Are “Black Swans” Colliding with your Supply Chain?

How can med-tech organizations minimize supply chain disruptions and increase predictability resulting from events characterized by rarity, high impact and low predictability?

By Daniel R. Matlis

Black Swan events once seemed extremely rare and had little or no impact on med-tech supply chains. In recent years, however, natural disasters including super-storm Sandy in northeastern US, the earthquake and tsunami in north-east Japan, flooding in Thailand, and the ash cloud from the Grimsvotn volcano in Iceland have all had significant impact on global supply chains.

Med-Tech globalization and outsourcing has increased the volume of geographically dispersed partners, facilities, and suppliers in the global supply chain. This has resulted in increased supply chain risk and decreased predictability due to variability and complexity and the rise of the impact of ‘Black Swan’ events.
In this article, we share insights from our research on the impact of Black Swan events on global supply chains based findings from “Walking the Global Tightrope: Balancing the Risks and Rewards of Med-Tech Globalization”

In his book “The Black Swan: The impact of the highly improbable,” Nassim Taleb defines a ‘Black Swan’ as an event characterized by rarity, extreme impact, and retrospective (though not prospective) predictability.

As med-tech companies considered ways to lower costs, many shifted to global supply chains and “single source” suppliers. Globally, single source suppliers greatly reduce supply chain robustness and flexibility as well as increase vulnerability. I will leave it to the experts to define whether or not these events are happening more frequently. Nevertheless, globalization and single sourcing are having an increasing impact on med-tech supply chains.

Our research shows that industry executives have significant concerns due to single sourcing stemming from risks associated with Black Swan events such as natural disasters and geopolitical unrest (43 percent). It is worth noting that the research was published before super-storm Sandy hit the U.S. Nevertheless natural disasters, as well as tensions in the Middle East, have heightened the awareness of the impact of these events on the med-tech supply chain.

Super-storm Sandy was a watershed event in the affected region for med-tech companies. The hybrid storm wreaked havoc across a large swath of the eastern seaboard of the U.S. and decimated large areas of New Jersey and New York. Even after the storm passed, it took weeks for utility companies to restore power to many affected customers, including several med-tech companies and their suppliers in the region. Many facilities were closed for over a week as a result of the storm and the resulting power outages.

As a result, the topic of global supply chain resilience is back on the agendas of industry executives as they seek to maintain product availability and integrity across the world.

There is no way to fully predict or prepare for the impact of Black Swan events such as natural disasters and geopolitical unrest on the supply chain. However, the recent frequency of these events calls for the implementation of contingency plans to improve supply chain resilience and balance the Risks as well as the Rewards of med-tech globalization.

To attain the sustained benefits of globalizations and mitigate Black Swan events, med-tech organizations must improve the resilience of their supply chains. This will allow them to capitalize on the opportunities set forth by globalization and outsourcing while proactively reducing and controlling risks. This calls for changing the business, technology, and regulatory models traditionally used in the industry.

To support these initiatives, we recommend that med-tech companies implement solutions to address issues and concerns that should be taken into consideration when managing in this global and outsourced environment.

These include:

Enhanced visibility across the med-tech extended partner network

Med-tech organizations should deploy systems and technologies to provide visibility and control not only in the supply chain, but also in the entire value chain, from product design, sourcing, manufacturing, and distribution to the consumer.

To enhanced visibility across the med-tech extended partner network, brand owners should:

- Employ risk-based supply chain management strategies;
- Require partners to document their complete supply network;
- Integrate data islands and point solutions to aggregate data needed to glean business information;
- Implement global, standards-based, and interoperable systems to support visibility outside the corporate four walls;
- Collect, analyze, and act on critical-to-quality indicators and parameters; and
- Implement IT solutions to achieve business results, not simply meet regulatory requirements.

Control over governance, risk management, and compliance practices

Med-Tech organizations should focus on achieving product, process, and systems excellence rather than simply ensuring “compliance” to delivery schedules and regulatory requirements.

To address these concerns, brand owners should implement commercial, legal, technical, and IT frameworks that support visibility and control across the ecosystem, and should:

- Consider a “smart-sourcing” strategy; evaluating the total cost and potential risks, not just initial cost;
- Implement commercial, legal, and technological frameworks that promote the exchange of information;
- Enable partners to become an extension of the brand owner’s own quality and information systems;
- Foster collaboration to support continuous improvement;
- Define a clear change control and notification framework to avoid surprises; and
- Don’t focus on price alone, consider overall value and associated risk.

Improve collaboration with all constituents in the ecosystem

Effective collaboration remains the cornerstone of successful relationships, especially in today’s global and outsourced environment. Med-Tech stakeholders should embrace this changing environment and partnership, transparency, and harmonization initiatives, transforming relationships so that interactions can begin earlier in the process to support mutually beneficial outcomes. It also means engaging suppliers who are willing to share information about the product on-demand, to support efficiencies and effectiveness across the product lifecycle.

To improve collaboration with all constituents in the ecosystem:

- Identify partners who share your approach and philosophy to quality and compliance;
- Educate your colleagues, employees, and partners on your standards, policies, and methodologies for risk management and mitigation;
- Create and publish standard measurable incentives to drive collaboration, improved performance, and mitigate risks;
- Create clear lines of communication to support transparency and continuous improvement; and
- Establish an honest dialogue with partners to enhance the value and impact of the relationship.

Med-tech organizations need to gain supply chain flexibility and reliance necessary to quickly adapt in response to Black Swan events. To this end, we recommend that implementation of approaches that support the transition to holistic control over Governance, Risk Management, and Compliance practices; Enhanced Visibility across the Med-Tech partner network; and Improved Collaboration with all constituents in the ecosystem. These strategies will enable med-tech organizations to minimize supply chain disruptions and increase predictability resulting from such events.

To request a copy of the complete research report, please click here.

This is article was originally published in MedicalDeviceSummit.