Health-care providers face extraordinary cost pressures today, due in large part to declining reimbursements for services. As a result, they are seeking opportunities to reduce costs without diminishing the quality of patient care. Medical devices are prime targets for these cost-cutting measures, and health-care providers are asking manufacturers for significant price reductions. What can manufacturers do to meet those demands?
They can start by eliminating significant waste and inefficiencies in the medical-device supply chain. To do this, medical-device manufacturers will have to make seven key improvements in their supply chains. The first three are operational improvements, and the last four are "cultural" shifts in how manufacturers and logistics service providers think about the medical-device supply chain.
On the operational side, the supply chain needs to be more streamlined, reducing the number of touch points so that there is less product handling. Next, there needs to be more transparency, so companies can better track products as they travel from the manufacturing plant to the patient; this will require a significant investment in technology in order to see a product's entire path through the supply chain. Third, companies will need to provide more resources for compliance to meet growing regulatory requirements. Deep expertise in health-care logistics is key to staying ahead of increasingly complex and critical regulatory changes—changes that are happening very quickly. In just the last five years, for example, our third-party logistics (3PL) business has seen a 300 percent increase in regulatory inspections of medical warehouses.
The next four adjustments relate to changing the culture of the medical-device supply chain so it will be better aligned to meet the new and growing challenges in health care. To begin with, the supply chain must be more flexible in its network design, to create new solutions that accommodate the growing shift in care from the hospital to more cost-effective locations, including patients' homes. Next, supply chain decisions must be more insightful, making better use of technology to establish clear demand signals that optimize inventory levels. Supply chain partners should be more collaborative, working together to create more effective shared warehousing and transportation strategies. Finally, all organizations in the medical-device supply chain need to be more nimble to manage the constant change in product complexity, regulatory compliance, transportation, warehousing, and points of care.
Implementing any one of these improvements will be difficult, and combining all seven into a cohesive strategy will be extremely challenging. But it is possible, and indeed will be essential to success in the new and fast-changing world of health-care delivery.
A three-part prescription
To implement the operational improvements mentioned earlier, creating new efficiencies and cost savings, medical-device manufacturers will need to take three actions.
1. Consolidate freight across manufacturers to improve efficiency. Based on our experience, approximately 65 percent of freight in health care today is transported via less-than-truckload (LTL) services. While the remaining 35 percent is transported as full truckloads (FTL), the trucks themselves are rarely full to capacity. In our experience, trucks typically operate about three-quarters full. Manufacturers that ship in truckloads do gain some time and cost savings compared to LTL, but significantly less than would be achieved if the trucks were running at full capacity. The most effective way to run at full capacity is to combine shipments from multiple manufacturers whose products are bound for the same destinations.
In addition to greater efficiency and cost savings, consolidation offers other important benefits. Because there are fewer product touches than in a traditional LTL approach, there's less opportunity for potential damage and claims, resulting in fewer shortages and losses. Plus, driving full trucks reduces transportation's impact on the environment. Fewer aggregate miles are driven, requiring less fuel and lowering greenhouse gas emissions.
2. Take advantage of multitenant warehouses to further improve efficiency. Traditionally, the warehousing of medical devices has been fraught with waste and inefficiency. In essence, each manufacturer creates its own supply chain infrastructure, building warehouses that typically have excess capacity from the start. These warehouses may only be 60-70 percent full at any given time, yet 100 percent of the infrastructure cost has to be maintained.
In fact, I have seen two manufacturers located side-by-side in the same industrial park, each with half-full warehouses. I've also seen a manufacturer with two full warehouses situated just a few miles apart. Neither scenario has ever made sense. In today's environment of relentless cost pressures, it's unsustainable.
As with transportation, the answer for warehousing is consolidation—in this case, combining inventory from multiple manufacturers in the same, shared facility. Doing so eliminates redundant expenses. This is especially important when it comes to the highest-cost services in health-care logistics, such as regulatory expertise. Medical-device regulations change constantly; rather than maintain their own experts, manufacturers that store products in the same facilities can share the regulatory costs with others. The same holds true for information technology (IT), which is another critical and high-cost function that manufacturers can share when they utilize a common warehousing infrastructure.
3. Eliminate excess inventory. Inefficient transportation and warehousing both lead to a common problem in health care: too much inventory sitting on the shelves instead of taking care of patients. Stories abound of nurses who hoard supplies on the hospital floors to make sure they never run out. Now magnify that to the warehouse level, and it becomes clear just how big the excess inventory challenge really is.
No wonder low inventory turns are a chronic problem in health care. For comparison, consider inventory turn rates in industries where supply chains operate far more efficiently. In consumer electronics, for example, the average inventory turn is 44. In the automotive industry, it's 10, and in consumer packaged goods, six. But in medical devices, the average inventory turn is just over two.
It's no surprise that maintaining excess inventory is rampant in health care. After all, patients' lives depend on these products, so health-care providers require high fill rates.
But there's a better way to achieve the necessary level of inventory availability than carrying the needless costs of hoarding products. It starts by creating full visibility and tracking of products, from one end of the supply chain to the other. In order to be able to take meaningful action based on your field inventory data, it is critical to get visibility at point of use. Finally, it's essential to build a warehousing and transportation infrastructure that can quickly act on this data, always maintaining the most efficient levels of inventory and then being ready to deliver products quickly, efficiently, safely, and cost-effectively to the point of care.
Driving success by the numbers
Building efficient supply chains can help medical-device makers save a significant amount of money in the changing world of health care. For example, by implementing best practices such as those outlined in this article, our company helped one medical-device manufacturer save more than US $2 million in transportation costs and $250,000 in regulatory costs in just 24 months. Another manufacturer achieved a total cost reduction of $550,000 over a 16-month period—with near-zero freight claims, a 5 percent decrease in transit times, and a reduction of variability within its supply chain.
For medical-device makers, achieving such dramatic cost improvements will not be easy. They will have to undertake the operational changes—becoming more streamlined, gaining more transparency, and focusing more resources on compliance—discussed earlier, as well as make the cultural improvements—becoming more flexible, more insightful, more collaborative, and more nimble—required to support those operational changes.
In the long term, it will be well worth the effort. As medical-device manufacturers come under increasing pressure from health-care providers to reduce costs, the supply chain can become a greater, more reliable source of new efficiencies and savings. Just as important: Improving health-care logistics can be a key not only to lowering costs, but also to improving the care of patients. Dollars saved today in the health-care supply chain can be redirected to research and development to improve or develop new medical devices tomorrow.
Shippers and carriers at ports along the East and Gulf coasts today are working through a backlog of stranded containers stuck on ships at sea, now that dockworkers and port operators have agreed to a tentative deal that ends the dockworkers strike.
In the meantime, U.S. importers and exporters face a mountain of shipping boxes that are now several days behind schedule. By the latest estimate from Everstream Analytics, the number of cargo boxes on ships floating outside affected ports has slightly decreased by 20,000 twenty foot equivalent units (TEUs), dropping to 386,000 from its highpoint of 406,000 yesterday.
To chip away at the problem, some facilities like the Port of Charleston have announced extended daily gate hours to give shippers and carriers more time each day to shuffle through the backlog. And Georgia Ports Authority likewise announced plans to stay open on Saturday and Sunday, saying, “We will be offering weekend gates to help restore your supply chain fluidity.”
But they face a lot of work; the number of container ships waiting outside of U.S. Gulf and East Coast ports on Friday morning had decreased overnight to 54, down from a Thursday peak of 59. Overall, with each day of strike roughly needing about one week to clear the backlog, the 3-day all-out strike will likely take minimum three weeks to return to normal operations at U.S. ports, Everstream said.
Economic activity in the logistics industry expanded for the 10th straight month in September, reaching its highest reading in two years, according to the latest Logistics Managers’ Index (LMI) report, released this week.
The LMI registered 58.6, up more than two points from August’s reading and its highest level since September 2022.
The LMI is a monthly measure of business activity across warehousing and transportation markets. A reading above 50 indicates expansion, and a reading below 50 indicates contraction.
The September data is proof the industry is “back on solid footing” according to the LMI researchers, who pointed to expanding inventory levels driven by a long-expected restocking among retailers gearing up for peak-season demand. That shift is also reflected in higher rates of both warehousing and transportation prices among retailers and other downstream firms—a signal that “retail supply chains are whirring back into motion” for peak.
“The fact that peak season is happening at all should be a bit of a relief for the logistics industry—and economy as a whole—since we have not really seen a traditional seasonal peak since 2021,” the researchers wrote. “… or possibly even 2019, if you don’t consider 2020 or 2021 to be ‘normal.’”
The East Coast dock worker strike earlier this week threatened to complicate that progress, according to LMI researcher Zac Rogers, associate professor of supply chain management at Colorado State University. Those fears were eased Thursday following a tentative agreement between the union and port operators that would put workers at dozens of ports back on the job Friday.
“We will have normal peak season demand—our first normal seasonality year in the 2020s,” Rogers said in a separate interview, noting that the port of New York and New Jersey had its busiest month on record this past July. “Inventories are moving now, downstream. That, to me, is an encouraging sign.”
The LMI is a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
Dockworkers at dozens of U.S. East and Gulf coast ports are returning to work tonight, ending a three-day strike that had paralyzed the flow of around 50% of all imports and exports in the United States during ocean peak season.
The two groups “have reached a tentative agreement on wages and have agreed to extend the Master Contract until January 15, 2025 to return to the bargaining table to negotiate all other outstanding issues. Effective immediately, all current job actions will cease and all work covered by the Master Contract will resume,” the joint statement said.
Talks had broken down over the union’s twin demands for both pay hikes and a halt to increased automation in freight handling. After the previous contract expired at midnight on September 30, workers made good on their pledge to strike, and all activity screeched to a halt on Tuesday, Wednesday, and Thursday this week.
Business groups immediately sang the praises of the deal, while also sounding a note of caution that more work remains.
The National Retail Federation (NRF) cheered the short-term contract extension, even as it urged the groups to forge a longer-lasting pact. “The decision to end the current strike and allow the East and Gulf coast ports to reopen is good news for the nation’s economy,” NRF President and CEO Matthew Shay said in a release. “It is critically important that the International Longshoremen’s Association and United States Maritime Alliance work diligently and in good faith to reach a fair, final agreement before the extension expires. The sooner they reach a deal, the better for all American families.”
Likewise, the Retail Industry Leaders Association (RILA) said it was relieved to see positive progress, but that a final deal wasn’t yet complete. “Without the specter of disruption looming, the U.S. economy can continue on its path for growth and retailers can focus on delivering for consumers. We encourage both parties to stay at the negotiating table until a final deal is reached that provides retailers and consumers full certainty that the East and Gulf Coast ports are reliable gateways for the flow of commerce.”
And the National Association of Manufacturers (NAM) commended the parties for coming together while also cautioning them to avoid future disruptions by using this time to reach “a fair and lasting agreement,” NAM President and CEO Jay Timmons said in an email. “Manufacturers are encouraged that cooler heads have prevailed and the ports will reopen. By resuming work and keeping our ports operational, they have shown a commitment to listening to the concerns of manufacturers and other industries that rely on the efficient movement of goods through these critical gateways,” Timmons said. “This decision avoids the need for government intervention and invoking the Taft-Hartley Act, and it is a victory for all parties involved—preserving jobs, safeguarding supply chains, and preventing further economic disruptions.”
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The U.S. manufacturing sector has become an engine of new job creation over the past four years, thanks to a combination of federal incentives and mega-trends like nearshoring and the clean energy boom, according to the industrial real estate firm Savills.
While those manufacturing announcements have softened slightly from their 2022 high point, they remain historically elevated. And the sector’s growth outlook remains strong, regardless of the results of the November U.S. presidential election, the company said in its September “Savills Manufacturing Report.”
From 2021 to 2024, over 995,000 new U.S. manufacturing jobs were announced, with two thirds in advanced sectors like electric vehicles (EVs) and batteries, semiconductors, clean energy, and biomanufacturing. After peaking at 350,000 news jobs in 2022, the growth pace has slowed, with 2024 expected to see just over half that number.
But the ingredients are in place to sustain the hot temperature of American manufacturing expansion in 2025 and beyond, the company said. According to Savills, that’s because the U.S. manufacturing revival is fueled by $910 billion in federal incentives—including the Inflation Reduction Act, CHIPS and Science Act, and Infrastructure Investment and Jobs Act—much of which has not yet been spent. Domestic production is also expected to be boosted by new tariffs, including a planned rise in semiconductor tariffs to 50% in 2025 and an increase in tariffs on Chinese EVs from 25% to 100%.
Certain geographical regions will see greater manufacturing growth than others, since just eight states account for 47% of new manufacturing jobs and over 6.3 billion square feet of industrial space, with 197 million more square feet under development. They are: Arizona, Georgia, Michigan, Ohio, North Carolina, South Carolina, Texas, and Tennessee.
Across the border, Mexico’s manufacturing sector has also seen “revolutionary” growth driven by nearshoring strategies targeting U.S. markets and offering lower-cost labor, with a workforce that is now even cheaper than in China. Over the past four years, that country has launched 27 new plants, each creating over 500 jobs. Unlike the U.S. focus on tech manufacturing, Mexico focuses on traditional sectors such as automative parts, appliances, and consumer goods.
Looking at the future, the U.S. manufacturing sector’s growth outlook remains strong, regardless of the results of November’s presidential election, Savills said. That’s because both candidates favor protectionist trade policies, and since significant change to federal incentives would require a single party to control both the legislative and executive branches. Rather than relying on changes in political leadership, future growth of U.S. manufacturing now hinges on finding affordable, reliable power amid increasing competition between manufacturing sites and data centers, Savills said.