The medtech industry as a whole suffered over the past year or so as supply chain issues — namely semiconductors — came to a head.
Midway through last year, Medtronic CEO Geoff Martha labeled it as a problem for everyone as medtech’s biggest names navigated serious shortages of chips and other key supplies.
An industry survey from Deloitte showed that some medtech manufacturers slowed down or halted manufacturing operations after depleting their semiconductor inventories. Nearly 80% of survey respondents reported extended lead times, with some stretching more than a year.
At AdvaMed’s The MedTech Conference on Monday in Anaheim, Stryker Chair and CEO Kevin Lobo explained the low point that his company and the industry hit last year.
“In this industry, we never had to worry about [chip supply] before,” Lobo said. “We’re now at a point where the worst is over, certainly from having to spot buy these things from these — I call them — drug dealers, charging whatever prices they want for things. But when you’re addicted, what do you do? So, we took it on the chin big time last year.”
Lobo made the comments during a panel that discussed Ernst & Young’s 2023 Pulse of the Industry medical technology report. The panel also included Abbott EVP of Medical Devices Lisa Earnhardt, Smith+Nephew CEO Deepak Nath and Edwards CEO Bernard Zovighian. (Read a full recap of their discussion here.)
Today, though, some executives offered a positive outlook on the supply chain situation. Martha earlier this year said the worst was behind Medtronic on the supply chain front.
Lobo echoed that, saying the crisis “has abated dramatically this year.”
“The situation is much better,” Lobo explained. “We do still have our quarters here and there — I call them flare-ups. We still have some of those, but it’s so much better.”
Lobo and Nath offer their views on where supply chain goes from here
Nath explained that the medtech companies involved in the panel have all become supply chain leaders in their own right, but reliance on suppliers exacerbated some of the issues they saw last year.
“The practicalities of building resilience onto our supply chains are easier said than done,” Nath said. “We all have similar sole-source suppliers we have to deal with and depend on. We obviously try and minimize the extent to which we’re exposed to a singular sole source but it’s part of medtech that’s going to be hard to get out of.”
Another change is that investor expectations previously centered around growth, but now shareholders care deeply about margins and cash. Building resilience in the supply chain over the past year, Nath said, may not have fallen in line with what investors expected.
For Smith+Nephew, at least, he said the supply chain crisis created issues that the company continues to work its way out of. But he, like Lobo, is optimistic about the bigger picture.
“There’s a whole lot of lessons in there for us individually as different parts or organizations, but also as enterprise leaders,” Nath said. “I think our companies and our sector will be stronger as a result of having gone through these tribulations.”
Lobo also referenced lessons learned, including the assumption that Stryker had enough capacity.
It was never a problem before, he said, and “we didn’t even know who was making the chips.” The company was buying from manufacturers that included the chip in a broader product set. Now, he says Stryker selects suppliers much more carefully. The company even negotiates all the way back to the chip maker themselves and ensures suppliers are using the right chips.
In this, Stryker aims to build in redundancy so all its key products aren’t made only in one facility.
“These all sound like obvious things,” Lobo said. “But in this industry, we never had to worry about that before. This crisis was a wake-up call. … It was just a wild year last year. It feels like it was 10 years ago, just because of how hard it was. But our supply chain will never be the same, I don’t think.”