Upstream and Downstream
Contract packaging suppliers go beyond their traditional role as they become trusted problem solvers for the medical device industry
By Jennifer Whitney, Editor
Photo courtesy of Quality Tech Services.
The good news is, contract packaging service providers and suppliers of materials are well prepared to overcome these challenges for their customers. Whether they serve as a niche provider of packaging materials or a contract manufacturer that offers packaging in its service continuum, these outsourcing experts have studied the specific needs of medical device companies and are achieving steady growth by providing solutions to their dilemmas.
Recent research supports the contention that the packaging industry is set for continued growth. The North American medical device packaging market, for example, earned revenues of $569 million in 2006 and will continue to prosper in years to come, with predicted revenues of $919 million by 2013, according to a 2007 report from research firm Frost & Sullivan.
Indeed, the overall increase in outsourcing among OEMs has benefited packaging providers, who have found that device firms are focusing less on their non-core competencies and, instead, are relying more on their contractors and suppliers to identify and implement innovative approaches to packaging today.
“Customers are looking for a supplier that can partner with them and provide value-added services beyond simply providing materials—that is, extensive technical support and help with regulatory compliance issues,” explained Kevin Zacharias, engineering program manager for Oliver Medical, a Grand Rapids, MI-based provider of sterile-grade medical packaging materials. “They’ve got all these hurdles they have to get over, and they’re looking to suppliers to help them do that. We have the ability to sit down and discuss those hurdles and help them through that process.”
A More Engaging Role
It’s this recognition of the value a packaging partner can offer in meeting regulatory and cost requirements that has changed the nature of relationships between OEMs and their packaging provider. In previous years when Medical Product Outsourcing tracked trends in the packaging industry, contract service providers commonly complained about OEMs’ lack of foresight in approaching packaging vendors early in the device development process—an oversight that often cost device manufacturers (and sometimes the supplier) extra time and money. As comfort with outsourcing has increased—and as packaging providers have studied challenges facing the device market and rolled out new products and services—the nature of these partnerships has changed, according to packaging experts who recently spoke with MPO.
The largest trend now appears to be an inclination toward providers of packaging being asked to serve more as a project manager rather than merely a component provider.
“All sterile packaging material suppliers have strongly encouraged their medical device partners to get involved early in the product design phase, [and] most of the larger OEMs are recognizing the need to bring in their packaging supply partners as early as possible in the process,” said Ed Haedt, vice president of marketing for Perfecseal (a Bemis company), a global medical packaging manufacturer based in Oshkosh, WI.
As a result, packaging suppliers find themselves on many points along the value chain as they work earlier on design schemes while coordinating ancillary services such as sterilization, order fulfillment and inventory management.
“I think getting pulled upstream and downstream is fueling more collaboration, as we can educate customers on what they should do or even what they don’t have to do,” said Bob Lord, sales and marketing director for Quality Tech Services, Inc. (QTS), an Edina, MN-based provider of packaging solutions. “Flexibility and responsiveness are what [OEMs] are after, and we’ll work with them to make a project successful.”
As OEMs look for additional stronger materials that offer value, contract packagers are offering a host of options. For example, Perfecseal HP-EZ Peelä, a high-performance, peelable top web, is used in demanding, high-speed form, fill and seal applications. Photo courtesy of Perfecseal.
“Ten to 15 years ago, it was much easier to make changes in packaging materials. The qualification process was much less painful. People are more risk averse today than they were 10 years ago, though,” Zacharias explained. “ISO 11607 has definitely gotten a lot of buzz in the industry as people are trying to understand if they’re in compliance,” he said.
As outsourcing grows, so do concerns about validation. OEMs may be convinced of the value external relationships bring to their bottom lines, but some of these manufacturers initially worry that shifting production will cost time and money that may be better spent elsewhere. This fear usually is unfounded if the right partner is selected, packaging experts noted.
“In some cases, we may be able to prove equivalency and reduce some of the time and cost for revalidation. With our understanding of regulatory, design and validation, we feel we can get downstream faster,” Lord said.
That certainly can help from a cost-containment perspective. Next to regulatory compliance, cost reductions in packaging—especially for mature products—are of greatest interest to OEMs right now.
“A major part of our new product development is not geared toward new markets but toward redesigning more mature products to take cost out. We have committed to a strong investment in R&D to do this,” Haedt reported. “The industry is looking more at the total packaging cost when deciding on the best materials and systems to use. Total costs include sterilization costs, defect costs, validation costs and product damage. Packaging materials have high value if they allow for faster sterilization cycle times, have no manufacturing defects, are easy to validate and ultimately protect the product throughout the product lifecycle.”
New Service Offerings Provide Value
To be sure, service providers are exploring new materials, tighter tolerances and other aspects of package engineering. But they also are offering a host of other solutions to keep costs down not just in the packaging realm, but also in the overall device lifecycle.
Oliver Medical, for example, has made a concerted effort in the past couple of years to hire engineers from the medical device industry. This strategy has helped foster better communication with clients and strengthened the company’s in-depth knowledge about the unique challenges facing device manufacturers today, according to Zacharias, who previously worked for Baxter Healthcare as manager of packaging development before joining Oliver Medical.
These professionals have served customers well as Oliver Medical introduced its OnSite Package Engineering program in spring 2007. Through this program, which won Converting magazine’s 2007 Innovator Award for Customer Focus, Oliver Medical’s engineers (and other staff) work with clients at their own sites to advise them on sourcing equipment and materials, writing protocols, coordinating testing and generally guiding them through the packaging material qualification process.
In addition, Oliver Medical is bringing value to the table in the form of conducting more front-end research on user attitudes toward packaging. “We’re moving more to end users and getting into hospital settings to get a broader look at how our products are being used,” Zacharias said. “Packaging engineers at the medical device manufacturer may not be talking directly to doctors and nurses. So if you think about it, we’re twice removed from the end user. Therefore, it’s important for us to get involved with focus groups from the true end users.”
Other companies such as Tapemark, a West St. Paul, MN-based specialty contract manufacturer entrenched in the medical device, pharmaceutical and consumer industries, have enhanced their vertically integrated business models by focusing on Lean manufacturing initiatives. For example, Tapemark offers some customers the option of holding 3P Kaizen events. At a Kaizen event, owners and operators of a process gather to make improvements to that process. Many Lean experts view 3P—which stands for “Production, Preparation, Process”—as one of the most powerful manufacturing tools, since it helps eliminate waste through product and process design.
The results are tangible. For one project, Tapemark worked the 3P process around a continuous inline approach to making the product and packaging it for a customer, according to Tom Yetter, Tapemark’s vice president of research and development. “We not only met the objectives set by the customer, we blew them out of the water,” he said, adding that the final cost was 35% below the original target. “Rather than having only maybe 15 minutes of development time, it’s an excellent value to hit the ground running. It forces them to be a little more proactive, and I think they see the benefit of this kind of planning tool,” he concluded.
OraTech, a Salt Lake City, UT-based private-label manufacturer of medical and dental products, similarly operates under the principles of Lean. As a vertically integrated provider of a wide range of services including contract packaging, the company has looked beyond the packaging stage to identify additional opportunities for cost savings. “Generating an innovative design is only half the project,” said Mike Anderson,
OraTech’s medical packaging manager. “Production and storage also have to be considered.” Therefore, OraTech offers a Just-in-Time program, which allows the company to more accurately forecast a customer’s product volume and plan accordingly. “We establish purchase orders, which deliver decreased cost based on higher volumes and provide the opportunity for OraTech to plan, store and deliver to fulfill the customer’s needs,” Anderson said.
Along with saving money, this program saves time. Ranked nearly as high as regulatory compliance and cost containment, lead time continues to be a top concern for medical device OEMs.
“We’ve found that a lot of projects are being shelved right now [by OEMs] because the turnaround times they’re getting from vendors are not good enough to meet deadlines. If the customer has to wait weeks or months between physical packaging samples, it can cost them their ability to reach the market first,” Anderson said.
Given its in-house engineering, machining and rapid prototyping capabilities, OraTech has been able to respond quickly to customer demands. “In most cases, we can turn out customers’ projects from concept to samples within two weeks,” Anderson reported.
Tapemark also has been able to leverage its vertical integration to achieve tighter timelines. And if the company’s extensive range of services doesn’t cover any aspect of a customer’s project, Tapemark—like many other packaging firms—has cultivated a trusted network of qualified suppliers to fill in any gaps. “We’re constantly looking to suppliers in industries that have unique chemistries, technologies, graphics [etc.]… and we want to bring them to our customers,” said Julie Karlson, Tapemark’s marketing manager. “We’re looking to work with packaging suppliers that not only have the prowess to give us performance, but also are nimble and flexible about planning.”
The relationship goes both ways. Perfecseal has found that the wisest niche providers maintain relationships across the entire outsourcing spectrum of suppliers. As Haedt noted: “It is very critical to not only have an effective relationship with OEMs, but we also need to have great relationships with contract manufacturers. The two groups have very similar needs and requirements, but there are some differences. We work hard to support the needs of both parties.”
As medical device manufacturers continue to churn out a slew of new products every year, contract packagers will have wide opportunities to capture larger shares of the market—especially those companies that already have proven their dedication to becoming champions of the healthcare industry. The growth projections cited in Frost & Sullivan’s medical device packaging report reinforces this notion.
“We are very upbeat and excited about the future,” Lord said, with a good reason. QTS has seen its business—and that of its customers—grow so much in recent years that in June, the company is moving to a new facility that will offer enhanced capabilities and much more space than its current facility.
A new facility also is in the works for OraTech. Jeremy Thomas, director of business development, said the new facility, which should be completed later this year, will feature an additional 200,000 square feet (the current facility is 275,000 square feet). Along with new machinery, the operation will house clean rooms ranging from Class 10,000 to Class 100,000, as well as an aseptic area.
Surely, all of the players in the packaging market will face challenges in times to come—isn’t that the fate of any industry? But in the case of packaging experts, they have proven they already know how to swim both upstream and downstream for their customers and surely will be able to navigate any choppy water along the way.
What’s in That Box? Trends to Watch
The most successful providers of packaging services and materials often are those that are able to spot trends and develop a comprehensive understanding of how they will impact packaging needs down the line. For example, the medical device industry is well versed about the opportunities (and challenges) combination products present in terms of packaging. Some other products also are generating new conversations with packaging providers.
Electronics. In the digital age, many device manufacturers are looking to develop products containing electronic components. Not only do these products need packaging that meet FDA requirements and, often, international standards, the provider also needs to guarantee that the device will be secured in place during shipment, according to Mike Anderson, medical packaging manager for OraTech, a private-label medical and dental manufacturer based in Salt Lake City, UT.
Quality Tech Services, Inc. (QTS), an Edina, MN-based medical assembly and contract packaging supplier, already has seen a spike in requests for help with the packaging of electronics and expects them to proliferate as the technology grows more complex. Doug Wilder, president and CEO of QTS, believes many companies also are looking for help with lowering costs—particularly as China, a major producer of electronic components, has passed on slight increases in its prices for products and services as well as labor costs over the past year. This has generated an increased demand for quotations on electronic assemblies requiring grounding, he added.
Furthermore, Wilder said the revolution of lithium ion technologies has led more companies to request solutions for sterilization challenges associated with rechargeable instruments.
Disposables. Although disposable products certainly aren’t new to the market, companies such as Tapemark, a West St. Paul, MN-based contract manufacturer specializing in medical device pharmaceutical and consumer products, have found that they are growing in popularity. Recent research from Frost & Sullivan indicates that the disposable device market will grow 23% over the next few years.
In this device category, the home-care product segment is rolling out new products every day. As a result, “We are hearing more and more from customers that they’re looking for unique package designs that facilitate a single-use format,” said Tom Yetter, vice president of research and development for Tapemark. “It extends the number of SKUs a customer has and increases margins because people are willing to pay more for convenience.”
Diagnostic devices, such as pregnancy indicators, HIV tests or those that tell parents whether their child is a drug abuser, contain reagents that present packaging challenges for OEMs. Packaging for these products must ensure stability and protection, or the reagent could be compromised and render the device useless.
RFID technology. Increased regulations and threats of counterfeiting (particularly in Asian markets) have made radio frequency identification (RFID) a hot topic lately. Although the use of RFID is still in its infancy, a research report from Kalorama indicates that adoption of this technology is expected to increase significantly. The RFID market for the US healthcare industry was valued at about $300 million in 2007 and is forecasted to reach $3.1 billion by 2012.
“People are trying to probe and understand what it can do for them, but cost implications are keeping many people away for now,” said Kevin Zacharias, engineering program manager for Oliver Medical, a Grand Rapids, MI-based provider of sterile-grade medical packaging materials. “It’s one of the things people are curious about, though.”