Posted by on 08.05.16
How to Decide?
This series explores the overarching trends that are upending the healthcare supply chain; why a formal network design capability is becoming essential to medical products manufacturers’ competitiveness and growth; and how manufacturers can develop such a strategic capability to position themselves for success.
The previous sections of this series have explored prevailing trends that cause disruptive changes to healthcare supply chains, the importance of establishing a formal supply chain network design capability, and available options to buy, build or use a hybrid method to acquire it. In this final installment, we offer advice on how medical products manufacturers can make an effective and intelligent selection between these options.
So which model is best? As all companies are different, numerous factors could influence the decision. We’ve found four to be especially important in helping companies determine whether the ideal fit is buy, build, or hybrid:
How strategic the supply chain is to the company’s business. The more a company relies on its supply chain for strategic advantage, the more frequently it would fine-tune or redesign its network. Thus, by extension, the company would most likely want a formal in-house capability it owns and could use on an ongoing basis or to respond quickly to emerging opportunities (for instance, to conduct the modeling necessary to confirm whether a proposed acquisition makes sense from a supply chain perspective, which also could be done in a “buy” scenario).
The company’s cost appetite. Using third parties on an as-needed basis is generally the least costly of the three models. Thus, it typically would be the preferred option for companies that lack the budget to make the required significant upfront investment to build an in-house capability.
The maturity of the company’s organization. Building and operating an in-house capability involves a significant learning curve. The challenge is, many medical products manufacturers have not historically had a strong supply chain mindset. Such companies can benefit from the perspective and skills outside resources can bring to the table.
How tactically ready the company is. Many companies lack what’s required on a day-to-day basis to build and operate an in-house capability. For instance, making supply chain-wide network design changes requires end-to-end supply chain data, which most medical products manufacturers typically don’t have. That’s something third parties can bring to the table.
Cutting across these four factors is another important consideration: the overall complexity of the company’s supply chain. Complexity comes in many forms. For instance, a company could have a complex supply chain by virtue of the number of manufacturing and distribution facilities it operates and the carriers it uses, or a high volume of Class III product returns it must manage. Or it could be complex because the company is involved in a highly collaborative outsourcing relationship that must balance different cultures, people, and desired end states. Regardless of the drivers, the more complex the supply chain, the more sophisticated the network design capability the company needs.
Based on prevailing trends, it’s clear that disruptive change will continue to define the healthcare industry for the foreseeable future. M&A likely will remain strong, hospitals will continue to make moves to reduce their cost structures, and the strongest growth will still be found in far-flung emerging markets. Thus, medical products manufacturers must be able to adjust their supply chain networks when market conditions require it – which increasingly means frequently and sometimes significantly.
That’s why a formal supply chain network design capability – whether bought or built – is fast becoming a competitive necessity. IT can help medical products manufacturers dramatically reduce costs and improve service levels by, among other things, optimizing their production footprint, product flow, and inventory placement; segmenting demand to align with hospitals’ needs and buying behaviors; and rationalizing supply chains as part of M&A activities.
In short, being able to effectively refine and revamp one’s supply chain network in concert with changes in supply and demand will be a defining characteristic of winning medical products manufacturers in today’s volatile and unpredictable healthcare environment.
This series is available as a whitepaper. Download here.
Sedlak has helped healthcare companies improve operations and optimize their supply chains since the 1960s. To learn more, contact us by filling out the form below.