IBM Global Business Services

Executive Brief

Electronics
Industry

Medical Devices
The intersection of healthcare
and technology
 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

CRM GCH
(CRM Service
Component)

Business Products
Partner & Services
Management Management
(CRM and/ (CRM and/
or ECC) or ECC)
Installed
Base
Management
(CRM and/
or ECC)

• 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)

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.

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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

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

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

• After investigation and

Quality control planning, these events
could be converted into
Test equipment CAPAs

management • IBM provides an easy-

to-use front-end for the
casual user

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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? © Copyright IBM Corporation 2009

IBM Global Services

Ask yourself the following questions: Route 100
Somers, NY 10589
U.S.A.
• Are your products linked to clinical information systems?
Produced in the United States of America
• Is your supply chain optimized to track inventory, handle complaints and 01-09
All Rights Reserved
recalls and manage assets?
IBM and the IBM logo are trademarks or
registered trademarks of International Business
• Can you comply efficiently with divergent security and privacy regula- Machines Corporation in the United States, other
tions? countries or both.

Other company, product and service names

• Does your company get new products to market as quickly as your may be trademarks or service marks of others.
competitors? References in this publication to IBM products
and services do not imply that IBM intends to
• Are your operations efficient and profitable? make them available in all countries in which
IBM operates.
• 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

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