Taking Your Outsourcing Strategy Beyond Manufacturing Processes
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 Multiple FunctionsIf 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) |
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 IssuesOutsourcing 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) |
Outsourcing to AsiaAs 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 SecurityOver the years there have been enough IP protection horror storiesmany of them regarding Chinato 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."
ChallengesWhile 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
660 Vandeberg Rd.
Baldwin, WI, 54002
501 County Rd. E2 Ext.
New Brighton, MN 55112
1635 Energy Park Dr.
St. Paul, MN, 55108
Modified Polymer Components Inc.
242 Humboldt Ct.
Sunnyvale, CA, 84089-1315
336 East Industrial St.
P.O. Box 8
Kasota, MN, 56050-0008
330 SMC Dr.
Somerset, WI 54025
Smiths Medical OEM
2231 Rutherford Rd.
Carlsbad, CA 92008
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.
Still another challenge, says Bafan, comes from the increasing popularity of products that use multiple technologiesfor 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."
PrecautionsWhen 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) |
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 AvoidThere'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."