The Minneapolis-St. Paul Business Journal held a panel discussion recently on the topic of medical supply chains. Panelists included Tammy Heid, senior director, global supply chain at Medtronic; Frank Jaskulke, vice president of intelligence for Medical Alley; Peter Tulisaari, director of business development at King Solutions; and Scott Drikakis, health care segment leader at Stratasys. Amanda Taylor, vice president of research and intelligence for the Greater MSP Partnership, served as moderator.
The following is a transcript of the entire discussion:
Amanda Taylor: So we’re going to cover three themes [related to COVID]: The first is early disruptions and response, the second is innovation and evolution, and then finally we’ll finish off with the competitive advantages of Minneapolis-St. Paul and Minnesota as a location for the medical industry, and how we can be even more competitive in the future. So I’m going to kick it off with Tammy. Coronavirus has been a wake-up call for companies, supply chains. So what lessons have Minnesota companies learned and now changed their approach to managing risk with their suppliers?
Tammy Heid: Manufacturing supply networks were originally designed for low-cost, minimal inventory, which is a significant risk during a pandemic, and so companies have changed their approach specifically to manage their risk to suppliers. The first [change] is advanced analytics, real-time information. Real-time information is so critical, so allowing information on our suppliers that gives full visibility at a central control tower. It’s not just our suppliers; it’s looking at what are the raw materials going into and into those subtier suppliers. We’ve got to look at everything, and figure out where will the damage happen, how we prepare contingencies and where are we going to relocate that inventory. With the global pandemic, our leaders need to make quick decisions, and with that advanced analytics information at hand, they can actually do that so that we’re not impacting our patients.
The second one is visibility. We don’t have full visibility from end to end, and so when we run into a disruptive event, like COVID-19, we just don’t understand everything we need to know in our supply chain, and especially our suppliers. So a lot of the companies focused on what we call Tier 1 suppliers, the big ones, and they focus on getting visibility from them, but really not looking beyond that, and we really need to look at end to end. And not just our raw material suppliers, but even our transportation suppliers. That’s what we’ve learned with COVID: how do you act quickly — effectively, but also quickly enough that it’s going to make an impact.
Frank Jaskulke: Tammy, do you think if the advanced analytics, the visibility, had been in place more broadly, do you think we could have had less disruption and shortages?
Tammy Heid: I do. We wouldn’t have planned specifically for COVID-19, but we would have the analytics to tell us where all the inventory, the raw materials, the information for all our supply chain.
Scott Drikakis: I couldn’t agree more. Dimensional Research just conducted some research in partnership with Jabil, where they surveyed over 700 supply chain managers, directors, VPs, and they found that only 13 percent of OEMs used predictive analytics for supply chain.
Tammy Heid: That’s lower than I thought.
Scott Drikakis: It is. I expect that number to increase drastically. Companies like Medtronic and Boston Scientific and Abbott and 3M, General Mills, United HealthGroup, they have access; their subtier suppliers in some cases and maybe many or most do not. That creates a continuum that does not bode well for patients.
Amanda Taylor: Peter, how has the pandemic impacted carrier selection and capacity?
Peter Tulisaari: Everyone’s been affected by COVID and so has the trucking industry. There are fewer drivers now because of schools being closed. Truck driving schools, applications for CDLs, commercial driver’s licenses, are down 100,000 from last year at this time. Drivers are staying at home, taking care of their kids with distance learning, some took early retirement. Long story short, we have fewer drivers, less equipment. Now things are ramping up, and in September 2020, truck load rates are at an all-time high, and this actually surpasses the last high-water mark of July 2018. The more demand you have, less capacity, rates are going to go up. A shipment from Minnesota, going to the West Coast, let’s say California, you’re paying on the spot market right now about $1,000 more per load, and to the East Coast, $2,000 more per load. Containers right now are surging out of China. Ocean rates are going up as well. I just saw an article this morning, I think it’s from the American Shipper, that said that Chinese container factories are now sold out until February, so what they’re saying is that the forecast is strong and there’s going to be a large surge of imports from China back into the US.
Amanda Taylor: Early on, did any of you experience disruption from a dependency on a Chinese-based supplier that caused a real disruption to your operations?
Tammy Heid: We did at Medtronic. We had suppliers in China and a lot of those suppliers feed into our overall production, so when that happened, we do have inventory that we keep on hand, but it just backs up everything within the supply chain.
Amanda Taylor: Frank, we’ve seen a lot of things go wrong during the pandemic; what did we get right with supply chain?
Frank Jaskulke: A couple of things that come up: The speed at which companies locally responded to be able to shift lines, find new suppliers, in an environment where predictive analysis and visibility, really none of us have visibility beyond the next hour, let alone a couple of days. We saw that benefit local hospitals where different groups were able to make key components or put together new ways of making surgical supplies, especially PPE. There was just a lot of adaptability, [and] the FDA provided flexibility to manufacturers to make the changes without having to go through the full regulatory processes that normally can take weeks, months, or even years in some cases and just wouldn’t have allowed for responsiveness. One company told us that they got an order from a company that needed to develop a new frame for a ventilator product. Normally that would be an 18-month project, they went from the email from the client to shipping the product in 29 days. They never would have thought that possible, but it turned out it actually was technically feasible and doable, and the barriers weren’t regulatory or capacity; it really was in their head. Post-COVID, they don’t think they’ll be doing 29-day turnarounds forever, but it might be more of a 3-, 4-, or 5–month turnaround for new product innovations.
Scott Drikakis: I agree with everything Frank just said, and I would also emphasize the unity and collaboration that pulled everything together. We were on the calls every week with local manufacturers, with NIH, the FDA, the CDC, and I had something I couldn’t solve and Medtronic stepped up and said, we have a supplier, we can do this, and they reached out and got us that missing component or that raw material. It was cross-industry collaboration, all driven together to this one goal, to get this done. I’ve never experienced anything like it in my life.
Peter Tulisaari: That’s great to hear.
Amanda Taylor: All that can move us into the second theme of our conversation, which is innovation and how we’re evolved. So, Tammy, what medical industry supply chain technology disruptors deserve immediate attention?
Tammy Heid: I’ll start with big data and analytics and the control tower. Enabling companies to and analyze vast quantities of information is critical, as you all know. And supply chain has a lot of data. If you think about source-make-deliver, every node in that area has a lot of information, including supplier information, transportation, customer, etc. So having a central control tower, nerve center, whatever you want to call it, really critical. More than ever, we need that capability so that we can get to quick decisions. If you don’t have all the information in front of you, one, you’re going to make a bad decision because you don’t have that data, or two, you’re not going to make a quick decision.
The second one is automation. I look at it in a couple ways. One is robotics, which is warehouse automation or industrial robots in manufacturing; the second is process automation, and that’s more around electronic data interchange or no-touch planning. The pandemic has made automation even more important and more attractive, because we can have more robots in manufacturing and get that social distancing that we need even more than ever. And it’s becoming practical, that we could start doing more onshoring. You talked about regional; how do we bring more from China over to Minnesota? We can do that now because automation is more cost-effective. And there’s other automation pieces like advanced automation, AI, machine learning. Early adopters are going to be able to be resilient and change quickly, and it’s going to become a competitive advantage, especially as we’re getting out of the pandemic. This technology is going to be the piece that’s going to help supply chain go from the antiquated days to the future where we need to be.
Amanda Taylor: Frank, back to you. There’s a lot that’s evolving, a lot of disruption that leads to changes. Is this the end of just-in-time?
Frank Jaskulke: One of the things we heard loud and clear from a lot of our provider members, our hospital members, was the challenge of getting commodity products that by and large are not made in the US. They’re lower-margin, lower-cost products, very simple technologies at this point, and we don’t do a good job manufacturing those in the US today for a whole host of reasons. What the hospitals told us was that they found it very difficult with that spike in demand. We’re hearing from providers that they’re rethinking their inventory and how much they need to hold as a result, which has a lot of financial implications. The whole point, or a big point, of not having massive inventories was a way to free up capital that could then be invested in other higher-value activities. Maybe a good example of this: After MERS, 3M built a second factory so that they could more rapidly turn on extra capacity for making the N95 respirators in the case of an emergency. It did allow them to very rapidly add significant capacity; but it also had a significant cost: an entire facility essentially sitting unused for a decade. Not a lot of companies could maintain that kind of investment. So I think there is a lot of opportunity for innovation around rapid stand-up capacity, and predictive analytics to know where there might be surplus capacity that could be tapped into. I’m curious what others think about that. Does just-in-time still work in this sort of world?
Scott Drikakis: I don’t think just-in-time is going to go away. What I think is that there’s going to be a new definition. Part of that just-in-time, one of the things that impacted us is that digital health strategy. Instead of being able to keep inventory on hand, having access to digital files that have full material validations, process validations, ECO controls, MW [inaudible] files that as needed and when needed, you know what you have access to but most importantly it’s a validated process. What I hope happens is that just-in-time matures. It may not be the definition that we’ve historically held it to, as a cost mitigation.
Amanda Taylor: Any other thoughts on just-in-time?
Tammy Heid: It’s not going to go away; the cost mitigation piece is there, and the way we look at inventory is so critical, especially in the health care industry because our products are not cheap, and so we have to be able to look at it in different ways.
Amanda Taylor: Scott, back to you: How do you see supply chain evolving in the current environment?
Scott Drikakis: The COVID pandemic is creating a new paradigm. There’s going to be a new normal now. Does that mean this will further push companies to move more toward automation? If that happens, what are the implications for secondary operations, because now there are new safety protocols in place for social distancing that have implications for throughput capacity. Most suppliers, most manufacturers are going to have to review what those capacity elements are for all of their supply chain. And for the more mature companies that keep a firm pulse on that? They’re going to be well positioned for that, but it’s going to require quick maturation process for a number of those companies.
As those backlogs start to come through, that’s going to force questions or additional conversations about insourcing, outsourcing, tariff implications, safety stock levels, P&L implications, all of those pieces. So it’s this cascade that continues to evolve, and they all influence each other. I think with the digital health strategy, I think there’s going to be an increased conversation about centralized and decentralized manufacturing so that not all eggs are in one basket but we can be smarter about the decisions that we make. And then the last one, which in the health care space is obviously extremely relevant, is just the quality and then the regulatory piece. What was interesting about this pandemic is that when it happened, we were hearing from everybody that that everyone wanted to help. But I can’t tell you how many conversations I had with medical device companies, aerospace, automotive, who were in a position to help, but then that [fear of] liability slowed things down significantly. So that’s one piece that I think will force a lot of conversations about what we can do if or when this happens again. The last piece that again I spoke of earlier was that digital strategy. So that whole piece on material validation and process validation and making sure that while we can do things faster and more efficiently, it doesn’t come at the expense of quality.
Amanda Taylor: Scott, I have a question about the digital strategy, particularly around additive manufacturing and this validation process. What kind of time scale are we on for that to be widespread?
Scott Drikakis: I can’t speak to the broad scale adoption, but many companies are doing it. Instead of having them for parts to keep in safety stock or distribution centers, if we keep them in the cloud they are truly digital, and so the materials, the tools, suppliers, the process — all of that is already validated and documented. Anything that we would potentially need, to have those files digitally available from anywhere so if one region can’t step up, another can, so it’s on demand, as needed.
Amanda Taylor: Peter, what are the key considerations for future supply chain investment such as integrated technology for optimal visibility? What future investments are needed?
Peter Tulisaari: I think we touched upon multiple suppliers in the supply chain, some being overseas, some Chinese, some local, and again trying to get all the parties to speak together to create this data repository I think is the biggest challenge. Getting ahead of myself here, but obviously doing more regionalized or local work with manufacturers and suppliers, the chance for improving your odds for integration and getting that central truth of data is a lot greater than trying to get that overseas. That’s the big challenge, but like I said it’s definitely the first and foremost of everyone to come up with some sort of analytics tool that will give them that central tower or watchtower to see where supplies are, where inventory is, where shipments are.
Frank Jaskulke: I sometimes wonder in that realm if what we’ve seen other industries is going to become very applicable in our world. We have an industry that is for very good reason, very protective of its data. You look at a lot of the businesses that have come out of the tech sector in the last 20 years, where the data really has been openly available, freely shared; the data itself was not the value, but rather controlling the flow of the data and the analytics or the insights that were generated off of it, and it seems like that’s a change we’re all trying to make or figure out. We don’t quite know what it means, and it’s a little uncomfortable in a world where we can’t put IP around it and ensure that “I can control the value in this stream.”
Peter Tulisaari: Very true.
Scott Drikakis: Frank touched on a topic that hasn’t come up prior, and it’s surprising that it hasn’t, and it’s IT and supply chain and production. Medtronic released a ventilator design and they had partners that came out for it, and it does beg the question: Is the strategy that we’ve been using for the last 50, 60 years the right strategy? How do we adapt as information becomes available?
Frank Jaskulke: I think of Arm, which just is getting sold to Nvidia, a chip maker, but they don’t actually make chips; their whole business is designing the chips, the circuitry, and then sell the rights to that to the chip manufacturer. Nvidia is going to end up paying $40 billion where there is no hard asset. It’s stuff they can patent after the fact, so what they’re really buying is the know-how to create the future thing. It’s a whole new world coming for us.
Amanda Taylor: Peter, is there anything more to share around how the pandemic has affected our thinking about diversifying and outsourcing our supply chain partners?
Peter Tulisaari: From a logistics or transportation viewpoint, the closer you are to your suppliers, the greater probability that you will have on-time deliveries and success, and costs should also go down. So backing that up to people sourcing stuff all the way overseas, you’re always going to have a longer transit time, and you’re going to have variables outside of your control. Sourcing everything in the greater MSP area would be optimal; can that be done? Just switching suppliers doesn’t happen overnight. But from my transportation and logistics standpoint, the closer you are to your suppliers, the better your odds are for on-time deliveries and lower cost.
Frank Jaskulke: Peter, are you seeing that already, any sort of greater regionalization? It seems like you guys have a front-row seat to a wider set of changes that might be happening already.
Peter Tulisaari: A building we built which we call our King Solutions Warehouse # 3, designed for medical customers, literally that was brought on by a customer wanting to move their raw materials closer to Minnesota and basically cutting two days of transit out from Indiana to here.
Amanda Taylor: We’re talking a lot about building stronger supplier diversity. Are you increasing your spend or relationships to grow minority-owned, particularly small and medium-sized, businesses and have increased access to those businesses within the market?
Frank Jaskulke: We’ve had a strong increase in the number of our members who are asking about how they can participate more aggressively in recruiting a diverse supply base. I have to give a big shout-out to Meda. Fantastic organization that has a very strong supplier development program. If the supplier doesn’t meet those base-level qualifications, it’s very difficult to then go through the process of bringing them on. So a lot of credit then goes to Meda for recognizing that issue and working to develop programs that are responsive to it.
Amanda Taylor: What makes this region competitive, and how can we be even more competitive, especially with all the dynamics at play and disruption and evolution in this sector?
Tammy Heid: The skills and knowledge you have here in this industry is amazing. And maybe it’s more so during COVID, but even before that, when you go to industry seminars and discussions, people are willing to see how we can make the industry better, even if that means competitors coming together to figure out what are the right things to do for our patients.
Frank Jaskulke: The talented individuals, the manufacturers, the consultants, the specialized marketing agencies, logistics companies that specialize in this, that’s kind of our secret sauce or superpower; the challenge/opportunity that COVID has really accelerated is that the industry is being disrupted. If you go back to the ‘80s, when Earl Bakken started the Medical Alley association and Medtronic, he was watching the computing industry in this state evaporate. Silicon Valley was the Twin Cities; the fastest computers on earth were designed and built here, and an industry the size of the medical device industry disappeared in three years, because it got disrupted by the personal computer and the minicomputer. There is no guarantee that what we have here today will stay here and be here tomorrow. I think of what Tammy said with automation, robotics, what Scott talked about with the digitalization of manufacturing, Peter talking about the regionality and the efficiency of it and the delivery, all of these things could either be our opportunity for another 30 years of massive growth or it could be the thing that takes it all away if it happens somewhere else.
Scott Drikakis: It’s either we keep up with standards, or we set standards.
Tammy Heid: Exactly.