Let the Vetting Begin
In the OEM-supplier equation, evaluations work both ways and are equally important to successfully targeting the right relationship.
A large part of medical device outsourcing relationships involves the way OEMs choose their contract manufacturing suppliers, but it’s important to note that much the same sort of thing takes place at the other end as well.
With an eye toward the vetting that takes place from bothdirections in establishing such relationships, Medical ProductOutsourcing talked with several people who represent the supplier side of the equation to solicit their views on the necessary components in initiating and nurturing those relationships.
They made it clear that when it comes to new clients/customers, it’s just as important for vendors to know how those companies manage their supplier relationships as it is for those OEMs to vet suppliers before sending a new contract or purchase order their way. And one of the keys to making sure the OEM/supplier experience is the best it can be is to be diligent in gathering insight from the very beginning of the process, along with appropriate interaction between the client and outside partner as the process and/or product moves along.
The conversation also touched on the impact of the attention being given to the development and production of medical devices, including ramped-up scrutiny both from the U.S. Food and Drug Administration (FDA) and regulators on a global scale.
Partner Assessment Works Both Ways
Peter Harris, CEO of Cadence Inc., a medical instrument components manufacturer, said there are two important components to new OEM relationships: how the relationship is initiated, and the factors involved in launching the partnership. “The initiation works a few different ways,” he said. “For a new-to-us OEM, the first step is pretty much a contact from someone in a technical function at a customer.
Usually an R&D project team at an OEM is assigned a project and very early in the process, they realize that they want to engage with an outside manufacturing partner—not just to have a longer-term production solution but to fulfill the device performance objectives.
“They realize that the focus of their device—its functional performance attributes—is something that we have expertise in, and they reach out to us.” Harris added that most of Cadence’s new OEM relationships don’t come from prospecting in a typical sales mode; rather, they come more from having a fairly well-defined area of expertise and “having that easily available for someone to find, usually by referrals.”
The Staunton, Va.-based company provides outsourced design and manufacturing solutions for components and assemblies used in endoscopic, cardiovascular, ophthalmic, orthopedic and diagnostic procedures.
“With strong growth prospects with our existing customers, our business plan could easily involve no new customers,” Harris told MPO. “But that’s not our plan for a variety of reasons. It’s one thing to have a product specialty, but most of the stickiness, if you will, of our relationships comes from a difference in mindset and how we approach projects than much of the rest of the outsourcing universe.”
Noting that many outsourcing firms define themselves around manufacturing products—i.e., “I am a precision metal stamper,” “I provide custom injection-molded parts”—Harris described such companies as “essentially manufacturing-competence, asset-based businesses.”
But, “when you look at how medical device companies portray themselves, it’s very different,” he contended. “They say, ‘We are here to enable better patient outcomes in cardiovascular medicine’ or ‘We enhance surgical economic value and bring innovative devices to make the lives of surgeons and patients better.’ It’s very outcome-oriented, not asset-oriented.”
Harris added: “If you look at the way most outsourcing manufacturers interact with the device arenas, they start with the manufacturing process, saying ‘I have a series of assets that support this manufacturing platform. I look at device designs as people come in and I assess them against my assets and I try to win the ones that I can see fitting into my manufacturing competence.’”
Cadence uses a different philosophy to win customers.
“We start by engaging with OEMs, whether a first-time OEM or our tried-and-true customers,” Harris explained. “We essentially say ‘Define the patient outcome we’re trying to get.’ Then we ask, ‘How are we going to measure this patient outcome before it gets to the patient—what are the performance measurement criteria that will help us achieve this? What are the specifications? What are the attributes? What are the levers on the device that we can pull to get this performance?’ And then lastly we ask, ‘What is the manufacturing process required?’”
The result is a much closer alignment of purpose between outsourced manufacturer and OEM. At that point, Harris said, Cadence begins to discuss the steps needed to gain knowledge about the product as well as ways the company can start to truly engage with the customer. Such moves help the firm align itself from the outset with its customers.
“We tend to vet our OEMs and the project teams and project opportunities within the OEMs based on what they’re trying to accomplish, and we play those to our strengths,” Harris explained. “Somebody who has a ‘push the boundary’ device objective that is going to be very difficult to meet, maybe requiring not just new-to-us processes but new-to-the-world processes, are the projects that we jump all over.”
Asked if one of the key questions in Cadence’s mind when they are vetting an OEM is knowing their motivation behind their product, Harris said, “The first thing we ask when we’re discussing a project is, ‘What are you looking to accomplish in the O.R., and why is it better for the patient?’”
A venture capitalist friend of Harris’s perhaps summed up the vetting process best by telling him recently that the industry’s best device venture capitalists are really sophisticated contract manufacturers, because they judge the merit and likelihood of projects to determine resources should be applied to develop them.
“If somebody comes to us and says, ‘My value proposition is to fundamentally remake the way endovascular surgery is done,’ we technically evaluate the likelihood of them doing it—we [consider] whether we believe it is a high-potential-value proposition for the healthcare community and whether or not they have the technical aptitude to pull it off. We’re pretty judicious about what we commit ourselves to,” Harris noted.
Several “compounding elements” exist that are important for valuators. “One is that a lot of people in the outsourcing field won’t invest in assets before a contract or substantial purchase orders. That’s understandable for risk mitigation, but it’s really misaligned with what the device companies need, because if you’re going to commit to concurrent product and process development, you can’t wait to have assets,” Harris noted.
“Because we’re willing to get ahead in deploying assets well before commercialization is ready, or even before device design is finalized, we’re trying to maximize that concurrence. It’s very important for us to be good at evaluating project merits at the OEM level.”
MPO asked Harris about the keys to managing an OEM relationship as it grows in order to make sure that the experience is beneficial for both sides. “We really try to never under-resource any given project with high-quality technical people,” he said. “This is a place where we really talk with the OEMs about their experience with people making promises on the outsourced manufacturing side about the level of innovation. We believe in immediately making access to high-horsepower technical people here so they can maximize that benefit.”
Another layer to the OEM-vendor relationship is the complicated agenda OEMs have set for themselves regarding their competition, FDA influences and other related issues. Suppliers that meet with strategic supply chain representatives at large OEMs have begun to realize in recent years that large companies no longer like to deal with as many contract manufacturers and/or suppliers as they did in the past. When evaluating a potential customer relationship, Cadence officials review the project-specific objectives as well as the strategic alignment to ensure they understand what is expected of them on a long-term basis.
A critical eye by the FDA also is prompting many large OEMs to expect their suppliers’ quality systems to be top-notch. “Once upon a time, the FDA viewed suppliers as out of sight, out of mind, but as they have stepped things up, the most forward-thinking large OEMs have enhanced the rigor of their quality systems and expect their key suppliers to do the same,” Harris concluded.
Better Fit Means aSmoother Process
Another company for which the fit of OEM and supplier is of utmost importance is Carbon Design Group, a Seattle, Wash.-based product development consultancy that describes itself as “living at the intersection” of technology and design.
Paul Leonard, program director for the company, said his firm begins new OEM relationships with a conversation about product goals. The conversation, he added, takes place regardless of the impetus behind the initial call (sometimes it’s spurred by a referral from an existing client, it could come courtesy of a newspaper or magazine article about the company in media or it could result from the awards Carbon has received for product design work).
“The first step for us is to sit down and have a higher-level discussion about the business they’re in, what their business is all about, what products they have and how the new product will fit in to that business,” he said. “Through that, we start to get a feel as to whether they’re a good fit for us and we’re a good fit for them.”
While it is important for Carbon to know how potential clients evaluate their relationships with suppliers, it is equally essential for suppliers to assess the design firm. Leonard believes a balanced vetting process is key to determining a good fit with customers. “We work very collaboratively with our clients, and we know we get the best results when there’s a great fit
between us,” he said.
While many companies tend to brainstorm ideas before meeting with potential clients, Carbon executives like to have clients participate in brainstorming sessions. The only danger with this practice, Leonard noted, are clients who may go into the brainstorming panels with preconceived ideas and take the company in directions it would rather not go. However, Carbon has a structured process in place to prevent such an event from occurring, Leonard said.
Once in a while, Carbon will get a good idea from a client participating in a brainstorming session. When asked about the mix of ideas, Leonard replied, “We do get some ideas from clients; sometimes they’re on the right track, sometimes they may be a little bit off.”
Realizing that some OEMs with preconceived ideas may find it difficult to admit that Carbon’s designs are better, company executives rarely, if ever, tout their own concepts (or blow their own horns, as some would say) during idea sessions.
“That usually isn’t a one-step process—it’s more a matter of the OEM suggesting an idea and putting it into the pool of ideas along with a whole bunch of others and then starting a process of methodically evaluating each one and reducing it down to the best idea,” Leonard explained. “It may be the client’s idea that comes out at the end, but we don’t know until we run through the process.”
Regardless of the caliber or origin of ideas generated in the brainstorming session, Carbon executives always ask prospective customers one question: What does it take to be successful? “It is one of the most important questions to ask,” Leonard said. “Good OEM partners have the characteristic of trusting their design partners to be able to come up with a design, trusting them to do the work to solve the design problems.”
MPO asked if there are any specific steps (a mantra, perhaps?) that are followed when gathering insight into the client’s needs and desires to ensureCarbon has collected all the data it needs to proceed to the next stage.
“I’m not so sure it’s a mantra,” Leonard said, “but there is a process we follow. We start with our discovery process, really understanding the context of the problem, and some of that comes from the initial conversations where we try to understand what they’re trying to accomplish with the new product. Then we dive into who the users are and really try to get a feel for the client. We do this very carefully, we ask a lot of questions and do a lot of observing. When we watch the user, what we see them doing gives us insight into theproduct. We collect a lot of that data in the field and then there’s a final synthesis to what we call ‘insight.’”
With OEMs that are less experienced in forming outsourcing relationships, Carbon often does a little teaching as the relationship goes along. “The first thing for them to recognize is that it takes a different set of skills for successful outsourcing than it does to develop your own products inside,” Leonard pointed out. “Oftentimes we’re working with engineers or product marketers who have a lot of experience in a corporate environment developing products internally. But the skills are a little bit different—it takes a lot of effort to define what it is they want from their product and communicate that well with their partner outside. They also have to have the trust to let go of preconceived ideas of what the product should be and let their partner go to work on the creative portion of the project.”
While it has no real mantra when gathering insight into customers’ needs and desires, Carbon does have specific ways of conducting business to help turn the initial meeting and data-gathering/evaluation process into a positive experience for both sides. “Here we do have a mantra, which is, ‘No surprises,’ ” Leonard said. “We like a project that proceeds along pretty methodically, according to plan, and delivers our client a great product at the end for the money that they expected to pay and the amount of time that they expected it to take.
“If we can accomplish all that, and then on top of it put a little fun into the process for them so they can enjoy the discovery along with us, as well as having a great product come out of all this, that’s what makes it a great experience for them.”
Asked about additional steps that may be necessary from the perspective of products being subjected to regulatory control, Leonard said, “When we’re working on medical devices, we use what are commonly called design controls, which is a process we follow when we’re developing regulated products. That process hasn’t changed in the last couple of years. We are seeing a few more questions at the end of the process after the product goes to the FDA.”
He added: “I think the changes at the FDA are causing more consternation for our clients than they are for us. It directly affects start-ups, for instance—the venture capital world is very concerned about the uncertainty of FDA approval processes.”
Defining the Project Is Key
Wendy Hinchey, vice president of sales and marketing forHelix Medical, a global contract manufacturer active in the medical/healthcare/biotechnology space, said contract manufacturing “is a long sales-cycle business.” That being the case, she said, “it is critical to maintain the right amount of customer communication and support throughout the project cycle.”
Hinchey noted that “this is especially important as you are developing new customer relationships and are establishing trust in your capabilities and company.” Working with customers or prospects to define what is needed for each project—setting timelines and milestones and agreeing on a communication schedule—are key aspects to establishing and growing new relationships, she said.
Asked about the importance of a supplier knowing how a new OEM partner manages its supplier relationships, Hinchey said, “This is essential in the contract manufacturing market, where each project is custom and each customer is unique. We go into each project with the focus on creating a long-term partnership.”
She added that as part of drivingcustomer satisfaction and ultimately project success, “it is critical to understand the complete value proposition for each customer; what is success for each project in terms of the customer’s standards and systems?”
Hinchey said Carpinteria, Calif.-based Helix Medical follows an individualized approach it calls “Critical to Success Criteria” to ensure the company meet the needs of a diversified client base. She noted that every associate involved in a customer project must understand the criteria for each customer and project.
Noting that an important element in the process comes at the start with the gathering of insight into an OEM’s needs and desires, Hinchey added, “We take a very consultative approach to understand what the customer’s needs are as well as the end user’s to determine if we can provide capabilities to support the project. This goes well beyond just understanding a component or a manufacturing process.”
Hinchey said it is important to understand the entire product lifecycle and each step in an OEM’s process to ensure that the outsourcing partner is able toprovide the best technical recommendations.
She noted that the end result of a robust customer and project collaboration effort often uncovers many additional opportunities for innovation, quality or cost savings as opposed to what was brought up in initial discussions. The additional opportunities arefueled by a true team approach, withassignment from project management and input from design and project engineering, tooling, production, quality, materials and supply chain support.”
To help make the project collaboration experience with customers the best that it can be, Hinchey suggested starting with the end in mind and driving an externally focused organization. She said her company achieves this through“a robust CRM (customer relationship management) system to ensure that everyone in theorganization has access and contributes to each customer and project status, actions, and timelines as a new program progresses. This provides a real-time, 360-degree view across our organization of each customer and project.”
She said the frequency of interaction with a client “is managed on an individual basis, but most often with regular project team meetings that are established with timelines at the project kickoff. This allows both the supplier and customer teams to stay ahead of project milestones andensure that communication is ongoing.”
As for how the matter of regulatory oversight for medical products impacts OEM-supplier relationships, Hinchey said: “Regulatory agencies certainly add to the complexity of projects, but it’sbeneficial for customers to seek out manufacturing partners that are experienced in dealing with the FDA and the Medical Device Directive from a global standpoint.” She noted that having FDA-registered manufacturing facilities helps to understand the regulatory, quality, auditing, and approval processes needed to drive compliance and streamline the path and time to market for clients’ projects.
Hinchey said that for an OEM, “choosing a partner with a proven track record not only in manufacturing, but with robust quality and regulatory ‘hands on’ experience should be at the forefront of customers’ decisions regarding suppliers.”
Jim Stommen, retired editor of industry publication Medical Device Daily, is a freelance writer focusing on the medical products sector.