Jeffrey Zajac07.26.10
Making the Case for Outsourcing
How contract manufacturers offer optimal collaboration options to drive efficiencies and maximize ROI.
Jeffrey Zajac
Jabil Healthcare & Life Sciences
As medical device manufacturers explore emerging market sectors and develop new types of products, they often move into unfamiliar territory. Acquiring in-house knowledge about highly sophisticated technologies and new geographies—and the associated regulatory requirements—can be time consuming, difficult and expensive. What’s more, this process can delay time to market for a promising innovation, distract an original equipment manufacturer (OEM) from its core business, and divert resources away from new product development.
The appropriate use of contract manufacturers (CMs) can solve many, if not all, of these issues and more. Not only do today’s large CMs offer a broader range of services, facilities and expertise than ever before, but many have a global reach, which means they are familiar with regulations, business cultures and supply networks in the fastest-growing medical markets. Outsourcing to a CM significantly can reduce the time and costs of producing a new device—particularly a novel technology—and can free OEMs to concentrate on the next breakthrough.
Historically, some device manufacturers have been hesitant to use CMs. Concerns ranged from loss of control and exposure of intellectual property to inconsistent quality and inadequate regulatory compliance. Today, CMs are proving their ability to meet stringent quality and regulatory requirements by successfully taking on highly complex, diverse and demanding projects. Also, the market has changed dramatically. Facing tough global competition, increasing cost pressures from insurance companies and legislators, growing demand from emerging regions and new technological advances, device makers have new reasons to consider outsourcing.
The Need for Speed
Contract manufacturers can help OEMs accelerate time to market for a new product, thus speeding up return on investment (ROI). For low-volume devices in particular, manufacturers may find it cost-prohibitive to hire the experts and purchase the technologies that are required. Because many CMs already have facilities, staff, equipment and supply chains in place, they can begin design, optimization, testing or manufacturing quickly.
In addition, large CMs offer a local presence in key regions/countries such as the BRIC nations (Brazil, Russia, India, China), allowing OEMs to produce devices locally for specific markets. Already built and scalable manufacturing infrastructure and a network of established suppliers enable fast, in-country turnarounds of new projects. Replicating such an infrastructure in a new region would require the OEM to invest enormous resources and a minimum of 12 to 18 months of activity, including identifying the site, registering the firm, building the facility, and hiring and training employees.
Another speed advantage offered by many CMs stems from extensive knowledge of consumer electronics manufacturing, along with high quality standards, which transfer seamlessly to the medical sector. It is key to find a CM that truly understands the market-specific requirements of medical products, in particular the requirements for validation and design controls. For example, a major manufacturer of diagnostic equipment wanted to create a handheld version of a device by miniaturizing its existing laptop-size product footprint. The company was under time pressure and lacked available engineering resources to design and test a suitable board. By partnering with a CM that had relevant experience from engineering, developing and manufacturing the latest cell phones and consumer handheld devices, the OEM was able to accelerate time to market.
In addition, more medical devices are integrating electronics into their design, thus becoming hybrid devices. In today’s world of on-demand information, smart phones and custom-tailored applications for just about everything, medical professionals and patients are demanding new products that not only provide the desired medical function but also maintain historical data such as time and dosage and reminders and alarms for next use of the device. These advanced features require electronics, which in turn call for expertise in circuit board design, user interface creation, data transfer protocols, custom software and other areas that traditionally have been the domain of CMs.
Instant Expertise
The growing trends toward miniaturization, non-surgical/minimally invasive surgical devices, and home health care delivery all demand more sophisticated, smaller and easy-to-use electronics, which may not be a core competency of device OEMs—particularly the many small and startup businesses that comprise a significant portion of the industry. As devices become more complex and dependent upon state-of-the-art electronics, OEMs may lack the internal resources to develop and produce the necessary software and hardware. Constant changes in information technology add to the challenge.
A CM can supply the OEM with specialized knowledge, expertise and facilities to support a novel application—without the delays and costs of acquiring them in house. For example, OEMs interested in the growing market for combination products, such as drug-electronic device/plastic device-biologic combinations, may not be equipped to handle all of these components. Instead, they can leverage a CM’s experience with pharmaceutical formulation, fluid engineering, nanotechnology, specialty plastic molding and other areas. By leveraging the OEM’s knowledge of the indication, a CM can quickly be brought into the development of a new product or the redesign of an existing product to provide additional features and functionality.
This approach also provides a competitive advantage to OEMs by giving them a source of strong institutional knowledge about new technological possibilities for upcoming devices, such as wireless technology for blood glucose meters.
Another benefit of outsourcing comes from tapping a CM’s breadth of experience with other medical OEMs. Whereas a company may be focused on a disposable device or technology, a CM likely has had diverse experience with a range of problems, issues, materials, technologies and processes, helping the OEM avoid mistakes.
Furthermore, if a CM does not have expertise in a particular area, it usually has a relationship with a partner that does. These partnerships can significantly reduce time spent finding and qualifying a niche supplier—particularly in an unfamiliar geography.
Foreseeing Costly Problems
Value engineering is another way in which a CM can contribute experience and expertise to avoid future pitfalls such as manufacturing problems or cost issues. The value engineering process involves thoroughly evaluating a device’s design, prototype, components, materials and processes to pinpoint potential issues and suggest solutions. For example, the CM’s team of engineers may review the customer’s bill of materials to identify components that are nearing end of life and find alternatives. Another example is finding ways to consolidate parts to drive down cost and reduce manufacturing complexity. The CM also may be able to suggest alternative suppliers for materials or components offering lower pricing, better service or higher quality. Other value-engineering services include review and optimization of key processes so that the device can be tested and produced more quickly and easily.
In one case (for a patient table for a diagnostic imaging system) value-engineering services resulted in the consolidation of 13 separate parts into one, replacement of custom hardware with standard items and acceleration of frame assembly by eliminating 200 screws. These and other improvements resulted in an estimated annual savings of $1.7 million.
Setting the Standard
Complementing their technical expertise, many large-to-midsize CMs typically have extensive knowledge of regulations, standards and best practices that can streamline the art-to-part process and support successful marketing applications. Work in automotive, consumer electronics and other diverse industries has equipped many CMs to navigate current environmental requirements, such as avoiding hazardous materials and simplifying end-of-life device disposal. Some CMs have built or upgraded clean rooms, developed centers of excellence and other specialized facilities; undergone certification to the ISO 13485 standard; and assimilated current good manufacturing practice. In addition, a CM’s knowledge of local regulations and procedures can be priceless for OEMs seeking to take advantage of opportunities in other nations.
Taking Care of Business
Rapid technological advances in medical devices make it imperative for OEMs to stay focused on their core competency and the next breakthrough. However, many do not have the resources to do this while also devoting sufficient bandwidth to commercializing an existing product. Sometimes a product languishes on the shelf for lack of resources. A CM can get such back-burner projects moving quickly and efficiently, leading to a potential new revenue stream for the OEM.
Even if manufacturers possess the resources to develop sophisticated electronics or complex combination products internally, competitive pressures may require their engineers and designers to start working on the next product immediately, instead of spending the time needed to optimize a current device’s design and manufacturing process. For example, when the European Union’s Restriction of Hazardous Substances directive required conversion of the bill of materials for legacy products, many OEM engineers were focused on next-generation products and did not have time to work on the conversions. Therefore, in many cases, they outsourced this value-added service.
Filling in the Gaps
Capacity limitations need not be a problem for OEMs; transferring a project to a CM can act as a seamless extension of in-house manufacturing capability. For example, if another project takes priority, the OEM can quickly transfer an existing product to the outsourcer for the short term or over an extended period. Then, if conditions change, the product can be moved back in house. Such flexibility avoids the need to scale facilities and staff up and down, and makes it easy to balance priorities.
Supply and Demand
A complex medical device can involve hundreds of components and materials, each with specific requirements, associated standards and applicable regulations. In particular, the environmental movement has added requirements for reduction of hazardous materials and specific guidelines for disassembly, recycling and disposal. Many OEMs have neither the supply network nor the expertise to find and manage all these disparate elements.
A robust supply chain established, qualified and managed by the CM can help OEMs simplify production and provide alternatives in the case of an interruption. Although device manufacturers have traditionally retained control of their supply chains due to liability issues, they are recognizing the value of transferring some of this responsibility to CMs, who are using sophisticated tools such as Electronic Data Interchange to reduce costs and accelerate the process. EDI is a business-to-business information technology (IT) system that allows a CM and an OEM to exchange purchase orders, pricing, payments, revised orders, etc., without direct labor involvement. In many instances, with the advent of IT systems such as SAP, CMs can even ship to an OEM customer directly, invoice the OEM and receive payment in a seamless transaction. With their high purchase volumes, economies of scale and global scope, CM partners often can drive down costs and optimize supply chain management more effectively than OEMs.
Several current trends are making outsourcing of medical device projects to CMs more attractive than ever. Since the beginning of 2010, new medical device development activity has begun to increase again thanks to greater availability of venture capital and other funding and strong demand from China, India and other nations. Another driver is the increased emphasis on home care vs. inpatient care—particularly for the growing elderly population—which opens up new opportunities for innovative technologies such as home dialysis, wearable monitors and wireless devices.
At the same time, the U.S. Food and Drug Administration is subjecting new product applications to greater scrutiny and is conducting more audits. Patient safety, including the reduction of risk, is a major focus of regulators and healthcare providers.
Such trends strengthen the already persuasive argument for using CMs as strategic resources during medical device development. Flexibility, scalability, specialized expertise, broad experience, strong supply chains and economies of scale—all these advantages can prove instrumental in optimizing an OEM’s efficiency and delivering the fastest and largest return on investment in a new project.
Since 2009, Jeffrey Zajac has been global technical director for disposable devices for Jabil Healthcare & Life Sciences. He is responsible for managing the art-to-part development of disposable medical device products for Jabil medical customers.
Zajac joined Jabil from Accellent where he spent more than five years in key product design, development and manufacturing positions of increasing responsibility to support Accellent’s medical device business. His primary responsibilities with the company included supplier development, cost and price modeling, and product manufacturing and assembly.
Prior to joining Accellent, Zajac worked for more than 15 years in business development for the electronic component industry. His areas of focus during this time included interconnect-related products involving metal stamping, surface finishing, molding and assembly operations.
Zajac earned a bachelor’s degree in mechanical engineering from Stevens Institute of Technology in Hoboken, N.J., and a MBA from the University of Rhode Island.
How contract manufacturers offer optimal collaboration options to drive efficiencies and maximize ROI.
Jeffrey Zajac
Jabil Healthcare & Life Sciences
As medical device manufacturers explore emerging market sectors and develop new types of products, they often move into unfamiliar territory. Acquiring in-house knowledge about highly sophisticated technologies and new geographies—and the associated regulatory requirements—can be time consuming, difficult and expensive. What’s more, this process can delay time to market for a promising innovation, distract an original equipment manufacturer (OEM) from its core business, and divert resources away from new product development.
The appropriate use of contract manufacturers (CMs) can solve many, if not all, of these issues and more. Not only do today’s large CMs offer a broader range of services, facilities and expertise than ever before, but many have a global reach, which means they are familiar with regulations, business cultures and supply networks in the fastest-growing medical markets. Outsourcing to a CM significantly can reduce the time and costs of producing a new device—particularly a novel technology—and can free OEMs to concentrate on the next breakthrough.
Photo courtesy of Jabil |
The Need for Speed
Contract manufacturers can help OEMs accelerate time to market for a new product, thus speeding up return on investment (ROI). For low-volume devices in particular, manufacturers may find it cost-prohibitive to hire the experts and purchase the technologies that are required. Because many CMs already have facilities, staff, equipment and supply chains in place, they can begin design, optimization, testing or manufacturing quickly.
In addition, large CMs offer a local presence in key regions/countries such as the BRIC nations (Brazil, Russia, India, China), allowing OEMs to produce devices locally for specific markets. Already built and scalable manufacturing infrastructure and a network of established suppliers enable fast, in-country turnarounds of new projects. Replicating such an infrastructure in a new region would require the OEM to invest enormous resources and a minimum of 12 to 18 months of activity, including identifying the site, registering the firm, building the facility, and hiring and training employees.
Another speed advantage offered by many CMs stems from extensive knowledge of consumer electronics manufacturing, along with high quality standards, which transfer seamlessly to the medical sector. It is key to find a CM that truly understands the market-specific requirements of medical products, in particular the requirements for validation and design controls. For example, a major manufacturer of diagnostic equipment wanted to create a handheld version of a device by miniaturizing its existing laptop-size product footprint. The company was under time pressure and lacked available engineering resources to design and test a suitable board. By partnering with a CM that had relevant experience from engineering, developing and manufacturing the latest cell phones and consumer handheld devices, the OEM was able to accelerate time to market.
In addition, more medical devices are integrating electronics into their design, thus becoming hybrid devices. In today’s world of on-demand information, smart phones and custom-tailored applications for just about everything, medical professionals and patients are demanding new products that not only provide the desired medical function but also maintain historical data such as time and dosage and reminders and alarms for next use of the device. These advanced features require electronics, which in turn call for expertise in circuit board design, user interface creation, data transfer protocols, custom software and other areas that traditionally have been the domain of CMs.
Instant Expertise
The growing trends toward miniaturization, non-surgical/minimally invasive surgical devices, and home health care delivery all demand more sophisticated, smaller and easy-to-use electronics, which may not be a core competency of device OEMs—particularly the many small and startup businesses that comprise a significant portion of the industry. As devices become more complex and dependent upon state-of-the-art electronics, OEMs may lack the internal resources to develop and produce the necessary software and hardware. Constant changes in information technology add to the challenge.
A CM can supply the OEM with specialized knowledge, expertise and facilities to support a novel application—without the delays and costs of acquiring them in house. For example, OEMs interested in the growing market for combination products, such as drug-electronic device/plastic device-biologic combinations, may not be equipped to handle all of these components. Instead, they can leverage a CM’s experience with pharmaceutical formulation, fluid engineering, nanotechnology, specialty plastic molding and other areas. By leveraging the OEM’s knowledge of the indication, a CM can quickly be brought into the development of a new product or the redesign of an existing product to provide additional features and functionality.
This approach also provides a competitive advantage to OEMs by giving them a source of strong institutional knowledge about new technological possibilities for upcoming devices, such as wireless technology for blood glucose meters.
Another benefit of outsourcing comes from tapping a CM’s breadth of experience with other medical OEMs. Whereas a company may be focused on a disposable device or technology, a CM likely has had diverse experience with a range of problems, issues, materials, technologies and processes, helping the OEM avoid mistakes.
Furthermore, if a CM does not have expertise in a particular area, it usually has a relationship with a partner that does. These partnerships can significantly reduce time spent finding and qualifying a niche supplier—particularly in an unfamiliar geography.
Foreseeing Costly Problems
Value engineering is another way in which a CM can contribute experience and expertise to avoid future pitfalls such as manufacturing problems or cost issues. The value engineering process involves thoroughly evaluating a device’s design, prototype, components, materials and processes to pinpoint potential issues and suggest solutions. For example, the CM’s team of engineers may review the customer’s bill of materials to identify components that are nearing end of life and find alternatives. Another example is finding ways to consolidate parts to drive down cost and reduce manufacturing complexity. The CM also may be able to suggest alternative suppliers for materials or components offering lower pricing, better service or higher quality. Other value-engineering services include review and optimization of key processes so that the device can be tested and produced more quickly and easily.
In one case (for a patient table for a diagnostic imaging system) value-engineering services resulted in the consolidation of 13 separate parts into one, replacement of custom hardware with standard items and acceleration of frame assembly by eliminating 200 screws. These and other improvements resulted in an estimated annual savings of $1.7 million.
Setting the Standard
Complementing their technical expertise, many large-to-midsize CMs typically have extensive knowledge of regulations, standards and best practices that can streamline the art-to-part process and support successful marketing applications. Work in automotive, consumer electronics and other diverse industries has equipped many CMs to navigate current environmental requirements, such as avoiding hazardous materials and simplifying end-of-life device disposal. Some CMs have built or upgraded clean rooms, developed centers of excellence and other specialized facilities; undergone certification to the ISO 13485 standard; and assimilated current good manufacturing practice. In addition, a CM’s knowledge of local regulations and procedures can be priceless for OEMs seeking to take advantage of opportunities in other nations.
Taking Care of Business
Rapid technological advances in medical devices make it imperative for OEMs to stay focused on their core competency and the next breakthrough. However, many do not have the resources to do this while also devoting sufficient bandwidth to commercializing an existing product. Sometimes a product languishes on the shelf for lack of resources. A CM can get such back-burner projects moving quickly and efficiently, leading to a potential new revenue stream for the OEM.
Even if manufacturers possess the resources to develop sophisticated electronics or complex combination products internally, competitive pressures may require their engineers and designers to start working on the next product immediately, instead of spending the time needed to optimize a current device’s design and manufacturing process. For example, when the European Union’s Restriction of Hazardous Substances directive required conversion of the bill of materials for legacy products, many OEM engineers were focused on next-generation products and did not have time to work on the conversions. Therefore, in many cases, they outsourced this value-added service.
Filling in the Gaps
Capacity limitations need not be a problem for OEMs; transferring a project to a CM can act as a seamless extension of in-house manufacturing capability. For example, if another project takes priority, the OEM can quickly transfer an existing product to the outsourcer for the short term or over an extended period. Then, if conditions change, the product can be moved back in house. Such flexibility avoids the need to scale facilities and staff up and down, and makes it easy to balance priorities.
Supply and Demand
A complex medical device can involve hundreds of components and materials, each with specific requirements, associated standards and applicable regulations. In particular, the environmental movement has added requirements for reduction of hazardous materials and specific guidelines for disassembly, recycling and disposal. Many OEMs have neither the supply network nor the expertise to find and manage all these disparate elements.
A robust supply chain established, qualified and managed by the CM can help OEMs simplify production and provide alternatives in the case of an interruption. Although device manufacturers have traditionally retained control of their supply chains due to liability issues, they are recognizing the value of transferring some of this responsibility to CMs, who are using sophisticated tools such as Electronic Data Interchange to reduce costs and accelerate the process. EDI is a business-to-business information technology (IT) system that allows a CM and an OEM to exchange purchase orders, pricing, payments, revised orders, etc., without direct labor involvement. In many instances, with the advent of IT systems such as SAP, CMs can even ship to an OEM customer directly, invoice the OEM and receive payment in a seamless transaction. With their high purchase volumes, economies of scale and global scope, CM partners often can drive down costs and optimize supply chain management more effectively than OEMs.
Several current trends are making outsourcing of medical device projects to CMs more attractive than ever. Since the beginning of 2010, new medical device development activity has begun to increase again thanks to greater availability of venture capital and other funding and strong demand from China, India and other nations. Another driver is the increased emphasis on home care vs. inpatient care—particularly for the growing elderly population—which opens up new opportunities for innovative technologies such as home dialysis, wearable monitors and wireless devices.
At the same time, the U.S. Food and Drug Administration is subjecting new product applications to greater scrutiny and is conducting more audits. Patient safety, including the reduction of risk, is a major focus of regulators and healthcare providers.
Such trends strengthen the already persuasive argument for using CMs as strategic resources during medical device development. Flexibility, scalability, specialized expertise, broad experience, strong supply chains and economies of scale—all these advantages can prove instrumental in optimizing an OEM’s efficiency and delivering the fastest and largest return on investment in a new project.
Since 2009, Jeffrey Zajac has been global technical director for disposable devices for Jabil Healthcare & Life Sciences. He is responsible for managing the art-to-part development of disposable medical device products for Jabil medical customers.
Zajac joined Jabil from Accellent where he spent more than five years in key product design, development and manufacturing positions of increasing responsibility to support Accellent’s medical device business. His primary responsibilities with the company included supplier development, cost and price modeling, and product manufacturing and assembly.
Prior to joining Accellent, Zajac worked for more than 15 years in business development for the electronic component industry. His areas of focus during this time included interconnect-related products involving metal stamping, surface finishing, molding and assembly operations.
Zajac earned a bachelor’s degree in mechanical engineering from Stevens Institute of Technology in Hoboken, N.J., and a MBA from the University of Rhode Island.