Fortunately, this arrangement isn’t a new one due to COVID-19; the industry has been headed in this direction for years. Jim Medsker of Keystone Solutions Group, explained, “OEMs are leveraging the expertise of contract resources to manage the development and launch of entire programs. This alleviates the resource load on the OEM and often improves launch cycle efficiency. We anticipate this trend to continue, and we also see what we call a ‘hybrid’ model where the contract manufacturer takes on more responsibility (and liability) for the product, thereby freeing the owner of the product IP and sales channel to do what they do best—sell the product.”
The COVID-19 pandemic is just one example of a disruption that can occur in the medical device manufacturing ecosystem. These can be caused by a variety of issues, including natural disasters, trade disputes, sterilization concerns, or some other unforeseen situation that creates a lapse in supply. As a result, it’s critical for medical device manufacturers to work closely with their service partners to ensure every precaution is taken to enable the continued delivery of medical products to the healthcare institutions that need them.
“As supply chains become more complex and more global, the risk increases that external shocks have severe consequences. Freudenberg Medical manages these risks using a sophisticated risk assessment and control system. So far, we have been able to avoid major supply disruptions,” said Freudenberg Medical’s Max Kley.
In the following feature, a number of leaders at medical device manufacturing service providers offer their insights on a series of questions and topics impacting the outsourcing relationship with medtech’s OEMs. The participants in this article include:
Cecil Barrett, the senior director of manufacturing at Canon Virginia Inc., a Newport News, Va.-based outsourced manufacturing partner that offers a full range of engineering expertise, proven production processes, and value-added technical services.
Tom Black, the vice president of sales and marketing for B. Braun OEM, a Bethlehem, Pa.-based global contract manufacturer, offering capabilities from initial design and prototyping through molding, extrusion, manufacturing and assembly, packaging, sterilization, and quality control.
David Carty, the chief operations officer at Trademark Plastics Inc., a full-service, custom injection molding company located in Riverside, Calif.
Dylan Hushka, the chief commercial officer of Atlanta, Ga.-based Spectrum Plastics Group, a global supplier for high performance, tight tolerance components and value-added solutions for the medical device and contract manufacturing industries.
Max Kley, the CEO of Freudenberg Medical, headquartered in Massachusetts. The contract manufacturer is a global partner for the design, development, and manufacture of innovative medical devices, components, and product solutions.
Jim Medsker, the president of Keystone Solutions Group, a West Michigan-based product development and medical device contract manufacturing company.
Tom Testa, the VP and GM of Nordson Medical, a Westlake, Ohio-based firm that offers expertise in the design, development, and manufacturing of complex medical devices and component technologies.
Mike Treleaven, a vice president at Franklin, Mass.-headquartered Tegra Medical, a contract manufacturer of finished medical devices and complex components including surgical instruments, needles, and implants.
Brad Womble, the chief of staff and sr. director, Strategic Planning and M&A, for Jabil Healthcare. Formerly Nypro, the St. Petersburg, Fla.-based company is the largest global manufacturing solutions provider in healthcare.
Sean Fenske: Overall, is the medical device industry heading in the right direction?
Tom Black: The medical device industry has been a great example of capitalism for a cause. Yes, you must remain profitable and follow the basic business principles, but not at the expense of the overall objective—being able to support patients and their caregivers. This industry was better prepared for this type of crisis because despite intense competition, we share a mission to be accountable to those needing healthcare. Just like every other industry, this crisis will change the way we do things, some for the better. We may see OEMs start to look more locally for their materials. I am sure we will see sustainability and supply chain integrity become even more important when selecting a partner. Those that have years of outsourcing experience and have developed the most reliable product and quality systems will prosper. During and after this crisis, confidence in your partners will have even higher value. This industry will only get stronger because we have been built for one cause—to support the patient and the caregiver. I look forward to what our industry will do for them as we move beyond this time.
David Carty: Absolutely. The United States holds 40 percent of the global medical device market. The industry continues to maximize on technological advancements and the onerous nature of the FDA certificate.
Dylan Hushka: There is still an ecosystem for advancing patient care, where new technologies have improved the ability to address more patient subgroups. Delivering value throughout this ecosystem has become an open conversation across stakeholders—patients, care providers, hospitals, reimbursement networks, medical device OEMs, and contract manufacturers. Business models and working relationships are changing, but as long as the ecosystem still functions to ultimately serve the needs of patients, it’s on the right track.
Max Kley: The outlook for the medical device industry is still bright. The long-term key growth drivers—global population growth, aging populations, rising healthcare standards in emerging economies, new technologies—are still intact. However, an economic recession triggered by the COVID-19 pandemic will certainly dampen the pace of growth in the near future.
Jim Medsker: From our perspective, it is heading in the right direction in general. Like any industry, it has its challenges, and some of these are amplified with the current pandemic. There has been an increased focus on risk mitigation over the last few years, reflected in the evolving regulatory landscape worldwide. This increased focus is positive for patient outcomes and safety, but can be challenging for medical device manufacturers. Advancements in technologies continue at a steady pace which is definitely positive. The global supply chain is diverse and interconnected. This can often lead to an optimized product cost model; however, the recent pandemic may ultimately result in increased focus on long-term, local sourcing strategies to increase confidence in continuity of supply. There is a significant amount of M&A activity and, along with it, consolidation. Larger medical device OEMs often rely on acquisitions to maintain targeted growth rates. We also see increased focus on outsourcing of both development and manufacturing activities as large OEMs look to focus on and leverage their access to market and offload the “heavy lifting” to contract resources.
Tom Testa: I do believe the industry is heading in the right direction. With the ever-increasing challenges posed by a more rigorous regulatory environment coupled with pressures on healthcare costs, the OEMs are coming to recognize they need to build strong supply partnerships to best position themselves for success.
Brad Womble: For the most part, the industry is heading in the right direction. We are seeing newer technologies being incorporated into devices and some of the product development times starting to reduce. We’d like to see product development times accelerate even faster with the ability to adjust components within the products to newer technologies through the lifecycle of the products.
Fenske: How would you describe the relationship between OEM (brand name device manufacturer) and CMO (contract manufacturing/supplier organization) and how has it changed from just a few years ago?
Cecil Barrett: More OEMs are looking for additional services other than just manufacturing. They are looking for design work, servicing, and reverse logistics as several examples.
Black: It will be interesting to see what this pandemic does to the outsourcing ecosystem. Will we go right back to where we were because price remains the only driving factor? Or, will we be more cautious of relying on foreign suppliers, especially in Asia, for key, or even basic, components necessary for the OEM to complete their finished good? With all of the uncertainty in the world and marketplace, OEMs will be looking for dependable, reliable resources who can provide to them a level of confidence in addition to a competitive price.
Carty: The CMO, in the custom injection molding arena, has historically been an unwanted resource. If the OEM was able to maintain all manufacturing in-house, the CMO wouldn’t be needed. As a CMO, our way of thinking has to change. We have to become an extension of our customer and their core values. They have the power to give us as much work as they want and also the power to take away. The CMO is always at the mercy of the OEM. We have to make them see our value and want to partner with us. The key word is partner.
Hushka: OEMs are looking to do more with less. There is still a major need for OEMs to outsource development and manufacturing activities, especially with technologies and applications requiring specific technical expertise. OEMs are looking to reduce their internal burden by doing more with a short list of strategic full-service partners instead of a long list of single-offering suppliers. Over the past few years, the full-service CMOs have maintained or increased OEM engagement, while the smaller non-critical suppliers have started to lose traction.
Kley: OEMs are increasingly shifting a higher share of production to CMOs and are focusing their own activities on their core capabilities of research and development, as well as marketing and sales. This trend is changing an industry traditionally focused on in-house production, mainly due to quality considerations. The emergence of suppliers who comply with ever-rising medical device standards has changed the landscape in the last few years. In addition, the increasing technical complexity of medical devices and the growth in emerging markets is driving the trend toward outsourcing.
Testa: Early relationships with CMOs were focused on leveraging cost advantages. More recently, our relationships have evolved into a more strategic partnership where we take full ownership of aspects of the device, which leverage our specialized expertise. This enables the OEM to focus their internal resources on the areas of the program critical to the therapeutic outcome, where they can deliver maximum value.
Treleaven: The relationship is continuing to evolve on a path it has been on for several years—OEMs are asking CMOs to take on a larger role in getting their products manufactured and finished. It works best when it is more like a partnership. The relationships have been becoming more synergistic, so we’re not seeing a deviation from this trend.
Womble: It’s become far more integrated from our point of view. OEM divestitures, like Jabil’s recent deal with J&J is a good example. We are seeing far more of tighter integration with operations, R&D, business development, and product roadmap planning; more significant partnerships; and roadmap discussions for items such as advanced technologies and supply chain evolution.
Fenske: What criteria should an OEM use to determine what aspects should be outsourced?
Barrett: It comes down to three things: time, money, and resources. Anything can be done with time, enough money, and the right resources. The questions are: How much time do OEMs have? How much money do they have to spend? And, do they have the right resources? CMOs can offer supplements to OEMs in each of these categories to help them make the right decision of “make vs. buy.”
Carty: Price structure is always one. We have to find ways to make the price more competitive than it would be for an OEM to manufacture internally. At the same time, we must have enough profit to keep up with technological advancements. We also need to have the capacity to perform an almost perfect percentage of on-time delivery. Further, we must have the available resources with valued expertise.
Hushka: The key question centers around value and whether there is an increased benefit regarding any combination of project cost, speed to market, product effectiveness, project risk, and resource demands. If working with a full-service partner can get a device to market faster and more cost effectively with less project risk and less supply chain complexity, it becomes an easy decision for an OEM.
Kley: OEMs are getting more sophisticated in evaluating “make vs. buy” scenarios. The first question to ask is whether the activity is core to the OEM’s business model. If not, it typically makes no sense to develop or manufacture in-house. In addition, there may be technologies OEMs do not have internally and are costly and time-consuming to replicate. When internal development or manufacturing are options, then cost, time, quality, and risk are, of course, key criteria for making the decision to outsource. We observe that, today, a more holistic TCO (total cost of ownership) approach plays a bigger role in the decision-making process than a few years ago.
Medsker: The make vs. buy decision is often made based on the OEM’s resourcing level, specific expertise, and focus. Oftentimes, an OEM has a strong sales channel presence in their product space and they want to leverage that horsepower by adding additional products for their sales team, while not adding burden to their engineering, quality, and manufacturing infrastructure. The OEM can accomplish this goal by outsourcing development and/or manufacturing. Additionally, while an OEM has expertise in their specific field, they may lack the know-how required to develop certain aspects of new products under consideration. In these cases, outsourcing can be ideal as compared to making a long-term commitment to additional full-time staff for a finite development need.
Testa: The OEM should focus on driving the key aspects of their program critical to the therapeutic outcome; this is where they will maximize value. Leveraging key supply partners to manage supporting and enabling portions of the system makes best sense, particularly when that partner brings deep expertise in these areas.
Treleaven: It depends on the OEM’s culture. Some OEMs choose to outsource the more challenging part of the manufacturing process because it’s not something they have the expertise or knowledge to handle in-house, or the investment in capital or technical resources is too high. But the opposite situation also occurs, where the OEM handles the challenging component, such as an implant, and outsources another component, such as the delivery mechanism of the device. OEMs must mitigate their risk, so they look at what is not a burden to oversee versus what is problematic to outsource.
Womble: OEMs need to define what is core to their business and what their partners can do for them when considering the “make vs. buy” decision. OEMs’ strengths lie more in sales, marketing, and R&D, rather than manufacturing. They can leverage new and unique technologies from suppliers, along with other supplier strengths like supply chain, geography, buying power, relationships, and more.
Fenske: Are current market forces impeding innovation, enhancing innovation, or is it somewhere in between?
Carty: We are behind in the overall spectrum of enhancing innovation. But I believe it’s a positive climate at the moment for CMOs. Though 3D printing assists OEMs tremendously in an R&D aspect, it is nowhere near taking over injection molding. It might not ever be. Same goes for artificial intelligence. Do CMOs have the funds to purchase the latest innovations in AI? No, most of us don’t; but our AI is still heavy in robotic process automation.
Hushka: Innovation itself is still progressing, especially within the startup community. The market forces have, however, changed the scope and expectations on how innovations obtain sufficient funding and ultimately get to market. Exit strategies for startups now hinge upon tangible clinical results and months or even years of market sales in order to divest new technologies. OEMs recognize this and have started to create incubation and investment functions to financially support startups in their early stages prior to any formal acquisition discussions.
Medsker: I would say all of the above. There has been an increased focus on risk mitigation in the last several years. While this may be warranted and needed as devices become more complex, it can have the effect of impeding innovation. As a comparison to the automotive industry, which has a strong focus on continuous improvement and optimizing designs (and cost), the medical industry primarily focuses on safety and efficacy, which can run contrary to continuous improvement. Continuous improvement equals change, and change equals risk. If a device is working safely and effectively, the inherent risks in modifying it for incremental improvements can outweigh the incentives to improve it (i.e., if it isn’t broke, don’t fix it).
Womble: From a technology perspective, current market forces are enhancing innovation. We still have a headwind with respect to regulatory frameworks that can encourage faster approvals and digital solutions. Recent events certainly raise the need for remote care options. Often, creative ideas or changes in status quo that result from a crisis can be a catalyst to accelerate solutions that support more digital and remote devices and solutions.
Fenske: Given the changes to regulatory around the world, is the environment becoming more or less restrictive for medical device manufacturing?
Carty: Not in the CMO world. Validations are getting more and more stringent, which I believe is a good thing. That is where CMOs maximize on value-added services. By developing robust processes through DOEs [design of experiment] and stringent validations, we are lowering the stress for OEMs.
Hushka: There are increased requirements around risk management and process controls, which are ideally better for the quality and integrity of the final product. There is also more regulatory visibility throughout the supply chain. To balance this, regulatory bodies are starting to converge on common criteria and single-audit programs that can reduce audit redundancy and resource burden. These changes make it important to plan and manage activities based on project type and associated risk levels instead of a universal approach. Like the devices themselves, one size rarely fits all.
Kley: Regulatory standards for medical device manufacturing and the intensity of enforcement will continue to rise, increasing the cost for medical device manufacturing. This raises the barriers of entry and it increases the critical mass required to be successful as a CMO. It will be more and more difficult to compete as a CMO if you do not have a top-notch quality system and the resources to maintain it.
Medsker: I would use the phrase “more demanding.” Anyone involved in the industry is definitely aware of the MDR effort in Europe. We see similar raising of the regulatory/quality bar across the globe. While I write this, however, we are in an interesting and special situation currently where barriers are being addressed quickly via the Emergency Use Authorizations (EUAs) and other steps being taken to ensure supply of critical products.
Testa: The increased regulatory oversight has caused the industry to raise the bar on its performance. I think, in the long run, this will make us a stronger industry. The best performers will ultimately benefit from responding to this challenge.
Treleaven: The environment is becoming more restrictive. Stringent regulatory procedures can pose challenges for startups trying to bring their new ideas to the marketplace and create increased demands on the engineering and quality teams at the OEM and CMO. There is a larger up-front investment, which makes it cost more to be a startup and/or introduce new products.
Womble: At the moment, it’s a mixed bag: the FDA’s pioneer program for approving digital solutions is promising as the industry sees a strong growth curve in this area. However, approval processes require more proof that new therapies will be efficacious, which can lead to potentially slower approval times, so we all need to strike a balance there.
Fenske: Do CMOs offer advantages to OEMs in addressing needs for a value-based healthcare system?
Barrett: CMOs such as Canon Virginia can offer an extension of resources to OEMs, in particular, startups that may not have the complete infrastructure to bring products to market.
Black: As the OEMs continue to try to reduce their supply chain, the key for suppliers and/or partners will be to continue to add or increase their value. The entire healthcare industry is now value based, meaning the data of just a better mousetrap coinciding with increased costs have been long gone. You must bring value to your partnership the way the OEMs are bringing value to their products for caregivers and patients. It must help reduce the overall cost of care while improving the quality of care for both the patient and caregiver. I believe the pandemic will also support this direction as hospital systems and the government continue to try to reduce costs.
Hushka: It depends on the respective business models, but the typical CMO provides turnkey resources on component and device-related activities. By working more with CMOs on the device side, it can free up resources at the OEM to innovate in other areas like analytics, preventive care, service efficiencies, total care bundling, and the economic flows driving patient care.
Fenske: How are challenges around the world impacting your supply chain?
Barrett: Current environments are definitely creating challenges to the supply chain specifically around lead time and costs. We try to source domestically as well as overseas, and weigh the options carefully before automatically going outside the US.
Medsker: Supply chain issues rank very high in our world currently. Not only have we had supply continuity issues with products sourced overseas, we have had significant cost increases due to the increase in tariffs. Added to this challenge is the fact that a number of ETO sterilizers have been shut down over the last year. There is limited sterilization capacity in the U.S. and it’s being strained even further with these shutdowns. We are working to resolve these issues by exploring multiple sources for various materials and components, and increasing our focus on resources within the U.S.
Womble: With our deep domain expertise and global manufacturing footprint, we can provide customers with specific actions for developing a coordinated and proactive supply chain to succeed in this challenging environment. Depending on the crisis, businesses may be required to adjust to dynamic global demand, adapt supply plans, and manage product access, while also identifying opportunities to continue supply through alternative manufacturing options, suppliers, and sources. Jabil’s intelligent digital supply chain and procurement analytics platforms support category expertise, assurance of supply, and real-time scenario planning. Our experts and tools are enabling the review and optimization of component lifecycles by identifying long lead times, escalated components, AML [approved manufacturer list] optimization, BOM [bill of materials] grading, supplier selection, and product quality issues.
Fenske: Have recent events caused you to reassess your own recovery plans so as to put your customers’ minds at ease?
Barrett: Yes, Canon Virginia has really been assessing our internal resources and how to train employees during the pandemic instead of hiring externally. We have highly-skilled employees already working in other operations at our facility but we want to move them to focus on new partnerships. We are using engineers and technicians to train and qualify during this process.
Carty: Yes. A company FMEA [failure modes and effects analysis] is beneficial. Regulatory requirements have also been stringent on having a strong and detailed recovery plan.
Hushka: We have thoroughly reassessed our recovery plans and have expanded the scope beyond industry standards and global agency recommendations. We were early to implement travel restrictions and limited social contact prior to our customers issuing policies. We have expanded our scenario-based and severity-based recovery plans for all aspects of our business, including employee health and safety, supply chain continuity, manufacturing uptime, geographical restrictions, incident handling, employee downtime, and cleaning and disinfection procedures. Bringing these plans together has not only mitigated potential risk, but has also brought our employees and customers closer together—virtually, of course.
Kley: In the past few years, we have made sure we have tailored risk mitigation plans in place. That is why we are well positioned to offer our customers a high level of comfort. Just to give you one example: With 11 plants worldwide, we have back-up capacity that allows us to ensure business continuity. And we have made sure we run the same equipment, use the same materials, have our people trained in the same way, and operate under the same global quality system to be able to react quickly if we see disruptions somewhere around the world.
Treleaven: It is possible the current pandemic will affect a lot of manufacturers’ supply chains. There are many links in the chain to consider including the suppliers getting their materials, shipping, etc. One break in the chain can have a huge impact. It’s a serious situation that we’re constantly monitoring.
Womble: A successful, risk adverse supply chain is better positioned to weather the uncertainty that accompanies tariffs, earthquakes, fires, or pandemics. Uniquely, it is by nature agnostic to the problem and designed to be smart. The core elements remain true to form and start from the same point. All successful supply chains work to balance risk and cost, and use an intelligence platform to help drive actionable decisions. For years, Jabil has scouted different geographies for new suppliers and there are many suppliers we use that are still in the U.S. We have to balance cost and risk, as well as technological capability. The point is we have supplier overlap across and within geographies on most, if not all commodities. We have sheet metal suppliers in North America, Europe, and Asia. We have metal machining, injection molding, and cable manufacturing, as well as our own PCBA manufacturing in all regions. Where it becomes riskier is single-sourced suppliers in advanced technologies, such as ASICs (semiconductors), where the answer to managing risk becomes positioning inventory in multiple regions. The issue in Japan in 2011 was not just the tsunami; they also had many technologies coming from single-source suppliers. They are willing to stock products for unexpected demand, but often that stock is in the same geography. One event removed both nodes of the supply chain. It resulted in no manufacturing or inventory to rebuild that capability.
The antidote for lowering risk is accomplished through statistical modeling of the volatility of demand and the potential risk analysis for both supplier and unforeseen events. Having supply chain experts intercede the statistical output to decide what abnormal situations will occur, how long will it take to launch a different node, and what investment in inventory over what timeframe will be required.
Fenske: EtO sterilization is currently under a microscope. How has this affected your company/current projects and are you exploring alternatives?
Hushka: While we support customer projects around a variety of sterilization methods, we do not have internal EtO sterilization operations. We continue to support customer projects and maintain subcontractor relationships that can quickly address changes in alternative sterilization methods, including comparison studies and revalidation activities.
Kley: EtO sterilization shortages have affected a number of our customers, especially in the Midwest. We were able to quickly find alternatives by working closely with our customers. It helps that we have internal sterilization expertise and a deep understanding of the regulatory framework. For new projects, we are exploring alternative technologies, but EtO will be a key process for years to come. The sterilization providers and the regulators have to chart a way forward that ensures that capacity remains available.
Medsker: We have had multiple EtO sterilizers shut down over the last year. Initially, this put a tremendous strain on our ability to get products sterilized. We have since validated four additional EtO sterilizers and are reviewing alternatives for various programs including Gamma, E-Beam, Peracetic Acid, and others.
Womble: Jabil Healthcare had a number of customers that required sterilizer location changes due to the EtO sterilizer closure in Willowbrook, Ill. Some delays on our scheduling for production were experienced while the OEM customers completed the process development and validation work for the site changes.
Our experts here note there are regulations for addressing potential supply chain disruptions in the drug and pharmaceutical space, but not for medical devices. All stakeholders—both public and private—must work together to find more effective means for monitoring, predicting, preventing, and mitigating potential future disruptions. It’s imperative today’s cautionary news guides our future work. As we all know, sterile medical devices save lives.
Fenske: Corporate social responsibility is becoming more important. Does this come up in discussions with existing and/or potential customers?
Barrett: Yes, as part of our corporate introductions to potential new customers, we highlight our long-standing relationships with Newport News and Virginia as a whole. Our corporate philosophy, Kyosei—“Living and working together for the common good” is posted in our main lobby and is the first thing our potential customers see as they enter our facility. Being an active part of our community is vital to us.
Carty: Absolutely. Our jobs as CMOs is to always follow our customer specifications and also communicate how we can improve certain elements, such as safety requirements and offering our employees education. Investment in human capital is huge. Human capital can elevate our performance, sending acceptable product consistently to our customers.
Hushka: CSR has become a larger topic in recent years, especially through strategic partnership assessments by OEMs. OEMs generally want their CMOs to have similar operating principles as their own, which can include company culture and social responsibility. We are fortunate in this industry to be able to impact our communities in addition to ultimately serving the needs of patients.
Medsker: Yes. This is a consistent theme in our dialog with customers. The triple bottom line in CSR is: people, planet, and profit. When first engaging with potential clients, we start with communicating and discussing our core values. Clients appreciate this, and our people appreciate the fact that we live by our values, and engage with clients that align with our values. Being environmentally conscious is also a focus of many discussions. Together with our suppliers and clients, we always consider the entire product lifecycle and implement materials and processes to reduce the product’s impact on the environment.
Treleaven: Social responsibility now, during the pandemic, brings up its own set of issues. A CMO may need to reprioritize assignments if they are asked to take on work related to immediate care of patients or future prevention of the virus. In cases like these, a CMO will consider allowing social values, rather than profit, to drive their decisions.
Even during “normal” times, social responsibility is always important. In general, it’s the OEMs who should be having these discussions with their CMOs. For instance, if the CMO manufactures in a different country, be aware of the norms for environmental and worker rights issues. Problems such as unsafe and even illegal labor practices have tripped up many unsuspecting and otherwise well-respected companies in other industries. Quality and compliance issues are a nightmare no manufacturer wants to face.
Womble: Social responsibility has always been central to Jabil’s mission and that of its customers. As the supply chain continues to become more transparent, we and our customers are more engaged in the work we have been doing for decades. We all work to continually improve conditions for our employees, including health and safety and protecting human rights. Additionally, Jabil has focused efforts on finding solutions for forced and bonded labor issues, collaborating with customers and others.
Fenske: Is your company introducing initiatives to address the trend in corporate social responsibility?
Barrett: Canon Virginia is an active participant in many social activities in the Newport News, Hampton Roads area, and beyond. As an example, Canon Virginia requires management members to attend at least one social event per year. From food banks to volunteer services to University relationships, Canon Virginia is actively invested in its corporate philosophy, Kyosei—“Living and working together for the common good.” We serve on education and community boards, and several years ago, we initiated a scholarship program with a local university for engineering students that provides internships and job offers at graduation.
Carty: Absolutely. We give training to our employees constantly on GMPs [good manufacturing processes] and Lean manufacturing to reduce waste.
Hushka: We have supported many initiatives over the years around coordinated volunteerism, philanthropy, academic mentorship and sponsorship, community health services and challenges, environmental advocacy, and sustainability. We have current initiatives around the evolution and coordination of these activities to make them meaningful to more than 1,500 employees across 17 global sites to have both a local and global impact.
Kley: The Freudenberg Group has signed the United Nations Global Compact. We have been operating for decades under a set of Guiding Principles that were discussed and implemented together with our family shareholders. These Guiding Principles include all the core elements of corporate social responsibility. Examples for specific initiatives under this umbrella are our long-standing “We all take care” initiative, which has cut workplace accidents to the lowest level in our industry, and the Freudenberg “e2” program, which funds and supports community projects in the fields of education and environmental at all our sites across the globe.
Medsker: We have been employing practices and initiatives around CSR for many years. These include recycling initiatives, and a wide range of time and financial donations to local and state organizations. As a specific example and impactful initiative—along with the typical paid holidays and other PTO-based benefits—we also offer paid volunteer days that accrue for our employees to go out into the community and give back.
Testa: Nordson has always been a leader when it comes to social responsibility; through the Nordson Impact program, Nordson and its employees give back to the communities where we live and work. We take the responsibility of being a good corporate citizen very seriously.
Womble: Jabil has long been working to more efficiently manage our environmental impacts, including reducing energy consumption and carbon emissions. By making our own factories more sustainable, we support our customers’ goals aimed at producing more sustainable products and supply chains. We also look for ways to compound our efforts, including through customer partnerships and providing critical capabilities that help bring sustainable products to market. In 2020, Jabil’s packaging group became a signatory to the Ellen MacArthur Foundation’s New Plastics Economy Global Commitment, promising to change how we produce, use and, reuse plastic, moving toward a more sustainable model. Additionally, individual sites have made great strides toward Circular Economy principles, including Jabil Healthcare.
Fenske: Sustainability is becoming more important in medical device manufacturing. How is your company addressing this trend?
Barrett: Canon Virginia is a zero landfill facility and is committed to be a sustainable, socially responsibility partner for OEMs. Canon Virginia operates green procurement initiatives, and is actively involved and certified to ISO 14001, ISO 18001, and moving toward ISO 45001 in 2020.
Carty: Maintaining equipment as efficiently as possible. Validating molds in multiple machines so there is no downtime if machines need maintenance. Monitoring machine utilization, making sure it doesn’t reach certain levels. Having an operation built to minimize downtime, whether with tool repair or having adequate staff to troubleshoot molds in a moment’s notice.
Hushka: We focus primarily on polymer-based technologies and value-added assemblies (devices with medical tubing/extrusion, specialty molded components, medical balloons, and/or medical films). As such, the biggest areas we can affect are in waste reduction and raw material selection. We have operational excellence metrics and programs in place across the company to reduce waste and have proactively offered eco-friendly/biodegradable polymer solutions to our customers, especially in flexible packaging applications.
Kley: We see diverging trends in the medical device industry. On one hand, the move toward disposable devices is still very much intact and the emergence of single-use endoscopes to increase patient safety is one recent example. On the other hand, the drive toward sustainable products and manufacturing is becoming more pronounced. We have made sustainability one of our top priorities and are implementing a number of programs, targeting, for example, energy and material use. One of the break-through projects is our proprietary Helix iMC technology for tube processing, which allows us to reduce waste by up to 30 percent by enabling real-time control of the inner dimensions of silicone tubing.
Medsker: Material selection is a primary aspect of this trend. When looking at a new or existing device, significant effort is applied to ensure the environmental impact of the product is minimized. This is often challenging, especially with sterile products, as many materials do not fare well with certain sterilization methods.
Treleaven: We try to steer clients to citric acid passivation instead of nitric acid, which is hazardous and bad for the environment. Citric acid works very well, but nitric acid has a longer history of use and was considered the industry standard. Standards now include citric passivation, but ultimately, a CMO must follow the directive of its OEM customer.
As we think about our responsibility to the environment, packaging is becoming more of an issue. Demand is high for single-use products because they are uncontaminated, safe, and ready to use, but of course, each one comes in its own packaging. Industry trends may lead to changes in how devices are packaged, but the need for single-use devices will remain. Regardless, how devices are packaged is ultimately up to the OEM customer.
Womble: We recognize that huge amounts of medical waste are generated each year. We’ve heard as much as two million metric tons of medical waste are generated each year alone in the U.S. As a result of a broader understanding of this concern and certain partnerships, Jabil has acquired a sustainability operation in Minneapolis that reprocesses many different types of minimally invasive devices from angiographic catheters to electrosurgical devices.
Fenske: When faced with a customer presenting requests for a percentage cost reduction year over year, does it cause a rift in the relationship or a reevaluation of whether the business is worth it?
Barrett: Yes, it can cause reevaluation depending upon the pricing model. It is important to think through the pricing model and statement of work. Using an open book component, cost plus margin model, or gain sharing of cost reductions are important. Negotiate up front so everyone understands the benefit for OEM and CMO to achieve a win/win for both.
Carty: With past management, it used to cause a rift. But now, it has become an opportunity. Most managers or executives believe this is an attempt to lower profit for the CMO. We see it the other way around. Yes, it is an attempt to lower profit, but that’s because the end user is probably requesting the exact same thing. We need to be able to give options, incentives, and price breaks to our customers. This can be used as leverage as well; maybe giving a price break can lead to more volume. It is difficult to navigate in an industry as unique as ours, most of our projects are B2B2B2C, where most business offer B2B or B2C; there is a lot in between where multiple businesses are being pressed to lower costs for the consumer.
Hushka: It depends upon the level of mutuality and approach by the OEM. The OEM looking to only push cost reductions through supply chain pricing inherently causes tension. The OEM that targets similar results through value improvement programs and shared cost savings is going to receive much more engagement and cost savings opportunities from the CMO; therefore, establishing a symbiotic relationship with common goals.
Kley: We continually assess all our projects based on their economic merit, and, of course, there are business opportunities from which we have to walk away. Customers typically understand, however, the key to a successful relationship is finding the right balance between the interests of both parties. Freudenberg is often able to find the most cost-effective solution by engaging the customer and jointly finding a way to drive cost out of a product or process for mutual benefit.
Medsker: It can, especially if cost reduction is the primary focus of the program and relationship. Safety and efficacy should be at the forefront of considerations in a medical device program. For mutual long-term success, the mutual financial health of all parties should also be a priority. When a carte blanche price reduction program is a primary driver over these priorities, it can and does create stress in the relationship.
Testa: We appreciate the cost pressures on healthcare providers and recognize our role in working with our customers to respond to this challenge. All of our programs include focused efforts to drive efficiency and reduce cost throughout the supply chain. We work with our customers to realize the benefit of these improvements and share in those cost reductions.
Womble: Rarely does it drive a significant rift in a relationship. First, typically the pricing discussions—including annual changes—are negotiated and agreed to during the contract period. As we continue to increase the value proposition that we offer our customers, there are generally more opportunities available if pricing is the major issue. Furthermore, the majority of our business is with the large OEMs where we have deep business relationships. We are having multiple product roadmap discussions with their various divisions and a clearer line of sight of what we will be working on for them in the future. This planning is instrumental in us working together to meet their targets and other needs.
Fenske: How is your company addressing the skilled labor shortage and what are you doing to attract and retain talent?
Carty: Once again, investment in human capital. By offering trainings, certificates, and even collegiate level support, employees become skilled and also hold a level of loyalty to the employer. It’s as if a partnership is built. I will support you, and you will support us. We are a team. By offering higher levels of education, it can only boost morale, increase acceptable product, improve efficiency, and offer solutions from subject matter experts.
Hushka: While there are challenges in certain geographies, we have maintained a simple approach of treating people right and making our company one that people want to support. We make an effort to invest in our existing employees and new talent by systematically training them in the appropriate disciplines across the organization—production training, continuing education, and ongoing mentorship. While we are a relatively large CMO, we operate with the agility and culture of a smaller organization. Empowering, developing, and appreciating our people on a daily basis goes a long way.
Kley: Freudenberg Medical is in the fortunate position to be seen as an attractive, long-term-oriented employer offering great opportunity. We are continuing to invest in our co-op and apprenticeship programs, we have built strong relationships with local schools and colleges, and we are enhancing our internal training curriculums. We are also proud to promote from within, which offers exciting, often international career paths for our workforce.
Medsker: This has been a significant challenge. The basic answer is we’ve employed every resource at our disposal. These resources include recruiting through our website, the Indeed website, staffing agencies, social networking, and consultants. All of this has helped us find good people, albeit it has been a challenge to find people on a timely basis.
Treleaven: Skilled manufacturing jobs in medtech provide excellent opportunities to workers who don’t have college degrees. We use outreach such as PR and career fairs to help educate prospects on the advantages it offers. We’re also identifying candidates with the right aptitude that we can train. Offering flexibility, such as three-day shifts, is another way we’re accommodating life-balance needs and enabling employees to earn more.
Womble: Jabil Healthcare believes employees are our greatest asset. We have found great success in attracting production employees through our referral bonus program. We also have great local partnerships with universities, technical schools, unemployment offices, and the military transitioning assistance programs.
Fenske: What recommendations do you have for OEMs seeking new CMO suppliers?
Barrett: What does the new CMO have to offer? Is it just manufacturing or can they offer additional services from new sourcing through reverse logistics or design services? Can they be a one-stop shop? Will they be around in five years?
Carty: A seamless quality management system centered around the voice of the customer. How can you make their jobs easier? How can you make them want to outsource product to you? Once again, it’s by being an extension of their core values—engineering, automation, efficiency. Constantly sending out surveys to see how your customers see you and where you need to improve can give insight on how to land more work.
Hushka: Aside from the “make vs. buy” criteria and prerequisites around quality management and required certifications, OEMs should select CMOs with vertically integrated component technologies and expertise that best fits their product portfolios. Like patients going to a specialist instead of a generalist for critical health issues, OEMs should find CMOs that have the best fit expertise across their specific product lines.
Kley: We are often contacted by OEMs who have been disappointed by other suppliers. The issues are usually lack of technical expertise, insufficient resources, and quality problems. OEMs should systematically evaluate their potential partners based on a comprehensive set of criteria. The key question is: Can your supplier deliver on his marketing promises?
Medsker: Culture and capabilities. It is key to have value alignment and like cultures. This will help ensure long-term success, and a higher level of collaboration. Capabilities that align with the OEM’s needs are critical. Ideally the CMO can offer the OEM tribal knowledge and capabilities at the center of the needs for the program. When the CMO can offer expertise beyond just the basic manufacturing function, the benefits are compounded.
Testa: OEMs should look beyond low cost and work with suppliers who bring deep, specialized know-how. The total cost of working with a more capable, specialized partner will be realized in terms of higher quality product, delivery against commitments, adherence to program schedule, etc.
Treleaven: Choosing a true end-to-end supplier is important. Many medical device manufacturers that specialize in either metal or plastic claim to offer end-to-end services, but just manage the supply chain. It’s advantageous for the OEM to work with a supplier with the expertise for both metal and plastic. This means a single manufacturer can support customers all the way through the process of making their devices.
Today’s medical device regulatory processes are growing increasingly more stringent. With one supplier—a true end-to-end provider—there is a single quality management system overseeing the entire project, which helps simplify the process. Working with a single vendor also eliminates some of the communications breakdowns that can occur when the OEM is trying to herd multiple suppliers for a single product.
Womble: Enlisting outside expertise is one of the most effective ways for OEMs to solve challenges with their solution ecosystem. CMO partners can help to identify trends in how markets will progress over time, which can be tied to investment plans supporting product lifecycles.
Encouraging collaboration with expertise outside their own is a vital strategy for OEMs to better navigate change and disruption. This goes beyond simply inviting in technology expertise from other industries. The concept here is more about opening up and reaching out to collaborators whose insights and experience will truly help unleash the power of agility into an OEM’s product management strategy.
The best CMO partners not only capture intelligence, assist in roadmap product development, and understand domain and regulatory requirements from different industries, but most importantly, also enable OEMs to move at the speed technology changes.
Fenske: What steps must an OEM take to evolve from dealing with a CMO purely as a supplier to establishing a true collaborative partnership?
Barrett: An OEM should get the CMO involved as early as possible, potentially participating in DFM [design for manufacturability] or DV&V [design verification/validation] activities.
Carty: Honesty. We have been told by many OEMs, “We are planning to consolidate our supplier base” or “We are planning to vertically integrate as much as possible.” Brutal honesty can bring the CMO to reality. If the OEM has ample capacity and there is no way to secure the current work, it allows them time to go back to the drawing board. Attack a certain area of the market where you weren’t paying attention to before. Or maybe a warning can have the CMO improve their business plan and adapt to better suit the OEM’s needs tomorrow.
Hushka: A true OEM/CMO partnership is built upon mutual transparency and alignment toward each company’s respective goals. This can be established by having relationships at all levels between the organizations, collaborating on strategy and budget planning, aligning CMO technology roadmaps with OEM product pipelines, identifying value improvement programs to achieve cost savings objectives, aligning service models to work within respective systems, conducting mutual training activities, and establishing a regular forum for partnership conversations beyond the universal OTD (on time delivery) and quality scorecards.
Kley: It comes down to a simple principle: If you want your CMO to be a partner, treat them as one. Share information, involve them early in the process, and listen to what they have to say.
Medsker: Avoid the transactional approach and mentality. Consider the CMO as an extension of your team and a partner in your success. Be transparent. Transparency on both sides of the equation results in better outcomes, and a stronger relationship.
Testa: Inviting your CMO partner into the development process at an early stage is an important step in building a collaborative partnership. If the CMO brings true specialized capabilities, it is in the OEM’s best interest to leverage these as the program takes shape. This will ensure both partners can work effectively toward the best outcome.
Treleaven: One of the most important things to do is put long-term supply agreements into place so you can ensure commitment from both sides. Keep the relationships open, respectful, and friendly. Heavy-handedness is counterintuitive to a good process.
Womble: This is an organic process—like any relationship—where you earn trust by living up to your word and delivering positive results. We have several customers who have consistently increased their work with us because we have proven ourselves to bring value to the table, and capabilities that complement their own. We offer a diverse global footprint and broad expertise within healthcare, but also in industries outside of traditional healthcare. As OEMs move to more digital health and technologically complex product offerings, we can offer expertise that might lie outside common healthcare domains.
Fenske: Conversely, what does a CMO need to do to illustrate to an OEM it is capable of being a collaborative partner in a medical device project?
Barrett: The CMO needs to offer more than just a supplier relationship. Design services, verification and validation services, and reverse logistics are several examples of additional services a CMO can offer.
Black: OEMs are looking for full-service outsourcing partners that are able to provide a full complement of information (e.g., quality, engineering, development, process, etc.) with each product. It is a requirement, not a wish list. Your systems must be robust and up to date, and your documentation must be accurate. We are audited several times a month, and while that takes resource time, it is a valuable way to understand what is needed by the industry, as well as to learn what new trends are being developed—especially, if you are being evaluated by both medical device and pharma firms.
Carty: Pass quality audits. Hit almost 100 percent on-time delivery and zero rejections or returns. It’s quite simple. Data proves everything. Perhaps ask for a supplier scorecard. This can easily show you are ready to elevate the level of responsibility and partnership.
Hushka: Simply put, the CMO needs to build confidence with the OEM by demonstrating the appropriate capabilities, expertise, resources, plans, systems, and controls are in place to ensure a successful program. Experience and aptitude are major drivers here with the remainder of items in place to formalize activities and reduce project risk.
Kley: The CMO needs to have a deep understanding of what is on the OEM’s mind. You have to be able to put yourself in the shoes of the customer. To give an example—if the material or process you propose leads to a significantly longer and more costly regulatory pathway, a technically less elegant solution may sometimes be the better option.
Medsker: Approach the relationship as I stated in the previous question. Be open, transparent, and be a part of the OEM’s team. When challenges arise...demonstrate you are invested in the relationship and are driven to find the best solutions.
Testa: The most important factor for success as a CMO is building the OEM’s confidence in your ability to deliver on commitments. Once you prove your ability to bring value, it has been our experience the OEMs are happy to expand and grow the relationship.
Womble: There are many reasons OEMs make the change from in-house production to CMO. It could be capacity, reprioritization to R&D, or financial reasons. At Jabil, we operate in dedicated business units and work cells. The business units are accountable for success with specific customer accounts as opposed to a Jabil-centric site or region. The customer works with the same people whether their products are built in Mexico or Michigan. This naturally leads to a strong relationship where Jabil teams will be brought into the product development process earlier—bringing with us a broad array of expertise in all types of manufacturing. That’s where we can really demonstrate our added value. We may know of a proprietary material or process that worked in a camera lens or automobile that will make your healthcare product better. This sort of cross-pollination is happening more and more as healthcare devices add more functionality.
Fenske: Is M&A activity having an effect on the OEM/CMO relationship?
Carty: It is having an impact in regards to a CMO’s customer portfolio. It’s eating away diversification. It can also be a huge benefit. Sometimes if you don’t have the customer base you want, some of the startups you work with can potentially be acquired by top OEMs. It all depends if you truly invest time into a market you don’t have.
Hushka: M&A on the OEM side has effects regarding supply chain consolidation. If an OEM acquires a company that works with a particular CMO, it can either open the door to a new relationship or can trigger a supply change activity to another CMO already on the OEM’s ASL (approved supplier list). M&A on the CMO side has a similar impact where supplier consolidation happens inherently and CMOs can then do more for their OEMs under a single organization. As a whole, M&A activity can lead to the expansion of OEM/CMO relationships as long as the organizations retain the capabilities, expertise, and efficiencies that brought them together in the first place.
Kley: The consolidation on both sides of the market is changing the relationship: OEM mergers invariably lead to supplier consolidation and a weeding out of the supply chain. The consolidation on the CMO side will lead to bigger...more potent suppliers. This will gradually impact the balance of power between both sides.
Testa: M&A in the CMO space has resulted in stronger suppliers with expanded capabilities and a more professional approach to working with OEMs. I think this is a positive as the industry continues to mature.
Treleaven: Many smaller companies in the industry are being bought out by larger firms. This will tend to reduce supply chain challenges as firms are able to offer a broader range of services.
Fenske: What trend(s) in medtech are most interesting to you and/or will you be following over the next few years?
Carty: Artificial intelligence. Though we don’t believe AI will replace labor, especially in injection molding anytime soon. It is still very interesting to see the advancements.
Hushka: Disrupting the current care model: Making medtech more accessible outside of the traditional clinic model is starting to happen. With the focus on value-based care and “healthcare” instead of “sick care,” there should be some interesting care model developments where even the largest OEMs will change their business models.
Bridging the gap between information technology, financial technology, and medical technology: With so much technological advancement in recent years, there will undoubtedly be increased convergence across industries—better data around diagnosis and patient-specific needs, smarter and more capable solutions, better efficiency in the economic flow across the care spectrum, more accessibility and information to empower patients and care providers.
Kley: The medical device industry remains an exciting space with a number of factors changing the face of the industry. On the technical side, the trend toward smart devices; the continuing drive toward miniaturized, minimally invasive solutions with increased functionality; and the rise of combination products are the most interesting for us. Other drivers that have a profound impact are the changing regulatory requirements and the regional shifts within our industry toward Asia and emerging markets.
Medsker: One of the most interesting trends is a topic I mentioned previously—the “hybrid” model. This is an interesting trend and is proving to be effective in certain situations. It also helps create a stronger partnership between the OEM and CMO. This is where the OEM owns the IP (patents, 510k, etc.), yet through a contractual arrangement, assigns the IP to the CMO. The CMO then becomes responsible for the regulatory aspects of the product. This allows the OEM (now acting more like a distributor) to focus on selling its product versus being burdened with quality and regulatory activities. We have implemented this strategy with a number of clients and to date, it has worked well. Welook forward to seeing how this will continue to evolve.
Treleaven: Like everyone, we’re very interested in what comes out related to the battle against COVID-19. As the pharmaceutical companies work on getting vaccines to market, what kind of medtech delivery devices will be required?
The FDA’s plan to update the regulatory approval process has sparked our interest for several years. Soon it is expected to include a 10-year cut-off (i.e., no circumventing the rigorous approval process by comparing to devices more than 10 years old) that will require companies to put more devices through the entire validation process before they can go to market.
It will be interesting to see what effect this has on the market. Validations are costly and time-consuming. Will the smaller firms be able to accommodate the changes? Not all companies have the resources to do this level of validation. There will be demand for the companies that can handle it, but then they may experience lead time and delivery issues as they absorb the additional work.
Also, the opioid crisis is a continuing issue that must be dealt with. One thing the medtech industry can do is develop safer, better ways to alleviate pain, reducing the need for dangerous opioids. For example, there are injectable treatments that can require specific devices and specialized needles to deliver the medicine. One product on the market uses a cold therapy that offers pain relief by preventing nerves from transmitting pain signals. I expect we’ll see a lot more products touting their ability to reduce opioid use.
Fenske: Do you have any additional comments you’d like to share?
Carty: CMOs are constantly competing with OEMs to keep running their product and making it feasible and necessary to keep it at the CMO facility. Margins for error are slim to none. By mirroring the core values of the OEM, you are transforming the perception of the CMO as an unwanted resource to a trusted partner.
Hushka: At the end of the day, we are all people...Patients rely upon each of us in this space to show up and do our best every day. It’s what keeps many of us in this space and it’s what makes these relationships extend outside the conference room.
Medsker: The market trends indicate a steady increase in OEMs’ outsourcing development and manufacturing. The role of a CMO is evolving and expanding with this trend. All of this makes it even more important for the OEM and CMO to have a true, value-aligned, transparent relationship.