Embracing Change, Seizing Opportunity
In the face of market uncertainty, Tony Mulone, head of Covidien’s Custom Product Solutions division, sees opportunity—for his company and for industry.
Some would say that it perhaps isn’t as much about how you handle the good times, but how you respond to life’s challenges that makes the difference. It’s not hyperbole to say that the current
Tony Mulone, head of Covidien’s Custom Product Solutions division.
MPO: Covidien is such a diverse company. How has the OEM division set itself apart within the company? At the same time, how have you drawn on Covidien’s strengths as a global medical device manufacturer?
Tony Mulone: We are fortunate that Covidien’s senior management recognizes and supports our business model to sell specifically to other medical device and pharmaceutical companies. They provide us the autonomy needed to support our business, and, at the same time, provide the necessary resources and infrastructure. We’re actually in the process of changing our name from OEM to Custom Product Solutions. We feel the new name best describes what we are trying to do in the outsourcing space—drawing on the breadth of our core competencies to deliver high-quality custom products to support our customers’ growth. It is a way for us to market our expertise to our customers without limiting ourselves to only being an OEM supplier.
Through us, our customers have access to Covidien’s diverse manufacturing capabilities, raw material acquisition ex-perience, VMI [Vendor Managed Inventory], utilization of a product development proc-ess from DFSS [Design for Six Sigma] to lean manufacturing, tenured Six Sigma Black Belt engineers with hands-on experience, onsite sterilization and biocompatibility testing to name a few. So, in addition to outsourcing the products, our customers can outsource many of the technical resources required to support those products through every stage from development to delivery.
Not only can we provide the upfront support to get a product launched, but we also provide the ongoing support as our customer’s business grows. This is the biggest advantage to being part of a larger organization. There are always challenges for our customers as they grow their business, and it is how we help them deal with those challenges that show our true value proposition. As a large company, we can call upon many disciplines to address a customer’s concern.
MPO: Given the current state of the economy, how do you feel the medical device space is positioned overall? What about outsourced manufacturing? Does the current economic climate make it more or less attractive? How has Covidien been impacted?
Mulone: We believe the growth trend in outsourced manufacturing will continue. With the tight credit market, there is a lot of analysis being done before spending capital dollars. If you’re a small startup medical device company with a great product but limited infrastructure, you may want to link up with a well-established OEM/contract manufacturer that may be able to support your growth. And, if you’re a larger company and are looking to reduce costs while still maintaining product quality and volume but cannot justify the ROI [return on investment] to invest to reduce the cost, there is the need to outsource. Also, companies are beginning to rethink their low-cost country (LCC) outsource strategies. It is no longer enough to just look at the price of these LCC outsourced products. You must also consider what capital is being tied up all along the supply chain. Some companies are now looking at local or domestic suppliers for products rather than locking up working capital on container loads of product from LCCs.
MPO: What special skills or services does it take to compete as an outsource provider in today’s market?
Mulone: As regulatory requirements have become increasingly more difficult to manage, now more than ever it is all about understanding your customer’s needs and determining if your manufacturing cap-abilities and expertise can handle the regulatory requirements. There is really no special business school formula out there; you just need to make sure you have the internal expertise to address your cust-omer’s new demands. Covidien follows a stage-gate product development process, and the projects are challenged all along the way by every major discipline, be it QA [quality assurance], RA [regulatory affairs] or manufacturing. As a result, our biggest challenge is speed to market. Smaller contract manufactures may not have all of these same checks and balances. But because of recent trends in the market for increased regulatory focus and compliance requirements, we have been able to turn this challenge into an advantage for doing business with Covidien.
MPO: What do you see as the market opportunities at the moment—in outsourcing and in the medical device space as a whole?
Mulone: With the pressure to keep the cost of medical device and drug-delivery products low and the added cost of having and supporting your own design and development teams, companies are discovering that they can outsource those services to Covidien and keep costs down while still receiving the high-quality products and services that they require.
MPO: What product sectors are you most excited about? Over the next five years, what kinds of products do you feel hold the most promise?
Mulone: I am most excited about what we are doing in the hydrogel formulation and the electrotherapy areas. We have seen a lot of customers come to us interested in the many new uses for these materials. In addition, we are seeing drug-delivery devices continuing to expand and companies approaching us to utilize our molding and assembly expertise.
MPO: What do you feel are the biggest challenges in the current business climate—for medical devices and out-sourcing specifically?
Mulone: I feel the biggest challenge a medical device company may feel is the loss of control. How do they make sure they are part of the whole process while not getting so involved that they end up doing the job themselves? Companies are starting to see that it is not enough to just send their specs and a purchase order and expect that the finished product will meet all their specification and regulatory requirements. We see that companies want more and want to reduce their risk. We also see that customers are starting to under-stand the whole cost impact to move to a LCC. There are a lot of costs associated with having product manufactured by a LCC that are not captured in the price, but will need to be incurred if the customer is going to be successful.
MPO: What are you most optimistic about when it comes to the medical device outsourcing industry?
Mulone: As companies continue to examine outsourcing opportunities, they see the benefit to leveraging the strengths of contract manufacturers like Covidien’s Custom Product Solutions to improve their quality and bottom line. If a company does the necessary due diligence to choose the right outsourcing partner, it realizes it has actually gained more control over its product portfolio because it’s now gained specialized support that allows the company to refocus its own internal resources on growing new business while letting the contract manufacturer focus on maintaining product consistency as the business grows.
Editor’s note: Look for new installments of our Executive Perspectives series as Medical Product Outsourcing seeks out market insight and feedback from a variety of industry leaders.