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Taking Your Outsourcing Strategy Beyond Manufacturing Processes

Mon, 04/09/2007 - 8:31am
Outsourcing of labor-intensive manufacturing operations is increasingly popular with medical device companies. It cuts down on labor, plant, and more; why build when you can buy? But some of these same companies are discovering that it can make sense to outsource other functions as well. This article, based on interviews with experts in the field, will explore this area.

Peter Cleaveland, West Coast Editor
As competition and costs increase, the idea of outsourcing is spreading to companies that hadn't considered it in the past. "I think healthcare was the last area to really embrace this," says Thomas Taylor, vice president of global marketing and business development for the healthcare business segment at Nypro Inc. "Outsourcing is becoming a necessity now," adds Marco Bafan, lead analyst for west coast territory at Nerac.

Visual inspection of sample cups (Photo: Nypro Healthcare)
 
Outsourcing manufacturing not only cuts costs, it can also add to flexibility. Ron Earle, a recently-retired executive in the medical device outsourcing field, cites an example: "A guy called me and said my plant is running at maximum capacity; I've got to find a new manufacturing location, and [do] you know about a manufacturing place … for sale?" After questioning him, says Earle, he suggested "maybe you should look at finding someone with excess capacity … and do a collaboration and has that overhead burden taken care of. If your order is only temporary, why look for a whole new facility?"

Outsourcing Multiple Functions

If outsourcing manufacturing can save money, why stop there? A rising number of medical device OEMs have started to look at farming out such functions as supply chain management, project management, product development, and even product design. "Product design and development is getting outsourced more frequently for a variety of reasons," says Bafan, "for bringing the acceptable or worldwide technology for companies that can't provide it on their own."

Paragon Innovations' CEO Mike Wilkinson (left) and two engineers work on a wiring harness in a control cabinet. (Photo: Paragon Innovations)
Large OEMs, says Taylor, are taking two approaches to this. "One is that they outsource the design altogether; another approach is you have a team effort," he says, with contract manufacturing and suppliers working together to develop the product, "so you leverage expertise in all the different areas to get the product to market in a very tight timeline, but hopefully in doing so, because you have all the appropriate players, you do so in a very effective and efficient way." And, points out James Bleck, president and CEO of Bleck Design Group, "you can get a ready-made team, that can work for periods of time, and stop, and let evaluation go on." As a result, he continues, "you can gain all the continuity but you don't have to maintain that group for years and years."

Another advantage to outsourcing design and development is that the outsourcing firm may well have more experience than does the OEM. "At even large companies," says Michael Wilkinson, CEO of Paragon Innovations, "each development group may do one a year, one every few years. We do fifty to a hundred a year." This experience, adds Bleck, makes the outsourcing company more likely to spot errors, but it doesn't eliminate the need for the OEM's people to participate. "They'll understand the nuances of their own technology and their own marketplace better than us," he says."

But not all contract manufacturers are suitable, cautions Earle. Some, he says, "don't take ownership of the project and they add cost." What a contract manufacturer should be doing, he continues, "is analyzing and becoming a partner, a real partner. That's where I'm going to see the virtual company either make or break."

Regulatory Issues

Outsourcing can relieve an OEM of some burdens, but regulatory compliance certainly isn't one of them. "If you haven't continued to invest into your quality and regulatory systems," says Taylor, "and making sure that you stay on top of all your ISO registrations and move to your 13485 and continued on with all of your customer compliance, and everything that's involved with having a world-class quality and regulatory system, you're going to fall behind in a real hurry."

One key to staying ahead, he continues, is ESI (early supplier involvement), "where we get the quality and regulatory issues out on the table at a very early stage, and make sure that we have strong program management and strong quality and regulatory participation at an early stage of development."

OEMs are increasingly farming out design and development tasks to outsourcing firms. (Photo: Paragon Innovations)
 
Another way to bring some order to things, adds Earle, would be for more OEMs to become members of MDMA "to support their customers in pushing these things through, because if you leave it up to the big guys, they're going to do what's in their interest, not what's in the best interests of the industry. A lot of the OEMs say it doesn't affect them, but it does."

Outsourcing to Asia

As with other industries, medical device manufacturers are increasingly looking to China and the Asia-Pacific region as an outsourcing destination. "Very recently," says Taylor, "we've seen a huge spike in demand for healthcare products being outsourced to the Asia/Pacific region, especially into China." And one of the reasons for looking to China may be counterintuitive: speed. We have all heard about delays caused by long-distance relationships, but outsourcing to China can actually save time. To manufacture economically in the U.S. generally requires automation, and with the tight timelines facing manufacturers today, it's often faster to have products built in China, by hand. "They're able to take these products, have them manually assembled in a very short time frame, and get the product to market," says Taylor.

IP Security

Over the years there have been enough IP protection horror stories—many of them regarding China—to give anyone pause. As Bafan delicately puts it, "technologically they may not be the right fit for their IP." Yet Taylor finds it no longer a problem. "In the past . . . IP, confidentiality, etc. were all major concerns for OEMs," he says. "However, moving forward with the proper organization and working with the proper global multinational contract manufacturing company, we've addressed all those concerns."

Challenges

While the sun is shining on the outsourcing business today, there are still some challenges facing for both OEMs and outsourcing firms. Perhaps the most basic, says Wilkinson, stems from simple inexperience or ignorance on the part of the OEM. "A lot of people are saying we have a corporate mandate to outsource development, but we don't know how to do it," he says. "We don't know how to find the right partner and ask the right questions."

Solutions Online
In June, the Medical Design Technology Buyers Guide will arrive in the mail. For your convenience, however, the complete directory is also available online, where it is continually updated throughout the year with new companies and services. The following is only a sample of those companies listed on the site in the "Design Services" section.

Aubrey Group Inc.
217 Technology Dr., Suite 100
Irvine, CA, 92618-2438
www.aubreygroup.com

Contour Plastics
660 Vandeberg Rd.
Baldwin, WI, 54002
www.contour-plastics.com

Donatelle
501 County Rd. E2 Ext.
New Brighton, MN 55112
www.donatelle.net

Minnetronix Inc.
1635 Energy Park Dr.
St. Paul, MN, 55108
www.minnetronix.com

Modified Polymer Components Inc.
242 Humboldt Ct.
Sunnyvale, CA, 84089-1315
www.modifiedpolymer.com

Rolco Inc.
336 East Industrial St.
P.O. Box 8
Kasota, MN, 56050-0008
www.rolcoinc.com

SMC Ltd.
330 SMC Dr.
Somerset, WI 54025
www.smcltd.com

Smiths Medical OEM
2231 Rutherford Rd.
Carlsbad, CA 92008
www.smithsoem.com

Visit the Buyers Guide online for more information about these companies, as well as to review and research a variety of companies ready and able to fulfill a range of other medical device manufacturing needs.

Another challenge for any OEM considering outsourcing, says Earle, is to avoid throw-it-over-the-fence situations. It's vital, he says, to make sure the outsourcing company really understands what the OEM needs, and that the OEM understands how its product is really used. He cites pharmaceutical companies as an example. "They know the features and benefits of the medication, but they don't know how it's used because that's not a call point for them," he says." They don't really get into the real administration of the product: does it go through a pump, is it IV dripped, does it need to be force fed, and so forth; they leave that up to the protocol of the hospital." Going to an outsourcer—perhaps in China—he concludes, without that knowledge is not a way to get a good result. "The sales forces and marketing departments need to understand their customer more, because nobody has the complete answer."

Still another challenge, says Bafan, comes from the increasing popularity of products that use multiple technologies—for example, medical devices with wireless connectivity. Producing some of these products requires skills so disparate that one outsourcing firm may not be able to provide them all. "We're talking about multiple contracts, company sharing agreements, and coordinating all the technical aspects pertaining to technical resources and the partners," says Bafan, who advises OEMs, before moving ahead to "define their own product development process to see who they want to work with, why they're outsourcing." That said, he continues, "the outsource partner that … does validation, design, regulatory compliance, all that, would be more appropriate."

Precautions

When looking to outsource any part of a business, there is no substitute for doing one's homework: "The number one thing that an OEM should do is see how well their core competencies or their strategies or their value proposition line up with the contract manufacturer that they're going to do business with," says Taylor. "The OEM should be looking towards contract manufacturers with core competencies that would fit extremely well with the product that they're manufacturing."

View of the floor of a Class 8, 100,000 cleanroom facility. (Photo: Nypro Healthcare)
Having chosen an outsourcer, it's important to establish the right day-to-day relationship. How close should it be? "There's definitely a tendency, especially at the beginning of a project," says Wilkinson, "to micromanage and get in the middle and fly in or drive by and 'let's have a meeting' or get into the meeting mode." While this may make the OEM's people feel good, it can get in the way of progress. "We want to get work done and not do meetings," he says. On the other hand, he adds, "don't go open loop, don't leave us in the lurch, because there's obviously things about your company, your market, your product that we won't discover on our own in the limited engagement period."

Yet another precaution is the necessity "to disclose every possible cost, including contingencies for things not going as planned," says Bleck. "And I think that's always a challenge, because there's a tendency on the consultant sometimes to give an optimistic viewpoint of OK, this is what it should cost if everything goes great. And on the user side they don't want to feel that the budget is overdone."

Mistakes to Avoid

There's a wrong way to do anything, and outsourcing has its own set of common mistakes. Perhaps the biggest mistake is simply lack of communication. "In order to work together as a team, you have to have very good communication," says Taylor, "and have everybody work as a team." And the communication should begin right at the start, "where you break out a concept and then you go into your design phase," he adds.

Some companies, says Wilkinson, "wait until they've picked a processor or look and feel, major components or something, and some sort of system architecture they've already picked out, and then they outsource it, and the outsourcing partner is now left a little bit crippled, in that they lack the freedom to explore the best solution."

The next mistake is simply hiring an unsuitable outsourcing firm. "Some people can't differentiate between hiring an outside group of contractors, bringing in some contract labor, consultants, whatever, versus an outsourcing firm," says Wilkinson. "They're radically different and sometimes the differentiator is not seen." In an effort to save money, adds Bafan, some OEMs "just go for an outsourcing firm that they don't have to spend so much money on, and they're not a technological fit, they don't have the right ability, the experience that it would take to do that project."

Conclusion

Outsourcing manufacturing tasks is just the beginning; OEMs are finding that the more functions they can move to specialists, the better they do; but it's important to take each step in the outsourcing process with care and planning.

ONLINE

For additional information on the technologies and products discussed in this article, see Medical Design Technology online at www.mdtmag.com and the following websites:
  • www.nypro.com
  • www.nerac.com
  • www.bleckdesigngroup.com
  • www.paragoninnovations.com
  • www.medicaldevices.org

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