Bullwhipped: False Demand Signals, Beer, and the Trauma Implant Supply Chain
For the trauma implant sales rep, Christmas comes in the summer. People are outside, active, drinking more, and getting banged up in more ways than one. 90 degree nights fuel more drinking and tempers, and social violence spikes. Anyone in the trauma business will tell you there is a huge hot weather driven spike in business for trauma implants. I should know, I spent 16 years in the trauma implant business as a sales rep.
For busy trauma hospitals there is one Prime Directive which supersedes all others, with regard to their trauma implants: Thou Shalt Not Run Out. Trauma implant inventory is varied and requires a deep knowledge of how the implants relate to the actual surgeries being performed. As a result of risk and complexity, hospitals often outsource trauma inventory management to the OEM trauma sales rep, or distributor. And in pursuance of the Prime Directive, the good sales rep knows one important thing more than any other: lots of inventory covers lots of potential problems, and also takes care of the Prime Directive. (it also means higher commissions, but that is a story for another day).
In the 1950s, a professor at MIT named Jay Forrester was looking for a hands on teaching tool to demonstrate to his students the effects of system structures on human behavior. Looking for a teaching method that would resonate with college students, he developed a distribution game centered around role playing between different players in a multilevel supply chain. As to the product to the product to be distributed in the game, what better choice that students could relate to than beer?
Simply stated, in the Beer Game (as it came to be known), imperfect information between the players in the supply chain leads to wild fluctuations in demand. Order flow wave fluctuation moves backwards through the supply chain, gaining amplitude until they reach the manufacturing level, where they become overwhelming. And in the real world where there is finite manufacturing capacity, this demand fluctuation severely hampers production resources. Manufacturing is a zero sum game: when you allocate extra resources for making Peter’s orders, you steal from Paul’s. This in turn creates a shortage or backorder for Paul’s order on the customer end of the supply chain. With backorders in mind, Paul puts in an extra large order, as he knows one thing: he business is jeopardized if he can’t supply his customer. This is called “false demand”, and is a race to the bottom. It’s a negative feedback loop, often referred to as “The Bullwhip” by supply chain managers.
So what does the Beer Game have to do trauma implants? First is that had Mr Forrester wanted to pick a perfect industry, he wouldn’t have picked beer. The game should have been called the Trauma Implant game. Second is that since the 1960’s, order communication and accuracy through supply chain automation (think scanning at point of use) has largely mitigated the effects of false demand in supply chains in every industry. Except one: the medical device trauma implant market. And this is simply because this the trauma implant supply chain is saddled with 1950s era supply chain technology: pens papers and telephone calls. And with sales reps padding orders with anticipation of seasonal back orders, reams of imperfect order information.
This what the typical trauma supply chain generally looks like, with some variations. Its a system ripe for a good bullwhip lashing:
It’s for the most part an entirely manual process, characterized by lumpy seasonal demand and finite, high cost manufacturing resources. This leads to anticipatory inventory padding by sales reps, and we’re off to the races. Mission critical parts backorders, here we come. Every year.
The solution starts with scanning at point of use.
Why is the implant supply chain uniquely afflicted with such an outdated supply chain? It’s not that complex: any modern supply chain must start with digitization of demand information (orders) by scanning at point of use (think of the difference between scanning vs. manual input into a register of your groceries at the supermarket). Scanning implant usage at point of use (in the sterile field during surgery) has been unavailable to the device and hospital industry because barcodes used in other industries don’t last on surgical assets. They lose contrast and get compromised during the harsh reprocessing environment they are repeatedly exposed to.
Summate Technologies has changed the game. We’ve solved the false demand problem which has plagued the trauma implant device industry since its inception. Our patented TAG technology can mark implant sets and trays so that usage can be scanned in the field, during surgery at point of use, for the first time. And unlike barcodes, TAG marks last hundreds and hundreds of cycles.
Every contemporary industry in the world today has leveraged eCommerce technologies to better perfect order information and foster collaboration in the supply chain, so that Peter doesn’t have to screw Paul, and start a supply chain war that doesn’t help anyone. Now the device industry can as well.