The MedTech industry historically has been one of the more stable sectors. But, with multiple disruptive forces now at play, no one is immune. While some disruptions may have a more profound effect from one industry to another, any company that relies on an effective supply chain is experiencing unprecedented levels of interruption.
Supply chain disruption has shifted from a pandemic-induced situation to a much more persistent disruption, and MedTech companies must now think differently when facing the challenge of re-engineering their supply chains. Greater resilience is required to manage the unpredictability of the modern, efficiency-driven global network that has become the norm over the last 20 years. Failure to do so will make it difficult to arrest the obvious declines in growth that companies across the sector are experiencing.
So, what does the future of MedTech look like and can these businesses expect further disruption in the years to come?
The industry must address the immediate supply chain issues. While not unique to MedTech, the competitive landscape has become more complex, particularly where multiple industries are trying to source critical components at a time of global scarcity. We've seen market forces impact pricing considerably since 2020, in addition to companies with scale and significant buying power out-muscling smaller businesses to secure materials, components and shipping.
As such, increasing supply chain resilience has fast become a critical priority. We're seeing a wide variety of businesses shift their management mindset into one of permanent 'crisis management'. While this might seem exhausting, at its heart it makes for sound business practice in a time of almost endless disruption and uncertainty.
So how should this mindset translate into supply chain management for MedTech companies?
- Scenario planning and real-time data analysis
Consistently monitoring and mitigating supply chain risks based on live data is critical. Traditional data models tend to be lag indicators. In today's turbulent times, a more agile approach is required. Applying a 'central control tower' approach, which consolidates data from across the business, will enable more rapid decision-making.
In parallel, it will inform more accurate scenario planning and allow businesses to model situations and potential contingency plans.
Longer term, this model can be extended across the supply chain to include supplier data and ultimately data from transportation partners. This end-to-end view is not only operational good practice, but it will also prove to be a source of competitive advantage. Those with their finger firmly on the pulse will be able to adjust their plans swiftly and minimize the impact of disruption.
- Multi-sourcing and localization
Traditional procurement models – which prioritized minimizing cost – have left businesses exposed. A multi-sourcing strategy is now the order of the day. This would include maintaining a diverse network of suppliers, the requirements for which will cover a range of factors. Price will still be a factor, but other aspects such as transportation arrangements and locality will be increasingly important.
There are other benefits to this approach, too, such as reducing the environmental impact of the business.
- Operationalizing agility
Adjusting the make-up of supply chains is only part of the solution. In parallel, MedTech businesses need to transform their operational models to increase agility.
This will include shorter planning cycles. Annual budgeting and planning should be a thing of the past. Shorter 'planning sprints' measured in weeks, or, in some cases, even days are necessary. This enables the business to change course where needed – adjusting production cycles, flexing the workforce – in response to material and component shortages or changes in customer buying habits.
From an M&A perspective, vertical integration is advisable. This minimizes dependencies and risk as the supply chain shortens. In addition, this also allows efficiencies to be scaled.
- Responsive inventory management
One of the most immediate impacts of supply chain disruption is lumpy inventory management. This is exacerbated by a challenging financial environment that forces customers to adjust their buying habits. Managing this 'squeezed from both ends' scenario is not only tricky, but it can also become expensive.
A robust evaluation of inventory management and warehouse and distribution operations is vital. Crises expose frailties in existing arrangements and re-engineering through such a lens requires a keen focus on what is necessary and, by definition, what is not. Making some bold decisions now will pay off in the future and help MedTech businesses optimize themselves for better times.
Supply chain pressures are among the most pressing disruptions facing MedTech now. However, fixing them won't offer complete respite from the wider disruptive forces facing this sector and many others.
Later this year, AlixPartners will publish its fourth Annual Disruption Index. Drawn from the views of more than 3,000 senior global business executives, the Index gives a unique glimpse into the issues that are top of mind across different sectors and geographies. What will it tell us about the MedTech sector for 2023?
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