Late cancellations meant our November Roundtable discussion, supported by DHL-Exel Supply Chain, was somewhat bereft in quantity, but for quality this meant that our ability to drill down into some of the detail of a very idiosyncratic, not to mention life-or-death supply chain, that of medical devices and diagnostics, was perhaps enhanced.
Our chairman, ”Supply Chain Standard” editor Nick Allen opened by inviting Patrick Rainforthth of Johnson & Johnson [see panel for affiliations] to explain how healthcare equipment providers are trying to meet the demands of healthcare purchasers for lower supply costs, greater efficiencies and perhaps, through for example outsourcing, different methods.
A hard question, Rainforth suggested. ”There’s no question that there is a trend for Medical Devices (MD) businesses to try to get as close as possible to the patient. But it’s a complex area. MD in J&J involves many different businesses, with 40k plus skus. The number of skus is tending to increase and so is the complexity”.
Traditional ways of controlling the supply chain are no longer appropriate, he said, ”they become distorted by the scale of what we are trying to do. We cater for so many conditions, so many patient types, that our holdings are potentially enormous.
”And surgeons who use these products are trained in certain ways: they have preferences for certain devices, and may not be as willing to stop using older technologies they still trust and depend on, despite the introduction of new products. Often the transition takes longer so there is an ever-increasing “legacy tail”.
Rainforth pointed out that there is additional complexity, compared with for example the aerospace industry which is, perhaps, the closest comparator. ”Yes they have hundreds of thousands of skus, but they don’t have the same level of issue in shelf life, traceability [or indeed the variety of stores locations, see later]. It’s not good enough for us just to hold the product – there is a huge number of obstacles before a product can be used by a patient”.
Another interesting aspect, Rainforth said, was that ”People [hospital or health authorities] don’t want to hold stock – so there is a big drive towards consignment stocking, with companies like us holding stocks within hospitals”.
Jonathan Blamey of DHL Exel Supply Chain asked whether consignment will continue to be a challenge for the MD manufacturer or supplier, or whether hospitals will take on the stock management role – an obvious concern, given that DHL-Exel, albeit an entirely separate division, is now running a large part of the NHS supply operation. DHL currently offers physical stock management services both to hospitals and to MD manufacturers and so is interested to know which side of that market is likely to grow. Rainforth felt that consignment was ”here to stay, but it is difficult. There is a lack of good technologies and processes to control this sort of consignment inventory. There are huge costs in physically monitoring stocks and working out what needs to be put in. Stock obviously has to be on our systems, but our systems aren’t necessarily in the hospitals”. It might be imagined that RFID could help but, at present Rainforth feels, ”the technology isn’t robust enough for this application”.
Michiel Marks from RR Donnelly asked how you control expiry dates, obsolescence and so on – can you enforce a FIFO regime for example? Rainforth was candid – ”You can’t – all we can do is ensure that a product has a sufficient expiry date when it goes in. So we have to ensure that when we ship there is a huge expiry date – we can’t control the usage”.
Fred Westdijk of DHL Exel asked to what extent that usage control is still by doctors. ”Is buying behaviour changing – it used to be that doctors bought things themselves. We’ve seen in pharmaceuticals a trend to professional buying, is that the case in MD?’ Rainforth answered ”No question, the purchasing approach has vastly changed in the last ten years – it is much more professional”.
An area that, as a logistician, interested Jonathan Blamey, was the proliferation of skus, and especially ”When you get to “end of life” products, how do you encourage clinicians to see that and to move on?” ”It’s difficult,” said Rainforth. ”The culture of the MD industry, and certainly of J&J, is that of trying to help people; we have an ethos of patient care, so it goes against the grain to say we are not going to supply something because the demand is too small. And although the economic pressures on us and on our customers are to reduce stocks, the business is creating far more new products, devices, applications, and developments.”
Blamey asked whether there were different supply chain models that were relevant. ”There could be supply chains for elective surgery, such as hip replacements which can be planned – but surely trauma needs a whole different approach because the user doesn’t know what is going to turn up. So are there different routes for trauma and elective/planned surgery?”
Rainforth acknowledged that ‘you would think so, if there is an operation scheduled eight weeks out, I could know about that, and plan for it, but actually it doesn’t work like that.
”MDs are delivered next day, across Europe, full stop. The only difference in service is that there is an element of timed delivery (implying premium freight). For trauma, an amount of product has to be held close to the patient, but replenishment of that, or other products needed, is on next day delivery – and perhaps five per cent of what we do is on timed (ie premium freight) delivery”.
But perhaps more importantly, Rainforth disclosed that J&J is executing major supply chain changes. As a company developed through both growth and acquisition, he admitted that they didn’t ”start with a clean piece of paper”, but have been trying to create an organisation fit for the future.
This, he says, required changes both in the supply chain process and in its physical structures; the problem being not just those of inherited multiple locations, but also of systems duplication.
”In 2004”, he said, ”we had 26 DCs across Europe, but we are reducing and consolidating essentially onto one point in Belgium – there will be other distribution centres for particular needs, but we think, perhaps, 70 per cent will go through Belgium.
”But with 40,000 skus it’s not possible to have everything in stock for every demand – so short supply situations are inevitable. The question of who gets the stock when supply is short, across Europe, produces a whole range of supply chain problems”.
But as Westdijk pointed out ”At least you are now in the position to make the choice!”. Rainforth agreed that ”Before, if say Poland had a surplus, no-one knew. Now, J&J can take advantage of our size and strength in the supply chain in ways we have never done before. We are being bold, doing things that are risky if you are changing a supply chain of this complexity – we have to be careful”. The central EDC went live in August 2006, and there are still some consolidation to come – asked whether the new system could prove that inventory was being managed better, Rainforth said ”I’m sure that’s the case, but it’s too early to show that through the figures yet”. The Belgian EDC has some interesting features, according to Rainforth. ”The building has broken the mould”, he says. ”It’s operated by a third party, but we own the building and the systems, which in many cases we designed. So we retain a significant amount of management, especially on the quality side”.
The EDC is semi-automated, which itself is remarkable given that the items being handled are so various in size, weigh and other requirements. If pushed for similarities, Rainforth said that his supply chain was probably closest to that of aerospace, if anything, in terms of range, value and complexity, but with added features, from kitting requirements through to cold chain.
Why Belgium, asked Michiel Marks? The answer is that geographically, that is in the centre of the largest population group that you can serve without using air freight.
J&J also has an interesting side on kitting and reverse logistics. As Rainforth explains, areas such as orthopaedics (stuff like hip replacement operations) may get supplied with a complete set of trolleys, loaded with not only the pieces of the prosthetic, but the tools and, perhaps, the consumables, required for the operation. Not only is that a kitting job but, in some contracts at least, the reusable implements and unused components are returned to J&J for cleaning and steralising (although that will in theory have been performed by the returning hospital) and re-issue. Although initial kitting is likely to be done through the Belgian warehouse, the return cycle is managed regionally (in the case of the UK, in Leeds).
This return supply chain is more complex than might be expected. Rainforth explains that kits – which may include surgical instruments, sets of parts for inclusion in the patient (ie bits of joint with the pins etc that hold everything together) and appropriate disposables – get kitted up typically on specialised racking trolleys. These, minus of course the parts that have been put into the patient, come back for cleaning and sterilisation, re-packing and re-issue. That can’t realistically be done through one central point, partly because national or even local practices vary, and also because, as in most reverse supply chains, some of the ”kit” that comes back may not be We put in the centre what we can, and hold locally what we need to. So we will always have some regional distribution alongside our central European operationwhat was issued – indeed, may not even be J&J product. But the kitting scenario is even more complex than that: depending on what the clinicians want, some kits may be sent out ”incomplete”; others may have ”options” not all of which the surgeon will use (ie, a variety of lengths or diameters of screw).
The implication for the supply chain, said Rainforth, is that ”We put in the centre what we can, and we hold locally what we need to. So we will always have some level of regional distribution, alongside our centralised European operation”. Fascinatingly, he admitted that the new EDC does not enjoy the ”advantages” of Advanced Warehouse Management Systems. They find there is enough functionality in the RF equipment, and there is thus no need for the continuing reconciliation of out-of-synch warehouse and commercial systems.
Westdijk was particularly interested in how J&J deal with consignment stock, and Rainforth conceded this is just not easy to manage. ”The stock is in someone else”s building, so there is the access problem. Issues and returns are problematic – are they returning something they have bought, or is this something that is still my stock? One way we have found to manage this is to have dedicated groups of people in each area, closely aligned with the sales & marketing teams, going in physically to review the stock.”
You might think RFID would offer solutions, but apparently the systems are not yet robust enough – what sort of error levels would you be happy with if the part is going into your body? Most roundtablers agreed that in many medical areas, even barcodes have yet to be sensibly adopted. Marks admitted that his own company was ”determined not to be the first in the field to implement RFID – even though we have been tracking it for five years”.
Marks was interested in teams – he suggested that ”often, Sales & Marketing don’t care much about supply chain and stocking issues”, but Rainforth replied that on the contrary ”Consignment is understood as being challenging. We have to consider the policies carefully, find the right decisions, which are often clinically driven, for the patients. Our S&M do appreciate that supply chain availability is part of their job, and it’s reflected in their balance sheets which helps drive the right behaviours. There has been a sea change – they understand that supply chain control is in their interest as well”.
Marks also raised the issue of postponement, and keeping product ”generic” as long as possible. This, in his experience, is certainly achievable in pharmaceuticals – essentially, it may just be information sheets or other aspects of packaging that need to be changed for different markets.
But overall, the consensus was that the game plan is to get closer to the customer – the clinicians, and indeed the patients. There is scope for considerable development in the medical devices supply chain, with undoubted benefits for patients and those who pay for their care. But everyone around the table was clear that these changes can only, and should only, happen if the clinicians can be convinced that clinical advantages will result.
Meet the panelists:
Nick allen (chair) editor Supply Chain Standard
”How are healthcare equipment providers meeting the demands of healthcare purchasers for lower supply costs, greater effficiencies and perhaps, through outsourcing, different methods”
Patrick Rainforth executive director, distribution, Johnson & Johnson Medical Devices & Diagnostics
”There is a big drive towards consignment stocking, with companies like us holding stocks within hospitals”
Jonathan Blamey vice president, product development, DHL Exel supply chain
”When you get to “end of life” products, how do you encourage clinicians to see that and to move on?”
Fred Westdijk vice president, business development, DHL Exel supply chain
”Is buying behaviour changing – doctors used to buy things themselves. We’ve seen in pharma a trend to professional buying, is that the case in MD?”
Michiel Marks business development director, RR Donnelley Global Turnkey Solutions
”How do you control expiry dates, obsolescence and so on – can you enforce a FIFO regime for example?”