This article looks at five areas that should be analyzed as part of any sourcing evaluation and provides examples of systems that facilitate close collaboration to help eliminate hidden costs.
For most medical original equipment manufacturers (OEMs) sourcing is viewed strategically. While price is an important part of the equation, the complexity of the project drives strong focus on lowest total cost vs. price alone.
Lowest total cost doesn’t simply consider the cost elements for which the supplier has responsibility. It also includes the hidden costs that the customer can incur if its project team has to spend unanticipated time managing the supplier, the supplier is unable to respond to changing market demand or if product quality issues drive a recall.
The quality of the support team and internal processes, willingness of the contractor to invest in required systems or capabilities as needs evolve, and the ability of the contractor to proactively support complex project requirements ultimately determines if cost targets and project goals are met. Those are softer issues that require sourcing team evaluation during the audit phase. Areas to consider when evaluating potential contract manufacturing providers include:
• Alignment with long-term sourcing strategy;
• Quality systems relevant to medical manufacturing;
• Ability to provide full lifecycle support;
• Flexibility and service culture; and
• Commitment to the business model.
Alignment with Long-Term Sourcing Strategy
Transferring projects between contractors can drive significant unanticipated costs. Longer product lifecycles increase the possibility that contractor support service requirements may grow over time. Hidden costs can include the following thoughts to consider:
• The new supplier learning curve factor, which can impact both quality and delivery performance;
• Requalification process cost, which has both easy measurable travel expense costs and less visible costs in terms of staff time;
• Excess/obsolete inventory reconciliation costs; and
• Non-recurring engineering expense and tooling costs.
As a result, it is important to assess a contractor’s systems and capabilities from both current requirements and longer-term strategic perspectives. Track record and business model are important areas of focus. Questions to ask include:
• Does the contractor have a clear vision of medical industry requirements and a business model focused on serving the medical industry?
• Is there a robust process in place for managing project launch?
• Are there gaps between contractor capabilities and project long-term requirements?
• Does the contractor have a long track record of handling high mix, variable volume projects or is this business just taken as a capacity filler?
• Does the contractor have facilities that support the project’s long-term needs for cost reduction or proximity to end markets?
• Does the contractor have a track record of handling projects of similar complexity?
• Does the contractor take a consultative approach to supporting changes in requirements?
The medical device industry faces a dual set of challenges: increasing regulatory scrutiny and continued pressure to reduce cost. The key benefit of establishing a long-term relationship with a contract manufacturer aligned with an OEM’s outsourcing requirements is superior quality and a focus on eliminating hidden costs. That focus on quality and efficiency should be evident in the project launch process. A robust new product introduction (NPI) process addresses the issues that arise as a new product is entering the facility. Its goal is to ensure that all issues associated with project start-up are addressed.
The NPI process can begin during the bid phase with a concept feasibility review. Once a decision is made to move forward, there is a design concept review which may include design improvement recommendations or simply validate documentation and quote assumptions, depending on the project requirements. Critical to quality elements also are analyzed and incorporated in a capability and entitlement plan. The production launch phase may include a product verification review and/or a product and process validation review.
Quality Systems Relevant to Medical Manufacturing
A contractor’s quality culture is important as well, and having ISO 9001, ISO 13485 and U.S. Food and Drug Administration registration often are only the tip of the iceberg. Continuous improvement methodologies, such as Lean manufacturing, which drive focus on internal efficiency and process consistency are also important.
Other questions to ask include:
• Does the contractor’s workforce have the training and skills needed to support project requirements which grow in complexity over time?
• Does the company have the ability to provide specialized training as project requirements change?
• What systems are in place to ensure material integrity?
• What is the process for monitoring change control (both recognized engineering changes and less recognizable changes in component composition driven by the supply base)?
• Is there a strong system for new production introduction and qualification?
• Is there a strong system to ensure traceability at the lot code and date code level?
• Can quality reporting be customized to customer-required formats?
Adequately supporting mission-critical products requires a far higher degree of focus than supporting consumer product manufacturing. For example, medical product manufacturing may be only one of a contractor’s areas of industry focus. Are there medical-specific facilities within their network? What choices do OEMs have on where their product if manufactured. You want to make sure that the facilities have required medical quality system registrations and systems focused on meeting medical quality data collection requirements.
Ability to Provide Full Lifecycle Support
Long lifecycles in medical product manufacturing often drive needs for stronger engineering support, since product obsolescence risks must be monitored and addressed. Another area of challenge can be the ability to support fluctuating demand over the lifecycle of the project. Key questions to ask include:
• Does the contractor have the ability to support product development efforts with recommendations for sustainable design, design for manufacturability and design for testability?
• Can the contractor support a migration from board level to box build in terms of assembly/test capabilities, configuration management and supply chain?
• If the project has both disposable and electronic products, can the contractor support both areas?
• Can the contractor support post-manufacturing services such as fulfillment or repair depot?
• What is the contractor’s track record in obsolescence management in long lifecycle products?
• Does the contractor have a track record of supporting end-of-life product?
Many medical OEMs prefer to have as small a supply chain to manage as possible. A contractor capable of teaming with a customer from product development through end-of-life helps simplify sourcing. Additionally, contract manufacturers capable of handling disposables manufacturing, as well as electronic and/or electromechanical assembly, can offer a one-stop shop for devices used with disposable materials.
With complex projects, a contractor becomes an extension of its customers’ manufacturing operations and often teams with customers in problem-solving efforts over the life of each project. For example, one cost reduction strategy for longer lifecycle projects may be the transfer to lower cost labor markets as the product matures, particularly when redesign options are limited. It is important to put processes in place to assess project costs and savings in various geographies, and developed a robust transfer of work process to ensure that moves between facilities are done as efficiently as possible. As cost requirements change, customers have the information needed to make well-informed decisions on manufacturing location options.
Providing an efficient production ramp and volume production process is only half the equation with long lifecycle products. The real challenge comes when product volumes drop and the project becomes less attractive as it nears end-of-life. At that point, collaboration is very critical. Component obsolescence issues must be monitored and addressed, and redesign options may be limited. Internal systems can be put into place to perform lifecycle analysis on the bills of materials of customers’ long lifecycle products every six months. The goal is to identify obsolescence issues far enough in advance to provide the customer with a range of options for addressing the problem. The internal capabilities that can support repair depot operations, even when projects have ceased production also are important.
Flexibility and Service Culture
Many medical products are relatively low volume compared to consumer products. Demand can be variable and some products have multiple models that may need to be configured to order on very short lead-time. Program management plays a key role in ensuring that complex projects meet goals for quality and on-time delivery. In the contractor selection phase it is important to understand not only a company’s model for customer support, but also the quality of the team members that deliver that support. Questions to ask include:
• Will the program be managed by an individual with language skills compatible with my team’s preferred language?
• If production is offshore, will there be a point of contact available in my team’s preferred time zone?
• What systems are in place for efficiently managing high mix, variable demand production?
• What systems are in place for ensuring configuration management in build to order production?
• Does the program management team take a collaborative approach to meeting my company’s needs for schedule flexibility?
• What systems are in place within the supply chain to support variations in demand?
• What visibility do customers have into production status?
One approach is a customer focus team (CFT) structure. Each team includes a buyer/planner, a manufacturing engineering resource, an electronic engineering resource and a quality resource in addition to the program manager, as a minimum. All team members are focused on their team’s customer priorities. This places strong focus on the area of greatest potential variability.
Customers can work through the program manager as a single point of contact or through individual members of their assigned team. When customers have production in multiple facilities a Business Manager located in a time zone appropriate to the customer serves as the top-level point of contact between their CFTs, although customers can contact individual program managers and CFTs, as needed.
Commitment to a Business Model Which Supports Medical Device Industry Requirements
Contract manufacturing is a cyclical business and some companies change their preferred business models depending on the cycle. When demand for consumer products drops, some high-volume contract manufacturers switch to high-mix projects as a capacity filler. However, once strong economic growth returns, these contractors may once again prefer high-volume projects to higher-mix production because it is easier to manage and utilizes capacity better.
A weak economy also can be challenging to contractors with limited financial resources, as in some projects raw materials represent as much as 70-80 percent of revenue. Contractors who dabble in medical projects without investing in the systems and quality registrations needed to fully support medical customers may be reluctant to make the needed investments to support customer needs as project complexity grows. Consideration in evaluating long-term commitment include:
• What is the contractor’s business strategy for supporting the medical industry?
• What systems and technology have been put in place to support medical customer needs?
• What medical projects of similar size and scope has the contractor supported?
• What percentage of the revenues do medical projects represent and what is the percentage of medical product in the facility in which this project will be built?
• Is the program team assigned to the project experienced with medical products?
• How long has the contractor been supporting medical customers?
• What is the average tenure of a medical customer?
Can references include customers with end-of-life medical projects?
• How long has the contractor been involved in contract manufacturing and if a multi-business entity, what portion of business revenue does contract manufacturing represent?
• Is the contractor profitable and how does it fund growth?
• Is there a long-term business plan in place and what role does medical device manufacturing have in that plan?
When contractors are committed to serving the medical sector, these questions are easily answered when auditing facilities. A thorough audit also looks for examples of collaboration within accounts that are similar in project complexity.
A strong partnership between a contractor and a medical OEM saves money in a variety of ways. The most obvious savings come from efficient production processes. However, a strong collaboration can also reduce costs in an OEM’s sourcing management time, working capital, sustaining engineering staff time and logistics. A strong audit in the areas discussed above is the first step in finding the right partner.
Greg Bannick is director of medical industry solutions at Kimball Electronics Group. He can be reached at email@example.com