One of Everstream’s clients is a leader in the medical device manufacturing industry, and we spoke with their executive focused on risk management and business continuity. Although client details have been changed for privacy reasons, the practices he shares here are universally helpful for medical device companies.
Q: What are your sub-tier supply chain concerns?
We engineer medical technology that improve the lives of patients around the world because we truly believe technology can transform lives. Our operation encompasses 19 distribution sites, 79 manufacturing sites, and an exponential number of suppliers and sub-tier suppliers operating around the world.
In terms of medical device supply chain disruption, what you can generally expect is about 30 days of inventory within tiers, so it’s going to take about four months to feel a disruption’s impact. Going from Tier-4, Tier-3, Tier-2, finally to Tier-1 where you actually see the problem, it could be up to four months from that first disruption to when you’re finally realizing it.
What could you do with that window? That’s what we’re trying to discover.
Q: Can you tell us about your supply chain mapping process?
To optimize our resources effectively, we focus on prioritizing what’s most important. We do that by creating a list of critical products, then do the deeper risk analysis for those specific products.
In prioritizing critical products, we look at three different areas.
- Patient criticality. Is this a product that is lifesaving or life sustaining, and are there alternatives in the marketplace or are we a sole supplier?
- Strategic impact. What’s the market growth potential? Can we reach more patients over time with this product? O
- Operational impact. How does this impact commitments we’ve made to customers? Or the ability to forecast and meet expectations?
Once we have that list of critical products, we map their entire value stream, from order entry to patient delivery. We analyze the distribution channel, the key markets, and all the different nodes connected to them.
Q: How do you analyze risk across that sub-tier network?
With visibility established, we do risk assessment throughout the supply base – at our sites and supplier sites. That helps us set the appropriate mix for investing into resilience efforts. For example, if there is increased hurricane risk at one of our manufacturing locations, then we may invest in backup power options.
But what if that risk is in our supply chain? For our critical products we map the supply base down to Tier-3, working from the bill of material. We assess risk based on supplier financial stability, performance, location risk data, and even details like how old their tooling is for making our components. If that tooling is obsolete, it may create unnecessary risk we can mitigate.
Here’s another example: Semiconductor chip supply. Lead times for ordering semiconductors have significantly grown. We used to order 90 days out, but now we’re placing orders more than a year in advance.
We don’t have direct relationships with semiconductor manufacturers, but having visibility to those sub-tiers lets us work with our direct suppliers to see where those semiconductors come from, then talk directly with the semiconductor manufacturers. That gives us more options.
Q: Which type of risk domains do you monitor on your Tier-1 suppliers?
We do a full risk assessment that’s across the board, so looking at operational risks, so what’s performance? How’s their quality? We also look at natural hazard risk based on their location. We look at political instability. We look at even some of the ESG supply chain risks like water scarcity in the locations that they’re manufacturing. We look at a broad spectrum of operational risks like that.
For example, financial stability is an important factor. We look at our partnerships that we have with other third parties that provide that data, ratings, and things like that, but that’s not always the best indicators of what’s happening today versus what’s happened in the past. We try to take a more strategic approach with our suppliers of looking to those that we have direct relationships with and understanding their ability to continue to deliver. If one customer makes up 60% of their supply base, obviously they’re concentrated within that particular customer. It’s things like that that we’re trying to balance and gain additional visibility to, also recognizing their ability to receive supply, because if they can’t deliver on their commitments, that’s obviously going to drive additional financial instability for those suppliers.
What does your team do when an incident or a risk is identified at the sub-tier level?
Number one is we ask questions. If you have a sub-tier that’s disrupted but you only have a relationship with your top tier supplier, start asking that top-tier supplier questions like, “Are you aware of this disruption?”
Maybe we then ask if we can buy some additional inventory to make up a potential gap. Maybe we would ask if we can have a direct conversation with the sub-tier supplier to understand if their impact is going to be long term. The visibility gives you options.
What’s the one thing companies should do to map their supply chain quickly?
From my perspective, there is no silver bullet. Anyone that’s looking for a silver bullet in mapping their sub-tier supply base, it just doesn’t exist. We’ve focused for such a significant amount of time on discovering what’s the best way to achieve this, and what I would say is we really need to, as an industry, recognize where we’re going to gain the most visibility in the fastest way possible, and then continue to drive that iteration and improvement over time. Because there’s a maturity scale that’s going to come from this that will take investment to continue to drive. But I’d say it’s about partnership, identifying what the right fit of a partner is and growing that maturity together to be able to reach that sub-tier and gain more confidence in the accuracy that exists within that sub-tier supply base.
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