Chip Shortage and Circular Supply Solutions

The missing link in the broken healthcare supply chain discussion

MedTech companies woke up in the middle of the pandemic to a nightmare: A supply shortage of chips used in the medical devices they were manufacturing. In some cases, this led to reduction in manufacturing – and in some cases to delays in procedures, ultimately reducing the provider’s ability to provide proper care for patients.

The MedTech companies responded to this failure of supply chain resilience by buying whatever they could from whomever had it available, often at ridiculous prices. Now that the healthcare supply chain has become somewhat normalized, the same companies are looking at how to shift from legacy supply chain strategies to purchasing based on strategic resilience principles. At AdvaMed’s MedTech Conference a few weeks ago in Anaheim, Stryker Chair and CEO Kevin Lobo explained, “In this industry, we never had to worry about [chip supply] before. 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.”

The conference also addressed how to ensure these debilitating supply chain disruptions can be prevented in the future. Smith+Nephew CEO Deepak Nath said, “The practicalities of building resilience onto our supply chains are easier said than done. 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.”

Being more careful in supplier selection is important, but discussions never addressed the more fundamental weaknesses of the healthcare supply chain, such as over-reliance on single-use devices, which is a major reason why when chips aren’t available, there is immediate impact on procedures. Devices that can be re-used show a much slower impact from supply chain disruptions, because every single use does not require a new device.

Devices that can be re-used show a much slower impact from supply chain disruptions, because every single use does not require a new device.

Over the past decades, MedTech has re-launched a lot of reusable devices as single-use devices. This, as witnessed in the chip shortage situation, makes the supply chain more vulnerable and can present patient care limitations at the provider level – the device they used to re-sterilize and re-use now has to be discarded after a single use and replaced with a new one.

A concerted effort among MedTech manufacturers to design more devices for re-use would go far in terms of solving Lobo’s and Nath’s problem, yet this was never brought up at the conference. 

Additionally, Lobo missed an opportunity to promote his own arguably most progressive and forward-thinking division – his reprocessing division. This division – under tight FDA regulation - takes used single-use devices, cleans, tests, inspects, and sterilizes them, creating a circular loop that counters the financial and supply chain challenges associated with linear production-consumption systems and single-use mentality.

Circular solutions in the healthcare supply chain reduce vulnerability in times of disruption and shortages, such as the chip shortage. And these solutions are already well integrated into healthcare. Stryker, as the first MedTech manufacturer, adopted reprocessing and made it part of its overall solution. Lobo missed the opportunity to point to this more fundamental and more strategic solution as a part of a roadmap to a more resilient healthcare supply chain.  

Circular solutions in the healthcare supply chain reduce vulnerability in times of disruption and shortages, such as the chip shortage.

There is an extra, ironic twist to the chip shortage in medical devices that I really want healthcare professionals to know about: Several MedTech manufacturers go to extra length purposefully inducing vulnerability in the supply chain by preventing legal re-use of single-use medical devices (I am not aware of Stryker or Smith+Nephew engaging in this practice): They insert chips (yes, CHIPS, which are at times in short supply) into the connectors and hand-pieces of medical devices with the singular purpose of preventing re-use. No other purpose. A logical first step in any chip shortage discussion should be to prevent this double whammy: Preventing re-use, consuming scarce chips, so that circularity can be reduced and more chips are needed…