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Innovation Today Isn’t Only About Building a Better Product

Fri, 11/01/2013 - 2:35pm
Kevin Walsh, VP and GM, Celestica HealthTech and Automated Manufacturing Services

Kevin Walsh, VP and GM, for Celestica HealthTech and Automated Manufacturing Services, was a part of the staff written article, “Not All Contract Manufacturers Are Created Equal.” He took time to present a full array of responses that were not able to be included in the article, so they are presented here.

Q: What are the primary reasons an OEM will seek out a contract manufacturer?
Walsh: The driving factor is global demand for innovative and affordable medical products. This has been fueled by an aging population in most developed countries and massive growth in the urban centres of the developed world.

For medical device companies, innovation no longer means simply creating a better product than your competitors. It’s about building a comprehensive business model that covers every aspect of a product’s life cycle. That means being innovative in design practices, manufacturing processes, regulatory submissions, distribution chain and after-market services and support capabilities.

A medical device OEM cannot be an expert in all of these fields without diverting their attention away from innovation and new product development. By outsourcing manufacturing, sustaining engineering functions, and even some R&D work, medical device OEMs can maintain their strategic focus, operating flexibility and cost effectiveness.

Medical device manufacturers need expertise and scale in these areas, which means many lessons learned from other industries – particularly the consumer electronics sector – can and should be applied to medical device manufacturing. OEMs should leverage their strategic partner’s cross-industry knowledge and scale.

Q: How do medical device contract manufacturers stand out from their competition?
Walsh: There is no substitute for experience, which includes both healthcare-specific and cross-industry expertise. Not only should medical device OEMs ensure their partners can demonstrate experience in helping medical device and consumer electronics firms with manufacturing and operational processes, but also with regulatory issues.

While supply chain logistics are becoming more complex, regulatory scrutiny is increasing as well. In the US, the FDA is already demanding more transparency in its product reviews processes. For medical device OEMs, a strategic partner that has been able to demonstrate competency in regulatory affairs is an absolute necessity.

For companies doing business outside the US, the regulatory pressures are mounting as the medical device industry inches closer to July 2014.

Next summer, medical device companies looking to sell their products in Europe will have to comply with the Restriction of Hazardous Substances (RoHS) directive – which mandates OEMs to remove a number of hazardous materials from the products they produce. The consumer electronics industry has already been regulated to comply with this legislation, so medical device OEMs have much to gain by working with a strategic partner that has proven global experience in RoHS implementation.

Q: Are there still concerns from the OEM regarding IP when working with a contract manufacturer?
Walsh: IP, and the protection of it, is very important for all OEMs. This is something that needs to be taken very seriously by a strategic partner.

Experience in dealing with OEMs across a variety of industries will ensure that numerous policies for the protection of an OEM’s IP will already be in place. This can be ensured by comprehensive, solid contracts that are put into place at the onset of the relationship – referencing the particular requirements of the OEM and their IP.

When a strategic partner is manufacturing products that may be in direct competition with each other, segregation into different buildings will be necessary. This segregation may also extend to manufacturing the products in different locations globally and utilizing different engineering teams. Particular care also needs to be taken with customer visits and site tours to ensure that this is no risk to IP for the OEM.

Q: How has the OEM/CM relationship changed in the medical device manufacturing industry over the past five to ten years?
Walsh: As a result of greater global demand for medical device innovations, the medical device manufacturing industry has become more integrated with contract manufacturers over the last few years.

Factors such as the rising cost of labour in the developed world and the pressure to reduce healthcare expenses are motivating medical device OEMs to improve efficiencies, particularly in R&D and manufacturing costs. Emerging markets have also presented new opportunities for medical device companies.

A strategic partner should ideally work as an extension of a medical device OEM’s in-house team, which means they will have to share similarities in the way they do business. We would encourage medical device manufacturers to compare their technological and engineering knowledge to determine how the partner’s skills will complement their existing strengths.

For those OEMs looking to get their foot on the ground in overseas markets and invest more money in innovation for their complete product portfolio, offloading some of their operations to a strategic partner has become common.

Q: What misconceptions do OEMs have in working with a contract manufacturer?
Walsh: As medical device OEMs have shifted away from the multiple vendor approach to outsourcing to single outsourcing partnerships, OEMs might fear that they have less transparency or control over their projects and operations.

To alleviate these concerns, it is important for OEMs to stay proactive and manage their partnership.

Medical device OEMs that build a small team devoted to managing the strategic partnership is one best practice that is common across our many successful partnerships. This team can create mutual strategic goals for the project, monitor the status of these outcomes and flag potential issues that arise as the program rolls out.

Q: How do you ensure clear lines of communication with a partner OEM?
Walsh: You need to get to know your strategic partner. This might include auditing their infrastructure and resources, conducting interviews with their support staff or ensuring they have quality and manufacturing engineers.

Once this work is complete the ability to build a mutually beneficial relationship will become more natural. Medical device companies and their strategic partners should measure their performance together, set clear partnership goal objectives and share best practices throughout both organizations.

Additionally, OEMs should ensure their strategic partner is bringing skills to the table that will complement its organization’s core competencies. Both organizations need to develop solutions that align their strengths.

Q: How do you earn the trust of an OEM who has been “burned” by another contract manufacturer?
Walsh: Identifying the right partner will be the cornerstone to a successful long-term relationship. This is true across any industry and will go a long way to a great strategic partnership.

In a recent partnership Celestica formed with an OEM, we led a change management process that resulted in immediate returns by leveraging our global supply chain footprint. The OEM needed to transfer its manufacturing activities from the United States to Asia, but at the time, all of its components were sourced in the U.S. Rather than transferring the components overseas, the OEM worked with Celestica to audit and secure local component vendors and ultimately, transform their supply chain.

We also work to gain the trust of the entire organization’s workforce. For example, Celestica has developed educational tools specifically for an OEM’s internal management, executives and field personnel. These were designed to provide OEMs and their workforce with a better understanding of the company’s global manufacturing, physical logistics and day-to-day operations.

Q: How can a contract manufacturer be a valuable ally when it comes to the validation process for a medical device?
Walsh: From a validation and technological standpoint, regulatory compliance and quality requirements continue to drive higher standards in the medical device industry. Thus, OEMs should partner with contractors that have invested in their people, facilities and equipment to meet these standards.

The right contract manufacturer trains its staff to ensure that industry standards are followed without exception.

The FDA expects medical device OEMs to exercise a high level of process control whether their products are manufactured in-house or outsourced. Process validation is a methodology that manufacturers use to provide objective evidence that a process consistently results in a product or outcome that meets specifications. A reliable, validated process produces increased yields and ultimately impacts the quality of the finished product.

For these reasons, the FDA requires manufacturers of medical devices to perform process validation on any process associated with the finished product. Every responsible strategic partner, whether they produce finished medical devices or just supply components to the medical device industry, must demonstrate that all their internal processes are optimized and controlled.

Q: Any thoughts/comments on contract manufacturing or another related area that you would like to share with medical device manufacturers to aid them?
Walsh: Medical device companies rely on strategic partners to help them develop innovative and customized solutions, streamline their supply chain operations, improve time-to-market and save costs while doing it.

When choosing a strategic partner, medical device OEMs should look for a firm with significant experience servicing different industry sectors. They should be able to demonstrate how they’ve helped bring innovative devices to the market efficiently and cost-effectively. And finally, they should work as an extension of a medical device OEM’s in-house manufacturing team; complementing their existing strengths wherever possible.

OEMs that are able to fine tune their business model to respond to changes quickly and effectively focus on innovation have the best chance to succeed.

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