Two Essential Steps To Protecting Your Global Supply Chain From UDI Disruption
By Zachary Macht and Jerry Salazar, KPMG Life Sciences Advisory
For most medical device companies, compliance with the Class III and life-sustaining/supporting implantable device FDA UDI final rule is an issue that has been addressed. At this point, most project stakeholders have probably started to develop a compliance strategy for FDA UDI Class II, with plans to hit the ground running in advance of the September 2016 deadline.
What UDI-impacted stakeholders may not be considering is how FDA UDI could impact their company’s global inventory management strategy. In this article, we provide two steps companies should take to ensure their global supply chain maintains continuous flow of product.
Step 1 – Conduct a product assessment to determine all products and stock-keeping units (SKUs) globally packaged.
Although the UDI law only applies to the U.S., many medical devices are packaged and distributed for multiple markets. When developing their compliance strategy for the U.S., companies must consider all other countries the product is shipped to, including U.S. exports.
Many companies’ product portfolios contain medical devices which are either globally packaged, shared market, or U.S.-only SKUs. In order to ensure U.S. UDI compliance, an organization may implement the following three options / strategies:
- Option 1 — Designate a U.S.-only SKU. This implementation option will control the scope of affected regulatory markets. However, this option will increase the total variations (i.e., number of SKUs) of products packaged, thus creating potential issues with managing forecasts, master data, process order volume, line change-over efficiencies, and increased inventory carrying costs.
- Option 2 — Implement a re-dress operation to apply a UDI-compliant label. Existing packaging equipment will not be impacted as a result of UDI regulations if an additional label is applied to the packaging to include UDI information. However, a re-dress operation may be cost prohibitive, and it would require the ability to identify and “hard-allocate” specific lots to be sold in specific country markets (i.e., the U.S. market).
- Option 3 — Perform an assessment to determine which regulatory markets will accept the updated UDI packaging/labeling. This option minimizes implementation costs and can be incorporated as part of standard regulatory procedures for packaging/labeling change controls. As a result of this option, two or more versions of the product packaging/labeling may have to be maintained simultaneously.
Our recommended approach would be to strongly consider ‘Option 3’ before pursuing ‘Option 1’ or ‘Option 2.’ This will provide an organization with additional flexibility while providing opportunities for identifying potential risks and mitigation strategies.
Step 2 – Conduct a regulatory assessment and manage two versions of product packaging/labeling simultaneously.
If an organization elects to pursue ‘Option 3,’ it is necessary to perform a regulatory assessment to understand where UDI packaging will and will not be accepted, as well as how quickly a change must be implemented (i.e., Is there a grandfather period where a country will accept both UDI and non-UDI labeled packaging?). Experience suggests the assessment process requires approximately three to five months of lead time, and requires at least one regulatory affairs resource allocated to the project to perform the necessary tasks involved. Additionally, mock-ups of the UDI labeling as it will appear post-on-line printing will be helpful in communicating the exact requirements outlined by the UDI ruling.
Be mindful of the Middle East and Asia Pacific, the two regions most susceptible to having additional regulatory requirements. It is safe to assume that at least one or more countries will identify a necessary regulatory action. The impacted countries may require the new version of the packaging to be re-registered, or may require a perspective notification to be submitted.
Once the assessment has been completed, a company can think about how it will address these requirements and manage two versions of product labeling simultaneously. Here are some strategies to consider:
- Strategy 1 — Implement inventory segregation (inventory management by lot, to ensure the correct version of labeling is sold to the correct country). The ability to identify and allocate specific manufactured lots to target countries is a necessary pre-requisite for this option to be viable. If an organization’s current inventory management capabilities are not suitable, then this option cannot be fully considered. Alternatively, as project funding allows, system capability enhancements may be required to implement this option. However, this may incur additional costs, including increased risk to compliance project timelines
- Strategy 2 — Build inventory to fulfill projected country sales demands during the re-registration/notification period. This option will require an organization’s sales and operations planning (S&OP) function to provide accurate projected sales volumes for affected regulatory markets during the timeline required for re-registration/notification. The risk involved is potential lost sales as a result of a lack of inventory, should the planning figures be underestimated. Additionally, this will increase inventory carrying costs, and there may not be available space in the organization’s or logistics provider’s storage facilities to accommodate increased inventory.
- Strategy 3 — Establish a time-phased inventory approach, which allows a bleed out of inventory coordinated with the submission of notification/registrations per country. In order to implement this option, S&OP will be tasked with creating a schedule that aligns the anticipated depletion rate of affected product with the re-registration/notification timeframe. However, the re-registration/notification period can vary and timed alignment may be difficult to achieve, causing a disruption of product sales in particular markets.
The above options depend upon the current maturity level of the organization’s S&OP function, forecast accuracy, technical capabilities for managing/allocating inventory, and the amount of lead time available for implementation.
Conclusions
Ultimately, the key consideration for organizations as they address UDI labeling of globally packaged products is information management. The implementation of a UDI solution will require collection of various S&OP data points and analyses to be conducted. Product and market portfolio assessments, forecasted volumes, replenishment lead times, and market-specific regulatory factors are critical inputs. A thoughtful assessment that considers these factors will promote both compliance and supply chain continuity efforts.
This article represents the views of the author(s) only, and does not necessarily represent the views or professional or legal advice of KPMG LLP.