The Ultimate Guide Series

En route to mass productionn / Part 4

Supply chain
Table of Contents
INTRO 01

PART 1: THE 6 SUPPLY CHAIN MODELS 03

PART 2: FINDING THE RIGHT SUPPLY CHAIN 04

STRATEGY FOR YOUR ORGANIZATION
Building a robust supply chain strategy
The postponement strategy
Benefits of a flexible supply base

PART 3: STEPS TO A SUCCESSFUL SUPPLY CHAIN 07

RISK MANAGEMENT
Step 1: Identify the risk.
Step 2: Analyze the risk.
Step 3: Evaluate or rank the risk.
Step 4: Treat the risk.
Step 5: Monitor and review the risk.

PART 4: CHINA AS A GLOBAL SUPPLY CHAIN HUB 18

China’s Updated medical device manufacturing regulations
Developments addressing Intellectual property concerns
The new possibility of completing your medical device in China
China’s growing medical market

PART 5: CONCLUSION 20

ABOUT QUASAR 22
Introduction
Importance of the Supply Chain in Current Day Medical
Device Manufacturing

Supply chain managers and corporate analysts in the medical device industry
have long worried about the increasing length and complexity of supply chains
in today’s globalized world. Most of these complex supply chains developed
after the economic crisis in 2008, during what was more than a decade of
relative stability. Even the US-China trade war proved unable to convince
many companies that such supply chains were untenable, despite its impacts
on product and component costs.

The COVID-19 pandemic, however, provided a powerful demonstration of

how long and complex supply chains can utterly collapse in the face of global
disruption.
The COVID-19 pandemic served as a wake-up call for companies around the
world to rethink supply chains in terms of resilience, rather than looking at
them solely from a cost-efficiency point of view.

In today’s global market, incorporating a successful supply chain strategy

leads to a new kind of competition on the global market, where competition is
no longer of the company-versus-company form but rather takes on a supply
chain versus supply chain form.

So, what does a comprehensive approach to supply chain risk management in

today’s medical device industry imply?

The goal of this guide is to present you with a framework for developing a
medical device supply chain fit for today’s unique reality.
What is a Supply Chain?
A supply chain is a system of organizations, people, activities, information,
and resources involved in supplying a product or service to a consumer.

A typical supply chain includes a manufacturing plant where components are

transformed into a finished product, parts suppliers, raw material suppliers,
and the distribution channels for delivery to the end-user.

Supply chain management (SCM) deals with the flow of goods and services.
It includes all the processes that transform raw materials into final products.
It involves the active streamlining of a business’s supply-side activities to
maximize customer value and gain a competitive advantage in the marketplace.

The primary objective of SCM is to fulfill customer demands through the most
efficient use of resources, including distribution capacity, inventory, and labor.
In theory, a supply chain seeks to match demand with supply and do so with
minimal inventory.

Medical devices are the products of complex supply chains that may consist of
multiple tiers of suppliers contributing to the final product.

The standard consumer-oriented medical device could have a national or even

a global supply chain. Quality issues could occur at each step of the process
and at every link in the supply chain. But it is ultimately the device maker who
is held responsible for the quality of the medical device and its performance.

Learn How Quasar Can Give Your Product

A Supply Chain Advantage
The 6 Supply Chain Models
To perform a full analysis, a business must identify which of the following
models are a good fit for its activities:

1. The continuous flow model is suited for consistent, high demand,

production cycles. It works best when demand for a product varies
very little over time. The continuous flow model is frequently used by
commodity manufacturers and is one of the most traditional supply chain
models.

2. The fast chain model is ideal for manufacturers that manufacture

products that are trendy with short life cycles. It works well for businesses
that must change their products frequently and products need to be
delivered quickly, before the trend changes. It is a highly flexible supply
chain model.

3. The efficient chain model is used by businesses that operate in very

competitive markets. It can help reduce costs by maximizing end to end
efficiency.

4. The agile model is primarily used by businesses that deal with special-
order items. It is a model that enables the supply chain to not only ramp
up activity when needed, but also know how to adjust back to normal
when the situation calms down.

5. The custom-configured model focuses on providing custom

configurations, especially during assembly and production. It is a
combination of the agile model and the continuous flow model — a
hybrid of sorts.

6. The flexible model gives businesses the freedom to meet high demand
peaks and manage long periods of low volume demand. A flexible supply
chain can be switched on and off easily.
Finding the Right Supply
Chain Strategy
for Your Organization
A supply chain strategy (SCS) establishes how you will work with your supply
chain partners including: suppliers, distributors, customers, and even your
customers’ customers. A well-executed supply chain strategy can create value
for your organization and improve efficiency throughout your supply chain.
With 40 to 70 percent of costs embedded in the typical supply chain, it is critical
that companies manage their supply chains optimally to achieve the highest
returns both now and in the future as the business environment changes.
Creating a great supply chain strategy can be challenging because of the
following factors:

• Complexity in mass customization • Extended global supply

chains
• Product line proliferation
• Abundant channels and
• Stress from quicker technology markets with differing goals
cycles and outputs

• Tougher, non-negotiable service • Business cycle variability

levels with trends and economic
Building a Robust
Supply Chain Strategy
What makes a company’s supply chain efficient and resilient? The ability to
deal effectively with two groups of issues:

• Supply management • Demand management

Supply management issues include supplier selection, managing supplier

relationship, supply planning and logistics.
Demand management issues include new product introduction, product line
management, demand planning, product pricing, and promotion planning.

These strategies should be able to help a firm to reduce cost and/or improve
customer satisfaction under normal, stable circumstances. Additionally, these
strategies should enable a firm to sustain its operations during and immediately
after a major disruption.
Let’s explore the key features of a robust supply chain that can improve a
firm’s capability to manage supply and/or demand better, under normal
circumstances and to enhance a firm’s capability to sustain its operations
during a major disruption.
The Postponement Strategy

The postponement strategy utilizes product or process design concepts such

as standardization, commonality, modular design, and operations reversal
to delay the point of product differentiation. This strategy enables a firm
first to produce a generic product based on the total aggregate demand
of all products, and then to customize the generic product later on. The
postponement strategy has proven to be a cost-effective mass customization
tool to handle regular demand fluctuations under normal circumstances. In
the context of disruption recovery, the postponement strategy offers a cost-
effective and time-efficient contingency plan that allows a supply chain to
reconfigure the product quickly in the event of supply disruption.

Flexible supply base strategy

Although sourcing from a single supplier will enable a firm to reduce cost
(lower supply management cost and lower unit cost due to quantity discount).
It could also create problems for managing inherent demand fluctuations or
major disruptions. To mitigate the risk associated with sole sourcing, Quasar
could use its plants in China as its supply base to produce medical devices. To
handle regular demand fluctuations smoothly, Quasar can use its Guangdong
plant for base volume production and use the Shenzhen plant to produce
excess volume. Not only does a flexible supply base enable a firm to handle
regular demand fluctuations, but it can also be used to maintain a continuous
supply of materials when a major disruption occurs.
The 5 Steps To Building
A Framework for Supply-
Chain Risk-Management
Supply chain risk management (SCRM) is the process of taking strategic steps
to identify, assess, and mitigate the risk in your end-to-end supply chain. A
comprehensive approach to SCRM involves the management of all types of
risk, for all tiers of supply and all risk objects (suppliers, locations, ports, and
more).
STEP 1

Identify the risks that your business is exposed to or that

threaten specific components of your supply chain.

The ideal approach to identifying the potential supply chain threats before
they materialize is by using advanced predictive analytics to identify potential.

When major disruptions occur, the fragility of many supply chains is exposed.
Supply chains that lack redundancy or alternative suppliers tend to take
a long time to recover once they break down. To prevent this sustained
business interruption, companies must proactively plan for disruption by
using advanced predictive analytics to identify potential supply chain threats
before they materialize. Even if disruptions cannot be avoided – for example,
few companies can avoid the supply chain effects of a global pandemic —
your company and your customers will have thought about your strategy
well beforehand. This will enable you to respond quickly, and in some cases
weeks to months ahead of competitors. “Robust” SCM strategies possess two
properties:

1. They enable a company to manage the inherent fluctuations in supplies

efficiently, regardless of the occurrence of major disruptions.

2. They make a company’s supply chain more resilient in the face of

major disruptions. While there are costs for implementing robust SCM
strategies, they can pay dividends. Companies with proven, resilient
supply chains are more attractive to customers looking for new suppliers
in the wake of a major regional or global disruption.
STEP 2

Analyze the risk to determine what would represent a worst-

case scenario and the effects it could have on your business.

Start with strategy but be practical

Ask “what if” questions about your supply chain, like “what if a key supplier
goes offline for a few weeks?” This will help you assess what points in your
supply chain could pose threats to your business. Remember that the best
supply chain strategy is one you can accomplish. Make your “what if” questions
specific, not general; practical, not conceptual. Include elements of the process,
technology, organization, control philosophy, and metrics. Think through the
details. It’s not enough to say that you want to employ global sourcing, for
example; to implement the strategy, you must specify the components, the
countries, and the suppliers to carry out your supply chain strategy.
STEP 3

Evaluate or rank the risk based on its likelihood and

consequences for your business.

Increase Awareness of the Outcomes that Create Uncertainty

and Vulnerability

Over the last 10 years, we have witnessed many types of unpredictable disasters,
including terrorist attacks, wars, earthquakes, economic crises, large-scale
hacks and data breaches, and the most recent COVID-19 pandemic. Many
of these disasters, including environmental catastrophes and pandemics, are
becoming increasingly likely due to climate change. Both the frequency and
cost of business disruptions have been increasing and are likely to increase
further.

Unfortunately, many of the strategies that businesses adopt to increase their

financial performance only serve to make them more vulnerable to supply chain
disruptions. For example, businesses may increase product variety, cut costs by
turning to a just-in-time (JIT) inventory system or vendor-managed inventory
or outsource manufacturing to eliminate costly assets. These initiatives are
powerful and effective in a stable environment, but they necessarily increase
the length and complexity of supply chains. As a result, cost efficiency comes
with potentially huge hidden costs when major disruptions occur. Companies
must balance the notion of cost efficiency with agility, adaptability, and
alignment. Also, supply chain disruptions can have long-term negative effects
on a firm’s financial performance due to lost trust from clients and customers.
Map the Possible Causes of Supply Chain Risk and Disruptions

Examples of Unpredictable Causes:

1. Global trade wars

2. Raw material shortages.

3. Equipment failures at one or more suppliers

4. Theft and fires during transport or in existing supply inventory.

5. Natural disasters that compromise supply transportation networks

Examples of Known Causes:

1. Economic uncertainty and port disruptions.

2. Tougher environmental regulations.

3. Safety recalls.

4. Socio-Political events, including terrorist attacks and war.

STEP 4

Treat the risk by putting mitigation or redundancy measures

in place.

Adapt to changing business realities

Many SCM initiatives fail because they are constrained by the existing structure
of your supply chain. Too often in these cases, the supply chain is tweaked
based on a limited short-term perspective, when it needs to be optimized
by radically altering practices and processes. Frequent re-examination of the
supply chain, with no limits placed on the assessment, is necessary if companies
are to ensure that the supply chain strategy remains effective. Economies
evolve, markets evolve, and channels evolve, and so the supply chain must
evolve as well. What works in one business environment may be unsuccessful
in another. Continual adaptation of the supply chain to support frequently
changing business realities — particularly new product introductions and new
business launches — is a critical step to enduring market leadership.

Ensure communication between key stakeholders

It’s common for varying divisions and also objectives within your business to
come into conflict with one another. For example, sales may set an objective
based on quarterly revenue targets, regardless of implications for inventory
management and storage costs. Manufacturing managers may be entirely
focused on cost reduction, while losing focus on how it will affect the end-
user. With these different perspectives competing against one another, cost,
service, and revenue are not optimized. This can weaken your supply chain
to such a great degree that it ultimately affects your company’s performance.
Open discussion among business units and a management-led initiative to
achieve a carefully crafted supply chain strategy is essential to ensure that
decisions benefit the company as a whole.
3 Immediate ways to modify SCM strategies to mitigate risk

1. Prepare protocols for rapid product formations to meet customer

demand during a supply disruption.

2. Adapt a supply plan to meet customer demand during an ongoing

crisis.

3. Change the pricing strategy to satisfy customers during a supply

shortage.

The problem of preparing or responding to individual risks

Staying ahead of risks that have not yet emerged is extremely difficult. It’s
easy to stay stagnant or try and wait till supply chain conditions improve.
However, this implies that your business is being driven by external market
conditions and profitability will not be maintained.
One of the ways that major manufacturers mitigate risks is not by preparing
or responding to individual risks. Doing so will only incur a host of heavy
expenses with no guarantee of whether the risk will actually materialize. This
is why effective risk mitigation strategies should address common or daily
supply chain challenges, and at the same time be useful under risk situations
as well.

Case Study
How Quasar’s strategic and tactical plans had the company riding
the massive disruptions caused by Covid-19.

Risk mitigation arising from raw material supply deficiencies: When

supplies were low, Quasar’s quick response in opening up communication
channels with local suppliers enabled them to stay on top of the situation.
Quasar’s leadership went ahead with providing suppliers with large orders
well before other manufacturers had even begun considering re-opening.
This helped suppliers get back on their feet during the pandemic as well.
Risk mitigation arising from transport of products: Since travel between
countries was very limited, Quasar expanded manufacturing operations to
Thailand as well, thereby diversifying its locations. The Thailand plant was
brought to completely functional state in rapid time, with validated clean
rooms, product validations and regulatory audit having been completed. In
case another lockdown or emergency situation were to occur, this plant is now
able additionally, to handle a complete shift in manufacturing.

Risk mitigation arising from an expanding client base during the pandemic:
As orders from Quasar’s OEM partners across the world, Quasar ensured TAA
compliance for products designated for the United States and TAA countries.
The major part of product assembly that required a significant percentage
of manpower was conducted in the Chinese manufacturing facilities. Quasar
had ensured that over 90% of their workforce were back in the plant as early
as February 2020. Performing a major part of assembly at the China unit, thus
ensured that manpower shortages would not be faced.

TAA regulations require that at least some product transformation has to

happen within a TAA designated country. This is why TAA related activities
(depending on what the product is) such as final product testing, sterilization,
packaging and audits happen at TAA designated countries, thus receiving
regulatory approval despite an enormous number of odds against successfully
delivering orders.

As you can see, the strategy adopted by Quasar is beneficial during the
pandemic and is also fully applicable during post-pandemic times – not
requiring any unnecessary expenses.

Read the case study

Get on the CEO’s agenda

A top down SCM approach is an initiative endorsed and led by the chief
executive officer. Getting the backing of your CEO is critical to securing buy-in
from the rest of the senior management team and ensuring that your strategy
will yield good results. A Booz Allen Hamilton survey found that companies
that assign SCM to functional leaders achieve 55 percent lower savings, than
those where the CEO plays a hands-on role in linking SCM to overall corporate
strategy.

Control trade-offs between cost and service.

Smart trade-offs between cost and service are critical to any SCM plan, as well
as for satisfying customer needs. For example, overemphasizing on-demand
services can lead to excess inventory and capacity. While this might be good for
customers, it can drive up business costs to unacceptable levels. Alternatively,
when too much attention is paid to cost, service elements — stock on hand,
quality, customer satisfaction, and on-time delivery — can suffer, which in turn
can hurt sales. Effective supply chain design should address questions such as
what kind of inventory is needed? Where should they be located? Should they
be owned, or should they be outsourced? How much stock of any component
or product do we need on hand at any given point of time?

Smart Customization

Customers tend to look for more customized products and services. But
customization can add expensive and wasteful complexity to your supply
chain, if it is not carefully planned for and managed. More part and product
configurations mean more suppliers, more inventory, and shorter production
run times. Before burdening the supply chain with these costs, assess the value
of the additional products or services to your customers and to your company.
In some cases, offering customization at all can end up costing more than it’s
worth, or become so expensive to offer that few customers can afford it. So,
customization can be built in by designing effective product architecture and
by fully understanding all the costs associated with offering customization.
STEP 5

Monitor and review risks, track changes in the possibility of

the risks occurring over time, and to ensure its effectiveness

Manage the entire supply chain with a focus on the customer

SCM should span all links in the supply chain, from suppliers to logistics
providers to distributors to production facilities and warehouses to customers.
This entire network should be aligned to achieve the same goals: serving end
customers’ needs. Moreover, to the greatest extent possible, the goal of your
strategy should be to deliver products that customers want – when they want
them and at an economical price.
In the “pre-JIT” era, firms frequently considered carrying additional “just in
case” safety stock inventories of certain critical components to ensure that the
supply chain can continue to function smoothly during a supply disruption.
However, as product life cycles have shortened and as product variety has
increased, the inventory and obsolescence costs of these additional safety
stock inventories have ballooned. Instead of carrying more safety stock, a
firm may consider storing inventory at certain strategic locations (warehouses,
logistics hubs, or distribution centers) to be shared by multiple supply chain
partners (retailers or repair centers, for example). When a disruption occurs,
these shared inventories at strategic locations will allow a firm to deploy these
just in case stocks quickly.
Understand the value and risks of technology

Information technology should not be used to replace broken links in the

supply chain. Processes complementing the company’s SCM strategy must
be designed first — then the right technology infrastructure can support
the strategy. Managers may be tempted to eliminate the critical human
element and rely only on software to manage the supply chain. But software
can’t possibly understand a company’s strategic plan, or intelligently adjust
the supply chain when it fails to match customers’ needs. In SCM, there is
no substitute for knowledgeable, hands-on managers; technology can only
provide the data needed for good decision-making.

Learn How Quasar Can Give Your Product

A Supply Chain Advantage
China — A Global
Supply Chain Hub
In many instances, a buyer does not have the luxury of shifting production
among different suppliers because of the very limited number of suppliers
available in the market. To gain the flexibility of shifting production among
suppliers in the Asia-Pacific Medical market, China boasts a strong domestic
supply chain and has a wealth of high-quality contract manufacturers. While
many device companies have looked for alternatives to China in the wake of
the trade war, as of 2020 China still offers a significant advantage in-terms of
supply-chain, especially for the manufacturing of complex medical devices.
The robust nature of China’s manufacturing supply chain offers sourcing high-
quality and cost-effective raw materials for local production. In addition, China
boasts competitive labor costs and an excellent record of efficiency among
manufacturers. The new regulations offer a unique opportunity for medical
device producers to enter or expand their footprint in the Chinese medical
market.

In 2019 China’s National Medical Products Administration (NMPA) announced

new regulations with immediate effect. The NMPA, China’s equivalent of
the US FDA, now has a fast-lane process to approve local manufacturing of
medical devices that are already approved for import
to China.

Before this change, a device manufacturer had to own the rights to the design
of the device it was producing, in order to sell that device in China. Effectively,
that meant that device designers had to open their own manufacturing
facilities in China if they wanted to access the Chinese market. This is a massive
undertaking for even the largest medical device companies.
Developments Addressing Intellectual Property Concerns

Thanks to these new regulations, device designers can work with a contract
manufacturer in China without giving up their intellectual property. This revision
to the regulation removes the obstacles making the decision far easier for a
medical device OEM to outsource production and register products for sale
within China. It is now more realistic and practical to deliver devices to the
burgeoning Chinese market by partnering with the right contract manufacturer
in China.

China Now Possible: A Complete Medical Device Industry

Furthermore, under the new system, registered contract manufacturers can

supply finished medical devices rather than limiting their process to partial
product completion. The net result is that Chinese contract manufacturers can
take over the entire supply chain for building and delivering medical devices
within China.

China’s Growing Medical Market

China has established clear regulations around medical device manufacturing,

which can make it easier for designers to gain access to the massive Chinese
medical market. Critically, China also has IP protection laws that are crucial to
any Western medical company looking to outsource production overseas.
It’s now easier for multinational medical device producers to shift production
to contract manufacturers that already operate in China. These same contract
manufacturers, once registered with the NMPA, can then deliver fully finished
medical devices and help their partner deliver those devices to the local
Chinese market.
The opportunity and sheer scale of the medical device market in China must
be considered by every multinational device producer.
Conclusion
It is likely that many manufacturers will move from just in time supply chains
to more flexible supply chain models. Although the costs of storing parts
and inventory can be significant, many manufacturers and consumer-facing
companies would have ultimately benefited from having stock on hand during
the pandemic by retaining important client relationships and proving that they
could deliver during an unprecedented global business disruption.

While many companies will go back to the same long and complex supply
chains that failed during the pandemic, it is easy to see how a similar global
disruption could happen again in the future. Pandemics are anticipated to
be more common in the future because of global growth, while a global
cyberattack like the NotPetya malware attack in 2017 could easily wreak the
same havoc to non-resilient supply chains as COVID-19.

Most companies invest little time and few resources in managing supply chain
risks, even after conducting supply chain risk assessment exercises.
There is no specific study that examines the underlying reasons why
firms perceive serious supply chain risk, yet do not take commensurable
actions. However, we suggest two reasons why this might be the
case: Firms underestimate the probability of risks to their supply
chains. Firms are not familiar with ways to manage supply chain risks.

With inaccurate estimates of the probability that a major disruption would occur,
many firms find cost/benefit analyses that do not justify risk reduction programs
or contingency plans. In many cases, companies fail to fully appreciate the
likelihood of a disruption and discount experts who call attention to specific
disruptors as alarmists.
Another reason that firms do not invest in risk mitigation programs is that
corporate leaders do not demand these programs. This is especially true when
“nobody gets credit for fixing problems that never happened.”
An established robust supply chain strategy can enable a firm to deploy
the associated contingency plans efficiently and effectively when facing a
disruption. Having a robust supply chain strategy could also make a firm more
resilient during the disruption itself, even if it cannot mitigate all negative
effects.
About Quasar
Quasar intimately understands the supply chain challenges of today’s medical
device market. We provide guidance for our partners throughout the entire
product development lifecycle to ensure the safety and reliability of their
products. We value communication, reliability, and transparency at every stage.

Being a trusted partner of tier one OEM medical device manufacturers for the
better part of four decades Quasar’s experience, knowledge and wealth of
data enables us to give our partners a truly competitive advantage.

Quasar specializes in the manufacturing of delicate complex

miniaturized precision catheters and other small medical devices both
mechanical and electronic. We offer advanced engineering technology,
international quality production standards and strict quality control.

We maintain a large development and manufacturing capacity with

a global presence:

• Headquartered in Hong Kong.

• R&D Offices for equipment and process development in Israel.

• Technical support engineering and Business development units on

both coasts of the US.

• Two manufacturing plants in China and a brand-new one in Thailand.

Quasar supports the early design stage of your end product (Design Con-
trols), plans the production line and assesses potential risk in device design
and market fluctuations, tackles the pressure of regulators, locates stable
suppliers of the raw materials, negotiates with exports from multiple count-
ries, and manufacturers medical devices while reducing cost.

With every product, Quasar strives to achieve the perfect balance of quality,
cost-effectiveness, and timeliness for your maximum benefit.

Learn How Quasar Can Give Your Product

A Supply Chain Advantage