Delivering healthcare products in a time of need
How Medtronic developed from its inception in its founder’s garage to the world’s biggest medical-device company, making patients the focus of its supply chain mission.
Medtronic was born in its founder’s garage. In 1949, electronics engineer Earl Bakken and his brother-in-law Palmer Hermundslie started a business repairing medical equipment in Bakken’s Minneapolis home. The pair gained a reputation for reliable and innovative work, often improving the devices that they fixed.
In the mid-1950s, Bakken’s work in Minneapolis brought him into contact with C. Walton Lillehei, a University of Minnesota cardiac surgeon. Lillehei was pushing the frontiers of heart surgery but was frustrated by the limitations of the pacemaker technology available at the time. The existing systems were bulky, mains-operated devices. That severely limited a patient’s lifestyle and meant that a power cut could be a life-threatening event. Lillehei asked Bakken if he could come up with a better solution.
Bakken’s first device was extraordinarily simple. He adapted a two-transistor circuit originally designed to run an electronic metronome for musicians, packaging the hardware into a small box with a 9.4-volt battery. Within weeks, Lillehei was equipping patients with the new portable pacemaker, and the success of the product set Bakken’s firm on a trajectory that would see it become the largest medical electronics company in the world.
Today, Medtronic is a $30 billion business with more than 90,000 employees in 150 countries. It is active in multiple areas of medical technology, with a product range that goes well beyond pacemakers to include everything from artificial heart valves to surgical robots. Those products are developed in a network of 21 laboratories and R&D sites and produced at 76 manufacturing facilities around the world.
One network, one mission
Sikko Zoer, Vice President of Global Supply Chain Distribution and Logistics at Medtronic, is responsible for connecting the company’s manufacturing operations with the estimated 70 million people who rely on its products every year. The organization’s portfolio includes thousands of SKUs and 3,800 people in the supply chain organization who manage thousands of shipments worldwide every day.
The Medtronic supply chain is complex. The company runs a “centers of excellence” model in manufacturing, which involves concentrating the production of key technologies – such as batteries – in specific locations and shipping these parts around the world to be integrated into end products. Its objective, however, is simple. “Our mission is all about the patient,” says Zoer. “The patient is at the center of everything we do. That means ensuring our products are available at the moment a patient needs them.”
Like many organizations in the healthcare industry, Medtronic has traditionally ensured product availability by keeping plenty of stock in its distribution network. As with the rest of the sector, however, the company is looking for ways to achieve high service levels at lower cost. The need to control costs is a worldwide phenomenon, says Zoer: High income markets are adapting to the healthcare demands of an aging population, and Medtronic is extending its distribution chains into a growing list of emerging markets. “In our industry, it’s common to rely on distributors in new markets, but our strategy has been to build our own presence as early as we can.”
To balance availability and efficiency, Medtronic is applying increasingly sophisticated techniques across its supply chain. “You need to be smart about everything you do,” says Zoer. “For example, we are now segmenting our product lines and tailoring our supply chain approach to suit those segments. Trauma products, for instance, require very rapid availability, so we have systems that can deliver in three to four hours. Where a product is used in elective treatments, there is more planning involved and customers can often work with a longer lead time.”
Predictive planning and digital twins
New technologies have a big part to play in a smarter supply chain, and Medtronic is making significant investments to ramp up its digital capabilities. “We are introducing integrated business planning across the organization; upgrading our planning capabilities; using new tools for our core planning activities; and developing our use of advanced analytics, predictive analytics and scenario planning,” says Zoer. “We are investing in robotic process automation (RPA) to improve the speed and quality of our internal processes, and in distribution we are working hard to achieve end-to-end visibility.”
Perhaps the organization’s most ambitious ongoing digital effort is a project to build a digital twin of its manufacturing and distribution network. When complete, says Zoer, the new system will significantly increase Medtronic’s ability to monitor the flow of materials and product through its supply chain, helping to make the best possible use of the available capacity. In the longer term, it will be used to inform strategic decisions about the design and configuration of the supply chain.
Even the smartest digital tools can’t address some longstanding supply chain challenges. For Medtronic, one key issue is poor visibility at the edges of its networks. Hospitals often keep stocks of medical devices on a consignment basis, reordering inventory as it is used up. Such systems should ensure instant availability, but their effectiveness depends on timely and accurate record keeping, which places an additional burden on front-line medical staff.
Today, says Zoer, Medtronic is working with customers where it makes sense to move away from the consignment model to one in which products are delivered at short notice from forward stock locations managed by its distribution partners. “Using forward stock locations gives us better control and helps improve inventory efficiency,” he says. “And once you have proved to your customers that you get them the things their patients need, when they need them, hospitals find it simplifies their operations, too.”
For some categories of devices, doctors don’t know exactly which product they need until the moment of use. A surgeon implementing stent grafts to treat aneurysms, for example, orders several sizes and chooses the best fit during the operation. Unused products must be returned to the supplier to be checked, ready for another patient.
This circular supply chain used to involve a lot of delay and complex paperwork, says Zoer, until Medtronic redesigned its logistics processes. “Now, instead of supplying individual valves, we send the hospital a blue box containing a full set,” he says. “Surgeons take what they need, shut the box and send it back. For the hospital, it dramatically simplifies the whole process. They just need to call a number or send an email, and our logistics partner will come and collect the box from a preagreed location on site and return it to us for replenishment and reissue.”
An industry in flux
Innovations such as the “blue box” help Medtronic to deliver on its mission to help patients in normal times, but how is the company adapting to the extraordinary demands placed on global healthcare systems this year? Delivered. spoke to Zoer during the early weeks of the COVID-19 pandemic, but the rapidly evolving situation was at the forefront of everybody’s mind. “Risk and business continuity have been an important topic at Medtronic for at least a decade,” he notes. “We spend a lot of time working on a global level to understand where the risks and single points of failure are in our network and what we need to do to mitigate them.”
A demonstration of that strategic approach to risk is the company’s distribution network, which has been designed with redundancy in mind. In Europe, for example, Medtronic runs four main distribution centers rather than one, allowing it to maintain supplies in the event of local or regional disruption. At the onset of the COVID-19 crisis, says Zoer, his supply chain organization adjusted its logistics systems to compensate for the worldwide drop in airfreight capacity as passenger flight cancellations cut the volume of belly cargo available. More recently, the company has taken a leading role in the global push to increase the availability of ventilators to support patients in critical care.
In a period of unprecedented turmoil, the medical device industry finds itself at the forefront of the world’s battle against a new virus. The agility and flexibility of supply chains across the sector are likely to be tested as never before. The circumstances may be new, says Zoer, but the Medtronic Mission remains the same: “To alleviate pain, restore health, and extend life.” — Jonathan Ward
Published: June 2020
Image: Selina Pfrüner for Delivered