The Disruptive Effects of Semiconductor Shortage on MedTech Manufacturers

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The Disruptive Effects of Semiconductor Shortage on MedTech Manufacturers

Overview

Companies in the MedTech field expressed their concerns about the shortage of semiconductors. Today, we are already seeing the disruptive effects of this penury; however, the impact is predicted to continue into next year.

In July 2021, Deloitte surveyed the industry about this matter. They repeated the same survey in April 2022. The results of the second survey found that around 80% of concerned parties are going through extended lead times. Some hospitals even started looking for alternative products to solve this issue.

Due to the dependence of respondents on a few semiconductor providers, this created a rapid cascade of consequences that left some institutions paralyzed.

This article will further detail the findings of this survey and the predictions for the future of the MedTech field.

Insight

The first survey conducted by Deloitte in July 2021 attempted to quantify the reports of semiconductor shortages. It revealed delay times ranging from 14 days to an entire year. This was made worse by the panic buying that many tech and car companies conducted. 

In the follow-up survey, Deloitte found that MedTech manufacturers are feeling more pessimistic about this shortage, stating that their inventories are empty of semiconductors.

As a result, MedTech manufacturers decided to reduce or hold their production. In fact, more than ¾ of customers started looking for alternative treatments.

To mitigate the threat that jeopardizes the field, manufacturers made changes to support their supply chain. For instance, around 50% of companies used to rely on a single semiconductor manufacturer for 75% of their supply. Today, they all opted for a multi-source strategy.

The CEO of AdvaMed, Scott Whitaker, stated that “our members are developing lifesaving and innovative treatments for patients, and without the necessary components, it is becoming difficult to get these products into the hands of health care professionals,” adding that “a failure to strengthen the chips supply line to MedTech companies could result in a shortage of the medical devices and technology that millions of patients rely on every day, resulting in a crisis on par with what we are seeing with baby formula right now.”

Interestingly, one-third of companies said they reached out to brokers for semiconductor supply. Previously, the need for brokers was virtually inexistent. Now, they offer a helpful alternative to source ships. The brokers can also serve as a safeguard against counterfeited semiconductors, which flooded the market shortly after the crisis.

To further buffer the supply disruption, MedTech manufacturers opened their own chip inventories. The percentage of companies that had this type of inventory raised from 13% before the pandemic to over 70% in April 2022.

Responders also noted that they do not expect the crisis to improve before the first quarter of 2023. However, the collective actions taken by MedTech companies allowed them to partially cope with the severe shortage in semiconductors.

Takeaway message

The semiconductor shortage has hit the world hard. Many manufacturers around the world found themselves in a difficult position to maintain their production rate with the continuing disruption in the supply chain of chips.

Hopefully, this article managed to highlight the impact of the semiconductor shortage on MedTech companies and the measures taken to mitigate these risks.

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