A NOTE FROM THE EDITOR
Will Distributors Become a Missing Link in the Supply Chain?
The pace of change in the medical device industry during the past few years has been dizzying. The medical device directives, the common European currency, and intense pressure from governments to contain the cost of healthcare have altered the way the device industry does business. 
How this will affect the supply chain in the years ahead was the topic of a EUCOMED seminar at the recent Medica exhibition in Düsseldorf, Germany. The seminar was designed to further explore themes addressed in a discussion paper on the future of medical device distribution prepared by EUCOMED's Distributors' Affairs Focus Group.
The report and the papers presented by members of European industry and trade associations came to the same conclusion: distributors must be willing to adapt to a changing business environment if they are to survive. Greig Markham, marketing director of Sims Portex Ltd. (Hythe, Kent, UK) and vice chairman of the Association of British Health Care Industries, made that point in dramatic fashion.
As governments maintain pressure to lower healthcare costs and increase efficiency, rationalization will invade all aspects of the supply chain, said Markham. As a result, the middleman will come under intense scrutiny. "The distributor will be cut out of the supply chain," he said. "There is simply no profit margin left with which to compensate them. Distributors will share the fate of the dinosaurs."
At that point in his presentation, Markham paused to let attendees involved in the distribution chain meditate on their fate. Then he dropped the bomb. All of those comments, he said, were culled from statements he had heard distributors themselves make. This perception, he suggested, is blinding some companies to the real opportunities that exist in the marketplace.
As the traditional layers in the supply chain begin to merge, distributors are of course concerned about their future. According to the EUCOMED report, many manufacturers now sell direct, distributors in turn get involved in light manufacturing and assembly, transporters expand logistical services, and clients join forces in an attempt to create more buying power. To avoid being squeezed out, the report states, distributors must redefine their key audience and actively court suppliers as well as end-users. "Change is a constant," stressed seminar participant Sten Gibeck of Louis Gibeck AB (Väsby, Sweden), "but there are always more opportunities than threats."
According to Markham, one such opportunity involves placing an emphasis on localization expertise. Many companies fail, he said, because they can't manage cultural differences. Smaller companies, in particular, may not have the resources to understand the European market in its entirety, Markham added. They can benefit from distributors' understanding of local business practices.
Offering greater flexibility and adding value—in the area of technical support, for example—can also be a winning formula. As medical equipment becomes increasingly complex and maintenance requires very precise skill sets, being able to offer technical assistance will be crucial for a successful tender. EUCOMED adds that distributors will need to operate this part of the business as a separate profit centre and enjoy a strong customer base to stave off competition from third-party servicing companies.
Distributors in the new millennium will also need to master the use of electronic communication tools, offer more sophisticated logistics operations, and develop a keen understanding of regulatory matters, according to the focus group report.
The traditional role of the distributor is destined to change; in some cases, it will disappear. The distributors who survive, according to Gibeck, will be those who adopt a flexible approach to meeting the evolving needs of suppliers and customers.
The particulars may be different, but, in essence, successful companies in 2001 will be doing precisely the same thing thriving enterprises did in 1901—keeping the customer satisfied.
