DEC 2016

Published by ORTHOWORLD Inc., BONEZONE delivers strategic sourcing & product commercialization solutions to orthopaedic device company decision makers and their partners.

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79 BONEZONE • December 2016 • Make sure that you include instrumentation in this analysis. This would include those used only with the obsolete implants, as well as instruments that have been obsoleted but no replacement identified that are used with active implants. • Once confirmed, make sure that the planning and sup- ply functions have been disabled and that the customer base and customer experience associates have been informed. Identifying these implants and instruments will require the input of marketing, product line management and engineering, typically the sources or approvers of product obsolescence decisions. • Expiry – As with obsolescence, expired product may impact inventory value, but remember, the focus is on risk of supply disruption. This is especially true when combined with long supply lead times and customer short dating policies. • Either one, if not identified and dealt with early, can potentially shut off supply for a period of time, especially if the product cannot be reworked or re- sterilized to extend its shelf life. Normally, expiry risk can be identified through inventory analysis, which includes expiration date with internal policies and customer agreements. • Regulatory Concerns – Generally, regulatory concerns for inventory fall into two categories: registration and expiring registration. Based on the regions into which the company sells or intends to sell the acquired products, you need to confirm registration and the expiration of that registration. • This holds true for both the implant and the required surgical instruments. Issues with either one can lead to the inability to sell in a previously-approved region/market, or cause months and sometimes years in delay to introduction along with the associated expense. A comparison of regulatory registration records to short and long term product marketing plans should uncover issues in this area. • Other – Other areas to include are procured products and raw materials that have long lead times, new vs. reworked instruments (some markets will not accept used or reworked instruments) and ratio of surgical sets of implants and instruments to historical or pro- jected surgeries. Upstream Supply The greatest risk to immediate and short term supply tends to be single sourced and long lead time items that have insuf- ficient inventory to cover the replenishment cycle. These val- ues may or may not be included in the planning systems or may not be current. • Single Sourced Items – As with all items that are pro- cured, you are competing with other customers for the limited capacity of the contract manufacturer. Single sourced items elevate that risk, which is why you should look for issues as soon as possible after close. Unfortunately, these issues typically cannot be uncov- ered from an analysis of inventory. The best source may be the people who manage inventory and procure- ment. Be sure to include this in your interview process. • Long Lead Time Items – You should be able to find most of the issues in this area from an analysis of inventory and procurement records, provided they are correct and complete. In addition, long lead time impacts not just procured components and finished items, but also raw materials used in the manufacture of procured and internally manufactured items. As with single source items, a more accurate source may be interviews with staff. Downstream Customer Experience As stated earlier, one of the primary responsibilities of the supply chain team post-M&A is to assure a reliable order- to-delivery-to-cash process that maintains or improves the customer experience. Bottom line, you cannot allow the customer to feel your pain. That means you may have to uncover opportunities for failure and eliminate them. Customers do not care if the item you do not have in stock when they need it is an A, B or C item, nor do they care about your inventory policy for each. In addition to obsolescence and registration issues already touched on, you need to thoroughly review order fulfillment and invoicing systems. The best source for this is often the associates who manage these systems and your customers. You should not make broad assumptions for alternate or substitute products. If you identify an unavoidable supply risk, it is important that you communicate to and include the customer in the solution. In Conclusion Post-M&A, the primary responsibility of the supply chain team is the assurance of uninterrupted product supply. To avoid costly and lengthy disruption, companies need to include an assessment of people, inventory, upstream supply and downstream customer experience as soon as possible after the transaction closes. This will include a combination of analysis and one-on-one interviews. A best practice is to complete a timely analysis of current, transition and future or desired state of the supply chain, including people, before implementing changes. David Finch is President and Founder of Insight Collaboration Partners, a firm that assists companies in due diligence and post- acquisition strategy implementation, strategic sourcing, intra and inter-company collaboration and operational efficiency and cost. Mr. Finch has more than 30 years of experience in global supply chain and manufacturing operations in medical device with Becton Dickinson, Johnson & Johnson, Wright Medical and MicroPort Orthopedics. He can be reached at BUSINESS CRITICAL

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