5 steps to help deal with semiconductor shortages

July 14, 2022 By Jim Hammerand

[Photo by Vishnu Mohanan]

Some said they’ve slowed down or halted manufacturing operations after depleting their semiconductor inventories, and nearly 80% of survey respondents reporting extended lead times, with some stretching more than a year.

"More than 75% of our most-recent survey respondents said that their customers have turned to alternative types of treatment for their patients," Deloitte's Stephen Bradley and Bill Murray wrote in a new report. "As a result, some hospitals and health systems are looking into alternate products, new usage strategies or treatment options."

The Advanced Medical Technology Association (AdvaMed), which continues to push for the medical device industry to be prioritized for chip supplies, commissioned the survey to follow up on a similar survey conducted in July 2021. At that time, medical device companies said it was getting harder to obtain semiconductors, but many said they had enough inventory on hand to manage and that they had figured out temporary solutions.

A lot has changed since then. Russia's invasion of Ukraine, for example, jeopardized Ukraine's neon gas supplies, which are used in lasers that build the microscopic circuits in semiconductors. And Russia itself is one of the top exporters of the palladium used in chips.

Chips — once plentiful and cheap — are also now more expensive to move due to higher fuel costs and decreased shipping capacity, and some chip buyers are hoarding to protect against continued supply chain issues, Deloitte noted.

With some medical device manufacturers expecting the shortage to continue into 2023, Deloitte offered five steps medical device companies should consider:

"More than half of our most recent survey respondents said they previously relied on a single source for 75% of their chip supply," Bradley and Murray wrote. "All of them are now pursuing alternative sources."

Nearly a third of survey respondents said they’ve contacted brokers, which can serve as an alternate source while protecting against counterfeit products. Deloitte said the challenge of avoiding counterfeit chips has grown for medtech firms since last summer's survey.

Deloitte's surveys found 13% of respondents did not have a chip inventory before the pandemic, but more than 70% now say they have recently increased semiconductor inventory levels. About half of all medical devices have at least one semiconductor, but the medical device industry's share of global semiconductor purchases is only 1%.

Alternate suppliers can be even more effective if medical device manufacturers "build speed and flexibility into component substitutions — through planning, manufacturing, and regulatory processes" that allow for a supplier switch when needed, the Deloitte report's authors wrote. "Many companies are revalidating components to increase sourcing options even though the process can be cumbersome."

ResMed, in one example of agility, started shipping a new device without some of the chip-enabled features to meet immediate demand.

Deloitte said the follow-up survey found most companies have increased their visibility into multiple supply chain tiers. That helps companies spot trouble sooner and gives them more time to act.

"Digitization of the supply chain can provide visibility from the suppliers all the way to the customer and help enable a quicker response," Bradley and Murray wrote. "Advanced analytics could enhance the ability to be more proactive in every step of the supply chain."

You can read the full report at Deloitte's website.