The State of Supply Chain Risk

Special occasions are usually the perfect time for a stroll down memory lane and a peek into the metaphorical crystal ball. Medical Product Outsourcing’s 15th anniversary is no different, as it has prompted me to pause and reflect on the changes the medtech industry has undergone since 2003 and ponder what further transformations are in store for the sector. The changes are too numerous to itemize, though one in particular served as a guide for my brief jaunt to the past: supply chain controls (and risk). 

Before I share my insights on supply chain risk, I want to include some general information about supply chain controls for those unfamiliar with this subject. A supply chain is a series of linked activities and organizations to transform natural resources, raw materials, components, services, and information into a finished product that is delivered to end customers. Supply chain controls help minimize risk to a finished product—from its initial creation, to suppliers involved with all stages of development, through final customer distribution. Whether risk stems from an original raw ingredient producer or a storage warehouse, the safety and effectiveness of active pharmaceutical ingredients, foods, drug and biological products, cosmetics, veterinary products, and medical devices are increasingly jeopardized by supply chain challenges. As a result, supply chain controls must continuously evolve to meet rapidly mutating risks.

Growth of the 21st century globalized economy has allowed these challenges to exceed the 20th century expectations of the U.S. Congress in its creation of the FDA. Consequently, companies and regulators have had to consult a mix of guidance documents written by FDA, international regulatory agencies, and non-governmental organizations to devise a risk reduction strategy for the medtech supply chain.

Risk management is a key component of any present-day supply chain management program. Supply chain risk management (SCRM) is a discipline of risk management that attempts to identify potential disruptions to continued manufacturing production, and by extension, commercial financial exposure. SCRM attempts to reduce supply chain vulnerability through a coordinated holistic approach involving all supply chain stakeholders; these participants are tasked with identifying and analyzing the risk of failure points within the supply chain. Risk reduction plans can involve logistics, finance, and risk management disciplines. The goal is to ensure supply chain continuity in the event of a scenario that otherwise would interrupt normal business operations and thereby affect profitability. Supply chain risks could potentially include:

Rapid growth: While considered a primary managerial goal of many commercial organizations, rapid growth can also cause substantial problems and create additional risks. For example, small-scale production processes may not work on a large scale and may require additional development, testing, and validation to ensure they maintain the same level of safety and effectiveness as the approved product(s). Suppliers may not be able to grow at the same pace as the finished product manufacturer, and qualified employees may not be available to meet hiring demands.

Expanded and new facilities: As new facilities are constructed or brought on-line, or as older facilities are renovated or expanded, potential startup issues may be encountered.
Increased and/or changing product range: As product portfolios evolve and grow, manufacturing complexity may increase concomitantly. Supply chain professionals must work collaboratively with marketing and finance officials to ensure new products do not disrupt demand for existing products, at least until existing inventory has been depleted and supply chains are modified as necessary.

Changes to the supplier base: Suppliers may come and go as supply chains evolve. As this occurs, the overall performance characteristics of the supplier base changes (e.g., quality, delivery performance, lead times, cost variables), which may ultimately impact product profitability. As product profitability changes, managerial pressure to positively impact financial margins by decreasing costs may occur. Such changes may subsequently introduce substantial additional risk into the supply chain.

New or larger (and more demanding) customers: Generally, larger customers are more demanding. As dependability on specific customer revenues grow, the incentives to ensure customer satisfaction grow as well. Company manufacturing processes that ebb and flow with customer demand risk adding significant capacity and cost upon losing clients.

Changes to IT systems: Information technology (IT) systems are often a critical component to the logistics of executing supply chain processes. If planned and executed properly, IT operational improvements can add substantial benefits to the value of a supply chain. If conducted improperly, however, the results can be disastrous and lead to litigation.
Supply chain professionals incorporate at least three types of activities in mitigating supply chain risks:

1. Sharing expertise: Although critical to their success, mitigating risk is just one of many roles with which supply chain professionals must be comfortable. Compliance professionals can use their expertise to monitor the supply chain and help prioritize risks based on their potential compliance impact. Compliance professionals have a strong role to play in the supply, production, and distribution areas.
2. Use the supply chain as an entry point: Supply chain professionals have deep relationships with their third-party partners, critical suppliers, and third-party logistics providers. Compliance professionals should use those relationships to develop stronger mechanisms for both internal supply chain partners and the third-parties themselves to understand, identify, and report misconduct and other compliance risks.
3. Work within the “flow” of the supply chain: Supply chain professionals think about their roles as they relate to product flow from the ground to the customer. Compliance professionals should avoid attempts to “box in” their support within specific aspects of those flows, understanding that a change in one area (e.g., supply) can have a substantial impact on another area (e.g., planning).

Some concluding thoughts to consider:

• A long supply chain, with sourcing, manufacturing, packaging, and distribution occurring in different locations globally, has an increased risk of contamination or substitution of alternative ingredients.
• Safety hazards posed by complex new technologies may be difficult to anticipate during development, and therefore may not be realized until products are used long-term or outside the clinical study environment.  
• Changes to the product manufacturer’s IT systems could have a substantial impact on product manufacturing operations and must be monitored closely by the supply chain professional.
• Supply chain professionals must work closely with sales and marketing professionals to monitor changes in product demand in case the changes require alterations in the product manufacturer’s supply chain.
• Working with suppliers on environmental issues not only generates significant environmental benefits, including reduction in waste and more efficient use of natural resources, but also affords opportunities for cost containment, improved risk management, and enhanced quality and brand image.

Supply chain controls, especially supply chain risk management, have evolved significantly over the last 15 years, and will continue to do so over the foreseeable future. One thing is certain, though: These controls will definitely look a lot different when MPO celebrates its 30th anniversary in 2033. 

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James A. “Jim” Dunning’s consulting career began in 2001. He has provided quality and regulatory consulting services for various companies ranging from Fortune 500 medical device firms to startups. Dunning’s passion, however, lies with startups and small companies, especially those in regulatory distress. He has amassed significant experience in preparing 510(k) applications, developing complete quality management systems, providing quality system training, and advising on quality, business, and leadership issues. Dunning is a senior member of the American Society for Quality (ASQ) and a member of the Regulatory Affairs Professional Society (RAPS). He can be reached at [email protected].