Risks You’re Not Accounting for In the Medical Technology Supply Chain

Article Highlights:

•  To stabilize sourcing, maintain manufacturing continuity, and avoid costly disruptions in the $590 billion medical technology industry, procurement professionals working in the sector need to be aware of the risks endemic to these manufacturing networks.
• Without establishing sufficient production capacity across the supply chain, medtech companies can struggle to meet a robust demand signal for a new device or technology, leading to lost revenue and even a tainted product launch that could impact reputation over the longer term. 
• Medical technology regulations are not only constantly evolving but are also enforced to a degree that exceeds many other sectors. Companies need to make regulatory compliance a priority if they want to avoid fines, recalls, and loss of market access. 

Although not always referenced in the same breadth as large, lucrative sectors like semiconductors, information technology, and artificial intelligence, medical technology is a highly established industry positioned for substantial growth over the next decade. According to a 2024 Medtech industry report by Ernst & Young, the field is now worth nearly $590 billion, having enjoyed a robust compound annual growth rate (CAGR) of over eight percent in the four-year period between 2019 and 2023. Companies like Intuitive Surgical, Boston Scientific, and Stryker have seen their revenues surge in recent years, as new medical devices and breakthrough technologies are being increasingly integrated into surgery, therapeutics, and orthopedic procedures. 

As the medtech industry has expanded, their products, devices, and systems have become more sophisticated, utilizing cutting-edge technologies and hardware to help medical professionals achieve better health outcomes for their patients. One key consequence of this is that the medical technology supply chain is larger and more intricate than it was five or 10 years ago. To stabilize sourcing, maintain manufacturing continuity, and avoid costly disruptions, procurement professionals working in this field need to be aware of the risks endemic to these manufacturing networks. Only when these threats are sufficiently identified can teams begin the  process of developing and implementing the appropriate supply chain risk management (SCRM) measures to neutralize them. 

Medical Technology Manufacturing Shortages

Medtech companies spend years designing, developing, and manufacturing new products, investing millions of dollars in engineering, research and development, and materials sourcing in the leadup to a single product launch. Because of this, the last thing a manufacturer wants to see is unexpectedly strong demand swallow up their entire inventory and leave them scrambling to navigate a product shortage. As Boston Scientific told Ernst & Young in the consultancy’s 2024 report, the company spent two-and-a-half years prepping their supply chains to have enough capacity to support the launch of the firm’s new catheter device system. “The supply chain needs to deliver whatever volumes the business demands, with the flexibility to scale that up,” Executive Vice President for Cardiology Joe Fitzgerald told Ernst & Young. “We work across forecasting, component supply and manufacturing capacity, and we deliver strong results.”

Without establishing sufficient capacity across the supply chain, however, companies can struggle to meet a robust demand signal for a new device or technology. The results could be highly detrimental, with lost revenue and a tainted product launch with the potential to impact the manufacturer’s reputation over the longer term. 

Risk Mitigation Measures

• Practice strong forecasting and have manufacturing capacity meet or exceed anticipated demand. 

• Utilize multisourcing to have multiple manufacturers in the event that one suffers a disruption or cannot meet market demand. 

• Build supply chains with the potential to scale up, should market circumstances and product positioning evolve rapidly. 

The Expanding Medtech Regulatory Landscape

Because of the end-users and corresponding stakes of an industry deeply embedded in global healthcare, medtech is one of the most highly regulated fields in the world. Medical technology manufacturers must navigate the European Union Medical Devices Regulations (EU MDR); the Medical Device Single Audit Program (MDSAP) adopted by the U.S., Canada, Australia, and other major markets; and other major international regulations. 

Because of the end-users and corresponding stakes of an industry deeply embedded in global healthcare, medtech is one of the most highly regulated fields in the world.

These regulations are continuously evolving, as well, and companies need to make regulatory compliance a priority if they want to avoid fines, recalls, and loss of market access. Due to the importance of these products and their implications for human health and well-being, medtech regulations are also enforced to a degree that exceeds many other sectors. The Food and Drug Administration (FDA) carries out comprehensive inspections on many types of medical device manufacturers every two years, and other countries have similar inspection cadences. This level of enforcement means that even temporary noncompliance is a steep risk that could trigger serious consequences for violating firms. 

Risk Mitigation Measures

• Learn and adhere to all applicable regulations in product markets. 

• Maintain a dedicated compliance professional or team to follow changes to the regulatory landscape.

• Manufacturers operating in the U.S. should familiarize themselves with the FDA inspection process, which includes assessments of four major “subsystems” of quality assurance. According to the FDA, the “four major subsystems are Management Control; Corrective and Preventive Actions (CAPA) (with satellites Medical Device Reporting, Corrections and Removals, and Medical Device Tracking); Design Controls; and Production and Process Controls (P&PC) (with satellite Sterilization Process Controls).”

• Understand how regulatory landscapes differ between markets, and the distinct requirements imposed by each of them. 

Sub-Tier Financial Stability 

As with other high-tech manufacturing industries like automotive and aerospace and defense, the medical technology sector relies on dense supply chains that run two, three, and even four tiers deep. While this is a necessary aspect of producing technologically advanced products at scale, it also leads to a range of risks and vulnerabilities. One such hazard concerns the financial stability of sub-tier suppliers. Many medtech original equipment manufacturers (OEMs) don’t have much visibility beyond their direct suppliers (tier 1), and thus have no way of proactively identifying the presence of instability, insolvency, and other forms of fiscal distress within their sub-tiers. 

Because of this limited supply chain visibility, medtech companies are susceptible to the myriad threats that come with relying on companies under financial duress, including factory shutdowns, closures, and even bankruptcy proceedings. Without the right risk management measures in place, just a single financial crisis at a sub-tier manufacturer could trigger a cascade effect with serious consequences for OEMs. 

Without the right risk management measures in place, just a single financial crisis at a sub-tier manufacturer could trigger a cascade effect with serious consequences for OEMs. 

More transparency could give businesses greater control and agency, opening up various proactive SCRM measures. But with the existing visibility limitations within the medical technology supply chain, this level of access and analysis simply isn’t achievable for most medtech firms. 

Risk Mitigation Measures

• Work on developing multi-tier visibility through supply chain mapping.

• Leverage an SCRM tool to access data on direct and sub-tier manufacturer relationships, which can help OEMs understand their own tier 2 and 3 suppliers. 

• Carry out comprehensive supplier campaigning to obtain critical information on the supply chain landscape and sourcing strategies of direct suppliers. 

Single Source Dependencies in Medical Technology

Because of the singularity of their devices and the parts that are incorporated into them, medical technology companies often rely on a single supplier for specific components and subassemblies. While this strategy may work perfectly well during times of stability and continuity, it creates underlying fragility that can lead to significant disruptions under the right circumstances. The supply flow from a single manufacturer could be disrupted by any number of commonplace risks—extreme weather, factory shutdowns, labor strikes, geopolitical conflagrations—and if the medtech OEM doesn’t have an alternative supplier, their entire production cycle is in danger. 

It’s also important to remember that organizations shouldn’t see single source dependencies only through the lens of manufacturers. Businesses can also have this vulnerability at the country and site level, too. Each type of sole source dependency comes with different risks that can trigger disruptions that sabotage manufacturing continuity and force OEMs into costly crisis management postures.  

Risk Mitigation Measures

• Practice supply chain diversification and multisourcing at the site, manufacturer, and country levels. 

• Given the current geopolitical landscape, it’s critical that companies have both domestic and international sourcing options. And as the recent period of unprecedented tariff escalations demonstrates, it’s not enough to source from a single foreign supplier. Organizations that have long relied on Chinese manufacturers are now facing high tariffs on imported goods. 

• Develop and codify contingency measures for circumstances when a specific supplier cannot deliver product. Having a list of potential alternative manufacturers is useful, but streamlining the entire crisis response process ahead of time can save decision-makers time and energy in the midst of an emergency. 

Medtech Supply Chain Risks Demand Sophisticated Solutions

While an internal supply chain risk management program can be helpful to medical technology companies, there are limits to what professionals can achieve without the right tools. Sourcing experts can reach out to potential alternative suppliers and spearhead campaigns to learn more about sub-tiers and manufacturing sites. but these processes are often slow, inefficient slogs. An SCRM solution can accelerate and optimize these processes, delivering a wider breadth of data and more actionable insights in less time. 

A platform like Z2Data turbocharges risk mitigation measures with large internal databases, dedicated research teams, and AI-enhanced web-scraping tools. The result is a suite of functionalities that can help medtech firms effectively manage their supply chains and systematically drive down risks:

• Up-to-date market data, including prices, availability, inventory, and lead times.

• An in-depth repository covering direct and sub-tier manufacturer relationships that can help users shed light on their tier 2, 3, and 4 suppliers. 

• Comprehensive supplier profiles that feature a wealth of practical data and risk evaluations covering everything from financial health and compliance to ESG performance and cybersecurity. 

Z2Data can serve as a potent risk management tool in the dynamic and continuously evolving medtech supply chain. To learn more about how the platform can help medical technology companies identify, assess, and remediate supply chain threats, schedule a free demo with one of our product experts.