Buyers face NEW supply challenges
Above are wearable Biomedical Sensors developed by Irvine Sensors Corp. The sensors can be used to diagnose sleep disorders.
By Brian Milligan -- Purchasing, 11/4/1999
Pressure is building on manufacturers of medical diagnostic and therapeutic equipment. As medical equipment producers struggle to stay creative and quickly move products to the marketplace, purchasing professionals are creating carefully designed relationships with suppliers to meet new supply management challenges.These managers still face many of the traditional challenges of purchasing. They are struggling to keep costs down and to make just-in-time strategies work. They are weighing the pros and cons of having a consolidated supplier base and striving to deal with a fruitful but constantly shifting global market. And they are trying to speed up traditionally slow product development cycles.
To deal with it all, purchasing pros are:
- Consolidating their supplier bases and still trying to get the best parts for their dollars.
- Searching for suppliers that will keep to just-in-time schedules so they can keep inventories low.
- Trying to speed product development time by getting suppliers more deeply involved.
- Searching for suppliers in different parts of the world, including relatively undeveloped countries such as Mexico.
Suppliers, likewise, are being forced to become more sophisticated as more and more requirements are placed on them by their medical OEM customers.
Speeding time to market
The playing field for medical OEMs is getting more and more complex. The market has become highly fragmented, with some 10,000 medical equipment manufacturers stretching across the country. These companies increasingly face cost pressures and rigorous competition.
While the industry was once known for its lengthy product development time, competition has increasingly forced manufacturers to become more sophisticated and speed up product development. Industry analysts say this trend has been partly fueled by an increasingly savvy consumer base, where people are knowledgeable about surgery techniques and options and often even know what to request after a doctor's diagnosis.
Now, instead of developing and producing something in three to five years, medical equipment manufacturers are under pressure to produce and get them to market much more quickly.
"Instead of taking years to develop something, companies are now working to get products out in six months," says Nancy Hermanson, medical market technical leader for engineering plastics for Dow Chemical Co. Dow has been actively involved in helping medical OEM customers use new and innovative materials that can improve product performance and reduce cost.
Some examples: Dow supplied materials that were used to produce a device that harvests saphenous veins during bypass procedures. General Surgical Innovations used Dow's engineering thermoplastics to create a vein harvesting device intermediate between traditional open-vein harvesting procedures and endoscopic techniques.
B. Braun Medical Inc. of Pennsylvania used Dow's Isoplast engineering thermoplastic polyurethane resins to manufacture patient-friendly catheters. The catheters are designed to aid in the administration of drugs, fluids, blood, and nutrition solutions.
So, too, did the company supply Zero Gravity Medical Inc. with the thermoplastic resins it needed to quickly manufacture the first thermoplastic-composite folding wheelchair. The revolutionary wheelchair is nearly one-half the weight of typical folding metal wheelchairs, but is still strong, stiff, and tough. And as Hermanson points out, the wheelchair was intended to be made at a significantly lower cost than other folding wheelchairs currently on the market. This put the pressure on suppliers like Dow to come up with the right materials, for the right price.
The company also quickly launched a crystalline polymer that is impervious to moisture and can be used in the creation of reusable surgical instruments. Called Questra Polymers, they are designed to be used in sterilization trays, surgical instruments, and dental equipment, as well as other areas requiring thin-walled parts or parts with long, difficult flow paths. The polymers are resistant to a broad range of chemicals, water, and steam.
"That was 12 months' development time," Hermanson says. "It was a brand-new concept, and we had to figure out how to do it in shorter development time. That is how this industry is pushing. It's not as fast as the computer industry, but it's a whole lot better than it was."
The positive side of this is speedier development of better medical technology. To keep ahead of the game, larger companies are investing more money in research, and smaller companies are looking for increasingly creative solutions to society's health problems. The companies are trying to deal with outpatient surgery trends, find surgical techniques that are less invasive to the patients, and come up with medical devices that are lighter, portable, and can be used outside of a hospital setting.
Increased cost pressure
But as these companies strive to reinvent themselves, their shifts are placing increased pressure on purchasing departments and other company representatives who deal with suppliers. To help their companies survive, they are striving to become more and more creative in their approaches. Many are feeling the pressure to keep costs down.
Take the example of California-based Irvine Sensors Corp. The company is in the process of developing muscle sensors that can be used to diagnose sleeping disorders. The minute sensors, designed to be worn by sleeping patients, are nowhere near as bulky or dependent on tethered wires as other devices now on the market. But to be competitive, the company is under pressure to keep the costs of these devices down.
ElectroScope Inc. is likewise increasingly turning its supplier needs to overseas suppliers in an effort to control costs. The Colorado-based company is now switching to a supplier in Taiwan for some key components. The impetus behind this switch is pricing. Richard Smoot of ElectroScope can purchase supplies in Taiwan at 25% of what it costs to buy the same parts in the United States.
"I have a good rapport with them," Smoot says. "Their pricing is excellent, they have always been on time, and quality has never been an issue."
But even though he is enthusiastic about his new overseas venture, Smoot warns that dealing with overseas suppliers can be challenging at times.
"There can be quality issues. You've got to match up with the right company," he says.
The same sorts of pressures are being faced by Arkansas-based Baldor Electric Co. The company is now in the process of designing surgical assist equipment, a kind of miniature robot with linear motors that helps surgeons make delicate incisions. The company is also developing magnetic resin imaging equipment that features movable tables which patients lay on. The equipment, the company hopes, will be better than competing equipment in the marketplace. And it must cost less to create. "It's got to have faster speed, greater accuracy, and greater repeatability," says Roger Bullock, linear drive specialist for Baldor Electric. "They must far outstrip others in terms of cost."
"Cost pressures are rampant, and so is the pressure of maintaining a good supplier base," agrees Hermanson. "We are all looking at doing things in different ways."
Using the Internet
To a large extent, the Internet is helping all the initiatives of medical OEMs move ahead. More and more, purchasing representatives from the medical equipment manufacturing industry say they are coming to depend on the Internet as they deal with their suppliers. Purchasing agent Tim Dressel, who works for the Minnesota-based Nonin Medical, says he uses the Internet to handle bigger and bigger orders. He also uses it to seek quotes and to contact new, potential suppliers.
"The Internet and e-mail are helping me in my job," he says. "It helps us give blanket orders for up to six to 12 months, which helps as far as scheduling."
Getting the right supplies on time is also a challenge for Wolfgang Geihe, vice president of operations at the New York-based Welch Allyn, Inc.
The company manufactures a broad range of medical products that assist in physical assessment. These include ophthalmoscopes and otoscopes, which are used to provide diagnosis of eye problems.
The company is now marketing a product that can be used to test the sight of infants, which are not capable or reading or performing simple eye tests. Welch Allyn's SureSight is an objective, accurate vision test that provides early detection of refractive error, a prominent vision disorder in children. Refractive error occurs when the eye's optics do not clearly focus images on the retina. The handheld SureSight vision screener is easily portable and requires minimal patient interaction. It can be used to screen infants and handicapped patients.
"A young child can't respond," explains Lew Allyn, executive vice president of Welch Allyn. "And if you have a serious visual problem and do not have it diagnosed until it is way along in the development cycle, the eye can develop serious damage and possibly damage that can't be corrected."
Holy trinity
To get the supplies needed for such innovations, Geihe says his department strives to keep a solid, efficient working relationship with suppliers. He keeps them to the "holy trinity" of quality, delivery, and cost.
"We mention those three things, but we have to think of them as a whole issue," Geihe says. "You can't just push one side. You have to look at all three."
While all of this works well in theory, David Baran, materials manager for Welch Allyn, says the company has taken steps to safeguard its agreement with the suppliers. "It's like [former president] Reagan said: Trust, but verify," Baran says.
Baran says the company setup carefully prepared contracts that spell out multiyear agreements with suppliers. Paramount was making the suppliers understand that Welch Allyn is committed to shipping manufactured goods to its customers within five days of their completion. This means getting the goods manufactured on time, and therefore making sure supplies arrive on time.
Baran says this sort of careful partnering is becoming more and more popular with companies like Welch Allyn. And he says suppliers are eager to get on board.
"The supplier base is looking for that proper fit with their customer base as we are with our suppliers," Baran says. "They are developing business plans and want to know if we are headed in the same direction."
Consolidating the supply base
All of this has become distinctly more challenging during the past year, as Welch Allyn, like many companies today, has consolidated its supply base.
Baran says the company consolidated 80% of its supply dollars into 60 suppliers. The consolidation has allowed the company greater leverage, flexibility, and cost savings. The focussed cluster of suppliers, he says, has arranged for automated replenishment systems that keep supplies coming in and prevent the manufacturer from running out at an inopportune time. "They automatically forward our daily requirements, and we don't run out of products," Baran says.
But Allyn says he saw a negative side to this, as well as a positive side.
On the plus side, he says Welch Allyn has been relieved to deal with fewer suppliers who are willing to supply the majority of its components. "It's good because you are dealing with fewer people," he says. "A lot less contact work has to be involved, and it's a good way to develop a relationship that is win-win for both parties instead of being competitive.
"We think of our suppliers as part of our team," he continues. "They are important to the process and make sure we've got everything we need manufacturing wise and are as cost-effective as possible."
On the negative side, Allyn says that Welch Allyn has naturally lost some of the smaller suppliers that were once very integral to the company. The smaller suppliers, he explains, could not meet the company's increasingly vast global needs. The company was forced to sever the relationships and lose good suppliers.
"We used to have 'Ma-and-Pa' relationships that were very important to us," he says. "There are very few left now."
One of the survivors is Tessy Plastics, a New York-based custom injection molder. The company has been a supplier of custom injected molded parts to Welch Allyn for 25 years.
Julie Polcovich, manager of supplier development for Tessy Plastics, says her company fully understands the consolidation trend--since it is doing the very same thing with its suppliers. Polcovich says Tessy Plastics has found clear advantages to the practice of building bigger alliances with fewer suppliers.
"I see the downside if you are a supplier who will get cut out of business," she says. "But it forces us all to be more creative and run leaner."
Polcovich, speaking form the standpoint of a supplier, says she finds making just-in-time schedules a harder problem to deal with. She says making a JIT schedule can be easily done, as long as the manufacturer is close by. But this becomes significantly more challenging, she says, when that manufacturer is located far away.
"There can be concerns," she says. "We practice JIT with many of our suppliers, but it only works well if they are close by and you are able to provide good forecasts. If they are farther away, you really have to keep the information flowing to make sure they see the same things you are seeing and that you are sharing that information."
The downside
Dressel, from Nonin Medical, agrees that there are some downsides to all the consolidation. Dressel says suppliers who find themselves as part of a consolidated supplier base may try to pass along savings to a manufacturer. But they may also likewise find themselves in an advantageous position, because customers have lost leverage to some degree.
"It's good in some ways, but bad in others," Dressel says. "If you have only one or two suppliers, they can hold tight on what they are charging you."
When these problems arose, Welch Allyn took the strategy of severing its relationships with suppliers in parts of Asia. It opted, instead, to open up new supplier relationships in Mexico.
Baran says supply quality and delivery problems with PC boards, wall transformers, and optics prompted Welch Allyn to reconsider its tactics in Asia. He says the Asian supplier was determined to ship very large quantities of supplies at a time. This did not conform to Welch Allyn's increased focus on JIT delivery of materials. The decision at Welch Allyn was compounded by the supplier's unwillingness to change. "They were inflexible," Baran says.
"They like to ship it at one time, and that doesn't work today," he continues. "The customer wants to buy what he wants at the time that he wants to buy it."
But the change to Mexico didn't make everything work smoother. Baran says the company has run into some new challenges since switching to Mexican suppliers. These included continuously making sure the suppliers can meet the demands of the Food and Drug Administration.
Mixed results
Other companies also have had mixed results from the consolidation trend. To keep costs down, companies like Irvine Sensors Corp. must be able to get parts at a reasonable price from suppliers. In many ways, this can be done in a market that is consolidating its supplier base. But there also are new challenges popping up here as well.
Smoot says the company has worked hard to consolidate its supplier base. At present, the company works with 50 suppliers. Smoot says this gives the company the advantage of becoming increasingly important to the surviving suppliers. He also says the smaller supplier base is a lot easier to manage.
Gina Mercuri, a buyer for the Massachusetts-based Vista Medical Technologies, says her company is likewise consolidating its supplier base. "Especially in electronic components," she says. "We all use those, and the distribution is getting smaller and smaller."
But while a consolidated supplier base may make it easier for the company to manage its suppliers, Mercuri says there is a downside. She says there have been times when the suppliers are out of stock with a particular component. Because there are fewer places for her to turn to, trouble arises. "If they don't have it, it gives me less of a selection to find that part," she says. "If they don't have the stock, the factory leadtime is longer."
When this does happen, Mercuri says she puts the onus on the suppliers to help her. By using this sort of networking, she says she can usually get the parts she needs.
"You use your resources, your vendors, your suppliers to help you out," she says. "There's a lot of networking out there now in this world. You may not always find the experience or education you need, but you can find someone who knows something about this that will help you out if you get in a bind."
Moving toward JIT
And getting quality supplies for the right price isn't the only challenge facing these companies. Many are still trying to deal with the realities of JIT systems. The systems require low manufacturer inventory and on-time shipments of supplies for complex assembly-line schedules. And they're overshadowing price concerns with other concerns.
Allyn explains that Welch Allyn began undertaking a JIT strategy several years ago. Through the strategy, the company dramatically cut back on the number of suppliers it uses.
"It really changed the way we look at our suppliers," Allyn explains. "We have developed much more of a partnership relationship with our suppliers rather than the adversarial one of the old days when everyone was trying to beat the other on price."
But as the reality of running a JIT system truly set in, Allyn says he has watched as price became less and less of an issue. More important, he says, is the suppliers' ability to get quality supplies to the manufacturing facility on time. "Price used to be the issue," he says. "Today, price drops down the list of priorities. The things that are surfacing are quality and the ability to provide the product when we need it."
Allyn says purchasing representatives from Welch Allyn have developed a quality assurance program, in which they visit the suppliers to develop an understanding of their manufacturing process.
"As part of the process, we have to certify them," he says. "We want them to be able to ship right into the manufacturing process. We don't want to have to inspect their products. We want them to go right to the bench."
Mercuri of Vista Medical Technologies says the importance of getting parts on time has become paramount for the company. "This is especially true when we are really in the development and prototype stages of a product," Mercuri says. "It gets difficult to play the card of cost reduction when we are trying to put out the product and the volume is not there."
For the most part, Mercuri says her company, which manufactures medical cameras and scopes for orthoscopic surgery, is able to get what it needs from its suppliers.
"Suppliers are pretty helpful, especially when you are starting a new company," she says. "I have to depend on the supplier to help me out with different types of things specific to medical devices."
With its JIT strategy in place, Geihe says the company has become increasingly dependent on suppliers' ability to deliver on time. It would be disastrous if the company were to run out of supplies, he says.
"We work hard with our suppliers to ensure that doesn't happen," he says. "The suppliers are very well aware of the issues."
Keeping a JIT schedule going has also proved something of a challenge for ElectroScope. ElectroScope creates systems for monitoring stray electrosurgical energy during laparoscopic procedures. The systems are designed to prevent accidental burns, tissue damage, and patient injury. The company's most recent product is a suction irrigation electrode.
Not all of ElectroScope's relationships with suppliers have been as smooth as the company would have liked. Smoot says the company is actively looking at alternative supplier sources to correct problems it is having with poor quality supplies or supplies that are not being delivered on time.
Smoot says ElectroScope's complex products manufacturing system does not leave a lot of room for suppliers who cannot get supplies in time for the JIT system.
"It varies," he says. "We are actively trying to fix some issues with some suppliers. Most deliver on time, but we have a few that we are trying to fix problems with."
Smoot says ElectroScope works hard with its suppliers, training them to make sure they are up to the company's rigid requirements for quality. But while keeping quality high is paramount, so is keeping costs down. It is a fine line the company must struggle to walk.
"We have some unique designs, but we are also constantly looking at reducing our costs domestically and internationally," he says.
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