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Contract Manufacturing Revisited

Tue, 03/11/2014 - 5:01pm
Sean Fenske, Editor-in-Chief

Contract manufacturing has come a long way in terms of acceptance within the medical device industry. Not all that long ago (perhaps 10 to 15 years ago), OEMs were still quite cautious about the prospect of outsourcing processes or devices to third-party firms. Concerns over IP protection, quality control, regulatory adherence, and other factors were primary reasons among those who still resisted this manufacturing option. Fortunately, many have come to see the benefits of what contract manufacturing offers to the medical device industry and that while it’s not a bad idea to keep those concerns in mind, they should not prevent taking advantage of this opportunity.

Benefits
One of the major benefits that contract manufacturers offer is the fact that they specialize in manufacturing. A medical device company may maintain core competencies in the actual technology that “powers” their device. But the process of moving that technology into an enclosure with the necessary accessories around it may be well outside of their capabilities. Working with a contract manufacturer to make that happen in the most effective, cost efficient, and timely fashion can only aid the OEM in getting a product to market.

Steve Heckman“Generally, the entire focus of the contract manufacturer is manufacturing, compared to the OEM, where manufacturing of the device is simply a means-to-an-end,” explains Steve Heckman, Sr. R&D Engineer at Plastics One. “In our case, we have extensive experience with injection molding. Everything we build, in one way or another, revolves around that. Very few OEMs would have the specialized experience we possess. Thus, we can leverage each other’s strengths into the best product possible.”

John WhynottWhen discussing the benefits of working with a contract manufacturer over doing all the necessary tasks in-house, John Whynott, Technical Product Manager at Mikrotech said, “It allows medical device companies to place all their available resources on sustaining competitive advantages. It also allows them to purchase components and subassemblies with higher quality at a lower delivered cost. Others benefits include not needing to purchase, maintain, and replace expensive equipment and hiring and training specialized labor.”

Reshoring
Another aspect of contract manufacturing that makes it appealing in the medical device space is the realization that “outsourcing” does not automatically mean shipping product overseas where control is somewhat relinquished (depending on the manufacturing partner). The reshoring effort, while slow, is being witnessed by those in the industry. Factors such as increasing costs in previously low cost regions, rising transportation expenses, and stringent regulatory requirements are all playing a role in manufacturing returning to the U.S.

Trisha Mowry“Yes, we are seeing the trend that more and more the difficulties found in dealing with off-shore manufacturing (i.e., delays, quality, communications, and expectations) have resulted in a shift back to the US. It is slow, and there is still the balance of cost vs. expectation that is in a tipping point discussion,” observes Trisha Mowry, CEO of Metal Craft.

While also witnessing the reshoring trend, Heckman views it as an extremely slow process that will take many years to occur. “As costs in China rise, there has been some products returning to the U.S. We will not see a wholesale return for at least a generation, until wages rise in some of the other low-cost countries, such as Vietnam.”

Offering a slight twist on the reshoring trend, Chetan Patel, President and Founder of SMC Ltd., provides insight on how manufacturing for a global community is playing a part. “Instead of re-shoring, we are seeing a trend where OEMs desire to manufacture products closer to the markets/countries [in which] they are going to be distributed. So in general, in-shoring products being manufactured inside the United States, or very close to the United States, for the U.S. market and products for China or India to be manufactured in their respective countries.”

Final Thought
In closing, each participant in this roundtable had a final comment they wanted to share with the industry on contract manufacturing in the medical device space. Since each took on a unique perspective, it makes for an interesting outlook on a number of truly important factors to consider in the OEM/contract manufacturer relationship and where improvements could be made.

“I would recommend medical device manufacturers not outsource an entire medical device to a contract manufacturer. Many of the benefits of moving labor and manufacturing could be short term, erode over time, and be detrimental to the long [term] growth of the company,” urged Whynott. “Manufacturers may be losing a key aspect of their business: a sustaining competitive advantage. There are a number of ways to reduce costs and still retain sustaining competitive advantages. One alternative is to find or develop new manufacturing technologies that reduce or eliminate labor-intensive manufacturing operations.”

As a reminder to OEMs who may introduce manufacturing partners to a project later than they should in the development of a new device, Mowry explained, “Engaging contract manufacturers earlier in the process will yield improved performance, better manufacturability solutions, reduced costs, and reduced time to market.”

Patel expanded on Mowry’s point, “The best approach from an OEM perspective in using contract manufacturers is if the contract manufacturer can become an extension of the OEM so that they are involved early on in the program. This would be utopia. The contract manufacturer has enough horsepower to help all the way from DFM to lean manufacturing methodologies, procurement, and supply chain management to be worked out early in the program. By doing that, the power of those companies working together will help avoid some of the pitfalls of working with a CM.”

Heckman perhaps offered the best point when it comes to working with a contract manufacturer, “A trusted contract manufacturer becomes a true partner. As a contract manufacturer, I sell nothing if you sell nothing. Your success is my success. It is that simple.”

Full Responses
To see the full responses of the participants, view these links:

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