Supply chain disruptions and delays: no computer chips, no medical technology – are growth and supply reliability at risk?
4/4/2022 Markets Trendreport

Supply chain disruptions and delays: no computer chips, no medical technology – are growth and supply reliability at risk?

Whether bicycles, cars or high-tech equipment – anything you purchase at the moment comes with a long waiting time attached, so patience is called for. Deliveries are being delayed, certain products can be out of stock for quite some time, or in some cases they are not even available to order. Are supply chains still resilient enough to support the economy, or do we need a rethink?

Image of a networked world against an industrial background.

“The COVID-19 pandemic has exposed the vulnerability of global supply chains and global trade and shows that, as a result of global networking, local bottlenecks can have a major impact on the availability of products”, explains Prof. Dr. Alexander Sandkamp, Assistant Professor of Economics at the Christian-Albrechts University of Kiel. Clearly, a number of problem areas have become visible that are associated with global networking. While delayed delivery of a bicycle or kitchen appliance is annoying, when it comes to medical equipment or key components of such equipment, delays or complete failures to deliver can have severe consequences. What can be done to bring this under control? “Procurement difficulties in medical technology supply chains endanger the value creation chain throughout the entire industry. This is why it is so essential that the players communicate closely and network with each other. MedtecLIVE with T4M aims to be the perfect platform for this, and definitely has what it takes to bring everyone involved to the table”, explains Christopher Boss, Executive Director Exhibitions at NürnbergMesse GmbH. After two years of living with the pandemic, what ways have been found to deal with supply chain issues? What do the new approaches look like, and what are the consequences of a potential restructuring of the market?

 

The consequences of medical technology supply chain disruptions

With the COVID-19 pandemic in 2020 came lockdowns, and one region after another was forced to shut down all activities to a bare minimum. As a result, the entire industry was restricted, slowed down and almost went into hibernation. The lockdown in China effectively shut down a country that not only supplies to the electronic equipment industry, but also plays a key role in terms of medical technology, completely interrupting supply chains in the process. Important products, the availability of which became so essential particularly with the onset of the pandemic, were suddenly arriving with huge delays or disappeared altogether. The rising demand for key medical devices as a result of the COVID-19 virus caused a major imbalance between high demand and low availability. The consequences were devastating. Not only were personal protective equipment (PPE) and ventilators scarce in normal day-to-day hospital environments, but they were the very key to survival for some patients receiving treatment in intensive care units – the number of which went up dramatically as a result of the pandemic. Non-availability of these products led to huge fluctuations in healthcare provision that no longer could be compensated for. But it is not easy to restructure an entire market: “Due to the high quality requirements and the volume of relevant regulations, the relationships between the manufacturers of medical technology and their suppliers are often very close and very long-standing”, explains Mike Bähren, Head of Economics and Market Research at SPECTARIS, the German industry association for optics, photonics, analytical and medical technologies. It is almost impossible to change manufacturer at short notice, as this is a process that takes a lot of time. Due to the imbalance between supply and demand, there are other problems that come into play in addition to the basic fact that the products are missing. “This results in competition for goods that are already scarce and opens up business opportunities for new suppliers, who gain rapid access to the market due to the high level of demand and the inability of established supply networks to meet that demand – which can have an adverse effect in terms of quality”, agrees Toni Drescher, CEO of INC Invention Center, a service provider specializing in the transformation of ideas into innovative products and solutions. And, in the worst-case scenario, these quality losses could potentially endanger the life of patients.

 

Strategies for dealing with supply chain issues

The combination of high demand with bottlenecks in supply chains is not only problematical, but in some cases will even decide over life and death. The industry has done its best to meet demand and is searching for alternative strategies to get on top of the problem. Some companies have expanded or adapted their product portfolio during this period. They have manufactured missing products locally and thus attempted to offset the shortages. In this way, the healthcare system has been supported by a fast response from the market. However, it is unlikely that this change will be a long-term solution for most producers. “Once the situation goes back to normal, most companies will refocus on their core competences, in part because demand for the products that were required during the pandemic in particular will subside”, explains Sandkamp. “This shift in focus will only be lasting if it is backed up with a concrete business plan”, adds Drescher. Bähren agrees and does not see this as a permanent change: “Many small levers are being used to keep production up and running. Particularly in the world of medical technology, because of the extensive regulatory requirements that apply, short-term product adaptations are always a challenge and therefore not a panacea for dealing with supply chain issues.” But the new players are bringing new business models and new ideas to the marketplace. Established companies can learn from this and benefit, as it will help them to avoid supply difficulties and bottlenecks in the future. "Since many areas of healthcare are budget-driven and are shaped by high cost pressures, changes often require a lot of time”, explains Bähren. With new impetus, the problems that have been highlighted can already be solved today and will no longer cause problems in the future.

Solutions in the industry

At present, supply chains are still restricted, and delivery delays and unavailable products are still part of the picture. There is not much that can be done about this in the short term. To ensure that there are no major supply chain disruptions that affect the delivery of essential products in the medium and long term even in the event of problems in the future, precautionary measures must be put in place and structures must be made more resilient. According to Sandkamp, three factors are the key to this: “Diversification, warehousing and recycling. It is important that companies set themselves up on a broad footing. That they do not make themselves dependent on individual suppliers, but instead procure products from different producers in different countries.” However, this development comes at a price. “Although it leads to higher costs, the benefit is that supply chains become more resilient and resistant to crises, which is of vital importance for the medical technology industry in particular. This will undoubtedly be a topic that will attract much attention in the supporting program and during the discussions at MedtecLIVE with T4M in May 2022”, adds Boss. Although it can be cost-intensive to build in warehousing buffers and move away from just-in-time ordering, this approach is a worthwhile and more long-lasting solution, as it avoids the risk of acute bottlenecks in the supply of essential products. Recycling can also play a very important role here. “When it comes to shifting production to Europe, of course we hit a brick wall if the raw materials are not available. We can reduce this type of dependency by falling back on recycling”, explains Sandkamp.

Alongside these important points, Toni Drescher also sees a need for precautionary measures particularly at the planning stage. “It is important to perform an analysis of the system relevance. The question you need to ask yourself is the following: Which products are actually essential? Any company’s emergency planning for dealing with a crisis must be checked for this particular point, and adapted as required.” He also supports the idea of a multi-supplier structure that can rapidly kick into action in the event of an emergency situation to ensure that the supply chain is resilient. This structure should be backed up with production licences. The perfect balance for supply chain planning and structuring is a healthy mixture of global and local suppliers combined with the use of digital solutions, automation and artificial intelligence. “As digitalisation has picked up speed massively in healthcare, electronic components now also play an ever more important role in medical devices. Current shortages in this area are therefore really hitting the industry, just like so many others”, says Bähren.

However, Sandkamp explains that it would not be a workable solution to isolate yourself, i.e. make yourself independent of other countries: “This would prevent us from being able to switch to different dealers, and costs would rise. In addition, production will be inefficient if the specialists and their resources are located in different countries.” For Drescher it is clear what is needed instead: “We need to invest in capabilities, in competence and expertise in the health care system and in procurement so that supply chains can be set up to be cost-oriented, stable and sustainable.” The industry has learned some harsh lessons about where its weak points are. According to Boss , how this will be dealt with is a matter for the future: “This is something else we want to work on together at MedtecLIVE with T4M so that we can jointly come up with some solutions.”

 

What conclusions are being drawn in the industry?

Over the course of the last two years, it has become more than obvious that measures need to be put in place to prevent the supply chain issues we have seen and the serious consequences they bring to the field of medical technology. Here, the global outbreak of a virus is only one of many reasons that can lead to supply bottlenecks. Other factors include e.g. a cargo ship getting stuck in a canal, natural disasters or wars – but supply chains in the medical technology industry need to be resilient and secure in the face of all these risks. Based on recent experiences, will the market be restructuring itself for the future? “Unfortunately not”, explains Drescher, “you can already see from the periods of respite between the waves of the pandemic that most companies are falling back on the same structures that were in place pre-pandemic.” At the end of the day, this approach can potentially put people's lives at risk again in the future, as we already saw during the pandemic. However, Sandkamp does see some evidence of cautious rethinking in the market: “Trade levels are back to where they were before the crisis, and some companies have already started to diversify, i.e. to set themselves up on a broader footing. However, we are not seeing any signs of production locations being shifted.” Bähren explains: “Existing procurement routes and the bonds between manufacturers and their existing suppliers are therefore not under much scrutiny, even if some companies are starting to look a bit harder for second or third suppliers in order to mitigate procurement risks.”
It is not yet possible to anticipate wider, global developments in the industry, so things are still uncertain at the moment. Fluctuations in product availability and supply bottlenecks are still being felt now, in the first quarter of 2022. Christopher Boss: “We need to share our collected experiences and discuss them face-to-face at MedtecLIVE with T4M to see how we can create innovative structures to jointly strengthen the market.”

 

About MedtecLIVE with T4M

The trade fair MedtecLIVE with T4M is the leading European event in the spring for the medical technology industry and takes place once a year, alternating between Stuttgart and Nuremberg. The event covers the entire value creation chain and brings together the most important medical technology regions in Germany in the process. Here, decision makers from distributors and OEMs meet face-to-face with key suppliers to the medical technology industry.