Electronics Industry

Medical Devices

The intersection of healthcare and technology

IBM Global Business Services

Executive Brief

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The medical device industry is in the midst of

fundamental change. Mature and emerging markets

are growing at very different paces. Disparate regional

and country-specific regulations are on the rise and

subject to rapid change. And industry consolidation is

reshaping the entire sector.

These factors demand greater agility and a more

strategic approach on the part of medical device

companies. IBM’s approach to servicing its many

medical device clients is designed to meet real-world

needs today and in the future by stimulating the flow

of information, improving speed to market, making

operations more efficient and profitable and forging

strategic alliances for long-term success.

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Introduction

Evolutionary and transformational changes are becoming major challenges in the medical device industry.

The 1990s saw technological advances and international expansion take its toll on the small entrepreneurial businesses that had characterized the medical device industry. As the cost of research and development doubled, larger corporations with deeper pockets came to dominate the industry. Economies of scale became even more important with the growth of regulations worldwide.

The 21st century has ushered in explosive growth in the demand for medical devices as the populations of many industrialized countries have aged. Market growth and the incessant demand for better, and often less costly, devices are challenging enough, but meeting these demands in the face of global regulatory proliferation and continued industry consolidation leaves little room for error.

Forces of change

While the overall market for medical devices is growing, some mature markets are growing at a much slower rate. Traditional cardiac rhythm management devices and cardiac surgery devices experienced slower growth within the United States. Products such as new drug-eluting stents offer alternatives in this area. Products in the ear, nose and throat market experienced slower sales growth. Expansion into emerging markets has offset reduced growth in mature markets.

The pace of new product development is critical to medical device manufacturers. The high cost of R&D and securing regulatory approvals have helped fuel the trend toward consolidation and strategic partnering.

Technology is not only at the heart of medical device products themselves, it is critical to the management of any dynamic, complex global enterprise. In addition to the need for systems integration, intellectual property management and supply chain efficiency, medical device manufacturers must also comply with a host of heightened regulations unique to the healthcare industry, such the U.S. Health Insurance Portability and Accountability Act (HIPAA) and European patient privacy laws and data retention requirements.

To make matters even more complex, medical device companies often face higher than typical legal exposure to patient lawsuits, patent infringement claims and product recalls.

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IBM’s strategic approach for the medical device industry

IBM is meeting the challenges of medical device manufacturers in four strategic areas.

1. Stimulating the flow of information

To circulate critical information, the medical device industry needs to:

Link various medical devices to clinical information systems •

Use wireless technologies and radio frequency identification (RFID) to improve:•

- Inventory management and tracking

- Complaint handling and corrective action/preventive action (CAPA)

- Asset management of medical devices, such as programmers, imaging equipment, surgical tools and sterilizers that may be owned by the manufac-turer, but installed at client facilities

Connect patients, doctors and suppliers using electronic healthcare records•

Ensure information security and privacy•

2. Improving speed to market

Speed to market can be improved with:

Good manufacturing practices implemented with efficient technologies•

- Advanced supply chain planning assists with efficient inventory availability of surgical kitting processes.

- Global product availability checking increases the product delivery speed while lessening the need for increased inventories.

Accurate and complete documentation to create an audit trail•

- The ability to isolate potential production issues to a batch or serial level versus a much wider product or regional level

- Increased speed and accuracy for product recalls

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3. Keeping operations efficient and profitable

Medical device companies have traditionally maintained excess inventories for •products with low production costs because an inability to provide devices on demand may result in lost sales, not to mention lost lives. But as products mature, maintaining high inventories becomes significantly less profitable.

Effective product lifecycle management (PLM) can enable better, more informed •decision making to enhance profitability.

Enterprise resource planning (ERP) and automated tools can ease the burden of •validation. Testing tools run against validated requirements, regression testing for completeness on major changes in functionality, and ISO standards implemented across an ERP all assist in this area.

Remote disease management uses a variety of technologies that allow for outpa-•tient monitoring and disease management to assure efficient, timely treatment.

4. Forging strategic alliances for long-term success

Medical device manufacturers are finding it increasingly challenging to go it alone •because the core competencies required of them now go well beyond the devel-opment, manufacture and distribution of primary devices.

- Medical device companies often need to maintain their own assets on site at medical facilities for product sterilizations, surgical tools, device program-ming and patient-specific adjustments and monitoring, to name several examples.

Strategic alliances are being formed in numerous areas: •

- Healthcare payers, such as major insurance companies and health mainte-nance organizations establish limits on procedures and products collectively.

- There are a growing number of hospital buying groups, such as Premier and Novation, in addition to traditional purchasing organizations, that are working closely with medical device manufacturers.

- Supply chain and third-party logistics companies like Schneider, C.W. Robinson, Penske and Maersk offer operations to run warehouses and provide transportation management.

- Many of these alliances are providing synergy between medical devices and pharmaceutical products, as with new drug-eluting stents.

Medical device customers are consolidating, leading to the emergence of •intermediaries and a change in traditional providers.

- Improved technology, less invasive surgeries and other advances have shifted the demand for healthcare to outpatient and walk-in facilities.

- These new facilities can provide patient services more efficiently and profitably.

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IBM’s history of serving the needs of the medical device industry

IBM has worked with many clients in the industry. Our involvement has ranged from detailed process design workshops to providing hosting and support of validated instance environments. IBM has managed ERP implementations at some of the largest medical device companies to providing strategy workshops on new technologies, such as remote patient monitoring. IBM has served the needs of companies that collectively account for over 50 percent of worldwide medical device revenue.

Leveraging this experience, IBM has taken the initiative to create asset-based solutions and develop white papers that create a “proof of concept” (POC) that targets a medical device industry solution. They include such topics as:

Global Complaint Handling

Complaints about medical devices are subject to regulation. They may take the form of customer dissatisfaction expressed to the company directly or a communication from the U.S. Food and Drug Administration (FDA) or International Organization for Standardization (ISO) alleging deficiencies related to the identity, quality, durability, reliability, safety, effectiveness, or performance of a product after it is released for distribution.

Many medical device companies utilize an SAP solution for ERP. “Bolt-on” functionality, such as Global Complaint Handling (GCH), is often used to address industry-specific requirements. But by developing a solution within the core ERP, medical device companies can save the cost of additional software, integration and maintenance. SAP’s Customer Relationship Management (CRM) module can be used as a solution for GCH, integrating the ERP Central Component (ECC) with key components of the CRM module such as: Enterprise Service, Business Partner Management, Products and Services and Complaints and Returns.

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SAP GCH Component Overview

CAPA – Corrective Action Preventative Action

Corrective Action Preventative Action (CAPA) identifies, tracks, reports, escalates and records the resolution of actions requiring formal regulatory oversight. IBM built a CAPA “proof of concept” using an SAP ECC foundation. The Quality Management (QM) module acts as the process foundation for CAPA functionality while the Workflow (WF) engine and SAP e-signature functionality address many of the needed elements.

• SAP CRM contains the GCH components

• GCS can be implemented independently or in addition to a larger SAP footprint

• Key interfaces can be developed from legacy systems or seamlessly integrated from ECC (or R/3)

CRM GCH(CRM Service Component)

Business Partner

Management(CRM and/

or ECC)

Products & Services

Management(CRM and/

or ECC)Installed

Base Management

(CRM and/ or ECC)

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The IBM SAP CAPA solution provides the following benefits:

Data integration with sales, procurement, manufacturing and R&D processes•

Identification of existing or potential causes of problems•

Ability to define and implement action(s) using standard SAP transactions•

Facilitated investigation of identified risk•

Demonstrated effectiveness of action and quality systems •

Conformity to product, process, and quality system requirements •

Lower total cost of ownership (TCO) by utilizing existing SAP infrastructure and •investment

Reporting and analytics facilitated by SAP BW•

QM Notifications as “events” or CAPAs

• The IBM CAPA POC relies on Quality Notifications as messages to capture “events”

• After investigation and planning, these events could be converted into CAPAs

• IBM provides an easy-to-use front-end for the casual user

Quality planning

Quality inspection

Quality certificates

Quality notifications

Quality control

Test equipment management

Recording and processing internal or external problems that are primarily caused by poor-quality goods or services

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Field Inventory/Trunk Stock Controlled by RFID

Medical device companies’ sales forces call upon hospitals, physicians and other medical establishments with an inventory of available products, commonly referred to as “trunk stock.” SAP offers solutions to track and account for trunk stock and IBM has built RFID solutions that trace the movement of tagged items throughout the supply chain.

IBM offers a full range of RFID solutions to help design, construct, evaluate and adopt an RFID strategy that makes sense for medical device companies today and down the road. They include:

RFID Solution Development Workshop – a fast way to learn how to assess and •focus your RFID efforts

RFID Quick Start Testing – provides initial tag evaluation and recommendations for •unique products, including packaging, packing configurations and use cases

RFID Site Surveys – validates the ability of RFID equipment to function properly on •location

RFID Quick Start Value Assessment – creates a business case model based •on operational data and related financial and sensitivity analysis based on IBM benchmarks

Pilot Planning and Execution – provides key lessons learned from IBM to meet •integration needs and enable validation of business case assumptions

Reaping the tax benefits of using commissionaires

The commissionaire distribution model has grown in popularity in Europe because it can offer significant advantages over traditional direct sales from product owner to buyer. In its simplest form, the commissionaire (the seller of the product) and the principal (the owner of the product) are part of the same overall corporation, but distinct legal entities. Commissionaires earn lower profit than full-fledged distributors because they typically hold no inventory and, therefore, assume fewer risks and functions.

In addition to paying smaller sales commissions to commissionaires than traditional distributors would charge, certain activities may be shifted to lower-taxed countries, resulting in significant tax savings when this business model is used in Europe.

Since the commissionaire model is particularly attractive to businesses that produce high-cost items with significant mark-ups, medical device companies are prime candidates for using this distribution technique to their advantage.

Despite the benefits, the commissionaire model adds several layers of complexity to the distribution process because it requires additional detailed tracking of product movement to achieve the tax savings sought. This heightens the importance of accurate and efficient supply chain management – one of IBM’s many specialties.

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Global Service and Repair Management

IBM has developed an integrated customer sales and service proof of concept that improves visibility and streamlines the processes of contract and order pricing, service management and in-house repairs, field service repairs and scheduled maintenance. Some of the highlights of this solution include:

Complex contract and order pricing management •

- Management of multiple, complex contracts

- Contracts established across buying groups and overlapping organizations

- New automated contract management tools reduce the time, resources and cost of managing contracts and orders

Service management functions and challenges •

- In-house repairs complicated by legal and regulatory requirements to track product serialization and OEM sub-items

- Additional challenges with inventory parts management, billing and financial costing

Field service repairs and maintenance •

- Service contracts, warranty management and maintenance

- High number of customer complaints

Patient Privacy Requirements

Privacy and tracking regulations that apply to medical device companies doing business in Europe and the United States differ significantly. IBM has experience in implementing solutions that address these differences.

One of the major challenges and differences between these geographies is the amount of required detail tracking while safeguarding patient privacy. But patient privacy requirements differ significantly in each market. In the United States, it is necessary to track implanted devices to the implanting facility and the actual patient receiving the device. In Europe, on the other hand, it is forbidden to maintain information on the patient receiving the device.

Each scenario requires very different processes and a deep understanding of how to implement the different mandates with shared global solutions. Understanding how to issue a sale, block patient information, track device implants and apply security technologies are several of the key areas in which IBM expertise has provided critical assistance.

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Summary – The IBM Advantages

IBM has a long and successful history with clients in the medical device sector. Our experienced consultants understand the unique requirements of the industry and they understand how technology and process solutions can create benefits for our clients.

Improve your information flow with IBM

IBM’s Health Information Framework is based on industry open standards and a •service-oriented architecture (SOA) to connect information from disparate systems.

IBM Global Business Services is the leader in global implementations for a wide •range of systems.

IBM is pioneering new wireless and RFID technologies that can streamline your •supply chain.

Our Clinical Data Warehouse solution includes electronic health records.•

IBM is a solution leader in information security and privacy.•

You can count on IBM to get your products to market quickly

IBM understands how innovation leads to business success: For the past 13 years, •IBM has been awarded more U.S. patents than any other company—patents that have changed the world – and have made IBM an industry leader.

IBM can help you spot the biggest opportunities in your development pipeline.•

IBM HealthLink can enhance knowledge sharing and reduce redundant efforts.•

IBM’s IT experience can help you build the powerful, secure infrastructure you need •to manage your research and development data.

IBM PLM solutions offer a strategic approach to creating and managing product-•related intellectual capital.

IBM can help you increase operational efficiency

IBM Global Business Services offers experienced staff that can provide implemen-•tation for SAP APO, i2, Oracle and other leading planning tools.

IBM offers innovative PLM solutions that enable informed decision making on •manufacturing and release schedules, total activity costing, regulation status and profitability.

IBM Global Business Services is the leading implementation partner for ERP solu-•tions and complements these efforts with automated tools.

Build strategic alliances that last – starting with IBM

IBM has developed strong, powerful strategic alliances throughout the medical •device industry.

IBM is a leader in supply chain alliances.•

The IBM Mobile Fleet Management Delivery Solution offers a high-powered, modu-•lar platform for fleet and freight optimization.

IBM Global Logistics Procurement offers opportunities in supply chain optimization.•

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Is your company ready to meet today’s challenges?

Ask yourself the following questions:

Are your products linked to clinical information systems?•

Is your supply chain optimized to track inventory, handle complaints and •recalls and manage assets?

Can you comply efficiently with divergent security and privacy regula-•tions?

Does your company get new products to market as quickly as your •competitors?

Are your operations efficient and profitable?•

Does your company’s IT environment facilitate the formation of strategic •alliances with insurance companies, HMOs, hospital buying groups and supply chain logistics companies?

Can you reduce your tax liabilities through the use of commissionaires?•

IBM has developed and refined the tools you need. To learn more about how IBM can help, contact:

Bob Kopac Associate Partner IBM Global Business Services Robert.Kopac@us.ibm.com

Visit us online at: www.ibm.com/electronics/medicaldevices