ASOURCE Navi

The Work Style Reform Act, which came into full effect in April 2024, is expected to have a major impact on various industries. In particular, the decline in transportation capacity, known as the "Logistics 2024 Problem," has become a serious issue, and it is feared that the impact will be particularly large in the medical equipment sector. Here we summarize the background, problems, and countermeasures.

The process of distributing medical devices is complex and diverse, with many different parties closely involved. Each medical institution places an order with the distributor in charge, either directly when the distributor visits, or by phone or fax, and the distributor converts the order into a general product code and places an order with the manufacturer. The manufacturer then arranges for shipment, and the device is passed through distributors and finally used in the medical field.

With the enforcement of the Work Style Reform Act, the correction of long working hours will be legally required from April 2024, and a maximum overtime work limit of 960 hours per year will be imposed on drivers engaged in transporting medical equipment. Furthermore, the number of hours worked per year will be limited to 3,300 hours in principle (previously 3,516 hours). For the transportation industry, where harsh working conditions have become the norm, complying with this new regulation while maintaining the previous level of logistics is a difficult and major challenge. In fact, a simulation with an upper limit on overtime work predicts a shortage of transportation capacity of about 14%, which could cause problems in the supply of medical equipment to medical institutions.

The impact of the work style reform on logistics is expected to be a variety of issues. First, due to the decline in transportation capacity, there is a risk that delivery lead times (the period from receiving an order for a product to delivery) will be longer. In particular, if it becomes difficult to secure drivers, delays in long-distance transportation may become unavoidable. There is also a risk that the quality of transportation will decline due to labor shortages and that damage to the exterior of packages will increase. In addition, if the number of daily flights decreases, flexible multiple deliveries that have been possible until now will no longer be possible, and emergency responses may be hindered. In depopulated areas, stable supply may be in jeopardy due to reasons such as a lack of infrastructure, fluctuations in demand, and bad weather. In addition, if transportation companies increase their costs to comply with the work style reform law and secure drivers, the increase may be passed on to freight rates, increasing the logistics costs of manufacturers and distributors. In this case, there is a limit to the price pass-through for medical devices for which insurance reimbursement prices (the prices paid by insurers to medical institutions when medical devices are used) are set, so manufacturers and distributors may be forced to absorb the costs.

Furthermore, there is a risk that the manufacturing costs of all medical devices will increase due to changes in social conditions such as rising fuel and labor costs. There are cases where distributors do not have contracts with medical institutions for inventory management, emergency response, and other appropriate use support services, and there is a risk that these services will become difficult to provide. In this way, the 2024 logistics problem is expected to have a significant impact on the medical device industry from various aspects, not just logistics.

In light of this situation, the Ministry of Health, Labour and Welfare has outlined the following measures for each relevant party:

①Manufacturer/Distributor
By securing sufficient inventory in preparation for extended delivery lead times, we will prepare for delivery delays. Additionally, we will set appropriate prices taking into account rising logistics costs and price fluctuations. To this end, we will respond appropriately to price negotiations from distributors and transport companies, and ensure sustainable prices through discussions. Furthermore, we will aim to make logistics costs transparent, and provide distributors with information on the causes of rising logistics costs and measures to reduce them. This will enable distributors to make efforts to determine appropriate prices and reduce the burden on logistics. Additionally, we will utilize the system regarding unprofitable requests to maintain stable contracts with manufacturers and distributors, and ensure a stable supply of medical equipment.

② Retailer
By placing orders early in anticipation of extended delivery lead times and applying delivery rules flexibly, we aim to improve the efficiency of logistics. Furthermore, by promoting bulk purchases, we can reduce the number of orders and deliveries, thereby achieving efficient logistics. Furthermore, we can build a sustainable business model through fair pricing and transparent logistics costs.

③Medical institutions
Considering the extension of delivery lead times, orders will be placed early to ensure appropriate inventory. In addition, logistics will be made more efficient by relaxing delivery rules and encouraging bulk purchases. Products will not be returned if there is only minor box dirt or minor damage to the exterior that does not affect the product inside. Furthermore, a stable supply of medical equipment will be ensured by requesting appropriate pricing and utilizing guidelines to support appropriate use.

These measures aim to take advantage of the enforcement of the Work Style Reform Act to build a new system for ensuring a fair working environment while ensuring a stable supply of medical equipment in a sustainable manner. In addition, various efforts are already underway in each industry to deal with the 2024 problem. Although there are business practices unique to the medical equipment industry, it is expected that the industry will be able to achieve both improved working conditions and more efficient logistics through efficiency and digitalization, while also taking into account the measures of other industries.