Christopher Delporte05.10.12
Ask about the topic of outsourcing and opinions vary widely. Is component manufacturing stronger than full product? What about the non-stop talk about the one-stop shop? How are suppliers helping their customers control cost? How do supplier partners meet OEMs’ quality and ever-increasing regulatory demands? Questions, questions, questions. Trying to stay out in front of all these topics could make anyone’s head spin.
We try to cut through some of the noise with our May issue. The annual full-service outsourcing feature examines many of these broad industry concerns, tapping expertise from numerous manufacturers, industry insiders and experts. Our story on ensuring quality also provides much-needed how-to in an ever-changing regulatory and compliance climate.
The global medical market is worth approximately $350 billion, of which the U.S. accounts for about 40 percent. But the industry has not been immune to the recent global recession and has faced numerous issues, including price and volume concerns, healthcare reforms and a more restrictive regulatory environment. Responding to pricing pressure remains a key concern for medical device companies. The government’s effort to contain healthcare costs and the continuing pressure from hospitals and health systems to renegotiate on pricing due to potential medical reimbursement cuts have increased pressure on manufacturers to rework their pricing strategies. One such strategy employed by medical device companies to better control costs is through outsourcing. According to some estimates, OEMs that outsource (not necessarily offshore) can cut product development costs by as much as 30 percent. And, according to experts we spoke to, outsourcing service providers are becoming increasingly sophisticated and diverse as they grow their core areas of expertise. As a result, medical device outsourcing companies can offer services ranging from product development, design, manufacturing,
engineering, and pre-clinical testing to supply chain management (sterilization, packaging and warehousing).
As companies modernize their business practices, driven by the need to remain competitive and retain critical survival capabilities—such as agility and flexibility in a fast-changing marketplace—opportunities will grow for outsourcing. According to a new report recently released by Global Industry Analysts Inc., based in San Jose, Calif., the value of the market is expected to reach $44.7 billion by 2017.
Regulatory issues have been “a major barrier,” according to the report. However, in recent years, the economic advantages of outsourcing have far outweighed the bottlenecks confronted. As a
result, outsourcing is currently a growing trend with major medical device OEMs.
“With the future characterized by volatility in commodity prices, and currency fluctuations, manufacturing processes—including that for medical devices—will come under direct pressure requiring OEMs to remain cost effective and flexible and to rapidly adjust to changing external market stimulants,” said the study’s authors.
“Outsourcing against this backdrop will emerge even higher to be the sharpest competitive edge for medical device OEMs. The healthcare industry is resilient but not immune from the developments in macro-economic environment. Under such a scenario, growth in the medical-device outsourcing market decelerated to single digits in the year 2009 discouraged by reductions in contract manufacturing orders from OEMs burdened with softening demand, liquidity shortages and longer sales cycle of products.”
However, the recession has pushed the concept of outsourcing medical device development and manufacturing, the report noted, adding that several medical device OEMs are continuing to re-
evaluate supply chain dynamics in a bid to leverage cost efficiency under a scenario where increasing profitability is solely dependent upon reducing production and manufacturing costs.
“Most medical device outsourcing service providers are focusing on expanding their capability and expertise with end-to-end, full-service portfolio offerings,” according to the report. “Full-length
services typically range from product design, development and production, including value-added services such as R&D, engineering services, packaging and supply chain management. In the
upcoming years, companies with dual prototyping and production abilities are poised to score the maximum gains as OEM preferences skew steeply toward service offerings that promise radical reductions in time to market.”
The United States accounts for the majority of the global medical device outsourcing market. By category, outsourcing services offered for Class II devices is the largest segment. OEMs leveraging the most of specialized outsourcing services are expected to be those operating in a business environment where cost-containment and product differentiation represents perennial needs, the study showed.
In the post-recession period, medtech firms will continue to have an appetite for cost-effective solutions, but will, however, demand more value-creating productivity, according to the study. Growing recognition of the economic and operational efficiencies and benefits of a device outsourcing model promises strong future growth.
We try to cut through some of the noise with our May issue. The annual full-service outsourcing feature examines many of these broad industry concerns, tapping expertise from numerous manufacturers, industry insiders and experts. Our story on ensuring quality also provides much-needed how-to in an ever-changing regulatory and compliance climate.
The global medical market is worth approximately $350 billion, of which the U.S. accounts for about 40 percent. But the industry has not been immune to the recent global recession and has faced numerous issues, including price and volume concerns, healthcare reforms and a more restrictive regulatory environment. Responding to pricing pressure remains a key concern for medical device companies. The government’s effort to contain healthcare costs and the continuing pressure from hospitals and health systems to renegotiate on pricing due to potential medical reimbursement cuts have increased pressure on manufacturers to rework their pricing strategies. One such strategy employed by medical device companies to better control costs is through outsourcing. According to some estimates, OEMs that outsource (not necessarily offshore) can cut product development costs by as much as 30 percent. And, according to experts we spoke to, outsourcing service providers are becoming increasingly sophisticated and diverse as they grow their core areas of expertise. As a result, medical device outsourcing companies can offer services ranging from product development, design, manufacturing,
engineering, and pre-clinical testing to supply chain management (sterilization, packaging and warehousing).
As companies modernize their business practices, driven by the need to remain competitive and retain critical survival capabilities—such as agility and flexibility in a fast-changing marketplace—opportunities will grow for outsourcing. According to a new report recently released by Global Industry Analysts Inc., based in San Jose, Calif., the value of the market is expected to reach $44.7 billion by 2017.
Regulatory issues have been “a major barrier,” according to the report. However, in recent years, the economic advantages of outsourcing have far outweighed the bottlenecks confronted. As a
result, outsourcing is currently a growing trend with major medical device OEMs.
“With the future characterized by volatility in commodity prices, and currency fluctuations, manufacturing processes—including that for medical devices—will come under direct pressure requiring OEMs to remain cost effective and flexible and to rapidly adjust to changing external market stimulants,” said the study’s authors.
“Outsourcing against this backdrop will emerge even higher to be the sharpest competitive edge for medical device OEMs. The healthcare industry is resilient but not immune from the developments in macro-economic environment. Under such a scenario, growth in the medical-device outsourcing market decelerated to single digits in the year 2009 discouraged by reductions in contract manufacturing orders from OEMs burdened with softening demand, liquidity shortages and longer sales cycle of products.”
However, the recession has pushed the concept of outsourcing medical device development and manufacturing, the report noted, adding that several medical device OEMs are continuing to re-
evaluate supply chain dynamics in a bid to leverage cost efficiency under a scenario where increasing profitability is solely dependent upon reducing production and manufacturing costs.
“Most medical device outsourcing service providers are focusing on expanding their capability and expertise with end-to-end, full-service portfolio offerings,” according to the report. “Full-length
services typically range from product design, development and production, including value-added services such as R&D, engineering services, packaging and supply chain management. In the
upcoming years, companies with dual prototyping and production abilities are poised to score the maximum gains as OEM preferences skew steeply toward service offerings that promise radical reductions in time to market.”
The United States accounts for the majority of the global medical device outsourcing market. By category, outsourcing services offered for Class II devices is the largest segment. OEMs leveraging the most of specialized outsourcing services are expected to be those operating in a business environment where cost-containment and product differentiation represents perennial needs, the study showed.
In the post-recession period, medtech firms will continue to have an appetite for cost-effective solutions, but will, however, demand more value-creating productivity, according to the study. Growing recognition of the economic and operational efficiencies and benefits of a device outsourcing model promises strong future growth.