Value-adds Are Key to Manufacturing Partnerships
In The Second Part of MPO’s Look at How to Select an Outsourcing Partner, Lowest Costs Aren’t Always the Best Criteria for Making the Best Choice
Andy Teng - Contributing Editor
In part one of this two-part series that appeared in the October issue of Medical Product Outsourcing, the question of how to select an outsourcing partner in service sectors such as sterilization and contract testing focused on the importance of the vendor’s expertise, his ability to work within a network of knowledgeable partners and prompt response to an OEM’s needs. In the second part of the article, MPO examines whether those same requirements apply to contract manufacturers who often compete on price.
Taking a team approach, including project management, regulatory affairs and engineering, compliments contract manufacturing and creates one central contact for customers. Photo courtesy of B. Braun OEM division. |
Even as they offer manufacturing at costs below what many customers can achieve themselves, operational savings are just one benefit medical device manufacturers have come to expect when outsourcing. The others include vendor consolidation and an accompanying shortening of the supply chain, access to technology, quicker turnaround on delivery and other productivity gains.
While the benefits are clear, the path to finding the right partner is anything but. Matching capabilities with needs is no small task, especially as many companies look to providers to fulfill a growing list of wants and needs.
For the vice president of operations who decides to undertake outsourcing, the rewards must be greater than the risks. While few outsourcing accords have led to major disasters, the potential exists, and over the past decade there have been a few high-profile recalls that were the results of outsourcing miscues.
As a result, many companies are growing more rigorous in their audit process, asking potential contract manufacturers increasingly probing questions and requiring contracts to cover more contingencies. All these and other efforts are aimed at ensuring that their choice in a partner is successful.
“One of the most important things that I look for in an outsourced manufacturer is a strong quality system. I have learned from working with a variety of companies over my 20-plus years in the medical device industry that if there is no or poor quality practices, you end up paying for it in a variety of ways over time,” said Lee Jones, the CEO and president of Eden Prairie, MN-based Inlet Medical, a privately held medical device company that specializes in minimally interventional laparoscopic products.
Jones, whose company outsources projects to providers such as Louisville, KY-based MedVenture Technology Corp., said selecting the right contract manufacturer requires examining a number of criteria, of which price may be last. She noted that Inlet first weighs a company’s experience in a particular area, its capabilities and reputation with other medical device companies. “At the end, if everything was equal, I would go with the one that gave me the best price,” she added.
J. Randall Keene, president and CEO of Avail, one of the largest global contract manufacturer of disposable medical devices, added that OEMs also are looking for their partners to provide value in other ways, including maintaining regular communications, ensuring world-class quality and process improvements.
“Large sophisticated device manufacturers want their finished goods outsourcers to be an extension of their own manufacturing organizations. Therefore, they want the same or better capabilities that they have become comfortable with internally,” he added.
Value-add Differentiator
Indeed, medical device companies are looking to contract manufacturers to help realize savings, but in many instances costs aren’t even among the top three reasons why a specific vendor is chosen to undertake a project. According to manufacturing providers interviewed, value-added services have been the key differentiator that sets one manufacturer apart from another. In some instances, a contract manufacturer’s ability to provide dock-to-stock service makes it the ideal vendor while other times it may be front-end capabilities that help to cinch the deal. Still others may have strategic manufacturing sites that enable their customers to reach market more quickly.
Effective contract manufacturing requires a combination of highly skilled workers and automation .Photo courtesy of B. Braun OEM division. |
He said especially valuable is the concept of “dock to point of use,” a reference to delivering products from Phillips’s warehouses and plants to end users. Many medical device companies find that by drop shipping products from the contract manufacturer’s facility directly to customers, they can cut warehousing and inventory costs as well as shorten delivery times. Unquestionably, a key reason why vendor-managed inventory (VMI) is becoming more commonly embraced in the medical device industry is the time and money saved from having the outsourced provider oversee shipping and logistics.
Both VMI and supply chain management are slowly being shifted over to contract manufacturers, a move that helps cut the customers’ headcount. And as medical device manufacturers accelerate this changeover, they are seeking outsourcing partners who can coordinate many of the procurement activities that used to be performed in-house. In fact, in a trend reflecting similar practices adopted by the automotive and electronic industries years ago, some contract manufacturers are now designated as Tier 1 vendors in charge of procurement on behalf of their customers to purchase parts and services required for finished assembly.
Take the example of Scottsdale, AZ-based The Tech Group, a part of West Pharmaceutical Services in Lionville, PA. The injection molding specialist offers project design and management, including materials selection and procurement. According to Eric Resnick, vice president of engineering, medical device manufacturers are seeking an integrated suite of services from their vendors these days. Instead of having to deal with a design house for designs, an injection molder for parts and a packager for converting needs, customers want one point of contact to provide if not full service then certainly management of the web of subcontractors cooperating on a particular project.
“Full service has become more important as OEMs have withdrawn from non-core manufacturing processes,” he said. “Additionally, the OEMs are looking for a single partner to manage the entire supply chain from raw materials procurement through direct shipment to the OEM’s customers.”
This also has the effect of vendor consolidation. It’s easy to see how OEMs can benefit from dealing with fewer vendors, says Richard J. Malo, vice president of contract sales with Buffalo-based Ethox International.
“One company that can do product and process engineering, manufacture and assemble, injection mold components, RF weld bags, package, sterilize and do all of the laboratory services that are required—this is the ideal supplier,” he said. “They (OEMs) can add one supplier and reduce their supplier list by 10 or more companies.”
Taking a Holistic Approach
Numerous medical device companies have taken this holistic approach, handing over entire product lines to their contract service providers. For instance, San Antonio, TX-based Kinetic Concepts, Inc. (KCI) several years ago turned over the production of all its disposable devices to Fort Worth, TX-based Avail Medical Products. Other OEMs such as Minneapolis-based Medtronic have sold off entire plants to providers such as Durham, NC-based TriVirix, the Tech Group and Grand Rapids, MI-based ATEK Medical.
That’s not to say that specialists are not needed. With most projects still manufactured under the classic model—with OEMs sourcing from a number of vendors before making the final assembly in its own facilities—companies such as Inlet Medical say they don’t usually need a one-stop shop to fulfill their outsourcing needs.
By having existing product lines, OEMs are able to reduce costs and speed time to market for their customers. Photo courtesy of B. Braun OEM division. |
But even some full-service providers say that despite the trend to consolidate vendors while leading customers push favored providers to add more capabilities, they must be careful not to spread themselves too thin.
MedVenture, for instance, offers a gamut of services such as design and manufacturing but only for minimally invasive medical devices. Kevin L. Bramer, the company president, said this narrowly focused approach enables MedVenture to excel in its core market.
“MedVenture is not the solution to every OEM’s every need, nor are we trying to be. We distinguish ourselves from competition not just in our service offerings and methods but in our tightly focused target market,” he said. “Rather than dedicate our energies to widening our offering to the overall medical device market, we focus instead on pursuing the leading edge of technology and innovation related to new product introduction for complex medical devices, which includes both design and manufacturing services.”
Through the company’s limited scope and integration of manufacturing and design services, MedVenture can be more nimble, Bramer contended. Even as OEMs push their contract manufacturers to widen their offerings, they also want organizations that can respond quickly. Bramer added that focusing only in the minimally invasive area gives his company a speed advantage.
Other manufacturers try to focus on particular specialties such as metal processing or electronic assemblies. Cleveland area-based Norman Noble, which is recognized for its micromachining, has carved a unique place in the market with its extensive knowledge of metal processing. Because of its approach, it can provide a suite of processing services at its facilities.
“Norman Noble’s niche in the market is that it has the ability to manufacture very tightly toleranced components,” said Dan Stefano, plant manager. “These components are being manufactured under the most up-to-date quality systems available.”
Worry-free Service
While one-stop shopping and value-added services have become buzzwords in today’s outsourcing environment, some demands seem to never go away. OEMs want contract manufacturers who can provide answers, pursue continuous improvements and keep them informed about projects every step of the way. It simply boils down to worry-free service.
“Simplicity and experience are critical—simplicity in terms of how easy it is to work with the outsourcing partner. Customers want a partner that has access to a wealth of resources, ideally at a single location,” said Tom Black, vice president of sales and marketing for B. Braun OEM Division in Bethlehem, PA. “With one call, they get engineering support, manufacturing, packaging, sterilization and regulatory expertise. Experience is the second half. Experience allows the contract manufacturer to find ways to improve the product, streamline manufacturing and reduce regulatory requirements.”
Black stressed that basic measures such as keeping an open line of communications with customers is critical to ensuring ongoing success.
Often times contract manufacturers are able to help customers speed products to market more quickly through small changes in manufacturing or design.
Some observers point out that there are many metrics that can be used to gauge a successful partnership.
Audit results, production days, inventory levels, reductions in manufacturing costs, reject rates and others are all tangible indicators, but there are also intangibles.
George Blank, the president of South Plainfield, NJ-based Medtech Group, said his company offers in addition to traditional design and manufacturing services a suite of ancillary support such as secure web portals that share daily meeting minutes and communications among all project team managers and off-site electronic access to product documentation. He said these are all tools that help keep customers sleep at night.
“Our controlled documents are managed through software that allows specification changes to be reviewed and approved quickly. Customers are able to see the latest documents for their project on their computer from a secure MedTech vault,” he pointed out.
Some contract manufacturers say the outsourcing partner should create a system that is essentially an extension of the customer’s operations. Quality systems should be equivalent if not better. Production data should be as readily accessible as if they were stored in-house. The service provider should also be as available as internal staff down the hall. Providing these assurances simply instill confidence in the partner selected.
“It’s really quite simple. Large sophisticated device manufacturers want their finished goods outsourcers to be an extension of their own manufacturing organizations,” said Avail’s Keene. “Therefore, they want the same or better capabilities that they have become comfortable with internally. Specifically, they require a robust quality system, significant engineering talent (both sustaining and design), a continuous process improvement mindset institutionalized throughout the company, a world-class supply chain organization and real-time medical device experience.”
Other intangibles that keep OEMs and contract manufacturers happy include complementary corporate cultures, attentive management on both sides, common goals (cost savings, shorter delivery times and quality improvements are most often cited) and a partnership mentality. As the medical device industry continues to outsource manufacturing, it can expect an accompanying swelling of the ranks among service providers. Companies seeking to find the most appropriate outsourcing partner will have to weigh a myriad of considerations to weed out the frogs from the princes. But by performing the necessary audits and other due diligence steps, they can eliminate a large number of ill-suited providers and focus on the ones that best fit their needs.