Sean Fenske, Editor05.01.17
As healthcare continues to be such an area of attention for headlines, it’s no surprise that more companies are seeking to get involved in the marketplace to offer solutions to the array of growing concerns such as chronic diseases, cancer, and diabetes, not to mention an aging baby boomer population. Most notable of late is the entrance of tech industry leaders such as Apple, Google, IBM, Microsoft, Samsung, and Amazon, among others. These companies bring a unique skill set that’s not commonly seen in healthcare, including consumer design, data management, and Internet of Things familiarity. Given the direction healthcare is headed, all of these are valuable assets and make these companies new threats to traditional medical device OEMs (original equipment manufacturers).
On the other hand, these companies are not accustomed to functioning in the highly regulated medical device manufacturing environment. While many have brought in experts from the medtech sector, they still lack the manufacturing environment and culture that goes along with that regulatory knowledge. For them, outsourcing to a company that lives the regulated manufacturing environment every single day makes economic sense. There’s no need for these companies to bring in a skilled workforce to develop medical devices when there are outsourcing providers who specialize in it.
But this is only one aspect of the incredible growth that’s occurring within the medical device outsourcing sector. Traditional medtech firms are also increasing their use of outside partners. Whereas much of the spend on contract services has historically been in support of legacy products, more companies are seeking input from full-service outsourcing providers early in the development process to enhance everything from material selection, product design, design for manufacturability, tooling, sterilization, packaging, and even warehousing and logistics. Some outsourcing partners will take a project “from soup to nuts,” enabling the OEM to focus on its core competencies, which may be sales or idea generation for its next product.
According to a report by Grand View Research Inc.—Medical Device Outsourcing Market Analysis By Application (Class I, Class II, Class III), By Service And Segment Forecasts, 2014-2025—released in February 2017, the global medical device outsourcing market is expected to reach $88.2 billion by 2025.1 The report cites “rising price competition and rising need for reduction of production cost” as the most prominent driving factors in the market. Further, the report states that “product design and development services are anticipated to be one of the highly availed services by device manufacturers over the forecast period.”
Simply put, more and more medical device manufacturers are coming to recognize that, in many cases, outsourcing tasks that are not core competencies to suppliers who specialize in a particular area is a sound financial strategy. Further, these partners enable medtech OEMs to manufacture and distribute products worldwide as they will often assist with regional regulatory challenges. Essentially, in the ideal scenario, an outsourcing partner will become an extension of the OEM, enhancing and expanding upon the company’s native capabilities. The strategic partner should truly make the medical device OEM a bigger, stronger, and faster organization.
Unfortunately, achieving this ideal is, to quote a cliché, easier said than done. As such, MPO has reached out to a number of these medical device outsourcing partners and experts who have vast experience in making these arrangements work with an OEM customer. They’ve shared their insights on an array of considerations impacting the medical device manufacturer/contract manufacturing organization (CMO) or outsourcing supplier relationship. Following is a brief introduction to each of the participants in this roundtable presentation.
Tom Black is vice president of the OEM and International Sales divisions at B. Braun Medical Inc., headquartered in Bethlehem, Pa. The company provides outsourcing services to medical device and pharmaceutical manufacturers, specializing in fluid administration sets, custom kits, and individual components.
John Carlson is president of the Health Solutions group at Flex Ltd. Based in San Jose, Calif., the company’s Health Solutions group offers design, engineering, and manufacturing support for the development of medical, drug delivery, and diagnostic technologies.
Brandon Green is vice president of sales at New Brighton, Minn.-based Donatelle, an outsourcing services provider focused exclusively on the design, development, and manufacturing of medical devices.
Mike Kaiser is executive director of business operations and account management at Donatelle.
J. Mark King is president and CEO of Tegra Medical, an end-to-end (prototyping to full production) solutions provider for the medical device manufacturing industry. The 10-year-old company is based in Franklin, Mass.
Andrew J. Miclot is president and CEO of Micro Machine Company, a firm with locations in Kalamazoo, Mich., and Warsaw, Ind., that provides services for the production of precision medical devices, including instruments and implants for various orthopedic markets.
Dave Neal is founder and president of Morris Plains, N.J.-based STAT Design LLC, an orthopedic device manufacturing consulting firm that provides critical insights from Neal’s time on both the OEM and supplier side of the industry.
Todd Owens is vice president of engineering at Donatelle.
Joe Rocco is president and CEO of Eastek International, headquartered in Chicago, Ill. The company is an ISO 9001- and 13485-certified, and FDA-registered medical device contract manufacturing company.
Bill Welch is chief technology officer at Phillips-Medisize, a Molex company, and Hudson, Wis.-based firm. It maintains a focus on outsource design, development, and technology-driven manufacturing for the medical device, diagnostics, and drug delivery markets.
Sean Fenske: How would you describe the relationship between the OEM and CMO in the medtech industry today? How has this dynamic changed from just a few years ago?
John Carlson: More OEMs are turning to CMOs to help them accelerate growth, and to manage supply chain efficiency, and resource or capacity reallocation. They are also seeking innovation partners to solve issues related to manufacturability of design, leverage new process technology, and improve cost structure. Over the past several years, our own relationships with OEMs have evolved significantly, with OEMs increasingly coming to Flex for innovation and design collaboration, and to accelerate organic growth and speed to market. Our own business mix has expanded so much beyond traditional manufacturing that we no longer even consider Flex to be a CMO, but rather “the Sketch to Scale solutions provider that designs and builds intelligent products for a connected world.”
J. Mark King: The relationships between OEMs and CMOs are becoming deeper and closer, as OEMs move to outsource more of their manufacturing. It is becoming broader as OEMs are now relying on CMOs more for work they used to do in-house, such as refining designs for manufacturability. The OEMs are looking for more than a supplier that just produces components; they are looking for suppliers with broad capabilities and the ability to be end-to-end providers. Having fewer suppliers producing one product is faster and more cost effective, while also ensuring quality.
Andrew J. Miclot: Dynamic! If you are a full-service outsourcing supplier, the lead times are too long, but you have all the services. If you are a niche smaller supplier, you want to stay on the supplier list and expand your offerings. How has this dynamic changed from just a few years ago? A few years ago, CMOs had more stability with their OEM customers.
Dave Neal: There seems to be a trend toward closer relationships being formed. The CMOs are being involved more upfront in the design process, rather than waiting until the product is fully designed.
Joe Rocco: Today, there is a demand for near instant information on material status. Also, there is greater expectation of the CMO to address design issues, including when the OEM is responsible for the design.
Bill Welch: As devices become more complex and there is an increased shift to patient self-administration, development of the delivery devices has become more challenging for all, including the OEM. As a result, OEMs expectations for their partners are increasing, in addition to thorough understanding of the current technologies, emerging trends, and market drivers.
Fenske: What factors are driving OEMs to seek out the use of CMOs more today than in the past?
Tom Black: The OEMs are looking for ways to reduce their overall spend and they want to be able to rely on a CMO that has experience with manufacturing, product and process documentation, and a strong quality system. If they can achieve those goals without adding additional headcount within their own organization, then they are taking advantage of the operational expertise that is in the market to meet their annual objectives.
Carlson: As the pace of technology change continues to increase and the demand for devices with integrated connectivity and intelligence grows, OEMs are coming to Flex to leverage our own competencies that are not necessarily in their core. In addition, they face ever-increasing pressure from regulators, payers, and providers that demand cost efficiencies as well as proof of efficacy for differentiated products.
Brandon Green: Two of the most common drivers for engaging a CMO today are risk management and process excellence. As the footprint within the supply chain continues to expand, OEMs need to have strong secondary partners to ensure stability of the product lines. Also, the technology employed at CMOs is changing at a rapid pace. The OEM must rely on strategic partners who can deliver at the highest level of process excellence.
King: Ongoing changes in the medical device field are spurring OEMs to outsource more manufacturing. The factors affecting the medical device marketplace include an aging population, new and updated products to meet these needs, and different manufacturing technologies to make them. With these changes, OEMs are more driven by the need to get products to market sooner and more cost effectively. Market trends such as greater life expectancies, increased healthcare spending, and better insurance coverage are fueling OEM growth, while at the same time, these same companies are faced with growing pressures such as increased regulatory processes, threats from low-cost competitors, and decreasing margins. Meanwhile, medical devices are growing more complex than ever. As a result, OEMs are looking to reduce costs, and outsourcing is an effective way to do this. Outsourcing allows OEMs to direct investments toward R&D, marketing, entry into new markets, etc.
Miclot: Reduce total costs, improve margins, and to simplify the supply chain with fewer CMOs.
Neal: There is even more pressure to release projects quicker to gain a competitive advantage. Responding quickly to surgeons’ requests for new products shows attention to their clinical needs.
Rocco: OEMs do not have the engineering bandwidth to address the full range of design and development topics from plastic part design through electronic functional testing. OEMs expect the CMOs to take the long view of material availability (metal, thermoplastic, electronic components) and to catch where the OEM has specified materials that are end-of-life, though may have been intentionally selected for technical specifications and/or price. Additionally, OEMs do not have enough product managers and are trying to move some of the planning duties to CMOs. This can be complimentary for CMO duties but requires an extremely clear view on where the OEM is heading with product launch and product demand timing.
Welch: Increased complexity of devices and the focus on outcomes is really driving the OEMs to seek out CMOs with a thorough understanding of current technologies, emerging trends, and market drivers. This change in thought process requires OEMs to think more holistically about their devices—what results do we need to deliver and how will the outcome be achieved? This increases the importance of engaging a CMO early, as a solid strategy needs to drive the development process toward the desired patient outcome. CMOs who provide end-to-end solutions, from strategy through to manufacturing, are able to help deliver measurable outcomes, which payers increasingly require to provide market access.
Fenske: What types of tasks or projects are OEMs employing CMOs to accomplish today that weren’t being outsourced in the past?
Carlson: In my experience at Flex, the three that stand out to me are: innovation, as product differentiation becomes more challenging; full system-level assembly as opposed to component or HLA manufacturing; and management of the entire supply chain as opposed to simply assembly services.
Green: Today, we are experiencing the OEM requesting participation with the CMO much earlier in product development. As the market for new devices moves faster every year, the OEM must be able to tap into their outside resources to assist in designing products that can be manufactured with the highest levels of quality and repeatability.
King: We see OEMs asking us to take on a greater proportion of the work to refine medical designs to make them manufacturable. In our experience, the best time to take cost out of a product is during the design stages. We work on this with customers in our GENESIS Tech Centers, where we help get products ready for production. This type of work involves a lot of Design for Manufacturability and Assembly (DFMA) with the goal of reducing cost, increasing quality, and shortening the development cycle of the OEM’s medical device. Increasingly, OEMs are looking to suppliers with broad capabilities that are able to produce their products from creation to launch.
Miclot: Many large OEMs outsource labeling, packaging, and even sterilization with trusted CMOs but keep proprietary products and services in house. Small OEMs are looking for complete, full-service outsourcing partners so they can focus on other aspects of the business.
Neal: There seems to be a trend to hire resources for remediation of quality issues that arise in an effort to be able to quickly address these concerns. Specifically, time-sensitive issues such as FDA audit findings and CAPAs.
Rocco: Developing incoming quality control specifications for the OEM is one. Another is serving as regional repair depots. Also, final assembly in local markets (i.e., produce most of the product in low-cost countries and do final assembly in the market where final sale will take place).
Welch: With the increase in complexity of devices and focus on outcomes, we are seeing increased demand for our comprehensive strategic and preproduction services, such as electronics integration and human factors engineering.
Often easier said than done, establishing involvement prior to the prototype design provides flexibility for design improvements and process requirements. Early involvement of a CMO provides the greatest benefit long-term. The results are the benefit of designers, testers, and manufacturers working to solve the articulated user needs without any arbitrarily established design constraints.
Fenske: What criteria should an OEM use to determine what aspects of product development and manufacture should be outsourced? In other words, how does an OEM determine what to “make vs. buy”?
Black: They have to take a look at themselves to see what they are good and experienced at doing, and what they are not good at doing. If they can find a CMO who has that experience and trust, as well as all of the important details that go along with outsourcing (regulatory support, product and quality systems, a variety of manufacturing capabilities, etc.) then buying makes sense. It still comes down to total cost.
Carlson: It comes down to what the OEM believes is the right strategy to achieve their goals, and what is the best use of available resources to maximize their results. In our experience, a balanced ecosystem—where we collaborate with the OEM in product development—produces great outcomes. The combined expertise, complemented by access to different technologies that have already been tried and tested, produces innovative and differentiated solutions with a time-to-market advantage.
King: Many of the OEMs we work with want to focus on their core competencies, such as R&D, M&A, and sales and marketing. By outsourcing development and manufacturing, they’re able to devote their resources to bringing new products to market and ensuring their current products are successful and profitable. Companies that are focused exclusively on development and manufacturing have the experience, equipment, and skilled people to do it more cost effectively, quicker, and with higher quality.
Miclot: Certain core competencies and proprietary products, OEMs tend to make in house. Buy from CMOs that have their core competencies that offer a better value.
Neal: Certainly, the issues that are of critical concern to an organization are the costs, timelines, and quality. Oftentimes, OEMs make the decision to stop outsourcing and purchase in-house processing equipment only to find out that certain competencies are best left to the experts.
Rocco: Typically, this decision is outside total price versus inside direct cost. This decision encourages “localized optimization” of manufacturing processes and ignores the total cost to the OEM in BOM management, ECO management, process control, quality assurance, and ongoing value analysis and value engineering. This creates a high hurdle for the CMO and OEM champion to overcome.
Criteria should be the ability of the CMO to handle a variety of factors:
Black: The CMO may have more experience, or positive and negative experiences with a particular design or manufacturing process that would help the OEM with design costs, development time, and overall project costs.
Carlson: In our development work at Flex, we leverage technology “building blocks” and process technology developed across multiple industries, and apply it in new ways to create differentiated products. Our cross-industry experience complements the expertise of the OEM. The combination is the catalyst, and the creative solutions that we develop together with our customers provide them the platforms for growth and market differentiation that they seek.
As an illustration, consider the emergence of “connected” devices. Existing component technologies can be combined in new ways with existing devices, to create intelligent and connected products and services in this IoT age. Medical product connectivity has traditionally comprised proprietary and closed systems, owned by the OEM. They tend to be well behind the technology curve and are without industry standardization, which is much needed for patients and providers to benefit on any scale.
If you can safely integrate technologies that are leading-edge and well-tested in other industries, however, you can create a product or service that is industry-leading, meets both the regulatory and cost hurdles when it’s launched, and is compatible with the medical connectivity ecosystem. The growth opportunity for digital health, for example, depends on connectivity taking on a different architecture to integrate with everyday devices—but in a safe and secure way. This new “medical grade connectivity” requires expertise dedicated to that technology—which an OEM may not have time to build—to catch the wave.
Green: The CMO is the expert in their manufacturing discipline, employing talent specialized to manufacturing processes. When the OEM strives for deep engagement at the CMO, as early as the design concept phase, our talent can help drive innovative solutions to potential manufacturing issues and constraints. This creative collaboration is particularly critical as medical devices continue to shrink in size. Having a partner who understands the complexities of miniaturization within their manufacturing competency will continue to be crucial to the OEM.
King: While it is the OEM that designs the product, the CMO is the expert when it comes to the manufacturing process. CMOs know how to take complexity out of the manufacturing process to make it more efficient, faster, and less expensive. CMOs aren’t changing how a product functions; they’re changing the way it’s made.
Miclot: Working with a partner CMO can dramatically improve creativity and innovation. CMOs have many customers and pick up innovative ideas with all these customers. Also, many CMOs have creative and innovative engineers and sales representatives with vast experience.
Neal: OEMs are able to quickly add a new technology or process that is currently not in the works in-house.
Rocco: Due to breadth of experience, the CMO can offer solution ideas of which the OEM design team may not be aware. Also, the CMO may be able to consolidate manufacturing processes in ways the OEM might find unconventional and, hence, not considered. An outsourcing partner may simply increase the number of diverse inputs to create a more robust solution from the start.
Welch: The need for innovation must be balanced with an ability to bring a device to market in a timely and cost-effective fashion. When an OEM partners with a CMO adept at adding value in the strategy phase, a clear connection between market strategy and the supply chain approach is established, which in turn, informs the device development and industrialization process. This continuity, combined with integrated innovation, development, and manufacturing under one roof, makes the industrialization process more efficient and predictable.
This approach not only ensures development addresses market requirements and opportunities, but also reduces risk in the development cycle, which increases the odds of a successful and timely launch.
Fenske: In terms of time to market, how can working with a CMO improve upon a project’s schedule?
Black: If a CMO has years of experience and established manufacturing, engineering, and quality systems in place then a new product can be received and managed quickly into a CMO’s organization, especially if they have an OEM culture—meaning the health and growth of their OEM business is a focus for the organization. With all of that in place, it should just become a plug and manage type of product management.
Carlson: The OEM/CMO partnership allows development of multiple projects simultaneously with the same resources. Selecting a CMO with the right regulatory experience and registrations, certifications, efficiency, and expertise to design for manufacture, cost, and quality minimizes rework and keeps projects on schedule. Access to rapid prototyping and small volume production minimizes delays. Once the product is designed, however, it has to be scaled for manufacture. CMOs should be able to demonstrate manufacturing process development speed, and experience scaling from small volume to full-scale production. Simply put, these attributes will get the product into the hands of your customer sooner. Lastly, a well-established and well-managed supply chain is critical to avoiding time-to-market delays.
King: When you make the manufacturing process more efficient, you’re making a big impact on the time to market. Doing something like cellular manufacturing can help shave time off the production, leading to a shorter manufacturing cycle. By creatively grouping manufacturing technologies, you can reduce labor costs and increase throughput. Additionally, with a CMO you’re working with an organization that specializes 100 percent on manufacturing, so they have worked out all the kinks and know how to streamline the entire process. Being the best at manufacturing is their core competency.
Miclot: DFM is very important to help produce products as quickly as possible. If a new or existing product can be manufactured quicker with some design changes that do not change functionality, time to market and costs can be reduced.
Neal: Adding the extra resources offered by a CMO will assist in compressing a project timeline.
Todd Owens: There are several benefits in collaborating early in the design stage of a project. The most important are time and cost savings. Leveraging technical process expertise early in the concept development phases of an OEM’s product design is arguably the most time and cost impacting activity a CMO and OEM can engage in. It often saves weeks, if not months, and tens of thousands of dollars during the launch of a program.
Rocco: To get the most from the CMO skill set, the full project plan requires communication from the start. Often, if the focal point of the project is an infusion pump, the racking system might be relegated to the last phase. This can increase the capital cost for tool expediting and delivery when this could be a lower total cost if most of the development started in parallel from the project start. The greater the level of vertical integration, the greater the chance for project schedule compression without effect on quality and cost.
Welch: Contract manufacturers may employ a variety of approaches, depending on their skill sets, footprint, and experience. Phillips-Medisize integrates strategy, product development, and manufacturing to achieve shorter lead times than siloed approaches. A key element in shorter lead time to production is that all development team members are involved in the project, saving time transferring knowledge from one team member to another. Time is also saved by handling device development in parallel with development of technology platforms that provide technology needed for devices in development.
Fenske: How are CMOs helping to ensure more efficient/faster FDA reviews of a medical device project in which they are involved?
Carlson: Qualified CMOs enable the OEM to focus on the regulatory path while the CMO delivers to the project milestones in areas like human factors assessment, formal design verification, and a fully documented design history file to augment the OEM submission.
King: CMOs with robust quality management systems can provide the necessary validations and paperwork to the OEM to ensure a smoother FDA review.
Miclot: CMOs have come a long way to partner with OEMs to help with regulatory requirements. We are a regulated industry and must make sure that products have the highest quality possible. Many CMOs have actually co-developed products with OEMs and have the Design History Files.
Neal: CMOs are producing production-equivalent test parts and assisting with test fixture manufacture for more timely submissions to the FDA.
Welch: To avoid unnecessary delays and gain speed to market through “right the first time” regulatory submissions, companies must understand the specific regulatory path to follow.
Carlson: Few CMOs have the financial strength to support OEMs with up-front investment support for projects that don’t have current fiscal year funding by the OEM, but are a key part of their organic growth strategy, and can therefore allow the OEM to allocate their resources in different strategic ways. Flex has that strength, and it is one of the benefits of being such a large and diverse organization. That same financial strength can enable transformational relationships where entire facilities can be restructured and transferred to Flex, so the OEM can reallocate those resources strategically.
Mike Kaiser: An OEM can gain significant operational advantages using a CMO. The CMO’s core competency is based on contract manufacturing utilizing specialists with expertise in tooling, process design, and overall manufacturing experience. A CMO enables OEMs to increase their production capacity, acquire new products they cannot manufacture themselves, or reduce their production costs. In addition, there are cost advantages by partnering with a CMO rather than investing in expensive capital equipment and hiring skilled labor.
King: OEMs need to focus on their core competencies, so finding a CMO that can offer end-to-end solutions makes their lives a lot easier. The OEM shouldn’t have to worry about finding one manufacturer for one part of the device and another for the handle, yet another for packaging, etc. A CMO with broad capabilities to handle the entire process from prototyping to full-scale production and packaging will allow the OEM to focus on other things, like designing more new products to meet evolving healthcare needs.
Miclot: When both parties help each other together, quality and costs can be improved as well as getting new, innovative products to market faster. Even planning together with forecast and blanket orders to CMOs help to make sure that quality products are delivered on-time at an excellent value.
Neal: The CMO can focus on one project rather than an internal OEM team, which typically has several projects in competition for resources.
Rocco: Leverage CMO technical staff to expand product development resources with little incremental variable cost and no additional fixed cost. Manage project budget where CMO is all variable, flexing up and down based on project schedules.
Fenske: What recommendations do you have for OEMs seeking new CMO suppliers? What selection criteria should they consider most important?
Carlson: Selecting a CMO with a strategic vision that aligns with the OEM, and that can truly help them achieve their growth objectives both today and well into the future, is key. The expertise and technology access that the CMO can provide determines how far the relationship can go. Combined expertise becomes a strategic advantage for the OEM and helps them accelerate growth. Of course, the CMO must have the experience and the rigor to deliver, as well as the financial strength for continuous investment to remain competitive. Mandatory requirements, such as a mature and audited quality management system, FDA and regulatory experience to ensure all projects are supported with the right controls and documentation, and a team that understands what regulators expect when they show up to audit a process, must be capabilities without question. Other considerations depend on the desired relationship and scope of the project. Selecting a CMO with a medical-qualified global footprint and workforce mitigates risk in managing future regulatory and political hurdles. A strong supply chain and the ability to scale provide risk mitigation and defend against disruption. Design and innovation expertise becomes even more valuable if the CMO can provide technology “building blocks” that enable new and differentiated solutions.
Kaiser: Develop a comprehensive assessment to take into account overall quality management systems and their effectiveness, supplier financial stability, stability of the management team, and review of supply chain metrics and how they are tracking. Understand their vertical integration capabilities, investment in latest equipment, and demonstration of how they are innovating. A critical area is to determine if they have adequate engineering resources and expertise to root cause and solve issues in a timely manner as they arise. An overview of their quality management system and on-time delivery metrics are also key considerations as they relate to cost efficiencies to bring a product to market.
King: A CMO must have broad manufacturing capabilities combined with a robust quality management system that can handle everything that is required to take the OEM’s products from prototype to finished device. The CMO must have the engineering resources that can seamlessly work with the OEM as an extension of its engineering teams. The CMO’s engineers must be able to explore and find new manufacturing processes to meet each challenge of the OEM’s product to make it cost effective to manufacture.
Miclot: Look for quality suppliers that have a long history of serving the medical device market. We are in a large but, at the same time, small industry; many folks have worked for several medical device companies. Ask your friends in other companies who they use and would recommend.
Neal: Seek out CMOs experienced in their respective field/competency. Also, see how they handle process validations and supplier audits as an indicator of quality and timeliness of addressing deficiencies.
Welch: OEMs need to find a CMO they trust, and can truly partner with. The CMO they choose should have the knowledge and expertise in the areas they need.
Fenske: What steps must an OEM take in order to evolve from dealing with a CMO purely as a supplier to establishing a true collaborative partnership with that CMO?
Black: A true collaborative partnership requires both parties to be able to spend the time understanding each other’s goals and objectives. It must be a win-win relationship or else it will not last and the communication process will break down. You cannot be afraid to share ideas and expertise openly for the betterment of the end product and outcomes of the patient. A partnership is not created through computerized RFQs and standard documents. It is done right by engaging discipline to discipline and by being very clear with the objectives of the project upfront so that the CMO becomes an extension of the OEM.
Carlson: The keys to establishing a truly collaborative partnership are:
Miclot: Identify CMOs that can move to the next level and become long-term partners. Work closely with these CMOs and offer them more business and services to build confidence to move to the true collaborative partnership.
Neal: Complete trust must be established. The OEM should start with smaller, less risk-based projects to see how the CMO reacts and then work up to major product launches.
Rocco: Invite the CMO to be part of strategic planning, with all appropriate agreements in place. Invest time between the parties at both the CMO’s and OEM’s locations, because, at the end of the day, all value-added work still happens between people. Also, ensure the working reality of values of each organization mesh well.
Fenske: Conversely, what does a CMO need to do to illustrate to an OEM that it is capable of being a collaborative partner in a medical device project?
Carlson: The CMO should be willing to share their strategic plans with the OEM and clearly demonstrate the value that they can bring, not just for the immediate project, but for the entire lifecycle and future iterations. The CMO should also be prepared to clearly demonstrate transparency, partner orientation, and cultural fit.
Miclot: Deliver quality products on-time to establish a history of doing what you say you are going to do. Move to the next level by offering design for manufacturing assistance and possibly co-development, with blanket orders for production. Some larger CMOs even offer complete system partnering—the ideal partnership.
Neal: Ability to move quickly to a Plan B when things don’t go as expected. The CMO should be completely transparent with the OEM and offer the best solution, a clear timeline, and constant communication.
Rocco: Demonstrate that the CMO can think ahead, anticipating supply chain, testing, and manufacturing issues, and sharing a written plan to address each. Present cost options to reduce the risk of project launch timing versus higher initial unit cost. Typically, the OEM will accept the higher cost when explained clearly and concisely, hence the CMO is ultimately offering real solutions.
Fenske: As some OEMs seek to shrink the number of suppliers with which they are working, what attributes should they value most in the CMOs they are looking to retain?
Carlson: Healthcare continues to change rapidly, and OEMs and CMOs alike have to adapt to remain relevant. Selecting a CMO with a strategic vision that aligns with the OEM, that can truly help them achieve their growth objectives both today and well into the future, is critical. Selecting suppliers with a broad platform of capability, financial strength for continued investment, and a global footprint and resources are key to enabling supplier reduction. At Flex, we have built Flex Pulse—a state-of-the-art supply chain management system that is constantly analyzing worldwide disruptive forces and providing proactive alerts of potential issues—so that these can be resolved before there is any impact on production. This means less risk to an OEM, reducing the need for redundancy in suppliers.
Kaiser: The supplier should have the ability to grow with the OEM and have several capabilities that the OEM has a need for, which will allow for more of a one-stop shop supplier. This will allow for more efficient use of supplier management resources from the OEM side. Another area would be to focus in on the suppliers that are excelling in their supply chain metrics and supplier report cards, showing long-term results of on-time delivery, quality metrics, and overall cost competitiveness. They will want to pick the suppliers that have the best total cost of doing business, which takes into account hidden costs.
King: The shrinking number of suppliers means that the relationship with the CMO is more critical than ever. The important attributes to build a strong foundation are:
Neal: A valued partner assists with making design and process improvements, impacting both quality and cost.
Rocco: Anyone can buy equipment. What matters is the technical staff and level of demonstrated service the CMO offers. Vertical integration of the CMO can be helpful in reducing the level of risk in the total supply chain as more and more of the process steps are managed by like-minded personnel within the CMO, as well as those who line up with the values of the OEM.
Welch: First and foremost, OEMs need to look for a CMO they trust and are able to work closely with. If there isn’t trust and an ability to work together, all the capabilities in the world won’t help it work. Second, they should be looking for a CMO who provides the right capabilities, in the right places (countries) around the world to ensure they receive what they need, where they need it.
Fenske: With quality being of paramount importance to medical device OEMs, in what ways are CMOs ensuring they meet the necessary standards put forth by their customers?
Carlson: At Flex, we have invested significantly in a single global quality management system we call FlexQ, and state-of-the-art data collection technologies to support both large and small scale programs, with eDHR capability. Our dedicated Global Quality & Compliance Team has oversight of every medical design and manufacturing site and project. Continued self-audit, metrics, review, and LEAN and Six Sigma continuous quality improvement programs are part of the fabric of our commitment.
King: CMOs must be 100 percent on top of all the quality requirements. This starts with people—hiring and training the best workers and treating them well. Speaking of people, a CMO should employ Black and/or Green Belt-certified engineers to drive quality and a continuous improvement focus throughout the organization.
Naturally, a CMO must be ISO 13485:2003 certified, compliant with FDA’s Quality System Regulations (QSR), and registered with the FDA as a contract manufacturer.
The quality team should deploy Lean manufacturing/Six Sigma tools to eliminate waste and remove variation from the manufacturing processes and also validating special processes to ensure repeatability, minimize inspection time, and reduce cost. Other steps include examining first-pass yields and using real-time statistical process control (SPC).
Miclot: Understand an OEM’s quality requirements and constantly over perform to the customer’s expectations. Continually invest in quality with talented people and new equipment.
Neal: Being ISO 13485-certified is a start, along with creating robust product and process risk analyses.
Owens: Implementation of a robust quality management system that demonstrates it can exceed the industry QMS requirements is necessary to reduce potential risk. With today’s ever-changing regulations, a QMS should demonstrate compliance to ISO 13485 and be 21 CFR 820 certified. It is imperative that CMOs understand the industry requirements and offer consistent and timely regulatory support, while maintaining device history records. Having the ability to track records for successful OEM product launches can shorten time to market, reduce business risk, and ultimately, decrease the risk to patients. A “one size fits all” approach is generally not feasible as different OEMs often have unique standards with which they run their business and quality systems, so it is important to collaborate with them while being flexible to their needs.
Rocco: First is auditing by reputable third-party organizations such as BSI or TUV. Second is robust quality improvement structures based in training and ongoing improvement without the prodding of the OEM.
Fenske: Is M&A activity among OEMs having an impact on the CMO? If so, what is the impact?
Carlson: M&A activity increases the portfolio needs of the OEM. While it adds accretive revenue growth and operational efficiency in many areas for the OEMs, one of the challenges it creates is sustaining an increased portfolio; namely, managing a new set of suppliers and consolidating supply chains. CMOs can both benefit and lose through this activity. As the OEMs—and their portfolios—become larger, they require larger, more capable partners.
King: M&A activity can cause a lot of disruption to companies on both sides of the equation as they sort out and combine their business processes. With the added focus on M&A, OEMs have an increased need to outsource manufacturing to CMOs to ensure that this part of the business remains steady and constant.
Miclot: CMOs are also consolidating. The big get bigger and small niche CMOs must offer excellent value and service to compete and stay on the OEM’s supplier list.
Neal: Many CMOs feel that they will only go after the big fish, not realizing that the small OEM, with a unique product, will most likely get bought by a larger OEM seeking to round out their portfolio.
Rocco: The benefit is that the new owner will wish to consolidate the supply chain further. The risk is that the incumbent CMO of the acquired company is left on the outside when the choices are made. Hopefully, the acquiring OEM takes the full picture into account and not just the CMO to which they are most accustomed.
Fenske: Conversely, is M&A activity within the supply chain impacting OEMs? If so, what is the impact?
Carlson: M&A activity in the supply chain causes some degree of disruption, but usually has a positive effect for the OEM. Consolidation results in a stronger supplier with broader capabilities, which reduces overall risk. Of course, just like when dealing with any new supplier, there may be an initial investment of energy to navigate cultural changes and ensure continued quality and uninterrupted supply. More importantly, however, it means their current supplier brings more capabilities.
Miclot: The supply chain is being impacted with fewer stronger suppliers.
Neal: Yes, as CMOs are being consolidated, it results in a merging of quality systems and culture, which can take years to work through a full transition.
Fenske: Given the current political environment, are OEMs altering their view of offshore outsourcing vs. domestic outsourcing? Has there been any notable change in this type of activity?
Carlson: Flex customers are interested in options that enable the flexibility to respond to this, or any other, political or regulatory environment that impacts market access. A CMO with registered and documented medical capabilities on a global scale is able to provide such flexibility, minimizing risk for the OEM. At Flex, we do this very deliberately by anticipating needs arising from political, trade, and regulatory changes that have the potential to impact our customers’ businesses.
Miclot: Not yet. I see most OEMs waiting to see what the actual changes will be.
Neal: While offshore outsourcing appears to be a more cost-effective option, frequent loss in translation, errors, and lack of a physical local presence may wind up costing more in the long run in terms of money and time.
Rocco: For a few years now, the total cost of delivery of a product has been part of the OEM’s sourcing decisions. This takes into account working capital and the amount of finished goods in the supply chain. The current political climate does not change the actual labor cost variance between countries and it is unlikely that tariffs will be applied across the board.
Fenske: In what ways will the OEM/CMO relationship change in the medical device design and manufacturing space in the next five to 10 years?
Carlson: While sources of organic growth, regulatory hurdles, and speed-to-market-challenges are increasing, the threat of non-traditional medical companies entering the space with disruptive products is also growing. To keep pace with the acceleration of technology evolution, the strategic partnership between the OEM and CMO becomes a competitive advantage and perhaps a strategic necessity. As we have seen in other industries that reach commoditization, the ROI for new products decreases as cycles accelerate. Closer OEM/CMO partnerships and more integrated collaboration earlier in the design phase enable faster, more targeted product development, in addition to access to scalable operations and effective supply chain management, enabling the OEM to better serve unmet clinical and healthcare needs by quickly creating new devices, systems, and solutions that enable better patient outcomes.
King: The evolving marketplace is seeing more and more OEMs shifting investments from manufacturing to their core competencies (e.g., R&D, M&A, sales and marketing). As that happens, they will seek out CMOs who offer a broad range of complex manufacturing technology, speed-to-market, a global footprint, and efficient, cost-effective operations. To make these partnerships successful, they will be looking to form relationships with a smaller number of CMOs who can handle a larger portion of the manufacturing role—end-to-end solutions providers.
Miclot: As consolidation continues, there will be a real opportunity over the next five to 10 years to partner together and leverage the OEM and the CMO core competencies. Stick with what you are good at and outsource to CMOs that can help you.
Neal: There will definitely be more of a closer relationship formed as designs continue to evolve from the traditional machining-based processing to that of an additive-manufacturing environment.
Rocco: We will see more and more collaboration. The OEM needs to invest more and faster in product development and will need to relegate more of the manufacturing delivery system development to CMOs. Related design services to speed time to market with CMOs who understand how the OEM views the market and product parameters will be sought after more and more.
Welch: Healthcare costs consume a steadily increasing share of national economies, rising in the U.S. from around 5 percent of gross domestic product in 1960 to almost 18 percent in 2014. The entire healthcare delivery system is under pricing pressure, and I expect this to continue to increase. The industry is beginning to, and will continue to focus on delivering positive outcomes for patients, justifying the costs of therapy compared with the existing standard.
Fenske: Do you have any additional comments you’d like to share regarding the OEM/CMO relationship within the medical device design and manufacturing space?
Carlson: The most successful projects and results on all measures come from partnership relationships and early involvement. CMOs can add value at any point in the product lifecycle, but the greatest value is established in the strategic discussions early in the process, during the product planning phase.
King: The relationship between CMO and OEM will continue to evolve and become deeper and more dependent. OEMs are/will be looking for CMOs who can take on more than just making a few components; they need partners with broad capabilities that can be end-to-end providers. The elimination of multiple suppliers to produce one product is an attractive, cost-effective solution for OEMs. End-to-end providers that meet the OEM’s needs for cost, speed and quality will be in high demand.
Miclot: Partnering makes both successful—win together.
Reference
On the other hand, these companies are not accustomed to functioning in the highly regulated medical device manufacturing environment. While many have brought in experts from the medtech sector, they still lack the manufacturing environment and culture that goes along with that regulatory knowledge. For them, outsourcing to a company that lives the regulated manufacturing environment every single day makes economic sense. There’s no need for these companies to bring in a skilled workforce to develop medical devices when there are outsourcing providers who specialize in it.
But this is only one aspect of the incredible growth that’s occurring within the medical device outsourcing sector. Traditional medtech firms are also increasing their use of outside partners. Whereas much of the spend on contract services has historically been in support of legacy products, more companies are seeking input from full-service outsourcing providers early in the development process to enhance everything from material selection, product design, design for manufacturability, tooling, sterilization, packaging, and even warehousing and logistics. Some outsourcing partners will take a project “from soup to nuts,” enabling the OEM to focus on its core competencies, which may be sales or idea generation for its next product.
According to a report by Grand View Research Inc.—Medical Device Outsourcing Market Analysis By Application (Class I, Class II, Class III), By Service And Segment Forecasts, 2014-2025—released in February 2017, the global medical device outsourcing market is expected to reach $88.2 billion by 2025.1 The report cites “rising price competition and rising need for reduction of production cost” as the most prominent driving factors in the market. Further, the report states that “product design and development services are anticipated to be one of the highly availed services by device manufacturers over the forecast period.”
Simply put, more and more medical device manufacturers are coming to recognize that, in many cases, outsourcing tasks that are not core competencies to suppliers who specialize in a particular area is a sound financial strategy. Further, these partners enable medtech OEMs to manufacture and distribute products worldwide as they will often assist with regional regulatory challenges. Essentially, in the ideal scenario, an outsourcing partner will become an extension of the OEM, enhancing and expanding upon the company’s native capabilities. The strategic partner should truly make the medical device OEM a bigger, stronger, and faster organization.
Unfortunately, achieving this ideal is, to quote a cliché, easier said than done. As such, MPO has reached out to a number of these medical device outsourcing partners and experts who have vast experience in making these arrangements work with an OEM customer. They’ve shared their insights on an array of considerations impacting the medical device manufacturer/contract manufacturing organization (CMO) or outsourcing supplier relationship. Following is a brief introduction to each of the participants in this roundtable presentation.
Tom Black is vice president of the OEM and International Sales divisions at B. Braun Medical Inc., headquartered in Bethlehem, Pa. The company provides outsourcing services to medical device and pharmaceutical manufacturers, specializing in fluid administration sets, custom kits, and individual components.
John Carlson is president of the Health Solutions group at Flex Ltd. Based in San Jose, Calif., the company’s Health Solutions group offers design, engineering, and manufacturing support for the development of medical, drug delivery, and diagnostic technologies.
Brandon Green is vice president of sales at New Brighton, Minn.-based Donatelle, an outsourcing services provider focused exclusively on the design, development, and manufacturing of medical devices.
Mike Kaiser is executive director of business operations and account management at Donatelle.
J. Mark King is president and CEO of Tegra Medical, an end-to-end (prototyping to full production) solutions provider for the medical device manufacturing industry. The 10-year-old company is based in Franklin, Mass.
Andrew J. Miclot is president and CEO of Micro Machine Company, a firm with locations in Kalamazoo, Mich., and Warsaw, Ind., that provides services for the production of precision medical devices, including instruments and implants for various orthopedic markets.
Dave Neal is founder and president of Morris Plains, N.J.-based STAT Design LLC, an orthopedic device manufacturing consulting firm that provides critical insights from Neal’s time on both the OEM and supplier side of the industry.
Todd Owens is vice president of engineering at Donatelle.
Joe Rocco is president and CEO of Eastek International, headquartered in Chicago, Ill. The company is an ISO 9001- and 13485-certified, and FDA-registered medical device contract manufacturing company.
Bill Welch is chief technology officer at Phillips-Medisize, a Molex company, and Hudson, Wis.-based firm. It maintains a focus on outsource design, development, and technology-driven manufacturing for the medical device, diagnostics, and drug delivery markets.
Sean Fenske: How would you describe the relationship between the OEM and CMO in the medtech industry today? How has this dynamic changed from just a few years ago?
John Carlson: More OEMs are turning to CMOs to help them accelerate growth, and to manage supply chain efficiency, and resource or capacity reallocation. They are also seeking innovation partners to solve issues related to manufacturability of design, leverage new process technology, and improve cost structure. Over the past several years, our own relationships with OEMs have evolved significantly, with OEMs increasingly coming to Flex for innovation and design collaboration, and to accelerate organic growth and speed to market. Our own business mix has expanded so much beyond traditional manufacturing that we no longer even consider Flex to be a CMO, but rather “the Sketch to Scale solutions provider that designs and builds intelligent products for a connected world.”
J. Mark King: The relationships between OEMs and CMOs are becoming deeper and closer, as OEMs move to outsource more of their manufacturing. It is becoming broader as OEMs are now relying on CMOs more for work they used to do in-house, such as refining designs for manufacturability. The OEMs are looking for more than a supplier that just produces components; they are looking for suppliers with broad capabilities and the ability to be end-to-end providers. Having fewer suppliers producing one product is faster and more cost effective, while also ensuring quality.
Andrew J. Miclot: Dynamic! If you are a full-service outsourcing supplier, the lead times are too long, but you have all the services. If you are a niche smaller supplier, you want to stay on the supplier list and expand your offerings. How has this dynamic changed from just a few years ago? A few years ago, CMOs had more stability with their OEM customers.
Dave Neal: There seems to be a trend toward closer relationships being formed. The CMOs are being involved more upfront in the design process, rather than waiting until the product is fully designed.
Joe Rocco: Today, there is a demand for near instant information on material status. Also, there is greater expectation of the CMO to address design issues, including when the OEM is responsible for the design.
Bill Welch: As devices become more complex and there is an increased shift to patient self-administration, development of the delivery devices has become more challenging for all, including the OEM. As a result, OEMs expectations for their partners are increasing, in addition to thorough understanding of the current technologies, emerging trends, and market drivers.
Fenske: What factors are driving OEMs to seek out the use of CMOs more today than in the past?
Tom Black: The OEMs are looking for ways to reduce their overall spend and they want to be able to rely on a CMO that has experience with manufacturing, product and process documentation, and a strong quality system. If they can achieve those goals without adding additional headcount within their own organization, then they are taking advantage of the operational expertise that is in the market to meet their annual objectives.
Carlson: As the pace of technology change continues to increase and the demand for devices with integrated connectivity and intelligence grows, OEMs are coming to Flex to leverage our own competencies that are not necessarily in their core. In addition, they face ever-increasing pressure from regulators, payers, and providers that demand cost efficiencies as well as proof of efficacy for differentiated products.
Brandon Green: Two of the most common drivers for engaging a CMO today are risk management and process excellence. As the footprint within the supply chain continues to expand, OEMs need to have strong secondary partners to ensure stability of the product lines. Also, the technology employed at CMOs is changing at a rapid pace. The OEM must rely on strategic partners who can deliver at the highest level of process excellence.
King: Ongoing changes in the medical device field are spurring OEMs to outsource more manufacturing. The factors affecting the medical device marketplace include an aging population, new and updated products to meet these needs, and different manufacturing technologies to make them. With these changes, OEMs are more driven by the need to get products to market sooner and more cost effectively. Market trends such as greater life expectancies, increased healthcare spending, and better insurance coverage are fueling OEM growth, while at the same time, these same companies are faced with growing pressures such as increased regulatory processes, threats from low-cost competitors, and decreasing margins. Meanwhile, medical devices are growing more complex than ever. As a result, OEMs are looking to reduce costs, and outsourcing is an effective way to do this. Outsourcing allows OEMs to direct investments toward R&D, marketing, entry into new markets, etc.
Miclot: Reduce total costs, improve margins, and to simplify the supply chain with fewer CMOs.
Neal: There is even more pressure to release projects quicker to gain a competitive advantage. Responding quickly to surgeons’ requests for new products shows attention to their clinical needs.
Rocco: OEMs do not have the engineering bandwidth to address the full range of design and development topics from plastic part design through electronic functional testing. OEMs expect the CMOs to take the long view of material availability (metal, thermoplastic, electronic components) and to catch where the OEM has specified materials that are end-of-life, though may have been intentionally selected for technical specifications and/or price. Additionally, OEMs do not have enough product managers and are trying to move some of the planning duties to CMOs. This can be complimentary for CMO duties but requires an extremely clear view on where the OEM is heading with product launch and product demand timing.
Welch: Increased complexity of devices and the focus on outcomes is really driving the OEMs to seek out CMOs with a thorough understanding of current technologies, emerging trends, and market drivers. This change in thought process requires OEMs to think more holistically about their devices—what results do we need to deliver and how will the outcome be achieved? This increases the importance of engaging a CMO early, as a solid strategy needs to drive the development process toward the desired patient outcome. CMOs who provide end-to-end solutions, from strategy through to manufacturing, are able to help deliver measurable outcomes, which payers increasingly require to provide market access.
Fenske: What types of tasks or projects are OEMs employing CMOs to accomplish today that weren’t being outsourced in the past?
Carlson: In my experience at Flex, the three that stand out to me are: innovation, as product differentiation becomes more challenging; full system-level assembly as opposed to component or HLA manufacturing; and management of the entire supply chain as opposed to simply assembly services.
Green: Today, we are experiencing the OEM requesting participation with the CMO much earlier in product development. As the market for new devices moves faster every year, the OEM must be able to tap into their outside resources to assist in designing products that can be manufactured with the highest levels of quality and repeatability.
King: We see OEMs asking us to take on a greater proportion of the work to refine medical designs to make them manufacturable. In our experience, the best time to take cost out of a product is during the design stages. We work on this with customers in our GENESIS Tech Centers, where we help get products ready for production. This type of work involves a lot of Design for Manufacturability and Assembly (DFMA) with the goal of reducing cost, increasing quality, and shortening the development cycle of the OEM’s medical device. Increasingly, OEMs are looking to suppliers with broad capabilities that are able to produce their products from creation to launch.
Miclot: Many large OEMs outsource labeling, packaging, and even sterilization with trusted CMOs but keep proprietary products and services in house. Small OEMs are looking for complete, full-service outsourcing partners so they can focus on other aspects of the business.
Neal: There seems to be a trend to hire resources for remediation of quality issues that arise in an effort to be able to quickly address these concerns. Specifically, time-sensitive issues such as FDA audit findings and CAPAs.
Rocco: Developing incoming quality control specifications for the OEM is one. Another is serving as regional repair depots. Also, final assembly in local markets (i.e., produce most of the product in low-cost countries and do final assembly in the market where final sale will take place).
Welch: With the increase in complexity of devices and focus on outcomes, we are seeing increased demand for our comprehensive strategic and preproduction services, such as electronics integration and human factors engineering.
Often easier said than done, establishing involvement prior to the prototype design provides flexibility for design improvements and process requirements. Early involvement of a CMO provides the greatest benefit long-term. The results are the benefit of designers, testers, and manufacturers working to solve the articulated user needs without any arbitrarily established design constraints.
Fenske: What criteria should an OEM use to determine what aspects of product development and manufacture should be outsourced? In other words, how does an OEM determine what to “make vs. buy”?
Black: They have to take a look at themselves to see what they are good and experienced at doing, and what they are not good at doing. If they can find a CMO who has that experience and trust, as well as all of the important details that go along with outsourcing (regulatory support, product and quality systems, a variety of manufacturing capabilities, etc.) then buying makes sense. It still comes down to total cost.
Carlson: It comes down to what the OEM believes is the right strategy to achieve their goals, and what is the best use of available resources to maximize their results. In our experience, a balanced ecosystem—where we collaborate with the OEM in product development—produces great outcomes. The combined expertise, complemented by access to different technologies that have already been tried and tested, produces innovative and differentiated solutions with a time-to-market advantage.
King: Many of the OEMs we work with want to focus on their core competencies, such as R&D, M&A, and sales and marketing. By outsourcing development and manufacturing, they’re able to devote their resources to bringing new products to market and ensuring their current products are successful and profitable. Companies that are focused exclusively on development and manufacturing have the experience, equipment, and skilled people to do it more cost effectively, quicker, and with higher quality.
Miclot: Certain core competencies and proprietary products, OEMs tend to make in house. Buy from CMOs that have their core competencies that offer a better value.
Neal: Certainly, the issues that are of critical concern to an organization are the costs, timelines, and quality. Oftentimes, OEMs make the decision to stop outsourcing and purchase in-house processing equipment only to find out that certain competencies are best left to the experts.
Rocco: Typically, this decision is outside total price versus inside direct cost. This decision encourages “localized optimization” of manufacturing processes and ignores the total cost to the OEM in BOM management, ECO management, process control, quality assurance, and ongoing value analysis and value engineering. This creates a high hurdle for the CMO and OEM champion to overcome.
Criteria should be the ability of the CMO to handle a variety of factors:
- Value analysis and value engineering for the remainder of the product life
- Level of expertise in the full supply chain of manufacturing and distribution needs for the product
- BOM management over the long term
- Quality assurance and incremental improvement in DPPM
- ECO management (related to all the aforementioned points)
Black: The CMO may have more experience, or positive and negative experiences with a particular design or manufacturing process that would help the OEM with design costs, development time, and overall project costs.
Carlson: In our development work at Flex, we leverage technology “building blocks” and process technology developed across multiple industries, and apply it in new ways to create differentiated products. Our cross-industry experience complements the expertise of the OEM. The combination is the catalyst, and the creative solutions that we develop together with our customers provide them the platforms for growth and market differentiation that they seek.
As an illustration, consider the emergence of “connected” devices. Existing component technologies can be combined in new ways with existing devices, to create intelligent and connected products and services in this IoT age. Medical product connectivity has traditionally comprised proprietary and closed systems, owned by the OEM. They tend to be well behind the technology curve and are without industry standardization, which is much needed for patients and providers to benefit on any scale.
If you can safely integrate technologies that are leading-edge and well-tested in other industries, however, you can create a product or service that is industry-leading, meets both the regulatory and cost hurdles when it’s launched, and is compatible with the medical connectivity ecosystem. The growth opportunity for digital health, for example, depends on connectivity taking on a different architecture to integrate with everyday devices—but in a safe and secure way. This new “medical grade connectivity” requires expertise dedicated to that technology—which an OEM may not have time to build—to catch the wave.
Green: The CMO is the expert in their manufacturing discipline, employing talent specialized to manufacturing processes. When the OEM strives for deep engagement at the CMO, as early as the design concept phase, our talent can help drive innovative solutions to potential manufacturing issues and constraints. This creative collaboration is particularly critical as medical devices continue to shrink in size. Having a partner who understands the complexities of miniaturization within their manufacturing competency will continue to be crucial to the OEM.
King: While it is the OEM that designs the product, the CMO is the expert when it comes to the manufacturing process. CMOs know how to take complexity out of the manufacturing process to make it more efficient, faster, and less expensive. CMOs aren’t changing how a product functions; they’re changing the way it’s made.
Miclot: Working with a partner CMO can dramatically improve creativity and innovation. CMOs have many customers and pick up innovative ideas with all these customers. Also, many CMOs have creative and innovative engineers and sales representatives with vast experience.
Neal: OEMs are able to quickly add a new technology or process that is currently not in the works in-house.
Rocco: Due to breadth of experience, the CMO can offer solution ideas of which the OEM design team may not be aware. Also, the CMO may be able to consolidate manufacturing processes in ways the OEM might find unconventional and, hence, not considered. An outsourcing partner may simply increase the number of diverse inputs to create a more robust solution from the start.
Welch: The need for innovation must be balanced with an ability to bring a device to market in a timely and cost-effective fashion. When an OEM partners with a CMO adept at adding value in the strategy phase, a clear connection between market strategy and the supply chain approach is established, which in turn, informs the device development and industrialization process. This continuity, combined with integrated innovation, development, and manufacturing under one roof, makes the industrialization process more efficient and predictable.
This approach not only ensures development addresses market requirements and opportunities, but also reduces risk in the development cycle, which increases the odds of a successful and timely launch.
Fenske: In terms of time to market, how can working with a CMO improve upon a project’s schedule?
Black: If a CMO has years of experience and established manufacturing, engineering, and quality systems in place then a new product can be received and managed quickly into a CMO’s organization, especially if they have an OEM culture—meaning the health and growth of their OEM business is a focus for the organization. With all of that in place, it should just become a plug and manage type of product management.
Carlson: The OEM/CMO partnership allows development of multiple projects simultaneously with the same resources. Selecting a CMO with the right regulatory experience and registrations, certifications, efficiency, and expertise to design for manufacture, cost, and quality minimizes rework and keeps projects on schedule. Access to rapid prototyping and small volume production minimizes delays. Once the product is designed, however, it has to be scaled for manufacture. CMOs should be able to demonstrate manufacturing process development speed, and experience scaling from small volume to full-scale production. Simply put, these attributes will get the product into the hands of your customer sooner. Lastly, a well-established and well-managed supply chain is critical to avoiding time-to-market delays.
King: When you make the manufacturing process more efficient, you’re making a big impact on the time to market. Doing something like cellular manufacturing can help shave time off the production, leading to a shorter manufacturing cycle. By creatively grouping manufacturing technologies, you can reduce labor costs and increase throughput. Additionally, with a CMO you’re working with an organization that specializes 100 percent on manufacturing, so they have worked out all the kinks and know how to streamline the entire process. Being the best at manufacturing is their core competency.
Miclot: DFM is very important to help produce products as quickly as possible. If a new or existing product can be manufactured quicker with some design changes that do not change functionality, time to market and costs can be reduced.
Neal: Adding the extra resources offered by a CMO will assist in compressing a project timeline.
Todd Owens: There are several benefits in collaborating early in the design stage of a project. The most important are time and cost savings. Leveraging technical process expertise early in the concept development phases of an OEM’s product design is arguably the most time and cost impacting activity a CMO and OEM can engage in. It often saves weeks, if not months, and tens of thousands of dollars during the launch of a program.
Rocco: To get the most from the CMO skill set, the full project plan requires communication from the start. Often, if the focal point of the project is an infusion pump, the racking system might be relegated to the last phase. This can increase the capital cost for tool expediting and delivery when this could be a lower total cost if most of the development started in parallel from the project start. The greater the level of vertical integration, the greater the chance for project schedule compression without effect on quality and cost.
Welch: Contract manufacturers may employ a variety of approaches, depending on their skill sets, footprint, and experience. Phillips-Medisize integrates strategy, product development, and manufacturing to achieve shorter lead times than siloed approaches. A key element in shorter lead time to production is that all development team members are involved in the project, saving time transferring knowledge from one team member to another. Time is also saved by handling device development in parallel with development of technology platforms that provide technology needed for devices in development.
Fenske: How are CMOs helping to ensure more efficient/faster FDA reviews of a medical device project in which they are involved?
Carlson: Qualified CMOs enable the OEM to focus on the regulatory path while the CMO delivers to the project milestones in areas like human factors assessment, formal design verification, and a fully documented design history file to augment the OEM submission.
King: CMOs with robust quality management systems can provide the necessary validations and paperwork to the OEM to ensure a smoother FDA review.
Miclot: CMOs have come a long way to partner with OEMs to help with regulatory requirements. We are a regulated industry and must make sure that products have the highest quality possible. Many CMOs have actually co-developed products with OEMs and have the Design History Files.
Neal: CMOs are producing production-equivalent test parts and assisting with test fixture manufacture for more timely submissions to the FDA.
Welch: To avoid unnecessary delays and gain speed to market through “right the first time” regulatory submissions, companies must understand the specific regulatory path to follow.
- Determine your device’s regulatory path.
- Research global regulatory guidelines.
- Develop an appropriate cGMP quality compliance strategy.
- Implement a design freeze during the development process.
- Use risk-based decision making to develop and bring the product to market.
- Establish a product stability strategy.
Carlson: Few CMOs have the financial strength to support OEMs with up-front investment support for projects that don’t have current fiscal year funding by the OEM, but are a key part of their organic growth strategy, and can therefore allow the OEM to allocate their resources in different strategic ways. Flex has that strength, and it is one of the benefits of being such a large and diverse organization. That same financial strength can enable transformational relationships where entire facilities can be restructured and transferred to Flex, so the OEM can reallocate those resources strategically.
Mike Kaiser: An OEM can gain significant operational advantages using a CMO. The CMO’s core competency is based on contract manufacturing utilizing specialists with expertise in tooling, process design, and overall manufacturing experience. A CMO enables OEMs to increase their production capacity, acquire new products they cannot manufacture themselves, or reduce their production costs. In addition, there are cost advantages by partnering with a CMO rather than investing in expensive capital equipment and hiring skilled labor.
King: OEMs need to focus on their core competencies, so finding a CMO that can offer end-to-end solutions makes their lives a lot easier. The OEM shouldn’t have to worry about finding one manufacturer for one part of the device and another for the handle, yet another for packaging, etc. A CMO with broad capabilities to handle the entire process from prototyping to full-scale production and packaging will allow the OEM to focus on other things, like designing more new products to meet evolving healthcare needs.
Miclot: When both parties help each other together, quality and costs can be improved as well as getting new, innovative products to market faster. Even planning together with forecast and blanket orders to CMOs help to make sure that quality products are delivered on-time at an excellent value.
Neal: The CMO can focus on one project rather than an internal OEM team, which typically has several projects in competition for resources.
Rocco: Leverage CMO technical staff to expand product development resources with little incremental variable cost and no additional fixed cost. Manage project budget where CMO is all variable, flexing up and down based on project schedules.
Fenske: What recommendations do you have for OEMs seeking new CMO suppliers? What selection criteria should they consider most important?
Carlson: Selecting a CMO with a strategic vision that aligns with the OEM, and that can truly help them achieve their growth objectives both today and well into the future, is key. The expertise and technology access that the CMO can provide determines how far the relationship can go. Combined expertise becomes a strategic advantage for the OEM and helps them accelerate growth. Of course, the CMO must have the experience and the rigor to deliver, as well as the financial strength for continuous investment to remain competitive. Mandatory requirements, such as a mature and audited quality management system, FDA and regulatory experience to ensure all projects are supported with the right controls and documentation, and a team that understands what regulators expect when they show up to audit a process, must be capabilities without question. Other considerations depend on the desired relationship and scope of the project. Selecting a CMO with a medical-qualified global footprint and workforce mitigates risk in managing future regulatory and political hurdles. A strong supply chain and the ability to scale provide risk mitigation and defend against disruption. Design and innovation expertise becomes even more valuable if the CMO can provide technology “building blocks” that enable new and differentiated solutions.
Kaiser: Develop a comprehensive assessment to take into account overall quality management systems and their effectiveness, supplier financial stability, stability of the management team, and review of supply chain metrics and how they are tracking. Understand their vertical integration capabilities, investment in latest equipment, and demonstration of how they are innovating. A critical area is to determine if they have adequate engineering resources and expertise to root cause and solve issues in a timely manner as they arise. An overview of their quality management system and on-time delivery metrics are also key considerations as they relate to cost efficiencies to bring a product to market.
King: A CMO must have broad manufacturing capabilities combined with a robust quality management system that can handle everything that is required to take the OEM’s products from prototype to finished device. The CMO must have the engineering resources that can seamlessly work with the OEM as an extension of its engineering teams. The CMO’s engineers must be able to explore and find new manufacturing processes to meet each challenge of the OEM’s product to make it cost effective to manufacture.
Miclot: Look for quality suppliers that have a long history of serving the medical device market. We are in a large but, at the same time, small industry; many folks have worked for several medical device companies. Ask your friends in other companies who they use and would recommend.
Neal: Seek out CMOs experienced in their respective field/competency. Also, see how they handle process validations and supplier audits as an indicator of quality and timeliness of addressing deficiencies.
Welch: OEMs need to find a CMO they trust, and can truly partner with. The CMO they choose should have the knowledge and expertise in the areas they need.
Fenske: What steps must an OEM take in order to evolve from dealing with a CMO purely as a supplier to establishing a true collaborative partnership with that CMO?
Black: A true collaborative partnership requires both parties to be able to spend the time understanding each other’s goals and objectives. It must be a win-win relationship or else it will not last and the communication process will break down. You cannot be afraid to share ideas and expertise openly for the betterment of the end product and outcomes of the patient. A partnership is not created through computerized RFQs and standard documents. It is done right by engaging discipline to discipline and by being very clear with the objectives of the project upfront so that the CMO becomes an extension of the OEM.
Carlson: The keys to establishing a truly collaborative partnership are:
- Alignment on strategy, roadmap, and capabilities
- A transparent approach with a clear understanding of the expected outcomes
- Sharing of both risks and rewards
- A good cultural fit
Miclot: Identify CMOs that can move to the next level and become long-term partners. Work closely with these CMOs and offer them more business and services to build confidence to move to the true collaborative partnership.
Neal: Complete trust must be established. The OEM should start with smaller, less risk-based projects to see how the CMO reacts and then work up to major product launches.
Rocco: Invite the CMO to be part of strategic planning, with all appropriate agreements in place. Invest time between the parties at both the CMO’s and OEM’s locations, because, at the end of the day, all value-added work still happens between people. Also, ensure the working reality of values of each organization mesh well.
Fenske: Conversely, what does a CMO need to do to illustrate to an OEM that it is capable of being a collaborative partner in a medical device project?
Carlson: The CMO should be willing to share their strategic plans with the OEM and clearly demonstrate the value that they can bring, not just for the immediate project, but for the entire lifecycle and future iterations. The CMO should also be prepared to clearly demonstrate transparency, partner orientation, and cultural fit.
Miclot: Deliver quality products on-time to establish a history of doing what you say you are going to do. Move to the next level by offering design for manufacturing assistance and possibly co-development, with blanket orders for production. Some larger CMOs even offer complete system partnering—the ideal partnership.
Neal: Ability to move quickly to a Plan B when things don’t go as expected. The CMO should be completely transparent with the OEM and offer the best solution, a clear timeline, and constant communication.
Rocco: Demonstrate that the CMO can think ahead, anticipating supply chain, testing, and manufacturing issues, and sharing a written plan to address each. Present cost options to reduce the risk of project launch timing versus higher initial unit cost. Typically, the OEM will accept the higher cost when explained clearly and concisely, hence the CMO is ultimately offering real solutions.
Fenske: As some OEMs seek to shrink the number of suppliers with which they are working, what attributes should they value most in the CMOs they are looking to retain?
Carlson: Healthcare continues to change rapidly, and OEMs and CMOs alike have to adapt to remain relevant. Selecting a CMO with a strategic vision that aligns with the OEM, that can truly help them achieve their growth objectives both today and well into the future, is critical. Selecting suppliers with a broad platform of capability, financial strength for continued investment, and a global footprint and resources are key to enabling supplier reduction. At Flex, we have built Flex Pulse—a state-of-the-art supply chain management system that is constantly analyzing worldwide disruptive forces and providing proactive alerts of potential issues—so that these can be resolved before there is any impact on production. This means less risk to an OEM, reducing the need for redundancy in suppliers.
Kaiser: The supplier should have the ability to grow with the OEM and have several capabilities that the OEM has a need for, which will allow for more of a one-stop shop supplier. This will allow for more efficient use of supplier management resources from the OEM side. Another area would be to focus in on the suppliers that are excelling in their supply chain metrics and supplier report cards, showing long-term results of on-time delivery, quality metrics, and overall cost competitiveness. They will want to pick the suppliers that have the best total cost of doing business, which takes into account hidden costs.
King: The shrinking number of suppliers means that the relationship with the CMO is more critical than ever. The important attributes to build a strong foundation are:
- Trust that the CMO truly understands the industry and all its pressures, invests in and understands how to maximize the most advanced technology, and has the expertise and capacity to get products to market on time.
- Respect for the intimate knowledge OEMs have of their own customers and the manufacturing expertise CMOs bring to the table. This includes actively listening.
- Flexibility to adapt current technology to meet future needs, or to align resources for special requirements.
- Initiative to know when to interject with new ideas and suggestions for enhancing a product or process.
- Patience for understanding that emerging OEMs may have product ideas that will take years of experimenting with different materials and processes before they’re ready for production.
- Urgency for when products are ready for production and simply need to get to market fast.
- Balance of the right mix of capabilities, expertise, quality, and total customer dedication.
Neal: A valued partner assists with making design and process improvements, impacting both quality and cost.
Rocco: Anyone can buy equipment. What matters is the technical staff and level of demonstrated service the CMO offers. Vertical integration of the CMO can be helpful in reducing the level of risk in the total supply chain as more and more of the process steps are managed by like-minded personnel within the CMO, as well as those who line up with the values of the OEM.
Welch: First and foremost, OEMs need to look for a CMO they trust and are able to work closely with. If there isn’t trust and an ability to work together, all the capabilities in the world won’t help it work. Second, they should be looking for a CMO who provides the right capabilities, in the right places (countries) around the world to ensure they receive what they need, where they need it.
Fenske: With quality being of paramount importance to medical device OEMs, in what ways are CMOs ensuring they meet the necessary standards put forth by their customers?
Carlson: At Flex, we have invested significantly in a single global quality management system we call FlexQ, and state-of-the-art data collection technologies to support both large and small scale programs, with eDHR capability. Our dedicated Global Quality & Compliance Team has oversight of every medical design and manufacturing site and project. Continued self-audit, metrics, review, and LEAN and Six Sigma continuous quality improvement programs are part of the fabric of our commitment.
King: CMOs must be 100 percent on top of all the quality requirements. This starts with people—hiring and training the best workers and treating them well. Speaking of people, a CMO should employ Black and/or Green Belt-certified engineers to drive quality and a continuous improvement focus throughout the organization.
Naturally, a CMO must be ISO 13485:2003 certified, compliant with FDA’s Quality System Regulations (QSR), and registered with the FDA as a contract manufacturer.
The quality team should deploy Lean manufacturing/Six Sigma tools to eliminate waste and remove variation from the manufacturing processes and also validating special processes to ensure repeatability, minimize inspection time, and reduce cost. Other steps include examining first-pass yields and using real-time statistical process control (SPC).
Miclot: Understand an OEM’s quality requirements and constantly over perform to the customer’s expectations. Continually invest in quality with talented people and new equipment.
Neal: Being ISO 13485-certified is a start, along with creating robust product and process risk analyses.
Owens: Implementation of a robust quality management system that demonstrates it can exceed the industry QMS requirements is necessary to reduce potential risk. With today’s ever-changing regulations, a QMS should demonstrate compliance to ISO 13485 and be 21 CFR 820 certified. It is imperative that CMOs understand the industry requirements and offer consistent and timely regulatory support, while maintaining device history records. Having the ability to track records for successful OEM product launches can shorten time to market, reduce business risk, and ultimately, decrease the risk to patients. A “one size fits all” approach is generally not feasible as different OEMs often have unique standards with which they run their business and quality systems, so it is important to collaborate with them while being flexible to their needs.
Rocco: First is auditing by reputable third-party organizations such as BSI or TUV. Second is robust quality improvement structures based in training and ongoing improvement without the prodding of the OEM.
Fenske: Is M&A activity among OEMs having an impact on the CMO? If so, what is the impact?
Carlson: M&A activity increases the portfolio needs of the OEM. While it adds accretive revenue growth and operational efficiency in many areas for the OEMs, one of the challenges it creates is sustaining an increased portfolio; namely, managing a new set of suppliers and consolidating supply chains. CMOs can both benefit and lose through this activity. As the OEMs—and their portfolios—become larger, they require larger, more capable partners.
King: M&A activity can cause a lot of disruption to companies on both sides of the equation as they sort out and combine their business processes. With the added focus on M&A, OEMs have an increased need to outsource manufacturing to CMOs to ensure that this part of the business remains steady and constant.
Miclot: CMOs are also consolidating. The big get bigger and small niche CMOs must offer excellent value and service to compete and stay on the OEM’s supplier list.
Neal: Many CMOs feel that they will only go after the big fish, not realizing that the small OEM, with a unique product, will most likely get bought by a larger OEM seeking to round out their portfolio.
Rocco: The benefit is that the new owner will wish to consolidate the supply chain further. The risk is that the incumbent CMO of the acquired company is left on the outside when the choices are made. Hopefully, the acquiring OEM takes the full picture into account and not just the CMO to which they are most accustomed.
Fenske: Conversely, is M&A activity within the supply chain impacting OEMs? If so, what is the impact?
Carlson: M&A activity in the supply chain causes some degree of disruption, but usually has a positive effect for the OEM. Consolidation results in a stronger supplier with broader capabilities, which reduces overall risk. Of course, just like when dealing with any new supplier, there may be an initial investment of energy to navigate cultural changes and ensure continued quality and uninterrupted supply. More importantly, however, it means their current supplier brings more capabilities.
Miclot: The supply chain is being impacted with fewer stronger suppliers.
Neal: Yes, as CMOs are being consolidated, it results in a merging of quality systems and culture, which can take years to work through a full transition.
Fenske: Given the current political environment, are OEMs altering their view of offshore outsourcing vs. domestic outsourcing? Has there been any notable change in this type of activity?
Carlson: Flex customers are interested in options that enable the flexibility to respond to this, or any other, political or regulatory environment that impacts market access. A CMO with registered and documented medical capabilities on a global scale is able to provide such flexibility, minimizing risk for the OEM. At Flex, we do this very deliberately by anticipating needs arising from political, trade, and regulatory changes that have the potential to impact our customers’ businesses.
Miclot: Not yet. I see most OEMs waiting to see what the actual changes will be.
Neal: While offshore outsourcing appears to be a more cost-effective option, frequent loss in translation, errors, and lack of a physical local presence may wind up costing more in the long run in terms of money and time.
Rocco: For a few years now, the total cost of delivery of a product has been part of the OEM’s sourcing decisions. This takes into account working capital and the amount of finished goods in the supply chain. The current political climate does not change the actual labor cost variance between countries and it is unlikely that tariffs will be applied across the board.
Fenske: In what ways will the OEM/CMO relationship change in the medical device design and manufacturing space in the next five to 10 years?
Carlson: While sources of organic growth, regulatory hurdles, and speed-to-market-challenges are increasing, the threat of non-traditional medical companies entering the space with disruptive products is also growing. To keep pace with the acceleration of technology evolution, the strategic partnership between the OEM and CMO becomes a competitive advantage and perhaps a strategic necessity. As we have seen in other industries that reach commoditization, the ROI for new products decreases as cycles accelerate. Closer OEM/CMO partnerships and more integrated collaboration earlier in the design phase enable faster, more targeted product development, in addition to access to scalable operations and effective supply chain management, enabling the OEM to better serve unmet clinical and healthcare needs by quickly creating new devices, systems, and solutions that enable better patient outcomes.
King: The evolving marketplace is seeing more and more OEMs shifting investments from manufacturing to their core competencies (e.g., R&D, M&A, sales and marketing). As that happens, they will seek out CMOs who offer a broad range of complex manufacturing technology, speed-to-market, a global footprint, and efficient, cost-effective operations. To make these partnerships successful, they will be looking to form relationships with a smaller number of CMOs who can handle a larger portion of the manufacturing role—end-to-end solutions providers.
Miclot: As consolidation continues, there will be a real opportunity over the next five to 10 years to partner together and leverage the OEM and the CMO core competencies. Stick with what you are good at and outsource to CMOs that can help you.
Neal: There will definitely be more of a closer relationship formed as designs continue to evolve from the traditional machining-based processing to that of an additive-manufacturing environment.
Rocco: We will see more and more collaboration. The OEM needs to invest more and faster in product development and will need to relegate more of the manufacturing delivery system development to CMOs. Related design services to speed time to market with CMOs who understand how the OEM views the market and product parameters will be sought after more and more.
Welch: Healthcare costs consume a steadily increasing share of national economies, rising in the U.S. from around 5 percent of gross domestic product in 1960 to almost 18 percent in 2014. The entire healthcare delivery system is under pricing pressure, and I expect this to continue to increase. The industry is beginning to, and will continue to focus on delivering positive outcomes for patients, justifying the costs of therapy compared with the existing standard.
Fenske: Do you have any additional comments you’d like to share regarding the OEM/CMO relationship within the medical device design and manufacturing space?
Carlson: The most successful projects and results on all measures come from partnership relationships and early involvement. CMOs can add value at any point in the product lifecycle, but the greatest value is established in the strategic discussions early in the process, during the product planning phase.
King: The relationship between CMO and OEM will continue to evolve and become deeper and more dependent. OEMs are/will be looking for CMOs who can take on more than just making a few components; they need partners with broad capabilities that can be end-to-end providers. The elimination of multiple suppliers to produce one product is an attractive, cost-effective solution for OEMs. End-to-end providers that meet the OEM’s needs for cost, speed and quality will be in high demand.
Miclot: Partnering makes both successful—win together.
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