The following report was prepared using data gained from benchmarking the organizational priorities of Medical Device Supply Chain executives participating in the LogiMed conference. In addition, LogiMed Program

Director Marissa Alvord conducted 4 months of intensive research and interviews with industry leaders to contribute to this report.

The State of the Industry Report: LogiMed 2017Revolutionizing the Medical Device Supply Chain in an Evolving World

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The Top Industry Drivers of Medical Device Supply Chain1 M&A is the new norm. The industry is

experiencing huge levels of consolidation on all sides, with hospitals forming Integrated Delivery Networks, distributors and Third Party Logistics buying each other up and, of course, the biggest manufacturers are merging and acquiring smaller manufacturers. Mergers and acquisitions disrupt the tight relationships between manufacturers and physicians and creates complicated challenges in data and communications.

2 Medical Device Excise Tax set to shrink profit margins. On December 5, 2012, the IRS and the Department of the Treasury issued final regulations on the new 2.3% medical device excise tax that manufacturers and importers began to pay on their sales of certain medical devices. A moratorium was issued and the medical device excise tax does not apply to the sale of a taxable medical device by the manufacturer, producer, or importer of the device during the period beginning on January 1, 2016, and ending on December 31, 2017. The supply chain is seen as a point of major opportunity to conserve costs once this tax hits.

3 The stakes are high as devices are commoditized; time to become more customer-centric. Manufacturers must provide high levels of customer service, including on-time delivery and providing adequate shelf life to customers. If a surgery kit isn’t available, the hospital will use another device rather than not perform the surgery. Manufacturers need solid operating margins, ensuring the right quantities are available at the right time to meet customer needs while also being able to free up capital for other investments.

4 Global logistics and emerging markets are key. Manufacturers are now looking to expand beyond the BRIC markets to other parts of Asia, Africa, and South America, meaning even more country-specific rules and regulations. Furthermore, the global supply chain is experiencing high levels of risk regarding geopolitical unknowns, including Brexit, the tragedies in Nice, Paris, and Brussels, the attempted coup in Turkey, piracy on the seas, and interception of trucks by drug cartels in Mexico.

The State of the Industry Healthcare systems have become businesses in the last 5 years, shifting away from a model of providers receiving their supplies in an unlimited flow. Nowadays, the industry cannot possibly afford to continue with this process as several relationship and credibility issues have arisen in the past half decade.

Additionally, under the Affordable Care Act, more patients have access to healthcare than never before. Due to this, more devices are being put to use. This leads to greater use of transportation services between the medical device manufacturers and in turn, the medical device providers. Furthermore, in order to be reimbursed, the patients must ultimately get better.

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Major Trends in the Medical Device Supply ChainAccording to the Eighth “UPS Pain in the Chain Survey”:

’Healthcare and life science logistics makers are seeing success addressing product security. Their reported success rate in this area saw a 20 percentage point jump over 2014 findings.’

’Healthcare companies are becoming more successful with regulatory compliance with success in addressing regulatory compliance showing a 13 percentage point increase from 2014.’

’Healthcare companies have achieved success using logistics and distribution partnerships as a strategy to address supply chain challenges associated with regulatory compliance, product damage and spoilage, and cost management.’

’Product and damage spoilage remains a concern as products become more complex and in-transit monitoring and intervention options are underutilized.’

’Cost management is still a substantial supply chain issue, even though the level of concern is declining year-over-year. Healthcare logistics decision makers report rapid business growth, fluctuations in fuel and raw material costs, increasing regulations, and new market expansion as the biggest challenges to managing supply chain costs.’

’Contingency planning is an area healthcare and life science companies may find hard to justify investments in, based on the limited and unpredictable impact of disruptions to the supply chain. Unplanned events have impacted healthcare supply chains in the last 3-5 years, but a large percentage of supply chain decision makers still do not consider the subject important.’

Source: "Eighth UPS Pain in the Chain Survey." UPS Solutions. United Parcel Service of America, Inc. UPS, Nov. 2015.

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Solving Major Challenges in the Medical Device Supply Chain

Respond to Cost Pressures from the C-Suite and Providers

The 2.3% excise tax levied on sales of certain medical products, which is part of the Affordable Care Act and shifts in purchasing protocols, as purchasing groups increasingly make medical device procurement decisions, will continue to squeeze manufacturers to do more for less.

Since margins have been cut from the 2.3% medical device excise tax, the supply chain must drastically cut costs in order to be profitable. It’s harder for providers to be reimbursed in the new ACA outcomes-based era so they are now demanding manufacturers serve them at lower costs.

Achieve Greater Inventory Visibility

In order to achieve greater inventory visibility, manufacturers are creating tools and strategies in order to gain visibility and manage their inventory better than before. Within the industry now, they must deal more with consignment and and trunk stock inventory. Therefore, creating more accurate forecasting models is crucial.

The following are potential solutions organized around specific trends or pain points in the industry

Improve the Supply Chain in M&A Integration, Emerging Markets, & Changing Customer Demand

In order to bring the medical device supply chain into the future, both parties must learn to respond to the unmet needs of providers. Hearing specific case studies on successful provider and manufacturer collaborations can help with this.Gaining insight from experts and their supply chain integration best practices will support more efficient operations in emerging markets.TIP: You’ll hear several exclusive examples at LogiMed 2017!

Cost to Serve Optimization

There is no doubt that the supply chain is becoming more involved in business strategy, especially in the C-Suite. To improve upon cost optimization, determine if serving a customer or carrying a product is actually profitable.Learning to adjust your supply chain to ensure it’s profitable plays a crucial role in cost optimization as well.

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Sneak Peek of LogiMed 2017 The Sessions You Don’t Want to Miss!1 Fireside Chat | Building Out a

Customer Focused Supply ChainWhile supply chains are becoming increasingly complex, they are also becoming more customer centric than ever before. How can you provide segmented service instead of one size fits all? How can customer experience groups best interface with hospitals? How can you make the supply chain more convenient for the customer? Hear lessons learned and insights into how two organizations have aligned with customers, including how to:

• Understand how value is defined by customers

• Appeal to the broader hospital and not just individual doctors

• Remove waste and realize efficiencies

Facilitated by: Stephen Meyer, Research Director, Gartner Dennis Black, Director, e-Business, BD Chris Lynch, Vice President, Global Service & Logistics, Acelity

2 Fireside Chat | Driving Data Standardization and Utilization

The FDA is requiring the industry to get data coding standards in place, but many are lagging behind and there are lots of disjointed efforts. Several large hospital systems are ahead of the curve of the data challenge and manufacturers are beginning to join the conversation. Jonathan Harrington, Senior Director, Global Supply Chain, Abbott Vascular will facilitate a conversation between William Mosser, Vice President, Materials Management, FMOL- Health System and Richard Bagley, Director, Supply Chain Commercialization, Intermountain Healthcare to find out why hospitals are getting involved in this standards work and how they are executing it.

Gain insights on:

• Opportunities for you in data coding and classification

• What the impact of data standards are for providers

• Unlocking insights and value through data standardization

• How to set up data utilization

• Enabling the supply chain data systems to talk to each other

• What providers need from industry partners to advance data standardization

Facilitated by: Jonathan Harrington, Senior Director, Global Supply Chain, Abbott Vascular Richard Bagley, Director, Supply Chain Commercialization, Intermountain Healthcare William Mosser, Vice President, Materials Management, FMOL- Health System

3 Case Study | Addressing the Cold Chain Conundrum, Lessons Learned and New Discoveries

Cold chain approaches are always costly, and frequently wasteful. All too often there is an excess of packaging, the methods aren’t always environmentally friendly and customers might not be happy. Three and a half years ago, one company decided to scrap 14 year old technology for newer, more eco-friendly options and chase freight savings. While the team set out to address one problem, they found themselves introducing new variables and new problems. Hear the surprising results and lessons learned, including:

• The complexity of introducing new technology

• How to manage a new reverse logistics model

• The ultimate economic benefit, was it worth it?

John Keevey, Senior Manager, Supply Chain Strategy & Integration, Grifols Diagnostics Solutions

4 Bending the Cost Curve As You Grow the Top Line

While the device industry has been experiencing tremendous growth, many companies still struggle to leverage growth and control costs. One Fortune 500 company mapped out a 5 year initiative to get a handle on cost by 2020 using 10 key initiatives. Find out lessons learned and successes including:

• Optimizing product lifecycle management

• Gaining support from the supply chain and commercial teams

• Adjusting IBP plans on a monthly basis

Ivan Lai, Director, Global Supply Chain, Stryker Neurovascular

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LogiMed 2017 At A Glance: Why You Should Attend

Hear what recent attendees of LogiMed have to say:

LogiMed USA is the largest gathering of medical supply chain heads in North America. You’ll work closely with your 125+ peers to identify best practices, benchmark, and build your network.

The only event of its kind. Nowhere else can you dive into specific issues and nuances of the full end-to-end supply chain - both the manufacturing and provider sides.

Answers to problems before they arise. Gain valuable insight and “hacks” from 60+ speakers who are leading in the industry. Learn how they are optimizing their supply chains and how you can avoid making their same mistakes before they happen.

Learn more, faster. Case studies, creative boardrooms, breakouts, small group discussions, task forces means more new, well-rounded perspectives. Come with your team and divide and conquer the packed agenda!

“Everyone should take advantage of this opportunity for best-in-class sharing of supply chain management… A rare gathering of the global experts in the field with a willingness to share and learn from each other.”

- Joseph Mansfield, Director, Global Security Operations, GE Healthcare

“LogiMed provides a great forum for manufacturers and providers to come together to discuss solutions to our most challenging supply chain problems.” - Rick Desmarais, Director Lean & Operational Excellence, Johnson & Johnson Health Care Systems

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Learn more about how LogiMed 2017 can benefit your Medical Device Supply Chain strategy and keep your operations on the cutting edge.

March 7 - 9, 2017 • Hyatt Regency Lost Pines Resort and Spa, Lost Pines, Austin • 1.888.482.6012

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LogiMed is a focused conference for supply chain VPs and Directors from medical device and diagnostics manufacturers. It’s the only medical device end-to-end global supply chain event that brings together heads of supply chain from both the manufacturing and provider sides.

In an interactive and collaborative format, you’ll identify best practices to improve your end-to-end supply chain, better serve customers, and minimize cost in today’s dynamic healthcare environment.

Think you might be a good fit? Here’s why you should join us in Austin, TX next year: