A Guide to Outsourcing High-Mix, Low-Volume Manufacturing
Following These Seven Steps to Selecting a Supplier Will Help You Gain a Trusted, Long-term Partner
Tony Allan, Jabil Circuit, Inc.
Photo courtesy of Jabil Circuit, Inc..
The outsourcing trend is understandable. Medical device companies must invest in processes to meet stringent regulatory requirements while introducing products quickly to the market. Frost & Sullivan, a US-based market-consulting firm, has reported that up to 80% of a medical device company’s profit represents products introduced in the last five years. And 50%-70% of product portfolios consist of products launched in the last three years.
At the same time, these companies must shrink operating costs and maintain high-quality standards. Further, smaller quantities and more specialized processes can create additional opportunities for error. And lower quantities demand more frequent product line changeover that can lead to the inefficient—and costly—use of equipment and labor between product runs.
By following in the footsteps of their consumer-electronics counterparts by outsourcing their production, medical device companies gain greater control of their margins. They also become more profitable by focusing on their core competencies of innovative R&D, design and service.
It’s no wonder then that outsourcing is on the rapid rise. Frost & Sullivan found that in the North America market alone, EMS companies in the device market earned revenues of $3.79 billion in 2006 and predicted that they will rise to $8.09 billion in 2013.
A Guide to Outsourcing
How to choose an EMS supplier? It’s a critical decision, because selecting a wrong one can trigger unexpected and often hefty production costs, damaging delays and, most worrisome, poor product quality that can lead to a loss of customers.
1. Clearly define your expectations. Define and document the procedures you want followed and the expected performance. Also, stipulate a system for evaluating a supplier’s work. This diligence will pay off to help ensure that the outsourced products are assembled well and delivered on time.
Select a team or committee of individuals representing manufacturing, R&D, quality assurance, regulatory affairs, finance, marketing, sales and other key areas. This critical group will handle the myriad responsibilities of preparing for outsourcing and selecting the right vendor. Since the decision to outsource has been made, the team members should commit to and be focused on selecting the very best supplier. The provider should be selected for its expertise and also its ability to work in a team, since this entire process is difficult enough without having personality clashes erupt.
The committee should decide on the critical factors it will use to judge prospective suppliers. A 2006 survey by Malvern, PA-based Thomas Medical Products found that 90% of medical device makers that outsource consider product quality by far the most important concern when selecting a supplier for engineering or production. Regulatory compliance also was critical to 78% of respondents, followed by time to market. Only after these key qualities and capabilities were met did price come into consideration.
The selection of an EMS supplier will take a lot of work and, almost certainly, require travel time to visit the manufacturers being considered. Indeed, committee members should visit a number of suppliers to determine which has the most state-of-the-art facilities and manufacturing capabilities, flexibility and attention to quality and meeting deadlines.
Management should recognize that team members can’t handle all of their regular responsibilities during this period. Unfortunately, this isn’t always the case, so the committee chairman should get management signoff on the team’s anticipated duties, the time expected to handle them and the projected budget for completing the assignment.
To guarantee product integrity, an OEM must have the best team in place to help guarantee that outcome.
2. Ensure that a prospective supplier’s technologies for product and process mirror your own. That’s why a plant tour of each prospective supplier is vital to determine if each makes products similar in complexity to yours. Since you want a long-term partner, ensure that each prospect has the technical capabilities—and flexibility—that match your strategic plan.
Employee training and stringent quality processes are critical considerations when choosing an EMS partner. Photo courtesy of Jabil Circuit, Inc.
In addition, good manufacturers will use Lean manufacturing concepts such as standardization, cross-training and the disciplines of 5S, a Japanese philosophy of workplace efficiency, to maximize flexibility.
Further, a prospective EMS company should use a fast prototyping phase that allows engineers to perfect products quickly. By using the same equipment to build prototypes as it does to make finished products, an EMS company can eliminate common production glitches that can slow time to market.
An EMS company also should offer feedback during the development process when changes are easier and less costly to implement. Some suppliers, for example, examine the prototype bills of materials to identify long-lead components so the company’s design engineers can find alternate parts and shorten build cycles.
And, of course, ask the supplier for examples of what it has done for other clients. In addition, during the inquiry, don’t hesitate to ask the prospect how it has handled certain challenges. This gives you insight into how it approaches problems and sensitive issues.
3. Since quality is the top priority, guarantee that it will remain superior at the EMS company. Determine if the EMS supplier’s quality system is sufficient for the device or devices it is producing for you. If possible, do a quick analysis to identify gaps between your and its quality systems. This is especially imperative in the testing of the final product. The supplier must be fully tested, since even a 1% failure rate is unacceptable.
A strong track record of regulatory compliance is one important quality indicator. An EMS company should provide documentation that it complies with FDA regulations and ISO certification.
Personnel is another indicator of quality, so you should expect an EMS partner to attract and retain the best people—from technicians and manufacturing engineers to business unit management. Consistent employee training should be at the heart of an EMS company’s commitment to quality.
For instance, Institute for Printed Circuits electronics industry training is essential for EMS providers, as is a cross-trained workforce to maximize flexibility. Further, determine if the EMS company uses Advanced Quality Planning to deliver expected quality rates from the start as well as Design for Manufacturability improvements.
Dig deep to determine the turnover rates and the average length of worker employment at the EMS company. A highly skilled labor force will record low turnover and high labor retention.
If the EMS company will manufacture your product in low-cost labor areas such as India or China, find out how the company monitors quality in those facilities and how manufacturing in these areas will benefit you. The supplier should set and maintain the same rigorous quality standards for all of its facilities, wherever they are located.
4. Look for a culture fit. It is vital to have a strong relationship with mutual trust with your EMS provider—the quicker you determine that can be established, the better. Both parties must be on the same page, agreeing on the goals and acknowledging that it will be a bumpy road at times. That’s why it is important to determine if you both will manage those bumps, so that you deliver a successful program. Open, honest dialogue between both of you also can help assure success. For example, determine that both you and your supplier will be open to suggestions, such as the design for product assembly. Small changes often speed production and cut costs.
5. Decide if you want a supplier that will partner with you actively as you introduce the medical device. Or, perhaps you will want the EMS company simply to build your design. Whatever you decide, you must capture the supplier’s true capabilities. That understanding will help prevent costly errors, while inefficient manufacturing can kill a product and destroy customer relationships.
Device manufacturers need to stay focused and committed to choosing the highest-quality EMS provider. Photo courtesy of Jabil Circuit, Inc.
6. Identify how a supplier ensures reliability and business continuity. For one thing, it should have 100% data duplication at a disaster-recovery site and be able to keep production flowing if one plant isn’t operating. All of an EMS company’s facilities should be tied to the same quality assurance systems and enjoy the same relationships with suppliers and distributors.
In addition, a supplier should employ an enterprise resource planning system that identifies bottlenecks and corrects them. This integrated information system should be vigorous and should let the EMS company respond quickly and efficiently to expedited schedules and misalignments.
7. Don’t buy just on price. Consider the total cost of doing business with a supplier, including variable costs and intangibles such as the culture fit between your team and its teams. Less attention is being paid today to price as OEMs become more interested in securing a partner that can offer minimal risk and top-notch efficiency.
Indeed, product developers are counseling that OEMs fight the temptation to accept the least expensive option, unless that EMS company also has the most experience and knowledge. Ask for the company’s rate of return and what percentage of product launches are on time and on budget. A very low rate of return—5% or less—is preferable, and more than 90% of product launches should be on time and within budget.
As for specific projects, most R&D specialists will provide a free cost estimate for a project and deliver a proposed plan, which can help you determine the total acquisition cost of an outsourcing project. In addition, a prospective EMS company should maintain large contracts with suppliers that allow competitive pricing that you often can’t match. Since high-mix, low-volume products often are so specialized, they require sourcing from multiple vendors around the world, and your EMS company should be adept at this.
Check to see if the EMS company has a dedicated online supplier portal that keeps all parties up to date at all times. This links to an online customer portal so that customers can check order status or get shipping information whenever they need it.
If your prospective supplier will make your products in a lower-cost labor area, undertake a thorough cost-benefit analysis, which the EMS company can help you perform.
In conclusion, consider the selection of your EMS supplier to be a process that identifies a trusted, long-term partner. Changing suppliers is expensive and painful, so it’s best to get it right the first time. A successful partnership can address the challenges of high-mix, low-volume production while also boosting productivity and reducing costs.