, downtime was eliminated and inventory costs were significantly reduced. This process has been successfully in use for about six years.
The value of prototypes to production
A final example of a supply chain challenge came through a major OEM as it prepared for a new product launch. Rather than deal with several suppliers, the OEM sought to consolidate using a single partner with the capabilities to execute prototyping, tooling, and full assembly.
The consolidation took several steps. For instance, pad printing and molding was brought in-house. Inventory was made-to-order rather than housed elsewhere. Assemblies were produced in a clean room and quality service for lot traceability was also enhanced.
The end result of the program was a full prototype-to-production to distribution operation, with fully-assembled, an end-user ready product that can ship directly to customers on short notice. Currently, about 1,000 assemblies are shipped monthly. However, should demand dictate, capabilities allow boosting production to 250 such assemblies daily.
Meeting the challenges of supply chain optimization is best done by working with a supplier that has the capabilities to take a new product seamlessly from design to manufacture, while distributing product to their final destinations in the fastest, most cost-effective manner possible. This method calls for dedicated commitment and a continuous, end-to-end relationship on the part of both customer and supplier.