Greg Bannick11.11.10
Medical equipment manufacturers face increasing levels of regulatory scrutiny and continuing pressure to reduce costs. While the supplier evaluation process for outsourcing production is mature and fairly well understood in most companies, the process for outsourcing repair depot may be far less formal. In many cases, low-volume repair depot is simply added as another project with existing manufacturing suppliers. In some cases, that may be the best choice. However, when a detailed evaluation of requirements and supplier capabilities isn’t performed because repair depot was outsourced as an afterthought, opportunities for achieving best total cost may be missed.
This article looks at five critical areas to analyze when evaluating repair depot supplier options:
• Product development support requirements;
• Supplier’s engineering support infrastructure for existing product;
• Synergy with existing production;
• Supplier’s reverse logistics support capability; and
• Supplier’s flexibility and willingness to partner.
Product Development Support Requirements
Medical equipment manufacturers face three major challenges in repair depot strategy development. First, product lifecycles are substantially longer than consumer products and component lifecycles tend to be aligned with high volume consumer applications. Second, medical equipment product qualification can be lengthy and expensive. Low volumes often make it cost prohibitive to re-qualify a redesign. Third, increasing pressure to reduce healthcare costs is slowing down purchases of new equipment in some market segments. Hospitals and doctors’ offices expect existing equipment to be supported over their preferred lifecycle for the purchase.
A full-service electronics manufacturing services (EMS) provider often acts not only as an extension of its customers’ manufacturing operations, but also as an extension of their engineering teams. In the product development process, this support can include design for manufacturability (DFM), design for testability (DFT) and design for assembly (FDA) recommendations and design for sustainability recommendations. While an original equipment manufacturer’s (OEMs) team may be focused primarily on product functionality and cost issues, the EMS provider focuses on analyzing the design in terms of best component availability, manufacturing quality and efficiency and potential obsolescence risks.
The ability to minimize obsolescence risk is a critical skill set for long lifecycle medical equipment, particularly from a repair depot standpoint, since repair support may be required even after product has ceased regular production. The ability of an EMS/repair depot provider to proactively support product development and sustaining engineering efforts should be considered in the evaluation process.
Repair depot strategy needs to be supported by a product development strategy that identifies multiple sources for the majority of the bill of materials, considers the value of custom vs. off-the-shelf critical subassemblies from a sustainability perspective and identifies potential component obsolescence risk as early as possible. From that standpoint, a full-service EMS provider offering repair depot service, may represent a better supplier than a standalone repair depot operation.
Supplier’s Engineering Support Infrastructure for Existing Product
A challenge for many companies is finding repair depot support for existing products where a proactive approach to obsolescence management has not been taken. Some of the technical challenges that may need to be addressed in these cases include:
• The ability to identify alternate components for components nearing end of life;
• A requirement to repair and test discontinued critical custom components, such as odd-sized liquid crystal displays (LCDs), if new replacements are no longer available;
• The ability to appropriately support Restriction of Hazardous Substances directives and leaded versions of a product;
• The ability to do minor cosmetic repairs if plastic housing or faceplate molds are no longer available; and
• The ability to support a functional test strategy that may not be well documented.
The cost savings achievable with a contractor whose repair depot operations include strong engineering resources can be substantial. For example, a supplier of a critical subassembly obsoleted the part and told the effected OEM that it would be necessary to make a 10,000 lifetime buy of the remaining inventory in order to continue to have a supply of spare parts. The customer had an existing inventory of subassemblies in need of repair. A repair facility could analyze the device, figure out the root cause of the failures and repair the existing inventory. The repair cost would be less than the cost of new units, resulting in significant savings for the OEM in actual inventory costs.
Synergy with Existing Production
Another benefit of sourcing repair depot at the contractor building the product is the economies of scale that can be achieved through common inventories, and shared engineering and production resources.
Key benefits can include:
• Component commonality with production inventories which may lower the amount of repair- specific inventory required to be held;
• Access to the purchasing leverage found in larger EMS providers;
• Ability to eliminate requirements for duplicate test equipment;
• Access to a greater breadth of engineering expertise than found in a standalone repair depot;
• Ability to align repair depot manufactured spare parts demand with existing production activities; and
• Quality system certifications and internal processes better aligned with medical requirements.
Supplier’s Reverse Logistics Support Capability
Just as the EMS model has a stronger product development support capability than is typically found in standalone repair depots, dedicated repair depots may have stronger reverse logistics capability since this is the core value add of most repair depot business models. If synergy with an existing production supplier is desired, it is important to analyze that contractor’s ability to provide efficient reverse logistics support. There are typically two types of repair business models.
In the Direct Business Model, the OEM issues return authorizations, but the physical product is typically shipped direct to the repair depot from the field. The supplier has a database which is polling the OEM’s return database several times a day looking for the latest information on returns issued by the OEM but shipped directly to the supplier.
On the other side of the direct transaction, the OEM database is requesting or is being “pushed,” information on the status of the returned goods. This is critical as it shows the status of product along the reverse logistics supply chain. Data reporting may include:
• Returned material authorizations (RMAs) issued, but not yet received;
• Product in the “to be repaired” warehouse;
• In-process repairs;
• Product in the “available to ship” warehouse; and
• Shipment status.
This data exchange typically occurs several times per day. Also, the Direct Model often includes a fulfillment aspect in which customer orders are received daily; and items are picked, packed and shipped directly to the end user by order. The benefit to this model is that the majority of the transactions are automatically made by the system. Transactional costs are reduced. Most importantly, since returns are being shipped directly from the field to the repair depot and then from the repair depot back to the field, two legs of transportation logistics are removed. This lowers costs and improves turnaround time.
In the case of an Indirect Business Model, RMAs are consolidated by the OEM and shipped to the repair depot. Information is exchanged in a less real-time manner. In the Indirect model, transaction costs are typically higher and cycle times longer. In this model cycle times can be reduced by adding an “advanced exchange” agreement. However, the OEM still incurs the added cost of two additional legs of transportation logistics. Those two legs are the reverse logistics leg of “customer to OEM to repair depot” and forward logistics leg of “repair depot to OEM to customer.”
In the Direct Business model, the repair depot becomes the face of their OEM customer to the end market. This means that quality, service and support guarantees need to align with the OEM’s commitments to its end customers. Internal stocking and fulfillment procedures need to support guaranteed turnaround times of as little as 24 hours, and provide both the OEM and the end customer with adequate visibility into repair status. The repair depot supplier needs to be able to customize their support efforts to meet the requirements of each of its direct business model customers and provide seamless support to that end market.
In both models, there is a requirement for systems which collect and report data either real-time or near real-time. Additionally, because medical products are involved, the ability to provide device history recordkeeping, track revision levels and provide required levels of traceability data are also areas to audit closely.
Another area of reverse logistics support that must be appropriately addressed is e-waste disposal. There is not a federal standard that addresses e-waste handling requirements and different states are beginning to impose Waste Electronic and Electrical Equipment-like requirements. This patchwork of regulations can make it confusing for OEMs to understand potential e-waste liability in a given geography. Selecting a contractor who uses certified disposal partners and is proactive in environmental compliance is the best way to avoid unexpected fines, unplanned recycling costs or bad publicity.
Supplier’s Flexibility and Willingness to Partner
This may be the most critical area of evaluation as medical equipment repair requirements can change over time. Today’s synergistic medium volume production and repair project may be tomorrow’s ultra-low-volume, end-of-life support program. Suppliers who have made a commitment to include specialized repair depot activities in their business model understand the challenges that can occur as a product nears end-of-life. Suppliers adding repair depot to an existing production program, simply as more value-add, may not be as willing to support the product when production ends.
The supplier’s willingness and ability to stock appropriate levels of inventory (including end-of-life buys) and/or offer creative strategies for minimizing end-of-life buys should be carefully evaluated.
Similarly, a supplier’s quality certifications should also be considered. It can be costly both in terms of transition costs and learning curve to transfer a repair depot project between suppliers. A supplier that is ISO 13485 registered and registered with the U.S. Food and Drug Administration is better-positioned to support a migration from board-level to complete unit repair depot activities. Consequently, even if a project simply requires board-level or subassembly repair depot support, consider whether or not the chosen supplier will be capable of meeting expanded requirements of that project over time.
Achieving lowest total cost in repair depot outsourcing requires a clear understanding of both the immediate scope of work and longer term likely requirements. Evaluating repair depot strategy in the product development stage is most cost effective, but even existing products can benefit when a strong supplier is selected.
References
1. S. Mauldin, “Optimizing Outsourced Medical Equipment Repair Depot Support,” Circuits Assembly Magazine, March 2009.
2. G. Bannick, “Overcoming Repair Depot Challenges,” Proceedings of SMTA International, San Diego, California, October 2009.
Greg Bannick is director of medical industry solutions at Kimball Electronics Group. He can be reached at greg.bannick@kimball.com
This article looks at five critical areas to analyze when evaluating repair depot supplier options:
• Product development support requirements;
• Supplier’s engineering support infrastructure for existing product;
• Synergy with existing production;
• Supplier’s reverse logistics support capability; and
• Supplier’s flexibility and willingness to partner.
Product Development Support Requirements
Medical equipment manufacturers face three major challenges in repair depot strategy development. First, product lifecycles are substantially longer than consumer products and component lifecycles tend to be aligned with high volume consumer applications. Second, medical equipment product qualification can be lengthy and expensive. Low volumes often make it cost prohibitive to re-qualify a redesign. Third, increasing pressure to reduce healthcare costs is slowing down purchases of new equipment in some market segments. Hospitals and doctors’ offices expect existing equipment to be supported over their preferred lifecycle for the purchase.
A full-service electronics manufacturing services (EMS) provider often acts not only as an extension of its customers’ manufacturing operations, but also as an extension of their engineering teams. In the product development process, this support can include design for manufacturability (DFM), design for testability (DFT) and design for assembly (FDA) recommendations and design for sustainability recommendations. While an original equipment manufacturer’s (OEMs) team may be focused primarily on product functionality and cost issues, the EMS provider focuses on analyzing the design in terms of best component availability, manufacturing quality and efficiency and potential obsolescence risks.
The ability to minimize obsolescence risk is a critical skill set for long lifecycle medical equipment, particularly from a repair depot standpoint, since repair support may be required even after product has ceased regular production. The ability of an EMS/repair depot provider to proactively support product development and sustaining engineering efforts should be considered in the evaluation process.
Repair depot strategy needs to be supported by a product development strategy that identifies multiple sources for the majority of the bill of materials, considers the value of custom vs. off-the-shelf critical subassemblies from a sustainability perspective and identifies potential component obsolescence risk as early as possible. From that standpoint, a full-service EMS provider offering repair depot service, may represent a better supplier than a standalone repair depot operation.
Supplier’s Engineering Support Infrastructure for Existing Product
A challenge for many companies is finding repair depot support for existing products where a proactive approach to obsolescence management has not been taken. Some of the technical challenges that may need to be addressed in these cases include:
• The ability to identify alternate components for components nearing end of life;
• A requirement to repair and test discontinued critical custom components, such as odd-sized liquid crystal displays (LCDs), if new replacements are no longer available;
• The ability to appropriately support Restriction of Hazardous Substances directives and leaded versions of a product;
• The ability to do minor cosmetic repairs if plastic housing or faceplate molds are no longer available; and
• The ability to support a functional test strategy that may not be well documented.
The cost savings achievable with a contractor whose repair depot operations include strong engineering resources can be substantial. For example, a supplier of a critical subassembly obsoleted the part and told the effected OEM that it would be necessary to make a 10,000 lifetime buy of the remaining inventory in order to continue to have a supply of spare parts. The customer had an existing inventory of subassemblies in need of repair. A repair facility could analyze the device, figure out the root cause of the failures and repair the existing inventory. The repair cost would be less than the cost of new units, resulting in significant savings for the OEM in actual inventory costs.
Synergy with Existing Production
Another benefit of sourcing repair depot at the contractor building the product is the economies of scale that can be achieved through common inventories, and shared engineering and production resources.
Key benefits can include:
• Component commonality with production inventories which may lower the amount of repair- specific inventory required to be held;
• Access to the purchasing leverage found in larger EMS providers;
• Ability to eliminate requirements for duplicate test equipment;
• Access to a greater breadth of engineering expertise than found in a standalone repair depot;
• Ability to align repair depot manufactured spare parts demand with existing production activities; and
• Quality system certifications and internal processes better aligned with medical requirements.
Supplier’s Reverse Logistics Support Capability
Just as the EMS model has a stronger product development support capability than is typically found in standalone repair depots, dedicated repair depots may have stronger reverse logistics capability since this is the core value add of most repair depot business models. If synergy with an existing production supplier is desired, it is important to analyze that contractor’s ability to provide efficient reverse logistics support. There are typically two types of repair business models.
In the Direct Business Model, the OEM issues return authorizations, but the physical product is typically shipped direct to the repair depot from the field. The supplier has a database which is polling the OEM’s return database several times a day looking for the latest information on returns issued by the OEM but shipped directly to the supplier.
On the other side of the direct transaction, the OEM database is requesting or is being “pushed,” information on the status of the returned goods. This is critical as it shows the status of product along the reverse logistics supply chain. Data reporting may include:
• Returned material authorizations (RMAs) issued, but not yet received;
• Product in the “to be repaired” warehouse;
• In-process repairs;
• Product in the “available to ship” warehouse; and
• Shipment status.
This data exchange typically occurs several times per day. Also, the Direct Model often includes a fulfillment aspect in which customer orders are received daily; and items are picked, packed and shipped directly to the end user by order. The benefit to this model is that the majority of the transactions are automatically made by the system. Transactional costs are reduced. Most importantly, since returns are being shipped directly from the field to the repair depot and then from the repair depot back to the field, two legs of transportation logistics are removed. This lowers costs and improves turnaround time.
In the case of an Indirect Business Model, RMAs are consolidated by the OEM and shipped to the repair depot. Information is exchanged in a less real-time manner. In the Indirect model, transaction costs are typically higher and cycle times longer. In this model cycle times can be reduced by adding an “advanced exchange” agreement. However, the OEM still incurs the added cost of two additional legs of transportation logistics. Those two legs are the reverse logistics leg of “customer to OEM to repair depot” and forward logistics leg of “repair depot to OEM to customer.”
In the Direct Business model, the repair depot becomes the face of their OEM customer to the end market. This means that quality, service and support guarantees need to align with the OEM’s commitments to its end customers. Internal stocking and fulfillment procedures need to support guaranteed turnaround times of as little as 24 hours, and provide both the OEM and the end customer with adequate visibility into repair status. The repair depot supplier needs to be able to customize their support efforts to meet the requirements of each of its direct business model customers and provide seamless support to that end market.
In both models, there is a requirement for systems which collect and report data either real-time or near real-time. Additionally, because medical products are involved, the ability to provide device history recordkeeping, track revision levels and provide required levels of traceability data are also areas to audit closely.
Another area of reverse logistics support that must be appropriately addressed is e-waste disposal. There is not a federal standard that addresses e-waste handling requirements and different states are beginning to impose Waste Electronic and Electrical Equipment-like requirements. This patchwork of regulations can make it confusing for OEMs to understand potential e-waste liability in a given geography. Selecting a contractor who uses certified disposal partners and is proactive in environmental compliance is the best way to avoid unexpected fines, unplanned recycling costs or bad publicity.
Supplier’s Flexibility and Willingness to Partner
This may be the most critical area of evaluation as medical equipment repair requirements can change over time. Today’s synergistic medium volume production and repair project may be tomorrow’s ultra-low-volume, end-of-life support program. Suppliers who have made a commitment to include specialized repair depot activities in their business model understand the challenges that can occur as a product nears end-of-life. Suppliers adding repair depot to an existing production program, simply as more value-add, may not be as willing to support the product when production ends.
The supplier’s willingness and ability to stock appropriate levels of inventory (including end-of-life buys) and/or offer creative strategies for minimizing end-of-life buys should be carefully evaluated.
Similarly, a supplier’s quality certifications should also be considered. It can be costly both in terms of transition costs and learning curve to transfer a repair depot project between suppliers. A supplier that is ISO 13485 registered and registered with the U.S. Food and Drug Administration is better-positioned to support a migration from board-level to complete unit repair depot activities. Consequently, even if a project simply requires board-level or subassembly repair depot support, consider whether or not the chosen supplier will be capable of meeting expanded requirements of that project over time.
Achieving lowest total cost in repair depot outsourcing requires a clear understanding of both the immediate scope of work and longer term likely requirements. Evaluating repair depot strategy in the product development stage is most cost effective, but even existing products can benefit when a strong supplier is selected.
References
1. S. Mauldin, “Optimizing Outsourced Medical Equipment Repair Depot Support,” Circuits Assembly Magazine, March 2009.
2. G. Bannick, “Overcoming Repair Depot Challenges,” Proceedings of SMTA International, San Diego, California, October 2009.
Greg Bannick is director of medical industry solutions at Kimball Electronics Group. He can be reached at greg.bannick@kimball.com