How to Choose An Outsourcing Partner
In Part One of this Two-part Series, Special Services Providers Discuss Key Criteria Medical Device OEMs Seek from Vendors
By Andy Teng - Editor
As outsourcing in the medical device industry undergoes rapid growth, now more than ever OEM companies must be sure they are selecting the most appropriate partners. With these relationships becoming more intimate and device manufacturers entrusting more of their products and critical internal functions to vendors, they are also risking reputation and sometimes livelihood on third parties.
There are, of course, many forms of outsourcing, and in this first of a two-part series, MPO spoke with a number of special services providers about the needs of their customers today, which have evolved significantly from just a few years ago. In the second part, contract manufacturers will discuss how manufacturing requirements have evolved as well.
In some instances, consultants are coordinating clinical trials as well as helping startup companies submit their 510(k) or PMA. In other cases, companies are taking a more active role in their customers’ day-to-day operations such as logistics. And then there are those both selling and operating equipment for their customers. Across all segments, contract service providers are entrenching themselves in customers’ operations through a wider array of services.
Looking for a Good Fit
That’s why choosing the right outsourcing partner has become a critical endeavor. With some contracts lasting 10 years or more, OEMs who fail to thoroughly evaluate a provider could potentially lose not only money but even more precious time. Having products delayed because a sterilization house botches a batch or if a testing lab contaminates samples can throw product delivery off for days if not weeks. Worse yet, a poorly designed clinical study could potentially delay a company’s new product rollout by months if not years. With so much at stake, it’s easy to see why a robust vetting process is a necessity for any company considering outsourcing these days.
Melissa Mazzoni, the director of clinical and regulatory affairs for Westport, CT-based Interventional Therapies LLC and Vivatone Hearing Systems, which are owned by the same investment group, oversees her company’s clinical studies outsourced to contract research organizations (CROs). She said choosing the right partners is extremely critical because they play an integral part of new product development—the key to revenue growth—especially for companies such as Interventional Therapies, which makes cardiovascular products, and Vivatone, a maker of hearing devices. Mazzoni added that OEMs need to thoroughly question potential vendors in addition to checking references, evaluating staff knowledge and taking other steps to ensure a good fit.
“I want to know what type of products they work on, what type of data management system they work on and how many people will work on the project,” she said, pointing out that her companies’ projects can span as much as five years. Because of the lengthy nature of some projects, she said, it’s critical to make the right choice.
One of the CROs that Mazzoni has worked with for many years is North Attleboro, MA-based Medical Device Consultants, Inc. (MDCI), a well-known clinical, regulatory and compliance medical device firm. While Interventional Therapies has also employed services from larger firms, she rejects the notion that large firms make for better outsourcing partners. She said that smaller firms such as MDCI tend to provide better service and is more accessible than larger counterparts.
“I’ve found that in the past, with larger CROs, it’s difficult for them to devote a lot of time to you,” she said. “You’ll schedule maybe twice-a-month phone calls, but sometimes you need more than that. And they’ll say ‘I can’t do that until Thursday.’ With MDCI, they work on the project as if it’s their own device.”
Working with ’Partners’ and not Suppliers
And that may be one of the keys to a successful outsourcing partnerships: ownership. In the services sector of medical device outsourcing, contracting with firms that feel they have ownership of a project typically leads to more attentiveness, some providers point out. Moreover, OEM companies that truly adopt a partnership mentality by openly sharing information, communicating expectations and offering flexibility to their service providers can expect the same or more in return. Instead of viewing vendors as just that—a supplier—medical device manufacturers who closely involve outsourcing partners in everyday activities experience fewer surprises, according to some of those companies.
The key is “communications and feeling like an internal part of the same team and part of the same P&L,” said Dennis Nevins, vice president of global sales and marketing for Northwood, OH-based NAMSA, a well-established contract testing lab. “What they [OEMs] expect from us is to be as much a part of their organization as we can be.”
Nevins said OEMs these days want outsourced partners to essentially act as an extension of their internal operations. Whether that means developing new technology, deciphering regulatory requirements or looking for process and cost improvements, these value-added activities are quickly becoming an expected part of doing business.
He cited one multi-billion-dollar medical OEM customer that NAMSA works with as an example of the partnership approach. The testing lab wanted so much to reassure the customer and to provide transparency into NAMSA’s own operations that it offered to house one of the OEM’s employees at one of NAMSA’s facilities.
Nevins said the offer was to help the OEM better manage the risk of outsourcing, an unavoidable by-product of going outside the organization. Because outsourcing champions in any organization are taking on risks—both for the organization and on a personal career level—they are looking for the partners to help manage some of those risks and provide bullet-proof contingency plans.
“One of the major stumbling blocks [to acceptance of outsourcing] is the fear of losing control or the assumption of too much risk,” Nevins added. “How far can we go to reduce those risks? If we can reduce it enough, then they can say that one is manageable. [They] look at our ability to deal with emergency situations, our staying power, our disaster recovery and security plan. They expect us to have systems that closely approach their own.”
Indeed, as part of any due diligence plan, OEMs need to ask probing questions about contingency plans, especially if an outsourcing provider handles a critical or time-sensitive line of products. In services such as contract testing or sterilization, providers must have a back-up plan in case a chamber goes down or if analysis equipment fails. With recent events showing the extent to which natural disasters can disrupt businesses, OEMs must have fallback plans in place.
Yet this flies in the face of vendor consolidation across the industry. Even as they try to minimize redundancy to cut costs, medical device manufacturers are stepping up the pressure on remaining vendors to build in redundancy on their end so that if a shutdown occurs at one facility, customers’ products can be quickly shifted to another location.
That was the scenario that recently unfolded at La Jolla, CA-based BeamOne’s Denver facility. When the electron beam sterilization house’s plant went offline, it quickly rerouted products to its sites in San Diego and to Lima, OH. CEO Ray Calhoun said all outsourcing partners will experience unexpected outages, but the critical question is how will they deal with them.
“One of the things we do in San Diego is we have two systems, and that’s a good strategy for large markets,” Calhoun said, adding that the company also has stepped up its customer service program to more actively keep clients informed about any problems at its facilities.
Calhoun also noted that stoppages don’t occur only at the outsourcing partner’s facilities—sometimes deliveries aren’t made in time or a customer has run out of resin and has to stop production. In those instances, he added, the outsourcing partner must be flexible to accommodate unforeseen problems and help the customer resume normal delivery cycles.
One hallmark of outstanding outsourcing services is a provider’s willingness to go beyond what’s stipulated in the contract. Intangibles play a significant factor in ensuring a successful partnership, some providers point out. One area of support many OEMs are paying attention to these days is in logistics. There are many third-party providers to whom medical device manufacturers are turning, but other suppliers have also stepped in to take a leading role.
For instance, Nelson Labs in Salt Lake City is increasingly helping its customers track projects. The contract testing lab has added a client services group that ensures samples are delivered on time, schedules are adhered to and customers are notified of any problems. By handing off many tasks that were performed by staff members to an outsourcing partner, OEMs can reduce workloads and focus on their primary mission.
“They really want to streamline things,” John Bolinder, the sales manager of Nelson Labs, said, pointing that even in an outsourced relationship, OEMs must still keep in close contact with their providers.
“It used to be that they could just send samples and you didn’t know who they were,” he said. “Today, that’s different. Relationships really dominate how the work gets done.”
Indeed, it is only through stronger relationships that service providers and their medical device customers can shift workloads from customer to outsourcing partner. For instance, relying on a sterilization house to ensure that products are delivered from chamber to hospital would have been unheard of years ago, but today they are doing just that. Many sterilization houses have strategically located facilities so OEMs’ products are closer to distribution points and end users, regardless if they are located in the U.S. or abroad. In addition, sterilizers help to coordinate all logistics for timely deliveries.
“The number of physical locations that you have does gives them [OEMs] more flexibility...so that once the product is ready to ship, it gives the manufacturing company flexibility to go to Europe or South America,” said Jack Fitzpatrick, the director of business development at Oak Brook, IL-based Sterigenics.
He said that large OEM customers have for some time expected their sterilization service providers to offer logistics support, but that demand is likely to spread throughout the ranks as others realize they can off-load this responsibility.
When it comes to choosing sterilization partners, some medical device manufacturers put location above almost everything else. Having sterilization services near a company’s plant is invaluable, and often times OEMs will choose even a poor sterilization partner as long as its plants are nearby and that products are processed according to specs. This tends to help smaller providers, said Thad Wroblewski, director of sales, eastern area, for STERIS, Isomedix Services in Mentor, OH. He noted that geographic location is a top priority, but there are other criteria in selecting a sterilization house. STERIS, which offers EtO, gamma and EB processes, said customers want to know whether a company is stable, has multiple locations and can grow as their needs grow.
“Stability is very important in contract sterilization. The Tycos and Cardinals (Health) need someone for the long term,” he said, adding that meeting international demand will become important as well. “One of the big questions that has come to me from top management of these companies is ‘How strong are the [suppliers] and will they be able to expand the way we’d like them to expand?’”
Indeed, the stability of a service provider is usually considered along with other characteristics such as reputation, technical experience and available manpower during the due diligence process. But beyond an initial superficial evaluation, OEMs are digging deeper into their outsourcing partner’s business. In fact, audits are much more thorough as customers look for any hints of potential problems down the road.
The locations of sterilization facilities are a key consideration when outsourcing to contract sterilizers. Above, a worker loads products to be sterilized at STERIS Isomedix Services’ San Diego facility. Photo courtesy of STERIS.
Raven, a manufacturer of biological indicators and provider of contract testing services, said one reason that OEMs are more attentive to audits is their efforts to improve quality. Increasingly, the company is being held to standards such as GMP, even though it doesn’t manufacture drugs or medical devices. Despite mounting pressure from customers to continually improve product quality and service, Dwyer said he understands his customers’ dilemma.
“I think it’s difficult for end product manufacturers to elevate themselves and not expect suppliers to do the same,” he added.
Nelson Labs’ Bolinder added that some customers don’t perform audits but prefer “informal meetings and what-if sessions.” In these meetings, OEMs probe Nelson about its contingency plans, how the business operates and what assurances can be given. Customers also want to know about results of any FDA audits (Bolinder said he was happy to report that agency workers made no observations at its last inspection) whether the company participates in standards committee and how long it takes to process orders. Questions of quality service are being asked less often because it’s assumed that well-established outsourced service providers have upstanding quality programs; otherwise, they wouldn’t be in business.
Although Bolinder said these probing meetings help to form stronger partnerships because they eliminate surprises in the relationships, customers can also be overly prying at times because Nelson, a privately held company, must be guarded about the type of information it can disclose.
A Bunch of Intangibles
Reviewing contingency plans, checking references and conducting thorough audits are all steps that an OEM should take when outsourcing, but what some companies fail to consider are the small touches that a partner may or may not bring to the table. For instance, does the consultant or service provider work within a larger support network that he can call on for help? Is he capable of clearly defining the scope and responsibilities of a project? Are continuous cost improvements a goal of the provider? Can he offer data easily integrated into the OEM’s own IT system? What are the migration plans to upgrade technologies and business processes?
Brent Noblitt, a principal at regulatory consulting firm Noblitt and Rueland in Irvine, CA, said when his firm conducts audits of medical device companies, he finds that some overlook the fact that they must include information about the consultants employed in product development. “That’s something the FDA will focus in on,” he pointed out.
While outsourcing might be the answer for some medical device companies seeking to supplement their knowledge, improve quality or simply add capacity, it is not without its share of legwork. OEMs must still diligently seek out and qualify the right candidates to ensure the outsourcing experience is a positive one.
In the November/December issue of MPO, Part II will examine the characteristics of a successful outsourced manufacturing relationship.