HOW 3PLs ARE HELPING TO IMPROVE HEALTHCARE LOGISTICS
These are challenging times for medical device manufacturers. Robust innovation is the hallmark of an industry which enjoys continued and growing demand for its products. But that progress comes at a price: Regulations of medical devices are proliferating worldwide, increasing manufacturers’ costs. UPS’ 2014 “Pain in the Chain” survey showed that regulatory compliance is the industry’s biggest supply chain headache.
Meanwhile, the use of medical devices is migrating from hospital settings to local clinics and, increasingly, private homes, transforming supply chains and logistics. Product lifecycles are shrinking and governments and insurance companies are putting downward pressure on prices, all of which squeeze manufacturers’ margins.
Third-party logistics providers (3PLs) specializing in medical devices can help on all these fronts. By providing compliant and flexible storage and fulfillment infrastructures, they can ease many of their manufacturing customers’ regulatory concerns. By optimizing supply chains, implementing strategies to reduce inventory and streamlining transportation and deliveries, 3PLs alleviate the pain that comes with supply chain transformation and help relieve some of their customers’ financial pressures.
“There have been significant increases in the number and complexity of regulations pertaining to medical devices in recent years,” says Rob Doone, national director of Business Development at Cardinal Health. “We have seen a 300 percent increase in inspections by the Food and Drug Administration and other governmental agencies over the last five years.”
“There has been a rapid growth in technology,” says Robin Hooker, director of Healthcare Marketing at UPS, “but manufacturers are being asked to do more with less. The Affordable Care Act levied a 2.3 percent tax on medical devices.”
Manufacturers are selling and delivering into more channels than in the past, notes Arthur van Gerven, director of Business Development at XPO Logistics. “More equipment is being sold directly to the consumer,” he says.
Many 3PLs, in the healthcare sector and elsewhere, offer customers potential costs savings by providing shared warehousing opportunities. Cardinal Health specializes in serving medical device manufacturers and provides the necessary infrastructure, including the required temperature-controlled and sterile facilities, to accommodate the needs of the industry.
“Our clients are able to leverage the investments we’ve made in warehousing and technology to run an uninterrupted supply chain,” says Doone. “As the market changes we change the footprint of our logistics facilities and services. A couple of years ago the focus of healthcare moved away from acute settings and towards ambulatory care facilities and patients’ homes. Making deliveries is another element of the expertise we bring to our clients.”
The levels of inventory carried by medical device manufacturers have been a perennial problem for the industry. Inventory is often kept by regional and local sales reps, and the visibility into the quantity and location of inventory is poor.
UPS serves its medical device customers by availing them of a network of medical-compliant field stocking locations. “The idea was to get the inventory away from the field reps but still close to them,” says Hooker. “This allows us to manage and reduce inventory while increasing its visibility. Our 36 medical field stocking locations are within four hours of 80 percent of the hospital beds in the country by medical courier.”
Medical devices are increasingly being shipped in small parcels and delivered not only to patients but to hospital operating rooms on a one-off basis. Hospitals don’t keep inventories of knee-replacement kits, for example, but a surgeon will order the necessary equipment for a procedure and expect it to be delivered within 24 hours.
“The medical device supply chain must increasingly be managed like e-commerce supply chains,” says van Gerven. “Much of what we provide our medical device customers involves supply chain optimization. A lot of that involves improving the flow of information.”
On the other side of the medical device spectrum are the large, bulky, but highly sensitive pieces of equipment, such as MRI machines, ultrasounds and lab equipment, which are purchased by hospitals. Often, these machines are left on the premises for a demo period and later must be picked up.
“These machines were not built to be transported more than once,” notes Robert Shearer, managing director of the MedTec Solutions division of SEKO Logistics. “Regulations dictate that these machines must be cleaned, decontaminated and wiped clean of patient information. We perform those services for our customers.”
Technology is an important part of SEKO’s client offering, as it is with other medical device 3PLs. The company offers its web-based MySEKO platform for tracking, tracing and booking shipments. The technology also facilitates asset management, as device owners can track the whereabouts and usages of their machinery by serial number throughout the life of the device.
Increasing regulatory and supply chain complexity, and the financial pressures being exerted on medical device manufacturers, will not let up for the foreseeable future. Improving supply chain visibility will allow the manufacturer-3PL partnership to drive further efficiencies into medical device supply chains.
UPS already offers increased levels of monitoring and intervention for sensitive parcels such as those shipped by medical device manufacturers. “This is, in essence, a capability that allows us to rescue something distressed in the network,” says Hooker. “If a plane flying into our Louisville hub had to land elsewhere, our healthcare team activates a special operating plan for contingencies. This can involve getting packages on the next flight out or delivery by medical courier to make sure that these sensitive packages keep moving along.”
The geographic reach of medical device manufacturers is expanding and their business models are also evolving. “The industry is increasingly selling into emerging markets,” notes van Gerven.
He foresees a day when hospitals will increasingly be paying for the diagnostic and laboratory services on a per-use basis instead of acquiring the machines and equipment themselves. Manufacturers will also want to postpone the final level of customization of their machines, he says, and perform that process as close as they can to their ultimate markets to reduce inventory and costs.
All of these developments will continue to transform medical device supply chains and will require taking another look at the optimization of industry logistics and supply chain processes.
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