Sean Fenske, Editor-in-Chief05.09.23
The medical device development environment is one of constant change as new innovations and practices come into favor, while other aspects are left behind. That change, however, is typically slow and takes place over years. The COVID-19 pandemic created an environment in which both OEMs and their service provider partners had to alter their mindset as well as their manufacturing protocols. The adjustments made during this period will undoubtedly have long term impacts on the industry.
Some of these modifications were positive while others were more out of necessity. Regardless of the reason, it’s caused many outsourcing company leaders to evaluate behavior, relationships with clients and employees, best practices, communication, and more. To find out just how impactful the pandemic was to outsourcing service providers, MPO reached out to more than a dozen executives at firms of all sizes. These participants not only responded to pandemic-related questions, but also to other factors affecting the state of medtech outsourcing. Those who took part in this Q&A were:
Sean Crowley: There is strong activity coming from our customers. We are seeing movement and growth, with several things driving this. Coming out of the pandemic, medical device companies are applying lessons learned, so they are setting up second sources for key components and near-shoring programs to place production closer to where the product is consumed. We also see customers freeing up capacity in their plants by transferring programs to our plants, which is an area where Viant has been able to provide significant value.
Reena Daga: It's growing in new geographies beyond China and Mexico, like Costa Rica, India, and other Asian countries. The relationship between medical device original equipment manufacturers and CMOs has evolved over the years. Earlier, in many cases, the association was volatile due to several reasons like trust issues, cost considerations, and various legal aspects like IP infringement. Establishing trust between OEMs and CMOs was a very difficult task.
Post-pandemic contract manufacturers have gained a significant amount of trust from OEMs due to higher dependencies in a dynamic environment. According to MarketsandMarkets, global medical device contract manufacturing will grow at a CAGR of 18% to reach $118.9 billion in 2027 from $71.2 billion in 2022. The low cost of manpower, high-quality innovation-led manufacturing, and ASEAN countries adopting flexible policies of investment are the key reasons that support the predicted growth rate of the CDMO/CMO segment globally.
Todd Dickson: Trends to and away from outsourcing may ebb and flow, but even in periods where there is an overall shrinking trend, companies like ours with specialties that enable new improved devices will still see growth opportunities.
Brett Freeman: Overall, outsourcing trends continue to grow and the demographics of the world demand it. However, it depends on the product categories, type of service, and markets served. The outsourcing model provides flexibility, scalability, cost effectiveness, and localized reach.
Andrew Gaillard: In the medtech industry, the trend toward outsourcing continues. We believe medtech companies wish to control costs, consolidate suppliers, and deal with supply chain challenges. These factors are driving the outsourcing trend.
John Horgan: There is a tremendous amount of innovation occurring in the medtech industry. Companies are looking for outsourcing partners, like a CDMO, with a level of expertise to enable a faster pace than what was realized in the past. Many of our medtech customers are looking outside to access different capabilities and to expand their supply chain through outsourcing.
Neil Muchin: Since we participate in a variety of markets, we find some markets are growing, while others are staying the same or shrinking. Some of the large OEMs we work with seem to be looking for more outsourcing opportunities and further consolidation of vendors. In many cases, cost tends to be the issue with some OEMs thinking it is more cost effective to insource, but we are encouraged to see our customers and prospects are pursuing outsourcing options versus insourcing.
Dave Rezac: Growing. Start-ups recognize the merit of a virtual model leveraging established infrastructure, on-demand resourcing, and targeted expertise available at CMOs.
James Schultz: Outsourcing in medtech is growing at a steady clip—just under 10% per year. Implant OEMs are experts at the design and functionality of their implantable products, which is their IP. Their focus is on sales and marketing (i.e., training surgeons, gaining market share, building brands, and managing margins). Implant OEMs have become less and less manufacturing companies as the medical product outsourcing base grows and matures, while offering more capabilities including advancements in materials, processes, and turnkey solutions. Like other industries, medtech is shifting, relying more and more on third-party suppliers and strategic alliance partners for producing critical components and turnkey product solutions.
John Shegda: Interesting question to answer. You could answer any of those depending on what perspective you take. M&A has driven consolidation, which has significantly reduced the number of individual vendors while increasing the large CMO capability list (at least on paper). Rival CMOs, like ours, that are not equity-owned, have to expand footprint and capability to keep up, or else be shut out of the market. In this sense, I would say outsourcing in medtech is shrinking in the opportunities presented to the broader spectrum of potential vendors. Yet, the same forces of acquisition of the OEMs are driving greater opportunity for those CMOs positioned to take the work and have proven themselves. More product lines, new product lines that have been acquired, tend to be placed with vendors with which an acquiring OEM is comfortable—so in this sense it is growing.
Fenske: Overall, given the supply chain challenges being experienced, how has your company responded to ensure critical components still get to OEMs?
John Budreau: We have developed supply agreements with our customers to carry inventory and safety stock on long lead time components, ensuring the supply of critical medical devices.
Daga: We adopted five key strategies to successfully manage the supply chain in times of crisis.
The calendar is the largest expense category in product R&D. To make our R&D support even stronger, we have dramatically expanded our inventory of materials to ensure ultra-rapid R&D progress. We stock every standard-gauge 304 stainless steel tube (plus many other sizes), a vast variety of nitinol tubes from the smallest to the largest, and can rapidly centerless grind and use other methods to achieve near-custom dimensions from standard-gauge materials.
Freeman: There has been much more of a focus on qualifying alternative materials, localizing where possible, and increasing attention on more efficient planning practices.
Gaillard: We are a global operation, so we have strategically located facilities around the world to draw on when it comes to materials and supplies for components. It’s one of the many advantages to our global but local business approach. Regardless of location, the customer has access to our extensive services to deliver innovative medical solutions to the market quickly.
Horgan: At Phillips-Medisize, we are very proactive with our customers and our supply chain. We work to secure components and work closely with our supply chain partners to ensure we have the availability in stock and are proactive with ordering, especially with critical components that have known challenges. We continue to have tight engagement with our customers to understand the demand and volatility. Another critical challenge in supply chain that we focus on is labor. We work to ensure we have the amount of labor needed for the demand by offering incentives and shift differentiations. Finally, Phillips-Medisize has the unique position of being part of Molex, which allows access to their distribution channels to enable our supply chain.
Chuck Lee: The key for us has been enhanced communication. We review our material supply chain out to a much further horizon than previously. We immediately share with our customers any hint of potential future disruptions and offer alternate solutions where possible. Our most successful customer partners are those who engage collaboratively with us at a corporate level to help ensure continuity of supply. Oftentimes, we have found ourselves to be the first to highlight a material supply concern that will affect other suppliers using the same components/materials. When the OEM engages at a corporate level, they can ensure the greatest total leverage with the raw material supplier. When they do not, each contract manufacturer is trying to leverage only a small piece of the total supply, often unknowingly against other suppliers to the same OEM.
Muchin: Supply chain challenges have gotten somewhat better, but still continue to plague many of our projects. TEAM works in conjunction with our customers to identify long lead-time items and purchases—plenty of inventory in advance to ensure we do not experience delays in production due to supply chain issues. In cases like this, TEAM Technologies has agreements in place with our customers that identify and assign liability for materials should forecasts or purchases change. Our customers appreciate that TEAM is willing to partner with them to ensure they are always able to meet their market demands.
Rezac: Diversification is the key. It’s more important than ever to keep a finger on the pulse of emerging suppliers and capabilities as established channels become constrained by capacity challenges and are forced to be selective with their lead times.
Schultz: Continuity of supply is critical to every medical device and implant company. Volumes in the industry, in general, do not lend themselves to dual or multiple sources or cost-effective solutions given the regulatory and support activities associated with these products and systems. As such, strategic alliance partnerships and critical component management plans are vital to maintaining a competitive position and effectively support customers. Every link in the supply chain must be managed with care and should be healthy both economically and in its ability to meet existing and future customer needs. Plan for success. Our business model is very attractive to our component suppliers and our customers as a large percentage is annuity business—plan for mutual short- term and long-term success.
Chris Schwalbe: Raw material agreements (RMAs) with our customers were created to share the risk of ordering components ahead of purchase orders (POs) to ensure we have material on hand when the POs come in. These RMAs and/or getting POs from our customers early enough for the extended lead times has ensured we have the material when we need it and little to no risk for our company.
Shegda: Since we manufacture primarily highly precise metal components, our focus is on ensuring we have the raw materials necessary to make the parts. We are not dependent on chip suppliers or electronics, which have caused so many delays over the last couple of years. Being proactive on behalf of our client base has put us in a good position to respond as we have over the years—quickly in development and high-90s in on-time delivery on production work.
Fenske: Were there lessons learned (i.e., best practices) during the pandemic you will be able to carry forward?
Budreau: We have implemented many systems and modular automation that supported our manufacturing operations during labor shortages and COVID-related bottlenecks. With the introduction of MAR (mobile automation robots), we were able to prevent shutting down machines and equipment when it was critical to get life-saving devices to our customers.
Crowley: One of the biggest takeaways is we have to partner closely with our customers to manage demand fluctuations as they are driven by various forces in the market. Without proper planning and very good communication with our partners, a rapid decrease in demand followed by a rapid increase in demand is very difficult to manage. We are doing more long-range planning with our customers and increasing the frequency of forecasting discussions. As always, we want to exceed our customer’s expectations and the only way to do that is to remain very closely aligned, especially with regard to forecasting.
Daga: Yeah, obviously. Being a seasoned medical device manufacturing company, we have a robust QMS, processes, and SOPs in place that comply with ISO 13485, GMP, and MDSAP regulations. But the pandemic brought in several unprecedented challenges to cope with. With a strong vertical integration and tight-knit team of purchase engineers, we were able to manage this disruption with minimal impact. The worldwide value chain and supply chain continues to be affected by pandemic challenges, including delays and disruption. But we were able to design a framework that has made our processes more robust and less vulnerable to such interruptions. These include:
Annual forecasting—Instead of multiple purchase orders from customers, we now insist customers provide annual forecasting and purchase orders for effective material and resource planning. This will help them to get timely deliveries without any delays.
Handling obsolete components—Many of the CMO customers have old designs and, as a result, the present parts may have reached the state of obsolescence. Here, we offer either alternate or minor design change solutions to address the challenge until the customer is ready with the new design.
High lead-time components—Due to global semiconductor shortages during the pandemic, we had several unpleasant experiences where we bought an electronic component for $790 with an original price of $8. The annual forecasting enables our purchase team to plan the high-lead time items ahead of time, which allows us to align the production plan with the stipulated time.
Vertical integration—We already have a great vendor base with more than 30 years of relationship with our suppliers. We have now increased this base up to two times so the supply chain is less vulnerable to such disruptions and risks are subdued.
Internal capabilities—We are increasing our mechanical capabilities to bring in VMC, CNC turning, laser marking, and cable harness automation in our new manufacturing area, which is adding up to 15,000 sq. ft. of space. This will increase throughput and manufacturing efficiencies. These are simple operations that were initially under less focus and outsourced, but post pandemic, these are being carefully looked upon to avoid delays and shorten timelines.
Dickson: Changes in the labor market were sudden and sustained. We put our engineering mindset to the task of discovering and refining the new optimal ways of reaching and interacting with candidates—for example, to leverage their preference for using handheld devices. Our changes ensured we have a steady flow of ready and eager workers to sustain rapid growth.
Some public health practices are now part of our toolkit for promoting workforce health and maintaining production schedules during routinely occurring seasonal infection waves. Done right, our team appreciates it and customers also benefit.
Freeman: Just-in-Time manufacturing isn’t always better, and having well-managed business continuity plans in place can be essential in ensuring uninterrupted supply of products. A supply chain is only as strong as its weakest link. Testing the supply chain at all critical points on an ongoing basis can make the difference whether that supply chain stays intact in the event of a crisis.
Horgan: First, being agile is imperative. Companies must react to the volatile demand with a more agile supply chain. Second, the importance of having options in all regions is critical. We must be able to offer solutions in each region to allow customers the choice to manage the supply chain regionally and locally. It’s no longer only about the lowest cost option; decreasing the supply chain risk is equally important.
Lee: As manufacturers, working remotely was not an option for us. Parts and products are made by people in factories, not on Zoom calls. As such, during the early days of the pandemic, we quickly realized mental health was a bigger challenge than physical health. Worry and fear was far more prevalent (and ultimately, more serious) than the virus itself. We opted to be completely open with our employees and explain at every step what we were doing to keep them safe, why we were doing it, and ask for their suggestions about what more we could do for them to feel secure at work. For instance, we carefully explained all of our sanitizing policies and practices and made a commitment they would occur around the clock. We then made available to all employees virtually any additional supplies they requested so they could feel secure that over and above our commitments to their safety, they could also have an added hand in their own safety. Ultimately, through contact tracing, we are able to show they were actually safer at work as the vast majority of exposures came from outside.
Muchin: One of the biggest lessons learned is communicating more with our customers with respect to demand planning on a regular basis, as well as with our supply chain to forecast properly. The unfortunate reality of the pandemic showed how fragile the global supply chain can be, so getting ahead of a possible crisis is very important. We find constant communication with our customers to review demand is critical to our success, so we are in lockstep with meeting their market’s needs.
Schultz: Just-in-Time, as we know it, became history. Being agile, adaptive, and executing became the new mantra. Look up and down your business position to create an environment that is built on a solid foundation and can scale. Forge partnerships and pro compete alignments in lieu of transactional arrangements. Treat your supply chain as part of the solution and coordinate on forecasts, lead times, and expectations. Over communicate and manage a transparent schedule to generate trust and create a drumbeat for efficiency and scalability.
Schwalbe: Staying ahead of the curve with labor during the pandemic is now one of the strategies we have brought forward to ensure we have direct labor when we need it. The labor shortage became a real constraint either due to illness or early retirements, and we are still seeing labor shortages at most of our sites.
Shegda: Communication cadence. We found it is almost impossible to over-communicate with our client base. Through the pandemic, everyone was dealing with their own challenges and understood when an issue arose. It just needed to be communicated properly. This has continued for us. We try to set up a regular cadence in R&D and production with our clients so there are no surprises. We are not perfect, and nobody really expects us to be. We just have to communicate properly when issues arise.
Fenske: Did your communication with customers/OEMs change during the pandemic and were there improvements/better methods realized you will continue to use going forward?
Budreau: Pre-pandemic, PTI would host five to seven customer engineering/development visits per week. During the pandemic, we utilized Teams and Zoom calls to accomplish the majority of customer communication. We are happy to be hosting customers at our facility again, but continue to utilize virtual communication options where appropriate.
Daga: Yes, we had slight changes and will continue leveraging them in the future. We incorporated digital technologies at various levels for tracking, sharing, and connecting with end customers. During this course of instability and fickleness, it was imperative for the customers to get a candid view of their project. We increased the frequency of calls with the customer from weekly to daily. Our SCM team worked in synergy with the customer’s SCM team so the sun never set for supply chain activities. We had an online/real-time KANBAN system implemented for triage meetings (for example, JIRA from confluence). We included the key stakeholders in every meeting for quick decisions and implementation. This facilitated smooth progress and helped us to get through the bottlenecks almost immediately.
Freeman: Virtual meetings became standard practice in lieu of in-person visits and became a commonly accepted method of staying connected. We will continue to utilize virtual meetings as well as in-person meetings, depending on the type of meeting.
Gaillard: I believe the greatest change was our request for, and our customers response in, issuing purchasing commitments for 12 months or more. This allows us to work more closely with raw material suppliers to ensure we have what we need to meet our customers’ demands.
Horgan: Like most companies during the pandemic, operating virtually became critical. Virtual partnerships with our customers became standard. Technology and innovation enabled and expedited engagement compared to the time and expense prior to the pandemic. We’ve embraced many new methods over the past few years such as virtual audits, virtual project kickoffs, and even virtual validations and inspections. These new methods offer cost and efficiency savings that will continue beyond the pandemic.
Lee: Communications undoubtedly changed. On one end of the spectrum, we have a great customer with whom we set up a task group to regularly meet virtually to openly discuss and get ahead of demand changes, raw material availability, transportation shortages, labor shortages, etc. On the other end of the spectrum, we had a major customer who called at 2 p.m. on a Thursday to say, “If it hasn’t left your dock already, don’t ship it. We’ll be in touch.” We were then unable to get any response by email, phone, or carrier pigeon for nearly 16 months. Overall, communication is like money; its only value is in exchange, and it is generally more valuable in quantity.
Muchin: Methods of communication changed during the pandemic; the biggest change being the reliance on “Zoom-type” meetings since travel was limited. While this proved business can continue to thrive without in-person meetings, we still believe there is value in having in-person internal and customer meetings, which are starting to happen again. That said, it seems the industry is still planning meetings strategically and being selective with in-person visits.
Rezac: I think the pandemic forced everyone to develop a remote collaboration skillset that makes the world feel even smaller and lowers the barrier to entry for real-time collaboration. It’s become second nature to hop on a video call/screenshare and discuss results with visuals in a nearly seamless fashion that would have otherwise taken a site visit.
Schultz: ECA Medical is a strategic or critical supplier to all our customers. For many customers, we have been a sole source or single source for over 40 years. Quality and continuity of supply are not an option but a requirement. During the pandemic, we increased the communication and transparency to jointly manage risk. This created minimum business and personnel impact to everyone as we kept product flowing to meet needs for non-elective surgeries, which are a big percentage of our business. Best practices from that communication and joint planning are being carried forward.
Fenske: During the pandemic, did OEM customers take part in virtual tours, audits, inspections, or another such activity that would have normally taken place in person? If so, will you continue to offer this option to customers or return to in-person only?
Budreau: Yes, we did many virtual (interactive) plant tours and facility audits. We purchased a DJI Gimbal for a smartphone to achieve a steady stable walk through of PTI’s operations. We also did video drone fly-through tours with audio voiceovers to allow customers another look at our plant and capabilities. We are pleased to be hosting customers to our facility again, but continue to utilize virtual communication options where appropriate.
Crowley: The return to in-person meetings has been a welcome change. Viant’s vision is to be the medical device industry’s most trusted partner in design and manufacturing services, and we find face-to-face meetings help build that trust and often speed up communication. However, we have continued to maintain virtual communication with more customers than we did before the pandemic, so in some cases, this is a more efficient way of working together with less travel required.
Gaillard: Yes, during the pandemic we switched to offering virtual tours in the form of professionally created videos for each manufacturing site. The videos showcase each site’s specific capabilities and experts. We’ve found these videos useful in other circumstances, for example, at trade shows and on our website.
We also did live tours where a host wore glasses with cameras on them to tour a site and answer specific customer questions. We continue to offer these options and have also returned to some in-person tours.
Horgan: Phillips-Medisize has embraced numerous virtual methods: virtual project kickoffs, validations, and inspections bringing customers into our metrology labs. As a company, going forward, we will offer both virtual and in-person options.
Lee: Any customers who did not suspend audits entirely switched to virtual audits. We have found these to be very effective. In fact, they were so successful, I would say 50% of our annual audits remain virtual.
Muchin: Our philosophy is to do what makes our customers most comfortable and we will continue to offer virtual or in-person visits. While in-person visits tend to be preferred, the pandemic proved we could accomplish audits, tours, and inspections virtually. The consensus is in-person audits are easier and less time-consuming as auditors can be on site to evaluate processes. But the pandemic prompted TEAM Technologies to develop sales tools to allow our customers to take a closer look virtually. We created a virtual location tour showcasing some of our manufacturing locations, which provides a great opportunity for customers to learn about our global facilities.
Rezac: Yes. There’s no replacement for true face-to-face collaboration, but customers recognize the efficiency of virtual information sharing and can extend their understanding of your capabilities much deeper before making their first visit.
Schultz: Yes, we conducted many audits and meetings virtually. It became the norm and still is for customer and supplier meetings and as a general communication tool. Video conferencing does not replace in-person meetings or medical conferences but offers a powerful and cost-effective alternative to share, learn, and work globally.
Shegda: Not so much for tours, though we are putting together virtual tour capability for our new facility, which is under construction. Audits, for sure, and Lunch & Learns, too. We performed several virtual L&Ls through 2020 and 2021. This was highly effective and continues to be a focus for our group. We still prefer in-person meetings, but instead of the pandemic getting in the way of that, it is now just the sheer workload of our clients that precludes their ability to meet. Virtual is helpful for being able to keep in contact when we would not have been able to do so a couple of years ago.
Fenske: With shortages becoming/still an issue for certain types of products, have OEMs approached you about offering warehousing or logistics services? If you already offered these types of services, are OEMs seeking to increase their usage of them?
Crowley: Generally speaking, customers are talking to us about moving from “just in time” to “just in case.” However, this is not a simple transition. We collaborate very closely with customers to build safety stocks of the right products in order to meet their demands. Adding inventory creates costs for us and for our customers at a time when costs continue to increase and capacity of supply is still constrained in some key areas. In every case, with a collaborative approach, we have been able to develop a strategy that works for Viant and for our customers.
Daga: Currently, we’re expanding our warehouse with 25,000 sq. ft. This will benefit the customers as we can provide additional warehouse space for growing inventory needs. We have implemented contemporary warehousing solutions with regulated temperature and humidity. Our customers have often approached us to have inventory space available for their finished goods and to get goods supplied to their locations from our warehouse facility. We have assisted in several cases for some of our long-held clients. As a turnkey solution provider, we offer the best solutions in the areas of packaging and logistics; this makes transportation highly cost-effective.
Freeman: We have been approached to support with warehousing and logistics services, but it depends on the OEM and the markets served. It also requires OEMs to be able to support such services with their internal systems. These services can include supporting selling into local markets.
Gaillard: Trelleborg is working toward offering our customers integrated solutions. This means we will provide customer services including prototyping, design, manufacturing, scale-up, and serial production, as well as additional services like packaging, sterilization, and warehousing.
Lee: Although we have long offered warehousing services such as Kanban stocking and VMI, we are seeing an increasing number of our customers request such services. However, like all additional services, there is a cost to support them. These programs tie up extensive capital and space.
Muchin: We’ve offered our customers purchasing flexibility via supply agreements and blanket purchase orders for years, well before the pandemic. This allows us to order raw materials well in advance of our customers’ requested dates and build finished goods inventory in some cases. By doing this, we’re able to manufacture based on our schedule versus solely on customer demand, which maximizes our manufacturing throughput. Our customers have been very happy with this approach.
Schultz: ECA Medical is a turnkey, one-stop solution partner for our orthopedics and spine customers. We provide complete product development, validations, manufacturing, kitting, packaging including RFID tags and labels, and sterilization. We can own the design history file and be manufacturer of record—a dock-to-stock solution. We support our customers’ needs for lifecycle management and reducing the cost of sales per transaction. This can include vendor-managed inventory and even recycling program partnerships.
Fenske: Have you been approached by customers seeking to move manufacturing from one location to another due to logistics/supply chain challenges? If so, how are you handling this transition and/or what are the challenges involved?
Daga: We’ve assisted OEMs looking to shift their manufacturing specifically due to supply chain challenges in multiple ways. We’ve helped them by:
Freeman: Customers are looking to diversify their manufacturing locations and evolve in order to mitigate risk and be able to react quickly to local market conditions. In our case, we have expanded manufacturing beyond our locations in China and started manufacturing in Vietnam in 2020. In 2023, we will start manufacturing in Mexico.
Horgan: We have seen a stronger interest from customers in their desire to localize the supply chain so there’s less reliance on the global infrastructure. Customers can be very specific about how and where the supply must be located. We work collaboratively with the customer to build a robust transfer plan and ensure continuity of supply is not put at risk. It’s about finding a competitive solution that leverages local locations. Close engagement with the customer is key as it’s a shared plan.
Lee: During and immediately after the pandemic, we saw a lot of customers reshoring product after being unable to get their material from overseas…often for many months at time. Unfortunately, memories seem to be short. We now see more and more customers chasing relatively small price savings on components overseas, completely ignoring the lessons of the last three years.
Muchin: Since the majority of the products we manufacture are validated production processes, moving these processes to another TEAM facility is possible but ultimately requires revalidation. That said, when it makes sense, we have accomplished these types of transfers. There are challenges of inventory build that takes place prior to moving manufacturing lines, but with good planning, we’ve managed this. For example, TEAM Technologies offers converting capabilities in two U.S. facilities and one Singapore facility. Our customers have requested we dual source the products from at least two of our sites, which protects the supply chain.
Schultz: We are adding new facilities and infrastructure to meet demand and grow our business at a predictable rate. We now have three facilities in southern California for design and manufacturing and added a fourth site late last year in Draper, Utah. As a medtech supplier for over 44 years, we manufacture over 3 million instruments and sterile pack procedural kits per year to support a well-established installed base of customers and new ones using state-of-the-art technology and highly automated manufacturing. As the orthopedic and spine markets shift to ambulatory surgery centers (ASC) for surgeries, ECA Medical is positioned to meet the pent-up demand for single-use and sterile-pack instrument sets and sterile-packaged implants. The elimination of instrument reprocessing, overall cost savings, sustainability gains, and OR turnover improvements are just a few of the benefits making single-use or one-way instruments and implant solutions “must haves” for OEM implant firms to compete as reimbursement decreases, surgeons embrace productivity tools, and competition increases.
Shegda: Yes; we have lost some work due to this. Moving work from the U.S. or Canada to Costa Rica is a good example. It has definitely put on the radar the need for expansion into these lower cost areas. The challenge for a company like ours is the capital to make it happen. It’s easier for an equity-owned entity with financial backing—less so for a second-generation, organic, family-owned company to do this. It is a reality for the industry, though, and we are addressing it through partnerships and taking small steps.
Fenske: From your perspective, are attitudes changing with regard to international manufacturing or supply chains that are separated by significant distances geographically?
Budreau: In general, logistics and transportation has definitely had an impact on the location and region where companies are manufacturing their products or components that go into the finished device. The pandemic and post-pandemic effects have driven many OEMs to access and relocate some of their manufacturing sites. Cost and lead time will always drive the region/location of where manufacturing will take place.
Daga: Yes, we see a major shift in attitude changing with regard to international manufacturing. Geography and distances are no longer the constraints. If we talk about U.S.-based OEMs shifting manufacturing to India, there are multiple reasons that support the evident shift.
Strict policies for intellectual property rights and data security, skilled human resource and low operation cost, PLI (production linked incentive) scheme, Make in India and Atmanirbhar Bharat Abhiyan, robust ecosystem to scale production, and medical device parks are some of the major factors that have played a significant role in making India one of the promising medical device outsourcing hubs.
Dickson: Look, there is definitely new awareness about the risks in logistics—remember the pictures of ships waiting to unload, and trucks not arriving anywhere near their schedule date? Now everybody knows these risks require effort to mitigate. Greater or lesser emphasis on the distance factor varies by company and by individual. Regional thinking started growing big time about 6-7 years ago, but if you look one or two layers deeper into the supply change, you see even a local/regional supply arrangement is almost inevitably affected by great distance. So the key is mitigation: localization is one tool for mitigation, but it is not a panacea and the whole mitigation toolbox is necessary. The key shift in attitudes is not on distance alone but rather overall awareness of the suite of risks and the whole toolbox of mitigations.
Freeman: Yes. Impacts due to COVID, tariffs, and geopolitical tensions have resulted in companies realizing the actual or potential susceptibility of their supply chains. It showed many companies that having a Just-In-Time supply chain can also have its disadvantages.
Gaillard: In healthcare and medical, high quality, reliable supply is the primary objective. Therefore, where manufacturing takes place is less important than the quality and reliability of supply. However, we are seeing more requests from customers to have a source close to their production facility. For this reason, Trelleborg is expanding its manufacturing and service capabilities in the U.S., Europe, and Asia.
Lee: It is true we are living in an ever more interconnected and borderless world. That being said, the value of shorter supply chains and the obstacles of international borders was never more clearly shown than during the pandemic. Despite the recent nature of that experience, we are seeing what we believe is a severe under-valuation of those risks compared to the pennies some companies are seeking thousands of miles and an ocean away.
Muchin: Absolutely! We’ve found many of the OEMs are reconsidering manufacturing in Asia due to the logistics challenges faced during the pandemic and are looking for near-shore manufacturing closer to their target markets. In this case, our facility in Reynosa, Mexico, has been identified by many of our customers and prospects as an excellent location for products sold in the North American markets. In another example, one of our customers is in the process of setting up their own manufacturing in Asia, so our Singapore converting site has proven to be a perfect location to transfer production from one of our U.S. converting sites.
Rezac: Yes. We have seen growing concern over international logistics and increased interest in a more centralized, domestic supply chain.
Schultz: Everyone wants cost savings and everyone wants continuity of supply. It’s all about risk management and predictability. Manufacturing and downstream delivery systems for medical devices are at a tipping point. A paradigm shift is occurring; it’s subtle now but ramping up behind the scenes. The current model worked fine when money was cheap and raw components, labor, and factory absorption costs fairly constant. COVID allowed firms to deep-dive into their P&L statements and balance sheets to uncover and challenge fixed and variable costs, inventory depreciation, and opportunties for savings across the enterprise. Global dynamics are no exception. Smart firms will review areas of risk and develop substitute or alternative options to survive and thrive in an ever-changing world.
Shegda: Where my mind goes on this is if you are a CMO that has subject matter expertise, like ours, this has never been a barrier and this continues to be a non-issue. The ability to do the work is of primary importance. We tend to focus on the “difficult to manufacture,” so projects from the U.K., Germany, Israel, Japan, China, Italy, France, etc., are all viable.
Fenske: What impact, if any, has the war between Ukraine and Russia had on your company and/or sourcing materials/components?
Dickson: Metal supplies were already tight, and Russia’s invasion of Ukraine pushed base metal sourcing into the critical zone, notably for nickel in our case, which is half the composition of nitinol and essential to stainless steel alloying. But we should all remember the impact on food supplies, which can touch every company through cost of living and political instability.
Lee: We have been very concerned about increased fuel prices in Europe affecting raw material costs and also about the possibility of hostilities directly affecting source of supply. As of yet, we have not really seen any tangible effect, however.
Rezac: The war has had a significant impact on the sourcing of manufacturing raw materials, especially gases. We’ve also seen a dramatic increase in energy costs at our tubing manufacturing facility in Switzerland.
Fenske: As we continue to move further away from the height of the pandemic, have you altered your recovery plans to address a future crisis? Is this a question more important to your customers and/or prospective clients?
Budreau: We continue to develop and improve our business continuity planning to be prepared for the unknown, to have measures and systems in place to keep manufacturing operations running, or have recovery plans in place if needed.
Dickson: We began our COVID mitigation measures on Jan. 24, 2020, almost two months before the lockdowns hit. We had a systematic, proactive approach to identifying potential risks (and countermeasures) before they happen—and we strengthened our responsiveness in identifying risks when they showed up. Most crises are not really “black swan” events—although that sounds good in the news cycle—they are just ignored threats that catch us if we haven’t prepared.
Freeman: Our interest is in getting closer to our customers and being able to serve them in their target markets, supported by local supply chains. Reducing the length of the supply chain would be a key benefit achieved as a result of this initiative. This results in shorter lead times, more flexibility, and the ability to more quickly respond to changing market conditions.
Horgan: It is an important question for our customers, prospective clients, and ourselves. Our customers are adjusting their supply chain choices and not just with increased inventory. Customers are looking for a more local supply chain.
Muchin: Prior to the pandemic, TEAM Technologies had a solid plan in place that included more than a local or worldwide pandemic. I would imagine, like many of our industrial colleagues, COVID spurred us to make improvements to our plan.
Schwalbe: Risk analysis of materials and labor is something that should always be done. The priority of maintaining that risk analysis and running it much more frequently is something that has changed and probably will remain more of a priority at a higher frequency. One of the higher risks during this time was not having multiple suppliers. In the medtech environment, this is much harder to do with validations. From a supplier point of view, this was always a known issue; however, our customers did not want to move forward with this additional work. Now that we have been through this pandemic, our customers are taking this more seriously, which will help to mitigate risk in the future.
Shegda: Absolutely. Our contingency/disaster recovery got a rewrite as we have pushed to consolidate our QMS. The pandemic had an influence on this, but cybersecurity had an even bigger impact on the writing. Clients have not asked a ton about this yet, but it is coming for sure.
Fenske: Are you concerned about the future of EtO (ethelyne oxide) sterilization and have you explored alternatives? Have customers specifically requested other sterilization methods?
Muchin: Many of our customers’ products are EtO sterilized so this is a big topic of discussion as of late. We’ve done some exploration of other methods and advise customers to consider other methods at the outset of new programs. Revalidation of products using EtO is not a small endeavor, so planning well in advance is critical.
Fenske: Corporate social responsibility (CSR) has become significantly more important across many industries. Has your company addressed this trend (if so, how) and/or have you had customers ask about this (if so, what is your response)?
Budreau: As a company, PTI has always recognized the importance of giving back to the community. We support many local charities, including adopting families around the holidays and sponsoring local students in STEAM programs. We also support nationally known organizations such as the American Cancer Society.
Crowley: Yes, our customers are making a commitment to sustainability and asking Viant to do the same. As such, we have leaned into this area of our business and have received a strong result from some external rating services. We are proud of the result, but more importantly, we are pleased with the impact we are making through initiatives in several areas including energy savings, recycling, waste reduction, and a strong commitment to our communities.
Daga: Since inception, our mission has been to deliver accessible, affordable, and quality healthcare. To accomplish this, we perform numerous CSR activities. We proactively promote academic research in the medtech domain by funding and contributing to research going on in prestigious technology institutes across the country. Recently, as a part of the industry and academia collaboration, Johari Digital Healthcare donated a significant funding amount to the Indian Institute of Technology and the Jodhpur (Rajasthan) Incubation & Innovation center from our CSR fund to boost and strengthen the medtech startup ecosystem.
We were also involved in the distribution of physiotherapy and wellness aids in the local hospitals, universities, and colleges for research. In addition, we conduct various yoga and wellness events within and outside our office premises to promote wellbeing. Further, we actively promote and support different educational and vocational trainings.
Dickson: “Do no harm” is the starting point of the Hippocratic oath of physicians, so it should be a cornerstone for our industry. Is it? It is also a cornerstone of corporate social responsibility. But our efforts to do no harm are more real, more impactful, and more meaningful if we find ways to embed something really virtuous in our product or in the way we deliver our product. That way, our business model depends on it, and our business fuels the growth of that “shiny new object” of virtue instead of CSR being an appendage to the company that needs life-support systems to sustain it. We made strategic decisions to create platform opportunities that support the distribution of high-end devices in low- and middle-income countries at scale—good business that’s good for people.
Horgan: Phillips-Medisize has long been committed to finding responsible ways to create the products we deliver to our customers—and yes, many of our customers ask about this. We look for ways to collaborate with our customers or contribute to their CSR goals where consistent with our Stewardship Framework. This framework identifies key areas and general principles we consider as we develop EHS (Environmental Health and Safety) and social priorities.
Lee: Naturally, we observe the Global Compact as it refers to human rights and labor practices, and we trace the origin of raw materials to avoid conflict minerals, etc. In addition, we have chosen to focus our efforts on where we can affect the most significant change. For Medbio, this means diversity, equity, and inclusion. We are fortunate to have a very diverse workforce within and among our various plant locations. We are also investing heavily in identifying and supporting equitable professional opportunities for our staff and their families.
Muchin: TEAM Technologies embraces the core principles of environmental, social, and governance (ESG) responsibilities and believes all companies should strive to understand and develop effective ESG and sustainability programs. These topics are also addressed in our corporate Mission, Vison, and Values Statement. We’re seeing increasing trends among our customers as well as auditors inquiring about our corporate positions/documents/reports so it is good to be prepared, as well as create a fully inclusive culture that is aligned.
Schwalbe: Our company has responded to this trend in two ways—on the employee side and on the supplier side. The employee has a lengthy employee handbook that states our social responsibilities and our values to maintain those responsibilities. On the supplier side, we have them sign a Supplier Code of Conduct to ensure they are taking those responsibilities seriously. Our customers ask us to fill out a survey asking what we do, so we are able to share with them both the employee handbook and our Supplier Code of Conduct.
Shegda: Yes; we have had to fill out surveys to this effect. Our company exists to serve. A great deal of that is focused on our clients, but there are also significant resources allocated to impact our manufacturing community, the community in which we live and work, and the greater society as a whole. This is a commitment in lifestyle and doing the right thing because it is the right thing to do rather than being an exercise to appease a client’s survey.
Fenske: On a related note, sustainability is also important to many companies. How is your company addressing this trend and/or are medtech customers asking about this?
Budreau: Yes, sustainability is very much on all of our medical device customers’ radar. For the past 10 years, we have had many programs in place to recycle, reuse, and conserve energy. Based on many of our initiatives, we have received green environmental awards from some of our customers. Today, more and more customers are looking for formal programs and metrics for our corporate sustainability program.
Daga: For more than 40 years, we’ve been operating as a Lean Six Sigma model. The implementation of Lean Six Sigma principles at every level in a manufacturing organization helps in filtering cumulative waste over a period. By eliminating waste, we ensure sustainability in multiple ways. We also perform plantation drives near our manufacturing facility and we’re proud to say we’re a zero-carbon emission facility as stated in various audits.
Dickson: Sometimes sustainability calls are criticized as just window-dressing or virtue-signaling, and that can be true. In response, innovation-resistant business interests sometimes amplify well-meaning messaging out there that pushes responsibility on consumers, but this kind of shaming individuals and small wasters distracts from the policy shifts that it takes to make substantial improvement rewarding and scalable for business. The push for sustainability actually needs to transform into regeneration or circular economy. There is one benefit in the small acts of the “act locally” messaging: doing the small things well (e.g., plant-based packaging, reward programs for bike-commuting, electrification) does create a society-wide mindshift that supports the bigger moves that need to be made.
In our businesses, small moves that are part of a bigger initiative can even be fun and fruitful. Just as 5S and other programs stoke engagement and improvement, sustainability and circular economy give a boost to exercising our problem-identification and problem-solving muscles in a total quality improvement way, like in our trade show booth when we pour from a large bottle of local sparkling water to serve real glasses with a piece of gourmet local chocolate. We try to find the coolness factor.
Freeman: Our customers in the U.S. and Europe are becoming much more sensitive to initiatives around sustainability. Having sustainability as a key part of the product development process can be very well aligned with optimizing the development of a product and can help to meet the key criteria of safe, cost-effective medical devices.
Gaillard: I think we all know sustainability is a huge challenge given the single-use, sterile nature of healthcare and medical products. It’s about finding a balance as equipment and products that are not single-use require harsh sterilization and chemicals to clean them.
The Trelleborg moto for sustainability is Protecting the Essential. Trelleborg’s target is by the end 2025, it will reduce carbon emissions by 50% related to sales, with 2020 as base year. Our vision is for net zero emissions in our own operations by the end of 2035.
Lee: As the materials and processes used to manufacture our products are often dictated to a large extent by the designs emanating from our customers, we are focusing our efforts internally on maximizing efficiency and effectiveness of our manufacturing processes. This involves investment in infrastructure, capital equipment, and human capital.
Muchin: We’re finding customers are trending toward sustainable solutions. In some instances, we are working with a variety of sustainable resins for our injection molding customers or moving to lighter weight synthetic or cellulose-based textiles. Since most of the products TEAM Technologies manufactures are disposable due to patient contact, our customers are also looking toward sustainable packaging, etc. to reduce the overall carbon footprint of their products even if the actual product footprint can’t be reduced.
Raw material suppliers are also making strides in sustainable offerings, and end customers are often disconnected from lower tier suppliers. When the opportunity permits, we can connect the customers to these developing solutions to speed their transition plans. In addition, our experience means we can identify and consider sustainable materials to include PCR, PIR, Bio Plastics, or a blend with current base materials.
TEAM Technologies works toward vertical integration by performing more work in-house, thereby reducing the need for additional packaging and transporting materials, which are basic Lean principles of eliminating extra process steps, packaging, transportation, and movement of goods.
In an effort to combat global impacts of climate change, TEAM Technologies is committed to employing the latest technologies to align to the standards of monitoring and controlling emissions, as well as employing energy strategies through state-of-the-art improvements within our infrastructure. We’ve put in place ECO power serving options for auxiliary equipment, hot runner tool designs to eliminate material waste, high efficiency closed top water systems to reduce water consumption, and waste recycling protocols for plastic and corrugate materials.
Schultz: ECA offers product and solutions that reduce carbon footprint by over 40% compared to traditional reusable devices. Studies by companies and universities reveal the hidden costs and risks to environment and health using reprocessed instruments or having to sterilize implants on site. This includes massive amounts of water (over 60 gallons of fresh water to rinse one case and tray), cleaning agents, draped materials, and carbon-based transportation to shuttle them from site to site or manage as trunk stock. Single-use, sterile-pack, and surgery-ready instruments and procedural kits can be recycled, reduce risk of SSI and HAI, and come sterile and pristine for every patient. They are ready for transfer to the sterile field.
Fenske: When faced with an OEM customer who presents consistent requests for a percentage cost reduction year over year, does it cause a rift in the relationship or a reevaluation of whether the customer’s business is worth it? (or, have you experienced this at all?)
Budreau: This is not a type of request we typically would see in the medical device world, like you do in the automotive industry. I would say business relationships can certainly become strained if cost reductions are a priority and focus of a customer. This makes you question the financial health of your customer, and if they’re implementing desperate cost-saving measures. Price is definitely an important element of winning business in any industry but I feel that lead time, delivery, and meeting quality requirements and validation needs in the medical device industry are keys to growing business.
Crowley: Of course our customers are consistently looking for improvements in cost, but they are also often looking at the big picture, which includes quality and delivery. We find the best practice is to have an active dialogue and a list of potential cost improvements. Success is often dependent on committed resources from us and our customers working together to implement meaningful change. It is also important to be pragmatic about the nature of the program and the true potential to reduce costs. In the end, the bottom line is that regular communication around cost-downs and a collaborative approach are the only ways to address the cost goal in a collaborative way that does not cause a rift.
Daga: Yeah, we do. But, so far, we’ve handled it well. We perform vendor analysis and try to provide the desired pricing without compromising the quality. Mostly we succeed, but in cases where we don’t find the best fit we reevaluate the business’ worth. During the times of pandemic, we had to increase the prices for most of our clients as component procurement was challenging and the supply chain was disrupted. It was a global supply chain crash and most of the segments experienced it. We shared use cases and communicated transparently with our clients; this helped us maintain the relationship even during crises.
Freeman: The key is to understand the expectations up front so a cost model can be developed that is mutually beneficial to both parties (supplier and customer). A lack of clarity and well-defined expectations that are not communicated up front can create unproductive tension and sacrifice key elements of medical device manufacturing beyond unit cost.
Lee: We try to direct the conversation with OEM customers to cost reduction instead of price reduction. Where the customer is willing to accept process changes for better efficiency, and where they are willing to share investment in those improvements, we are willing to share the cost benefits.
Muchin: These requests have been part of contract manufacturing for as long as I can remember. TEAM Technologies does not shy away from customers that request year over year price reductions; however, we find these requests need to be worked on together for mutually beneficial solutions such as sourcing alternative materials and design for manufacturability, etc. TEAM Technologies cannot merely reduce prices year over year when many of our raw material input goods and labor are being increased, which is why we partner with our customers to determine the best solutions.
Schultz: Market your company and sell on value. Anyone can be a price leader and go out of business. Consider and articulate what you do that allows your customer(s) to be better, make money, or gain share and wealth. Invest and grow with a customer who appreciates that value and lives up to the words “win/win scenario.”
Shegda: A rift? No. They are doing what they need to do. We understand that. But, that being said, just because they ask or expect it does not mean we comply. They can ask, and if it makes business sense for us to go along with it, then we do. If it does not, then we don’t. Business relationships need to be a win-win. Too many of the large OEMs try to stack the deck in their favor with one-sided supply agreements and holding the threat of cutting off a supplier if they don’t comply to cost-downs. We tend to be in a more defensible place since most of our work requires a very high level of expertise. Consequently, we have less competition and have a little more leverage in these situations than a competitor that tries to compete and win solely on price.
Fenske: The industry is experiencing a shortage of skilled labor for many production positions. How is your company addressing this and what are you doing to attract/retain talent?
Budreau: PTI has done a number of things, including starting an in-house academy for local high school junior and seniors that ran for four years prior to the pandemic (at which point we had to shut it down). Since then, many high schools have brought back, and focus on, programs for skilled trades. We also support local high schools with mentoring and job shadowing opportunities. Every October, we open our doors for Manufacturing Day to allow students to tour and learn more about manufacturing.
Daga: We have been fortunate to not be affected by shortage of skilled labor. Our work culture is inclusive and we have members from different parts of the world in our facility. The HR policies and work-life balance we’ve been able to achieve has helped us retain the best talent over the years.
Freeman: Diversifying our manufacturing locations enables us to hire the specialized talent needed to support the local markets. Our training programs, incentive plans, corporate environment, and mission-driven purpose enable us to attract and retain employees beyond our competition.
Gaillard: Since early 2022, we have seen applicants for our open positions increase. However, our customers’ demands have also risen, and we continue to search for qualified applicants. We continue to expand and evolve our employer brand, offering a range of possibilities for employees to further develop competence and skills.
Our employees tend to stay for a long time within Trelleborg. Our experts take a lot of pride in their work and many of them have been with us for decades, so we don’t see a lot of turnover. They realize their work plays a part in making sure someone has the life-saving medical device they need.
Horgan: As a company, we continually adapt our work processes to what makes sense for our employees, and we have leveraged our unique culture to expand employee engagement and communicate effectively. We also offer remote work where possible, professional development programs, and financial incentives where appropriate. In addition, we leverage strong local engagement with our communities to attract and retain the best talent.
Lee: Medbio constantly evaluates the labor market around each of its facilities. We have found that while it is important to remain competitive in general, we have far better success attracting top talent by offering an enhanced workplace culture. Being part of medtech rather than, say, automotive is of great benefit because many people find it more fulfilling. In addition, we stress things like tuition reimbursement, apprenticeship programs, and scholarships for family members, among other things.
Rezac: In many regards, we are committed to growing the talent we need internally through deep participation in cooperative education and university recruiting programs. For example, interventional product development is a specialized space to begin with; for that team, we find young engineers are eager and capable of coming up to speed quickly on highly specialized procedures. Pair that with a strong company culture and competitive compensation and you have a winning combination for talent depth and retention.
Schultz: Create a culture that makes your company special and professionally challenging and rewarding. The details matter. Keep the bar high and attract and retain the best people that fit the culture with the right skills and talent. That usually results in a lean organization and higher productivity. Innovate and execute. Winners beget winners.
Shegda: The best answer to this is to focus on an intentional and robust culture. Many of our colleagues have complained about the labor market. We have not had the same issues. Skilled labor in manufacturing has been a challenge for decades. Automation is one answer, getting really good at “growing your own” is another, and having a culture that experienced workers want to be a part of is also another aspect.
Fenske: What recommendations do you have for OEMs currently seeking new CMO suppliers? How can they best evaluate a prospective partner and what traits should be considered most important?
Budreau: One of the key things I feel is important is having full-service capabilities or vertical integration from design through device assembly, and if something has to be purchased or managed on the outside, it will be handled by the supplier.
Crowley: OEMs have a big challenge when developing cost models to compare internal production to outsourced manufacturing and comparing one outsource option to another. It is very common to find that internal costs are not well understood. It is also common that RFPs do not provide the necessary detail to provide comprehensive proposals. Open communication and collaboration is key. With a clear set of assumptions, we can provide more accurate proposals and speed up the decision-making for our potential customers. With an incomplete set of assumptions, it is unlikely we will offer our best price and it may take significantly longer to develop a proposal we can stand behind.
Daga: There are several key factors to evaluate when partnering with a CMO:
Gaillard: First, ask whether your current CMO can work with you from the beginning to the end of a project so you are only working with a single supplier throughout. Then, involving your supplier during all stages of development—from design iterations, prototyping, production, scale-up, sterilization, and packaging, for instance—can ensure costs are not designed into the manufactured part. Finally, ask if their experts have longevity in tooling and precision machining.
Horgan: OEMs should look for a provider willing to build a long-term collaborative relationship where both sides have mutual benefit. They should consider a company that has deep and broad medtech expertise and the scale to bring a variety of solutions across a variety of regions to allow for a range of options.
Lee: Engage with your CMOs in a collaborative manner so they can bring value to you. Online quotation platforms are great for accumulating lots of prices, but they do not provide your suppliers the opportunity to help you to optimize your product. There is probably an order of magnitude greater cost reduction opportunity in working with your CMO to optimize your design for manufacturability than there is in simply comparing columns of prices.
Muchin: The most important consideration should be capability. Many CMOs claim to have certain capabilities but in actuality, they do not. We’re honest with our prospects from the outset and if a project is not a good fit, we let them know early in our vetting process. Assuming it’s a good fit, evaluating a partner should be about the people and processes to ensure that new partner is not only capable from a manufacturing process, but also with their engineering, quality, etc. We’ve found many of our competitors are unable to provide a long-term roadmap showing their ability to scale manufacturing when the product is successful in the marketplace, which is critical to ensure success.
OEMs should also ensure they don’t overlook the benefits (or cost) of partnering with a CMO already registered with the FDA (or similar regulatory body) and has a mature QMS already in place with a solid track record in the medical device industry.
Rezac: Get the process started with a pilot program. We always welcome the opportunity to gain a customer’s trust through simple prototyping or a limited brainstorm activity to bolster IP. Once we’re working together, we’re confident you’ll see the value in our services and caliber of our team.
Shegda: This is a mouthful! Wow. I personally think many OEMs look for the easy, or what they perceive to be the “safe” choice. “Let’s go with XYZ supplier since they are a certain size, and are already on our ASL.” What they don’t realize is they are often shortchanging themselves from a capability perspective. Many smaller CMOs, like us, bring a different level of expertise and capability to a relationship. This is not relevant all the time but is absolutely relevant more than it is requested. We are currently dealing with one of the largest medtech OEMs on a very important project. They lost capability to manufacture the part in a facility move. Not a single other one of our competitors has shown capability to make the parts. We have now done it twice. We are in the process of proving capability for the third time to a different set of people within this behemoth of a company and if successful, we may get an opportunity to validate and run production. If we were one of our large rivals, this would have been a done-deal a year ago. It just does not seem to make sense sometimes.
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?
Budreau: Engage the CMO as early and deeply in the development process as possible. More upfront collaboration should result in a much more successful development cycle for a medical device.
Daga: OEMs must start addressing CMOs as active participants in taking their products successfully to markets. Trust plays a major role in any partnership. In the current scenario, the role of a CMO doesn’t just involve assembling and scaling; they’re more like a turnkey solution provider. As an over 40 years CMO, we help clients with design optimization, supply chain management, regulatory assistance, manufacturing, and postmarket sustainable engineering solutions. In this way, we become a crucial part of our client’s product development journey. It’s a collaborative effort to bring a medical device breakthrough to market, which serves as a testimonial of the success of a CMO and OEM partnership.
Dickson: Introduce key leaders from various functions to the CMO partner: manufacturing, R&D, quality, supply chain, etc. And give them something concrete to work on together and deliver.
Freeman: Be transparent, clear about what is important to your organization, and communicative. The right CMO partner should be your biggest supporter and will often go above and beyond to ensure the partnership is successful. Including the CMO as an extension of your business will add additional horsepower.
Horgan: Forming a strong collaboration from the beginning is key to building a long-term relationship. Unlike other CMOs, Phillips-Medisize has an extensive range of capabilities in every phase of designing, manufacturing, assembling, and testing high-performance medical products. As a CDMO, we can collaborate early in the design stage to form a true collaboration and help accelerate the delivery of products to market.
Lee: Communicate! Talk to your supplier about what you are trying to achieve instead of telling them what you want. Ask their advice. Be an active listener. Something as simple as your employees not having a phone number on their email signatures sends a clear message that you don’t want to work together. It says you want to communicate only in one direction and only at your convenience.
Muchin: Honesty is #1! While all OEM/CMO relationships are technically customer/vendor relationships, those that are more partnerships tend to be more successful since both parties benefit from product growth. Trusting your CMO is paramount to a true collaboration.
Rezac: Involve us in the design process. Concurrent engineering is the key to rapid and successful commercialization in new product development. Customers are often pleasantly surprised by our ability to bring process insights to the table early that either open the design envelope, substantially reduce cost, or both.
Shegda: I like to say every relationship in your life is based on two things—communication and respect. I think most OEMs think these aspects only flow one way: from the supplier to them. They can do what they want, and the supplier has to bow to fate. That just does not work. That is not a relationship—or not a good one, anyway. Communication must flow freely and honestly, and respect must be given in both directions at all times. If these simple fundamentals are held, then a truly impactful relationship will be able to grow.
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?
Budreau: Demonstrate full-service turnkey solutions and be as vertically integrated as possible. Understand OEM systems and requirements fully to be an extension of their team, and be in lock step throughout the product development cycle.
Daga: A CMO needs to share and believe in the product’s idea, not just perform several assigned tasks. When a CMO understands the impact a device/product creates, then only can they holistically collaborate with an OEM. Going the extra mile and supporting the OEM at all points in the product development lifecycle makes the CMO a collaborative partner rather than a passive participant.
Dickson: A partner needs to show they can deal with open-ended questions or dilemmas facing the customer. A partner asks sound clarifying questions. A partner generates suggestions and ideaflow for the product, which produce value for the OEM partner.
Freeman: Be clear as to capabilities, competencies, value-add opportunities, and have the right staff and quality system to support the OEM and its initiatives.
Gaillard: OEMs are always looking for CMOs that can resolve their problems under one roof. They want a supplier that can do more than just build a product. If a CMO can demonstrate they can be a full-service provider and come alongside the OEM to create a unique solution or add extra value, then it will be a collaborative partnership.
Horgan: The CMO should become an extension of the customer’s broader organization to ensure the customer achieves their vision and goals. This provides a clear understanding of what the customer is trying to achieve and what “good” looks like for the customer. For medical device projects, we focus on the patients and how the medical device will either help to save or improve the quality of life for patients. This shared goal builds and ensures mutual success for both companies.
Lee: CMOs need to adapt to a new work culture for their customers. Many of our customer contacts do not work directly with their product teams and may have never met their own colleagues. Often, they are not even in the same time zone. A successful CMO today needs to be a liaison not just between their own company and the customer, but increasingly as a liaison between groups and departments within the customer’s own structure.
Muchin: As mentioned previously, honesty and trust is paramount to establishing a true collaboration. Being a specialty solutions provider, we find working with our customers and prospects on alternative materials, design for manufacturing suggestions, etc. are the first steps to establishing a long-lasting relationship, hence proving our value.
Rezac: Track record is everything in this business. A capable CMO will be engaged at a clinical level in your technologies of interest and be able to provide solid references. Our sales strategy is simple: listen carefully to understand the customer need, then get our engineers with pertinent subject matter expertise in the room to begin the collaboration process.
Schultz: Provide value beyond manufacturing space, machines, throughput, and selling on price. Suppliers become partners when they can provide alternative solutions that can yield competitive advantange and barriers to competition. Then it’s more than a transactional buy/sell arrangement; rather, it’s a strategic alliance that creates a pro-compete environment and measurable value over the long term.
Shegda: Prove capability and also refer to my previous response. There is another piece here as well—seeking to understand. A CMO can develop excellent working relationships with people within an OEM but still get the short-end once in a while. The CMO needs to put this in context before deciding the relationship is not worth keeping or has been violated. Large organizations sometimes do things that don’t make sense (seemingly). Keep the emotion out of it and try to understand where the decision is coming from before making a judgment.
Fenske: Is M&A activity within the industry having an effect on the OEM/CMO relationship? If so, what is the impact?
Daga: Mergers and acquisitions within the industry have a significant impact on the OEM/CMO relationship. Specifically, EMS and medical device manufacturing mergers result in the formation of larger entities catering to global medtech firms listed under the Fortune 500 listing. The bigger impact of such mergers is very evident. In such a collaboration, the medtech manufacturer will bring its experience across technologies and strong credentials specific to quality and regulatory, whereas the EMS capabilities will lead to supply chain consolidation and reduced production costs. There are several key benefits of such acquisitions.
Muchin: M&A activity within the medical device manufacturing sector continues to be frequent; however, the challenge with capital markets is having a short-term slowing effect. When M&As occur, the impact for both the OEM/CMO is the consolidation between the two is becoming more “value-driven,” satisfying a goal for most OEMs to reduce CMO count and partner with more preferred, versatile suppliers. However, the expectation of OEMs is that the CMO fully integrate and harmonize their systems, so as they partner with many TEAM Technologies locations our infrastructure and processes are consistent throughout the company.
Schultz: M&A activity will continue as the market matures and the typical one segment leader emerges, followed by two or three tier 2 firms in each major product segment and a handful of niche or startup technology based firms. The CMO industry will adapt to meet the throughput, lead time, and price point needs of the implant OEM leaders. CMOs will also be buying companies to gain a new technology or market share in a segment—sometimes they get both.
Shegda: This has been discussed at length in some of the previous answers. Yes—it has both strengthened it in some ways and weakened it in others. There is room in the market for non equity-owned entities. This was why my partner, Eric, and I have done what we have done.
Fenske: What trend(s) in medtech will you be following that you expect to become more important or could have a significant impact on the industry? Explain.
Budreau: Based on many of the new devices and technologies being developed, more and more, the users of these devices will be the patients themselves versus clinicians or doctors in a medical setting. Making these devices more intuitive will be critical for success, whether it is a drug delivery device or some other procedure or process.
Daga: Technology in all forms and formats will impact the industry. Unlike previous times, the focus will now be on making it more accessible and developing a more demographic healthcare ecosystem. At our level, we are incorporating advanced technologies at various stages including the DFM to improve overall efficiency. By incorporating new-age technologies, we are focusing on minimizing human error, improving efficiency, and automating redundant processes across multiple levels. AI- and ML-based devices require advanced capabilities; we’re consistently upgrading our systems to match the client requirements. We’re also planning to digitalize platforms for IQC (initial quality check), IPQC (in-process quality check), and FQC (final quality check), which will enable deriving rich, accurate, and timely data to identify quality issues at every stage and, subsequently, improve them. We are continually leveraging high-end technologies for better results, higher scalability, and improved compliance.
Dickson: At a macro level, I’ll be keeping an eye on cost management in healthcare, macroeconomic effectiveness, and healthcare budget effectiveness. If these go in favorable directions, opportunities will flow from them.
We see a key trend in international partnerships to achieve more strategic development of very distinct markets for a platform product; these can generate multiplicative benefits in growth and IP development for the partnering companies, as well as obvious benefits for health systems and patients.
Freeman: Entrance to the medtech industry by companies such as Apple and Google have significant ramifications. Historically, medical device product lifecycles were longer, and, depending on the product, may have experienced little in innovation and higher profit margins. Consumer brands such as Apple and Google will speed up innovation, increase product development turnover, and compress profit margins for products due to increased competitiveness. Medical devices was considered an industry with high barriers to entry, but there will be more entrants to the market as margins in other industries continue to be challenged.
Gaillard: Telemedicine and wearables are here to stay. Smaller, smarter devices like wearables require precision in micromolding, machining, and expert operators.
Horgan: The decentralization of healthcare delivery is a key trend we are closely watching. This trend is creating a disruption in the medtech industry with new innovations and services. For example, one way we are seeing this is in the shift to care and services delivered in the home. Another trend we are closely monitoring is the leveraging of data and digital infrastructure to achieve the triple aim of providing better care, improving health outcomes, and reducing costs.
Lee: Increasing integration of electronics in wearable devices is certainly an exciting trend. The benefits of the data that can be accumulated are tremendous, but the questions around both security and ethics are profound.
Muchin: At TEAM Technologies, we monitor a few benchmarks as leading indicators to determine the current and future health of the medical devices sector. The first indicator on the CMO side is the M&A activity. When companies are acquiring, consolidating, and growing in this sector it indicates companies are financially strong, enabling them to create a more versatile offering to OEMs. Another indicator is the Medtech Capital Markets Sector and its continued outperformance in the S&P 500 over the last 10+ years. Although there have been some recent pullbacks, the overall performance of this sector continues to be strong. Should it begin to trend downward, we should be cautious to what the future may hold for the industry.
Rezac: The key trends I expect to have a significant impact on the industry are:
Schultz: Downstream delivery and cost of sales per transaction improvements for high volume and lower complexity surgeries in the ASC setting. This is a high-growth area that is being challenged and ECA Medical offers solutions that are both clinically robust and provide measurable economic value. We help our customers proactively service this market by partnering with them on creating instrumentation and solutions optimized and tailored to build their brand, increase sales, and create barriers to competition.
Shegda: A couple here—different takes:
Robotics and automation—Surgical robotics will grow exponentially. Companies like ours that come from a background of high-end industry will serve this market very well. Better than many CMOs that grew up solely serving medical device.
The automotive or Walmart effect—Outsourcing is starting to be treated like the “Big 3” circa 1975 or Walmart of today. High cost focus to a level that could both drive and kill innovation. Scary to think of our medical devices always going to the lowest bidder.
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?
Budreau: Other than the obvious—that these relationships should be true partnerships with long-term business development and growth in mind. Transparency, collaboration, and true team approach are key to building this relationship.
Daga: We would just like to wrap up by saying that Joharis provides regulatory-compliant contract manufacturing solutions to global medtech giants, as well as innovative startups. We’ve been consistently ranking high on the primary and secondary cost index by reducing costs on primary and secondary resources involved in manufacturing and development processes. As we operate from a favorable medical device manufacturing location, we offer ease of doing business, IP protection, and best outputs with minimal investments in manpower and infrastructure.
Our manufacturing and development services span across categories of hospital equipment and critical care devices, vital monitoring devices, imaging systems, medical aesthetic devices, in-vitro diagnostics, wearable medical devices, point-of-care diagnostics, ultrasound, electrotherapy, neurostimulation, artificial intelligence, and Bluetooth- and cloud-based medical devices. To date, we’ve had over 20 U.S. FDA 510(k) certifications, successful commercialization of more than 145 medical devices, and over 100 active clients worldwide.
Freeman: We are a Hong Kong medical device contract manufacturer of Class I, II, and III devices producing in China and Vietnam. For many years, there has been a hesitancy to manufacture medical devices in China, but through our capabilities, quality systems, and management team, we can successfully manufacture medical devices in China and Vietnam that can serve the Chinese or global markets.
Horgan: In the medical device design and manufacturing space, both sides should come to the relationship from the point of view that it’s a combined effort. The OEM leads the product and access to the market. The CMO must focus on how they can create value in terms of supporting the OEM where they have gaps in their capabilities—whether it be early-stage design, design for manufacturing, support for clinical trials, or commercial manufacturing.
Some of these modifications were positive while others were more out of necessity. Regardless of the reason, it’s caused many outsourcing company leaders to evaluate behavior, relationships with clients and employees, best practices, communication, and more. To find out just how impactful the pandemic was to outsourcing service providers, MPO reached out to more than a dozen executives at firms of all sizes. These participants not only responded to pandemic-related questions, but also to other factors affecting the state of medtech outsourcing. Those who took part in this Q&A were:
- John Budreau, Director of New Business Development, PTI Engineered Plastics Inc.
- Sean Crowley, Chief Operating Officer, Viant
- Reena Daga, Senior Director, International Operations, Johari Digital Healthcare Ltd.
- Todd Dickson, President and Co-Founder, Lumenous Device Technologies Inc.
- Brett Freeman, Chief Sales Officer, Providence Enterprise Limited
- Andrew Gaillard, Global Commercial Director—Healthcare and Medical, Trelleborg Sealing Solutions
- John Horgan, GM and VP of Global Medical Business Unit, Phillips-Medisize, a Molex company
- Chuck Lee, President, Medbio Clinton Twp.
- Neil Muchin, Commercial Vice President of Sales—OEM Medical, TEAM Technologies
- Dave Rezac, Vice President, AGILE Product Development, Resonetics
- James B. Schultz, Vice President, Customer Solutions, ECA Medical
- Chris Schwalbe, Director of Supply Chain, Cadence
- John Shegda, CEO, KMM Group
Sean Crowley: There is strong activity coming from our customers. We are seeing movement and growth, with several things driving this. Coming out of the pandemic, medical device companies are applying lessons learned, so they are setting up second sources for key components and near-shoring programs to place production closer to where the product is consumed. We also see customers freeing up capacity in their plants by transferring programs to our plants, which is an area where Viant has been able to provide significant value.
Reena Daga: It's growing in new geographies beyond China and Mexico, like Costa Rica, India, and other Asian countries. The relationship between medical device original equipment manufacturers and CMOs has evolved over the years. Earlier, in many cases, the association was volatile due to several reasons like trust issues, cost considerations, and various legal aspects like IP infringement. Establishing trust between OEMs and CMOs was a very difficult task.
Post-pandemic contract manufacturers have gained a significant amount of trust from OEMs due to higher dependencies in a dynamic environment. According to MarketsandMarkets, global medical device contract manufacturing will grow at a CAGR of 18% to reach $118.9 billion in 2027 from $71.2 billion in 2022. The low cost of manpower, high-quality innovation-led manufacturing, and ASEAN countries adopting flexible policies of investment are the key reasons that support the predicted growth rate of the CDMO/CMO segment globally.
Todd Dickson: Trends to and away from outsourcing may ebb and flow, but even in periods where there is an overall shrinking trend, companies like ours with specialties that enable new improved devices will still see growth opportunities.
Brett Freeman: Overall, outsourcing trends continue to grow and the demographics of the world demand it. However, it depends on the product categories, type of service, and markets served. The outsourcing model provides flexibility, scalability, cost effectiveness, and localized reach.
Andrew Gaillard: In the medtech industry, the trend toward outsourcing continues. We believe medtech companies wish to control costs, consolidate suppliers, and deal with supply chain challenges. These factors are driving the outsourcing trend.
John Horgan: There is a tremendous amount of innovation occurring in the medtech industry. Companies are looking for outsourcing partners, like a CDMO, with a level of expertise to enable a faster pace than what was realized in the past. Many of our medtech customers are looking outside to access different capabilities and to expand their supply chain through outsourcing.
Neil Muchin: Since we participate in a variety of markets, we find some markets are growing, while others are staying the same or shrinking. Some of the large OEMs we work with seem to be looking for more outsourcing opportunities and further consolidation of vendors. In many cases, cost tends to be the issue with some OEMs thinking it is more cost effective to insource, but we are encouraged to see our customers and prospects are pursuing outsourcing options versus insourcing.
Dave Rezac: Growing. Start-ups recognize the merit of a virtual model leveraging established infrastructure, on-demand resourcing, and targeted expertise available at CMOs.
James Schultz: Outsourcing in medtech is growing at a steady clip—just under 10% per year. Implant OEMs are experts at the design and functionality of their implantable products, which is their IP. Their focus is on sales and marketing (i.e., training surgeons, gaining market share, building brands, and managing margins). Implant OEMs have become less and less manufacturing companies as the medical product outsourcing base grows and matures, while offering more capabilities including advancements in materials, processes, and turnkey solutions. Like other industries, medtech is shifting, relying more and more on third-party suppliers and strategic alliance partners for producing critical components and turnkey product solutions.
John Shegda: Interesting question to answer. You could answer any of those depending on what perspective you take. M&A has driven consolidation, which has significantly reduced the number of individual vendors while increasing the large CMO capability list (at least on paper). Rival CMOs, like ours, that are not equity-owned, have to expand footprint and capability to keep up, or else be shut out of the market. In this sense, I would say outsourcing in medtech is shrinking in the opportunities presented to the broader spectrum of potential vendors. Yet, the same forces of acquisition of the OEMs are driving greater opportunity for those CMOs positioned to take the work and have proven themselves. More product lines, new product lines that have been acquired, tend to be placed with vendors with which an acquiring OEM is comfortable—so in this sense it is growing.
Fenske: Overall, given the supply chain challenges being experienced, how has your company responded to ensure critical components still get to OEMs?
John Budreau: We have developed supply agreements with our customers to carry inventory and safety stock on long lead time components, ensuring the supply of critical medical devices.
Daga: We adopted five key strategies to successfully manage the supply chain in times of crisis.
- Pre-planning and inventory management—We pre-planned the requirements as per the BOM. Negotiating, verifying, and approving an authorized vendor or supplier is a very long process. We performed advanced inventory planning (six to eight months prior to DFM transfer) to manage optimum stock levels of raw materials for our priority projects. A planned and real time track of the medical device warehouse helped in eliminating last minute hassles and delays.
- Managing obsolescence of components—Each component in medical device manufacturing has a status classification. Our team verified and validated the component status before putting them into the design. Often, unavailability of components at the later stage leads to a longer production cycle. We prioritized the use of components whose alternatives can be procured easily during the unavailability of specific components at that time.
- Supply chain transparency—Communication is the key to avoiding delays and keeping everything running smoothly. Any change in vendor, cost, or material was communicated to the client. Every minor detail from the initial stage to the post-production supply chain stage was shared with complete transparency. There were no false commitments regarding the delivery dates; this helped to manage the client's expectations.
- Vendor/logistics network—With a strong bench of vendors (500+) worldwide, we ensured a regular supply chain for procuring components. In tough times when the supply chain is irregular and uncertain, a strong vendor network reduces the challenges in your journey to move your product to market.
- Strict compliance with regulatory norms—We have a robust quality management system accredited by U.S. FDA, MDSAP and ISO:13485. At every step of the process, we ensure compliance with geography-specific regulatory norms concerning processes and products. We also fast-tracked vendor/supplier validation and verification process with efficient planning and rigorous multistep online audits so there is no additional delay due to substandard or delayed raw material deliveries.
The calendar is the largest expense category in product R&D. To make our R&D support even stronger, we have dramatically expanded our inventory of materials to ensure ultra-rapid R&D progress. We stock every standard-gauge 304 stainless steel tube (plus many other sizes), a vast variety of nitinol tubes from the smallest to the largest, and can rapidly centerless grind and use other methods to achieve near-custom dimensions from standard-gauge materials.
Freeman: There has been much more of a focus on qualifying alternative materials, localizing where possible, and increasing attention on more efficient planning practices.
Gaillard: We are a global operation, so we have strategically located facilities around the world to draw on when it comes to materials and supplies for components. It’s one of the many advantages to our global but local business approach. Regardless of location, the customer has access to our extensive services to deliver innovative medical solutions to the market quickly.
Horgan: At Phillips-Medisize, we are very proactive with our customers and our supply chain. We work to secure components and work closely with our supply chain partners to ensure we have the availability in stock and are proactive with ordering, especially with critical components that have known challenges. We continue to have tight engagement with our customers to understand the demand and volatility. Another critical challenge in supply chain that we focus on is labor. We work to ensure we have the amount of labor needed for the demand by offering incentives and shift differentiations. Finally, Phillips-Medisize has the unique position of being part of Molex, which allows access to their distribution channels to enable our supply chain.
Chuck Lee: The key for us has been enhanced communication. We review our material supply chain out to a much further horizon than previously. We immediately share with our customers any hint of potential future disruptions and offer alternate solutions where possible. Our most successful customer partners are those who engage collaboratively with us at a corporate level to help ensure continuity of supply. Oftentimes, we have found ourselves to be the first to highlight a material supply concern that will affect other suppliers using the same components/materials. When the OEM engages at a corporate level, they can ensure the greatest total leverage with the raw material supplier. When they do not, each contract manufacturer is trying to leverage only a small piece of the total supply, often unknowingly against other suppliers to the same OEM.
Muchin: Supply chain challenges have gotten somewhat better, but still continue to plague many of our projects. TEAM works in conjunction with our customers to identify long lead-time items and purchases—plenty of inventory in advance to ensure we do not experience delays in production due to supply chain issues. In cases like this, TEAM Technologies has agreements in place with our customers that identify and assign liability for materials should forecasts or purchases change. Our customers appreciate that TEAM is willing to partner with them to ensure they are always able to meet their market demands.
Rezac: Diversification is the key. It’s more important than ever to keep a finger on the pulse of emerging suppliers and capabilities as established channels become constrained by capacity challenges and are forced to be selective with their lead times.
Schultz: Continuity of supply is critical to every medical device and implant company. Volumes in the industry, in general, do not lend themselves to dual or multiple sources or cost-effective solutions given the regulatory and support activities associated with these products and systems. As such, strategic alliance partnerships and critical component management plans are vital to maintaining a competitive position and effectively support customers. Every link in the supply chain must be managed with care and should be healthy both economically and in its ability to meet existing and future customer needs. Plan for success. Our business model is very attractive to our component suppliers and our customers as a large percentage is annuity business—plan for mutual short- term and long-term success.
Chris Schwalbe: Raw material agreements (RMAs) with our customers were created to share the risk of ordering components ahead of purchase orders (POs) to ensure we have material on hand when the POs come in. These RMAs and/or getting POs from our customers early enough for the extended lead times has ensured we have the material when we need it and little to no risk for our company.
Shegda: Since we manufacture primarily highly precise metal components, our focus is on ensuring we have the raw materials necessary to make the parts. We are not dependent on chip suppliers or electronics, which have caused so many delays over the last couple of years. Being proactive on behalf of our client base has put us in a good position to respond as we have over the years—quickly in development and high-90s in on-time delivery on production work.
Fenske: Were there lessons learned (i.e., best practices) during the pandemic you will be able to carry forward?
Budreau: We have implemented many systems and modular automation that supported our manufacturing operations during labor shortages and COVID-related bottlenecks. With the introduction of MAR (mobile automation robots), we were able to prevent shutting down machines and equipment when it was critical to get life-saving devices to our customers.
Crowley: One of the biggest takeaways is we have to partner closely with our customers to manage demand fluctuations as they are driven by various forces in the market. Without proper planning and very good communication with our partners, a rapid decrease in demand followed by a rapid increase in demand is very difficult to manage. We are doing more long-range planning with our customers and increasing the frequency of forecasting discussions. As always, we want to exceed our customer’s expectations and the only way to do that is to remain very closely aligned, especially with regard to forecasting.
Daga: Yeah, obviously. Being a seasoned medical device manufacturing company, we have a robust QMS, processes, and SOPs in place that comply with ISO 13485, GMP, and MDSAP regulations. But the pandemic brought in several unprecedented challenges to cope with. With a strong vertical integration and tight-knit team of purchase engineers, we were able to manage this disruption with minimal impact. The worldwide value chain and supply chain continues to be affected by pandemic challenges, including delays and disruption. But we were able to design a framework that has made our processes more robust and less vulnerable to such interruptions. These include:
Annual forecasting—Instead of multiple purchase orders from customers, we now insist customers provide annual forecasting and purchase orders for effective material and resource planning. This will help them to get timely deliveries without any delays.
Handling obsolete components—Many of the CMO customers have old designs and, as a result, the present parts may have reached the state of obsolescence. Here, we offer either alternate or minor design change solutions to address the challenge until the customer is ready with the new design.
High lead-time components—Due to global semiconductor shortages during the pandemic, we had several unpleasant experiences where we bought an electronic component for $790 with an original price of $8. The annual forecasting enables our purchase team to plan the high-lead time items ahead of time, which allows us to align the production plan with the stipulated time.
Vertical integration—We already have a great vendor base with more than 30 years of relationship with our suppliers. We have now increased this base up to two times so the supply chain is less vulnerable to such disruptions and risks are subdued.
Internal capabilities—We are increasing our mechanical capabilities to bring in VMC, CNC turning, laser marking, and cable harness automation in our new manufacturing area, which is adding up to 15,000 sq. ft. of space. This will increase throughput and manufacturing efficiencies. These are simple operations that were initially under less focus and outsourced, but post pandemic, these are being carefully looked upon to avoid delays and shorten timelines.
Dickson: Changes in the labor market were sudden and sustained. We put our engineering mindset to the task of discovering and refining the new optimal ways of reaching and interacting with candidates—for example, to leverage their preference for using handheld devices. Our changes ensured we have a steady flow of ready and eager workers to sustain rapid growth.
Some public health practices are now part of our toolkit for promoting workforce health and maintaining production schedules during routinely occurring seasonal infection waves. Done right, our team appreciates it and customers also benefit.
Freeman: Just-in-Time manufacturing isn’t always better, and having well-managed business continuity plans in place can be essential in ensuring uninterrupted supply of products. A supply chain is only as strong as its weakest link. Testing the supply chain at all critical points on an ongoing basis can make the difference whether that supply chain stays intact in the event of a crisis.
Horgan: First, being agile is imperative. Companies must react to the volatile demand with a more agile supply chain. Second, the importance of having options in all regions is critical. We must be able to offer solutions in each region to allow customers the choice to manage the supply chain regionally and locally. It’s no longer only about the lowest cost option; decreasing the supply chain risk is equally important.
Lee: As manufacturers, working remotely was not an option for us. Parts and products are made by people in factories, not on Zoom calls. As such, during the early days of the pandemic, we quickly realized mental health was a bigger challenge than physical health. Worry and fear was far more prevalent (and ultimately, more serious) than the virus itself. We opted to be completely open with our employees and explain at every step what we were doing to keep them safe, why we were doing it, and ask for their suggestions about what more we could do for them to feel secure at work. For instance, we carefully explained all of our sanitizing policies and practices and made a commitment they would occur around the clock. We then made available to all employees virtually any additional supplies they requested so they could feel secure that over and above our commitments to their safety, they could also have an added hand in their own safety. Ultimately, through contact tracing, we are able to show they were actually safer at work as the vast majority of exposures came from outside.
Muchin: One of the biggest lessons learned is communicating more with our customers with respect to demand planning on a regular basis, as well as with our supply chain to forecast properly. The unfortunate reality of the pandemic showed how fragile the global supply chain can be, so getting ahead of a possible crisis is very important. We find constant communication with our customers to review demand is critical to our success, so we are in lockstep with meeting their market’s needs.
Schultz: Just-in-Time, as we know it, became history. Being agile, adaptive, and executing became the new mantra. Look up and down your business position to create an environment that is built on a solid foundation and can scale. Forge partnerships and pro compete alignments in lieu of transactional arrangements. Treat your supply chain as part of the solution and coordinate on forecasts, lead times, and expectations. Over communicate and manage a transparent schedule to generate trust and create a drumbeat for efficiency and scalability.
Schwalbe: Staying ahead of the curve with labor during the pandemic is now one of the strategies we have brought forward to ensure we have direct labor when we need it. The labor shortage became a real constraint either due to illness or early retirements, and we are still seeing labor shortages at most of our sites.
Shegda: Communication cadence. We found it is almost impossible to over-communicate with our client base. Through the pandemic, everyone was dealing with their own challenges and understood when an issue arose. It just needed to be communicated properly. This has continued for us. We try to set up a regular cadence in R&D and production with our clients so there are no surprises. We are not perfect, and nobody really expects us to be. We just have to communicate properly when issues arise.
Fenske: Did your communication with customers/OEMs change during the pandemic and were there improvements/better methods realized you will continue to use going forward?
Budreau: Pre-pandemic, PTI would host five to seven customer engineering/development visits per week. During the pandemic, we utilized Teams and Zoom calls to accomplish the majority of customer communication. We are happy to be hosting customers at our facility again, but continue to utilize virtual communication options where appropriate.
Daga: Yes, we had slight changes and will continue leveraging them in the future. We incorporated digital technologies at various levels for tracking, sharing, and connecting with end customers. During this course of instability and fickleness, it was imperative for the customers to get a candid view of their project. We increased the frequency of calls with the customer from weekly to daily. Our SCM team worked in synergy with the customer’s SCM team so the sun never set for supply chain activities. We had an online/real-time KANBAN system implemented for triage meetings (for example, JIRA from confluence). We included the key stakeholders in every meeting for quick decisions and implementation. This facilitated smooth progress and helped us to get through the bottlenecks almost immediately.
Freeman: Virtual meetings became standard practice in lieu of in-person visits and became a commonly accepted method of staying connected. We will continue to utilize virtual meetings as well as in-person meetings, depending on the type of meeting.
Gaillard: I believe the greatest change was our request for, and our customers response in, issuing purchasing commitments for 12 months or more. This allows us to work more closely with raw material suppliers to ensure we have what we need to meet our customers’ demands.
Horgan: Like most companies during the pandemic, operating virtually became critical. Virtual partnerships with our customers became standard. Technology and innovation enabled and expedited engagement compared to the time and expense prior to the pandemic. We’ve embraced many new methods over the past few years such as virtual audits, virtual project kickoffs, and even virtual validations and inspections. These new methods offer cost and efficiency savings that will continue beyond the pandemic.
Lee: Communications undoubtedly changed. On one end of the spectrum, we have a great customer with whom we set up a task group to regularly meet virtually to openly discuss and get ahead of demand changes, raw material availability, transportation shortages, labor shortages, etc. On the other end of the spectrum, we had a major customer who called at 2 p.m. on a Thursday to say, “If it hasn’t left your dock already, don’t ship it. We’ll be in touch.” We were then unable to get any response by email, phone, or carrier pigeon for nearly 16 months. Overall, communication is like money; its only value is in exchange, and it is generally more valuable in quantity.
Muchin: Methods of communication changed during the pandemic; the biggest change being the reliance on “Zoom-type” meetings since travel was limited. While this proved business can continue to thrive without in-person meetings, we still believe there is value in having in-person internal and customer meetings, which are starting to happen again. That said, it seems the industry is still planning meetings strategically and being selective with in-person visits.
Rezac: I think the pandemic forced everyone to develop a remote collaboration skillset that makes the world feel even smaller and lowers the barrier to entry for real-time collaboration. It’s become second nature to hop on a video call/screenshare and discuss results with visuals in a nearly seamless fashion that would have otherwise taken a site visit.
Schultz: ECA Medical is a strategic or critical supplier to all our customers. For many customers, we have been a sole source or single source for over 40 years. Quality and continuity of supply are not an option but a requirement. During the pandemic, we increased the communication and transparency to jointly manage risk. This created minimum business and personnel impact to everyone as we kept product flowing to meet needs for non-elective surgeries, which are a big percentage of our business. Best practices from that communication and joint planning are being carried forward.
Fenske: During the pandemic, did OEM customers take part in virtual tours, audits, inspections, or another such activity that would have normally taken place in person? If so, will you continue to offer this option to customers or return to in-person only?
Budreau: Yes, we did many virtual (interactive) plant tours and facility audits. We purchased a DJI Gimbal for a smartphone to achieve a steady stable walk through of PTI’s operations. We also did video drone fly-through tours with audio voiceovers to allow customers another look at our plant and capabilities. We are pleased to be hosting customers to our facility again, but continue to utilize virtual communication options where appropriate.
Crowley: The return to in-person meetings has been a welcome change. Viant’s vision is to be the medical device industry’s most trusted partner in design and manufacturing services, and we find face-to-face meetings help build that trust and often speed up communication. However, we have continued to maintain virtual communication with more customers than we did before the pandemic, so in some cases, this is a more efficient way of working together with less travel required.
Gaillard: Yes, during the pandemic we switched to offering virtual tours in the form of professionally created videos for each manufacturing site. The videos showcase each site’s specific capabilities and experts. We’ve found these videos useful in other circumstances, for example, at trade shows and on our website.
We also did live tours where a host wore glasses with cameras on them to tour a site and answer specific customer questions. We continue to offer these options and have also returned to some in-person tours.
Horgan: Phillips-Medisize has embraced numerous virtual methods: virtual project kickoffs, validations, and inspections bringing customers into our metrology labs. As a company, going forward, we will offer both virtual and in-person options.
Lee: Any customers who did not suspend audits entirely switched to virtual audits. We have found these to be very effective. In fact, they were so successful, I would say 50% of our annual audits remain virtual.
Muchin: Our philosophy is to do what makes our customers most comfortable and we will continue to offer virtual or in-person visits. While in-person visits tend to be preferred, the pandemic proved we could accomplish audits, tours, and inspections virtually. The consensus is in-person audits are easier and less time-consuming as auditors can be on site to evaluate processes. But the pandemic prompted TEAM Technologies to develop sales tools to allow our customers to take a closer look virtually. We created a virtual location tour showcasing some of our manufacturing locations, which provides a great opportunity for customers to learn about our global facilities.
Rezac: Yes. There’s no replacement for true face-to-face collaboration, but customers recognize the efficiency of virtual information sharing and can extend their understanding of your capabilities much deeper before making their first visit.
Schultz: Yes, we conducted many audits and meetings virtually. It became the norm and still is for customer and supplier meetings and as a general communication tool. Video conferencing does not replace in-person meetings or medical conferences but offers a powerful and cost-effective alternative to share, learn, and work globally.
Shegda: Not so much for tours, though we are putting together virtual tour capability for our new facility, which is under construction. Audits, for sure, and Lunch & Learns, too. We performed several virtual L&Ls through 2020 and 2021. This was highly effective and continues to be a focus for our group. We still prefer in-person meetings, but instead of the pandemic getting in the way of that, it is now just the sheer workload of our clients that precludes their ability to meet. Virtual is helpful for being able to keep in contact when we would not have been able to do so a couple of years ago.
Fenske: With shortages becoming/still an issue for certain types of products, have OEMs approached you about offering warehousing or logistics services? If you already offered these types of services, are OEMs seeking to increase their usage of them?
Crowley: Generally speaking, customers are talking to us about moving from “just in time” to “just in case.” However, this is not a simple transition. We collaborate very closely with customers to build safety stocks of the right products in order to meet their demands. Adding inventory creates costs for us and for our customers at a time when costs continue to increase and capacity of supply is still constrained in some key areas. In every case, with a collaborative approach, we have been able to develop a strategy that works for Viant and for our customers.
Daga: Currently, we’re expanding our warehouse with 25,000 sq. ft. This will benefit the customers as we can provide additional warehouse space for growing inventory needs. We have implemented contemporary warehousing solutions with regulated temperature and humidity. Our customers have often approached us to have inventory space available for their finished goods and to get goods supplied to their locations from our warehouse facility. We have assisted in several cases for some of our long-held clients. As a turnkey solution provider, we offer the best solutions in the areas of packaging and logistics; this makes transportation highly cost-effective.
Freeman: We have been approached to support with warehousing and logistics services, but it depends on the OEM and the markets served. It also requires OEMs to be able to support such services with their internal systems. These services can include supporting selling into local markets.
Gaillard: Trelleborg is working toward offering our customers integrated solutions. This means we will provide customer services including prototyping, design, manufacturing, scale-up, and serial production, as well as additional services like packaging, sterilization, and warehousing.
Lee: Although we have long offered warehousing services such as Kanban stocking and VMI, we are seeing an increasing number of our customers request such services. However, like all additional services, there is a cost to support them. These programs tie up extensive capital and space.
Muchin: We’ve offered our customers purchasing flexibility via supply agreements and blanket purchase orders for years, well before the pandemic. This allows us to order raw materials well in advance of our customers’ requested dates and build finished goods inventory in some cases. By doing this, we’re able to manufacture based on our schedule versus solely on customer demand, which maximizes our manufacturing throughput. Our customers have been very happy with this approach.
Schultz: ECA Medical is a turnkey, one-stop solution partner for our orthopedics and spine customers. We provide complete product development, validations, manufacturing, kitting, packaging including RFID tags and labels, and sterilization. We can own the design history file and be manufacturer of record—a dock-to-stock solution. We support our customers’ needs for lifecycle management and reducing the cost of sales per transaction. This can include vendor-managed inventory and even recycling program partnerships.
Fenske: Have you been approached by customers seeking to move manufacturing from one location to another due to logistics/supply chain challenges? If so, how are you handling this transition and/or what are the challenges involved?
Daga: We’ve assisted OEMs looking to shift their manufacturing specifically due to supply chain challenges in multiple ways. We’ve helped them by:
- Optimizing the procurements costs for components/parts with verified local sourcing
- Fulfilling the resource requirements (skilled workforce, capabilities, and resources) at a feasible price
- Country geography makes transportation easy and reduces supply chain costs
- Regulatory assistance along with quality manufacturing processes to ease market penetration across multiple geographies
Freeman: Customers are looking to diversify their manufacturing locations and evolve in order to mitigate risk and be able to react quickly to local market conditions. In our case, we have expanded manufacturing beyond our locations in China and started manufacturing in Vietnam in 2020. In 2023, we will start manufacturing in Mexico.
Horgan: We have seen a stronger interest from customers in their desire to localize the supply chain so there’s less reliance on the global infrastructure. Customers can be very specific about how and where the supply must be located. We work collaboratively with the customer to build a robust transfer plan and ensure continuity of supply is not put at risk. It’s about finding a competitive solution that leverages local locations. Close engagement with the customer is key as it’s a shared plan.
Lee: During and immediately after the pandemic, we saw a lot of customers reshoring product after being unable to get their material from overseas…often for many months at time. Unfortunately, memories seem to be short. We now see more and more customers chasing relatively small price savings on components overseas, completely ignoring the lessons of the last three years.
Muchin: Since the majority of the products we manufacture are validated production processes, moving these processes to another TEAM facility is possible but ultimately requires revalidation. That said, when it makes sense, we have accomplished these types of transfers. There are challenges of inventory build that takes place prior to moving manufacturing lines, but with good planning, we’ve managed this. For example, TEAM Technologies offers converting capabilities in two U.S. facilities and one Singapore facility. Our customers have requested we dual source the products from at least two of our sites, which protects the supply chain.
Schultz: We are adding new facilities and infrastructure to meet demand and grow our business at a predictable rate. We now have three facilities in southern California for design and manufacturing and added a fourth site late last year in Draper, Utah. As a medtech supplier for over 44 years, we manufacture over 3 million instruments and sterile pack procedural kits per year to support a well-established installed base of customers and new ones using state-of-the-art technology and highly automated manufacturing. As the orthopedic and spine markets shift to ambulatory surgery centers (ASC) for surgeries, ECA Medical is positioned to meet the pent-up demand for single-use and sterile-pack instrument sets and sterile-packaged implants. The elimination of instrument reprocessing, overall cost savings, sustainability gains, and OR turnover improvements are just a few of the benefits making single-use or one-way instruments and implant solutions “must haves” for OEM implant firms to compete as reimbursement decreases, surgeons embrace productivity tools, and competition increases.
Shegda: Yes; we have lost some work due to this. Moving work from the U.S. or Canada to Costa Rica is a good example. It has definitely put on the radar the need for expansion into these lower cost areas. The challenge for a company like ours is the capital to make it happen. It’s easier for an equity-owned entity with financial backing—less so for a second-generation, organic, family-owned company to do this. It is a reality for the industry, though, and we are addressing it through partnerships and taking small steps.
Fenske: From your perspective, are attitudes changing with regard to international manufacturing or supply chains that are separated by significant distances geographically?
Budreau: In general, logistics and transportation has definitely had an impact on the location and region where companies are manufacturing their products or components that go into the finished device. The pandemic and post-pandemic effects have driven many OEMs to access and relocate some of their manufacturing sites. Cost and lead time will always drive the region/location of where manufacturing will take place.
Daga: Yes, we see a major shift in attitude changing with regard to international manufacturing. Geography and distances are no longer the constraints. If we talk about U.S.-based OEMs shifting manufacturing to India, there are multiple reasons that support the evident shift.
Strict policies for intellectual property rights and data security, skilled human resource and low operation cost, PLI (production linked incentive) scheme, Make in India and Atmanirbhar Bharat Abhiyan, robust ecosystem to scale production, and medical device parks are some of the major factors that have played a significant role in making India one of the promising medical device outsourcing hubs.
Dickson: Look, there is definitely new awareness about the risks in logistics—remember the pictures of ships waiting to unload, and trucks not arriving anywhere near their schedule date? Now everybody knows these risks require effort to mitigate. Greater or lesser emphasis on the distance factor varies by company and by individual. Regional thinking started growing big time about 6-7 years ago, but if you look one or two layers deeper into the supply change, you see even a local/regional supply arrangement is almost inevitably affected by great distance. So the key is mitigation: localization is one tool for mitigation, but it is not a panacea and the whole mitigation toolbox is necessary. The key shift in attitudes is not on distance alone but rather overall awareness of the suite of risks and the whole toolbox of mitigations.
Freeman: Yes. Impacts due to COVID, tariffs, and geopolitical tensions have resulted in companies realizing the actual or potential susceptibility of their supply chains. It showed many companies that having a Just-In-Time supply chain can also have its disadvantages.
Gaillard: In healthcare and medical, high quality, reliable supply is the primary objective. Therefore, where manufacturing takes place is less important than the quality and reliability of supply. However, we are seeing more requests from customers to have a source close to their production facility. For this reason, Trelleborg is expanding its manufacturing and service capabilities in the U.S., Europe, and Asia.
Lee: It is true we are living in an ever more interconnected and borderless world. That being said, the value of shorter supply chains and the obstacles of international borders was never more clearly shown than during the pandemic. Despite the recent nature of that experience, we are seeing what we believe is a severe under-valuation of those risks compared to the pennies some companies are seeking thousands of miles and an ocean away.
Muchin: Absolutely! We’ve found many of the OEMs are reconsidering manufacturing in Asia due to the logistics challenges faced during the pandemic and are looking for near-shore manufacturing closer to their target markets. In this case, our facility in Reynosa, Mexico, has been identified by many of our customers and prospects as an excellent location for products sold in the North American markets. In another example, one of our customers is in the process of setting up their own manufacturing in Asia, so our Singapore converting site has proven to be a perfect location to transfer production from one of our U.S. converting sites.
Rezac: Yes. We have seen growing concern over international logistics and increased interest in a more centralized, domestic supply chain.
Schultz: Everyone wants cost savings and everyone wants continuity of supply. It’s all about risk management and predictability. Manufacturing and downstream delivery systems for medical devices are at a tipping point. A paradigm shift is occurring; it’s subtle now but ramping up behind the scenes. The current model worked fine when money was cheap and raw components, labor, and factory absorption costs fairly constant. COVID allowed firms to deep-dive into their P&L statements and balance sheets to uncover and challenge fixed and variable costs, inventory depreciation, and opportunties for savings across the enterprise. Global dynamics are no exception. Smart firms will review areas of risk and develop substitute or alternative options to survive and thrive in an ever-changing world.
Shegda: Where my mind goes on this is if you are a CMO that has subject matter expertise, like ours, this has never been a barrier and this continues to be a non-issue. The ability to do the work is of primary importance. We tend to focus on the “difficult to manufacture,” so projects from the U.K., Germany, Israel, Japan, China, Italy, France, etc., are all viable.
Fenske: What impact, if any, has the war between Ukraine and Russia had on your company and/or sourcing materials/components?
Dickson: Metal supplies were already tight, and Russia’s invasion of Ukraine pushed base metal sourcing into the critical zone, notably for nickel in our case, which is half the composition of nitinol and essential to stainless steel alloying. But we should all remember the impact on food supplies, which can touch every company through cost of living and political instability.
Lee: We have been very concerned about increased fuel prices in Europe affecting raw material costs and also about the possibility of hostilities directly affecting source of supply. As of yet, we have not really seen any tangible effect, however.
Rezac: The war has had a significant impact on the sourcing of manufacturing raw materials, especially gases. We’ve also seen a dramatic increase in energy costs at our tubing manufacturing facility in Switzerland.
Fenske: As we continue to move further away from the height of the pandemic, have you altered your recovery plans to address a future crisis? Is this a question more important to your customers and/or prospective clients?
Budreau: We continue to develop and improve our business continuity planning to be prepared for the unknown, to have measures and systems in place to keep manufacturing operations running, or have recovery plans in place if needed.
Dickson: We began our COVID mitigation measures on Jan. 24, 2020, almost two months before the lockdowns hit. We had a systematic, proactive approach to identifying potential risks (and countermeasures) before they happen—and we strengthened our responsiveness in identifying risks when they showed up. Most crises are not really “black swan” events—although that sounds good in the news cycle—they are just ignored threats that catch us if we haven’t prepared.
Freeman: Our interest is in getting closer to our customers and being able to serve them in their target markets, supported by local supply chains. Reducing the length of the supply chain would be a key benefit achieved as a result of this initiative. This results in shorter lead times, more flexibility, and the ability to more quickly respond to changing market conditions.
Horgan: It is an important question for our customers, prospective clients, and ourselves. Our customers are adjusting their supply chain choices and not just with increased inventory. Customers are looking for a more local supply chain.
Muchin: Prior to the pandemic, TEAM Technologies had a solid plan in place that included more than a local or worldwide pandemic. I would imagine, like many of our industrial colleagues, COVID spurred us to make improvements to our plan.
Schwalbe: Risk analysis of materials and labor is something that should always be done. The priority of maintaining that risk analysis and running it much more frequently is something that has changed and probably will remain more of a priority at a higher frequency. One of the higher risks during this time was not having multiple suppliers. In the medtech environment, this is much harder to do with validations. From a supplier point of view, this was always a known issue; however, our customers did not want to move forward with this additional work. Now that we have been through this pandemic, our customers are taking this more seriously, which will help to mitigate risk in the future.
Shegda: Absolutely. Our contingency/disaster recovery got a rewrite as we have pushed to consolidate our QMS. The pandemic had an influence on this, but cybersecurity had an even bigger impact on the writing. Clients have not asked a ton about this yet, but it is coming for sure.
Fenske: Are you concerned about the future of EtO (ethelyne oxide) sterilization and have you explored alternatives? Have customers specifically requested other sterilization methods?
Muchin: Many of our customers’ products are EtO sterilized so this is a big topic of discussion as of late. We’ve done some exploration of other methods and advise customers to consider other methods at the outset of new programs. Revalidation of products using EtO is not a small endeavor, so planning well in advance is critical.
Fenske: Corporate social responsibility (CSR) has become significantly more important across many industries. Has your company addressed this trend (if so, how) and/or have you had customers ask about this (if so, what is your response)?
Budreau: As a company, PTI has always recognized the importance of giving back to the community. We support many local charities, including adopting families around the holidays and sponsoring local students in STEAM programs. We also support nationally known organizations such as the American Cancer Society.
Crowley: Yes, our customers are making a commitment to sustainability and asking Viant to do the same. As such, we have leaned into this area of our business and have received a strong result from some external rating services. We are proud of the result, but more importantly, we are pleased with the impact we are making through initiatives in several areas including energy savings, recycling, waste reduction, and a strong commitment to our communities.
Daga: Since inception, our mission has been to deliver accessible, affordable, and quality healthcare. To accomplish this, we perform numerous CSR activities. We proactively promote academic research in the medtech domain by funding and contributing to research going on in prestigious technology institutes across the country. Recently, as a part of the industry and academia collaboration, Johari Digital Healthcare donated a significant funding amount to the Indian Institute of Technology and the Jodhpur (Rajasthan) Incubation & Innovation center from our CSR fund to boost and strengthen the medtech startup ecosystem.
We were also involved in the distribution of physiotherapy and wellness aids in the local hospitals, universities, and colleges for research. In addition, we conduct various yoga and wellness events within and outside our office premises to promote wellbeing. Further, we actively promote and support different educational and vocational trainings.
Dickson: “Do no harm” is the starting point of the Hippocratic oath of physicians, so it should be a cornerstone for our industry. Is it? It is also a cornerstone of corporate social responsibility. But our efforts to do no harm are more real, more impactful, and more meaningful if we find ways to embed something really virtuous in our product or in the way we deliver our product. That way, our business model depends on it, and our business fuels the growth of that “shiny new object” of virtue instead of CSR being an appendage to the company that needs life-support systems to sustain it. We made strategic decisions to create platform opportunities that support the distribution of high-end devices in low- and middle-income countries at scale—good business that’s good for people.
Horgan: Phillips-Medisize has long been committed to finding responsible ways to create the products we deliver to our customers—and yes, many of our customers ask about this. We look for ways to collaborate with our customers or contribute to their CSR goals where consistent with our Stewardship Framework. This framework identifies key areas and general principles we consider as we develop EHS (Environmental Health and Safety) and social priorities.
Lee: Naturally, we observe the Global Compact as it refers to human rights and labor practices, and we trace the origin of raw materials to avoid conflict minerals, etc. In addition, we have chosen to focus our efforts on where we can affect the most significant change. For Medbio, this means diversity, equity, and inclusion. We are fortunate to have a very diverse workforce within and among our various plant locations. We are also investing heavily in identifying and supporting equitable professional opportunities for our staff and their families.
Muchin: TEAM Technologies embraces the core principles of environmental, social, and governance (ESG) responsibilities and believes all companies should strive to understand and develop effective ESG and sustainability programs. These topics are also addressed in our corporate Mission, Vison, and Values Statement. We’re seeing increasing trends among our customers as well as auditors inquiring about our corporate positions/documents/reports so it is good to be prepared, as well as create a fully inclusive culture that is aligned.
Schwalbe: Our company has responded to this trend in two ways—on the employee side and on the supplier side. The employee has a lengthy employee handbook that states our social responsibilities and our values to maintain those responsibilities. On the supplier side, we have them sign a Supplier Code of Conduct to ensure they are taking those responsibilities seriously. Our customers ask us to fill out a survey asking what we do, so we are able to share with them both the employee handbook and our Supplier Code of Conduct.
Shegda: Yes; we have had to fill out surveys to this effect. Our company exists to serve. A great deal of that is focused on our clients, but there are also significant resources allocated to impact our manufacturing community, the community in which we live and work, and the greater society as a whole. This is a commitment in lifestyle and doing the right thing because it is the right thing to do rather than being an exercise to appease a client’s survey.
Fenske: On a related note, sustainability is also important to many companies. How is your company addressing this trend and/or are medtech customers asking about this?
Budreau: Yes, sustainability is very much on all of our medical device customers’ radar. For the past 10 years, we have had many programs in place to recycle, reuse, and conserve energy. Based on many of our initiatives, we have received green environmental awards from some of our customers. Today, more and more customers are looking for formal programs and metrics for our corporate sustainability program.
Daga: For more than 40 years, we’ve been operating as a Lean Six Sigma model. The implementation of Lean Six Sigma principles at every level in a manufacturing organization helps in filtering cumulative waste over a period. By eliminating waste, we ensure sustainability in multiple ways. We also perform plantation drives near our manufacturing facility and we’re proud to say we’re a zero-carbon emission facility as stated in various audits.
Dickson: Sometimes sustainability calls are criticized as just window-dressing or virtue-signaling, and that can be true. In response, innovation-resistant business interests sometimes amplify well-meaning messaging out there that pushes responsibility on consumers, but this kind of shaming individuals and small wasters distracts from the policy shifts that it takes to make substantial improvement rewarding and scalable for business. The push for sustainability actually needs to transform into regeneration or circular economy. There is one benefit in the small acts of the “act locally” messaging: doing the small things well (e.g., plant-based packaging, reward programs for bike-commuting, electrification) does create a society-wide mindshift that supports the bigger moves that need to be made.
In our businesses, small moves that are part of a bigger initiative can even be fun and fruitful. Just as 5S and other programs stoke engagement and improvement, sustainability and circular economy give a boost to exercising our problem-identification and problem-solving muscles in a total quality improvement way, like in our trade show booth when we pour from a large bottle of local sparkling water to serve real glasses with a piece of gourmet local chocolate. We try to find the coolness factor.
Freeman: Our customers in the U.S. and Europe are becoming much more sensitive to initiatives around sustainability. Having sustainability as a key part of the product development process can be very well aligned with optimizing the development of a product and can help to meet the key criteria of safe, cost-effective medical devices.
Gaillard: I think we all know sustainability is a huge challenge given the single-use, sterile nature of healthcare and medical products. It’s about finding a balance as equipment and products that are not single-use require harsh sterilization and chemicals to clean them.
The Trelleborg moto for sustainability is Protecting the Essential. Trelleborg’s target is by the end 2025, it will reduce carbon emissions by 50% related to sales, with 2020 as base year. Our vision is for net zero emissions in our own operations by the end of 2035.
Lee: As the materials and processes used to manufacture our products are often dictated to a large extent by the designs emanating from our customers, we are focusing our efforts internally on maximizing efficiency and effectiveness of our manufacturing processes. This involves investment in infrastructure, capital equipment, and human capital.
Muchin: We’re finding customers are trending toward sustainable solutions. In some instances, we are working with a variety of sustainable resins for our injection molding customers or moving to lighter weight synthetic or cellulose-based textiles. Since most of the products TEAM Technologies manufactures are disposable due to patient contact, our customers are also looking toward sustainable packaging, etc. to reduce the overall carbon footprint of their products even if the actual product footprint can’t be reduced.
Raw material suppliers are also making strides in sustainable offerings, and end customers are often disconnected from lower tier suppliers. When the opportunity permits, we can connect the customers to these developing solutions to speed their transition plans. In addition, our experience means we can identify and consider sustainable materials to include PCR, PIR, Bio Plastics, or a blend with current base materials.
TEAM Technologies works toward vertical integration by performing more work in-house, thereby reducing the need for additional packaging and transporting materials, which are basic Lean principles of eliminating extra process steps, packaging, transportation, and movement of goods.
In an effort to combat global impacts of climate change, TEAM Technologies is committed to employing the latest technologies to align to the standards of monitoring and controlling emissions, as well as employing energy strategies through state-of-the-art improvements within our infrastructure. We’ve put in place ECO power serving options for auxiliary equipment, hot runner tool designs to eliminate material waste, high efficiency closed top water systems to reduce water consumption, and waste recycling protocols for plastic and corrugate materials.
Schultz: ECA offers product and solutions that reduce carbon footprint by over 40% compared to traditional reusable devices. Studies by companies and universities reveal the hidden costs and risks to environment and health using reprocessed instruments or having to sterilize implants on site. This includes massive amounts of water (over 60 gallons of fresh water to rinse one case and tray), cleaning agents, draped materials, and carbon-based transportation to shuttle them from site to site or manage as trunk stock. Single-use, sterile-pack, and surgery-ready instruments and procedural kits can be recycled, reduce risk of SSI and HAI, and come sterile and pristine for every patient. They are ready for transfer to the sterile field.
Fenske: When faced with an OEM customer who presents consistent requests for a percentage cost reduction year over year, does it cause a rift in the relationship or a reevaluation of whether the customer’s business is worth it? (or, have you experienced this at all?)
Budreau: This is not a type of request we typically would see in the medical device world, like you do in the automotive industry. I would say business relationships can certainly become strained if cost reductions are a priority and focus of a customer. This makes you question the financial health of your customer, and if they’re implementing desperate cost-saving measures. Price is definitely an important element of winning business in any industry but I feel that lead time, delivery, and meeting quality requirements and validation needs in the medical device industry are keys to growing business.
Crowley: Of course our customers are consistently looking for improvements in cost, but they are also often looking at the big picture, which includes quality and delivery. We find the best practice is to have an active dialogue and a list of potential cost improvements. Success is often dependent on committed resources from us and our customers working together to implement meaningful change. It is also important to be pragmatic about the nature of the program and the true potential to reduce costs. In the end, the bottom line is that regular communication around cost-downs and a collaborative approach are the only ways to address the cost goal in a collaborative way that does not cause a rift.
Daga: Yeah, we do. But, so far, we’ve handled it well. We perform vendor analysis and try to provide the desired pricing without compromising the quality. Mostly we succeed, but in cases where we don’t find the best fit we reevaluate the business’ worth. During the times of pandemic, we had to increase the prices for most of our clients as component procurement was challenging and the supply chain was disrupted. It was a global supply chain crash and most of the segments experienced it. We shared use cases and communicated transparently with our clients; this helped us maintain the relationship even during crises.
Freeman: The key is to understand the expectations up front so a cost model can be developed that is mutually beneficial to both parties (supplier and customer). A lack of clarity and well-defined expectations that are not communicated up front can create unproductive tension and sacrifice key elements of medical device manufacturing beyond unit cost.
Lee: We try to direct the conversation with OEM customers to cost reduction instead of price reduction. Where the customer is willing to accept process changes for better efficiency, and where they are willing to share investment in those improvements, we are willing to share the cost benefits.
Muchin: These requests have been part of contract manufacturing for as long as I can remember. TEAM Technologies does not shy away from customers that request year over year price reductions; however, we find these requests need to be worked on together for mutually beneficial solutions such as sourcing alternative materials and design for manufacturability, etc. TEAM Technologies cannot merely reduce prices year over year when many of our raw material input goods and labor are being increased, which is why we partner with our customers to determine the best solutions.
Schultz: Market your company and sell on value. Anyone can be a price leader and go out of business. Consider and articulate what you do that allows your customer(s) to be better, make money, or gain share and wealth. Invest and grow with a customer who appreciates that value and lives up to the words “win/win scenario.”
Shegda: A rift? No. They are doing what they need to do. We understand that. But, that being said, just because they ask or expect it does not mean we comply. They can ask, and if it makes business sense for us to go along with it, then we do. If it does not, then we don’t. Business relationships need to be a win-win. Too many of the large OEMs try to stack the deck in their favor with one-sided supply agreements and holding the threat of cutting off a supplier if they don’t comply to cost-downs. We tend to be in a more defensible place since most of our work requires a very high level of expertise. Consequently, we have less competition and have a little more leverage in these situations than a competitor that tries to compete and win solely on price.
Fenske: The industry is experiencing a shortage of skilled labor for many production positions. How is your company addressing this and what are you doing to attract/retain talent?
Budreau: PTI has done a number of things, including starting an in-house academy for local high school junior and seniors that ran for four years prior to the pandemic (at which point we had to shut it down). Since then, many high schools have brought back, and focus on, programs for skilled trades. We also support local high schools with mentoring and job shadowing opportunities. Every October, we open our doors for Manufacturing Day to allow students to tour and learn more about manufacturing.
Daga: We have been fortunate to not be affected by shortage of skilled labor. Our work culture is inclusive and we have members from different parts of the world in our facility. The HR policies and work-life balance we’ve been able to achieve has helped us retain the best talent over the years.
Freeman: Diversifying our manufacturing locations enables us to hire the specialized talent needed to support the local markets. Our training programs, incentive plans, corporate environment, and mission-driven purpose enable us to attract and retain employees beyond our competition.
Gaillard: Since early 2022, we have seen applicants for our open positions increase. However, our customers’ demands have also risen, and we continue to search for qualified applicants. We continue to expand and evolve our employer brand, offering a range of possibilities for employees to further develop competence and skills.
Our employees tend to stay for a long time within Trelleborg. Our experts take a lot of pride in their work and many of them have been with us for decades, so we don’t see a lot of turnover. They realize their work plays a part in making sure someone has the life-saving medical device they need.
Horgan: As a company, we continually adapt our work processes to what makes sense for our employees, and we have leveraged our unique culture to expand employee engagement and communicate effectively. We also offer remote work where possible, professional development programs, and financial incentives where appropriate. In addition, we leverage strong local engagement with our communities to attract and retain the best talent.
Lee: Medbio constantly evaluates the labor market around each of its facilities. We have found that while it is important to remain competitive in general, we have far better success attracting top talent by offering an enhanced workplace culture. Being part of medtech rather than, say, automotive is of great benefit because many people find it more fulfilling. In addition, we stress things like tuition reimbursement, apprenticeship programs, and scholarships for family members, among other things.
Rezac: In many regards, we are committed to growing the talent we need internally through deep participation in cooperative education and university recruiting programs. For example, interventional product development is a specialized space to begin with; for that team, we find young engineers are eager and capable of coming up to speed quickly on highly specialized procedures. Pair that with a strong company culture and competitive compensation and you have a winning combination for talent depth and retention.
Schultz: Create a culture that makes your company special and professionally challenging and rewarding. The details matter. Keep the bar high and attract and retain the best people that fit the culture with the right skills and talent. That usually results in a lean organization and higher productivity. Innovate and execute. Winners beget winners.
Shegda: The best answer to this is to focus on an intentional and robust culture. Many of our colleagues have complained about the labor market. We have not had the same issues. Skilled labor in manufacturing has been a challenge for decades. Automation is one answer, getting really good at “growing your own” is another, and having a culture that experienced workers want to be a part of is also another aspect.
Fenske: What recommendations do you have for OEMs currently seeking new CMO suppliers? How can they best evaluate a prospective partner and what traits should be considered most important?
Budreau: One of the key things I feel is important is having full-service capabilities or vertical integration from design through device assembly, and if something has to be purchased or managed on the outside, it will be handled by the supplier.
Crowley: OEMs have a big challenge when developing cost models to compare internal production to outsourced manufacturing and comparing one outsource option to another. It is very common to find that internal costs are not well understood. It is also common that RFPs do not provide the necessary detail to provide comprehensive proposals. Open communication and collaboration is key. With a clear set of assumptions, we can provide more accurate proposals and speed up the decision-making for our potential customers. With an incomplete set of assumptions, it is unlikely we will offer our best price and it may take significantly longer to develop a proposal we can stand behind.
Daga: There are several key factors to evaluate when partnering with a CMO:
- Choose the technical expertise
- Opt for a partner serving sustainable engineering services
- Supply chain management for manufacturer
- Evaluate the pricing model (Primary Cost Index & Secondary Cost Index)
- Check the quality management system (QMS)
- Review their experience and projects
- Keep track of timeliness
- Prioritize innovation
- Evaluate accountability and product dossier support
- Responsiveness and communication
- Strategic focus that is aligned with the customer
- Energy and drive
- An Innovation Strategy Plan
- Methods for extracting maximum value for the customer during R&D
- Learning posture—evidenced by having a variety of ways of doing a process
- Expertise in optimizing materials-related factors
- Strength/depth in test methods and technologies
- Service arrangements that are optimized to the specific phase in the product lifecycle
Gaillard: First, ask whether your current CMO can work with you from the beginning to the end of a project so you are only working with a single supplier throughout. Then, involving your supplier during all stages of development—from design iterations, prototyping, production, scale-up, sterilization, and packaging, for instance—can ensure costs are not designed into the manufactured part. Finally, ask if their experts have longevity in tooling and precision machining.
Horgan: OEMs should look for a provider willing to build a long-term collaborative relationship where both sides have mutual benefit. They should consider a company that has deep and broad medtech expertise and the scale to bring a variety of solutions across a variety of regions to allow for a range of options.
Lee: Engage with your CMOs in a collaborative manner so they can bring value to you. Online quotation platforms are great for accumulating lots of prices, but they do not provide your suppliers the opportunity to help you to optimize your product. There is probably an order of magnitude greater cost reduction opportunity in working with your CMO to optimize your design for manufacturability than there is in simply comparing columns of prices.
Muchin: The most important consideration should be capability. Many CMOs claim to have certain capabilities but in actuality, they do not. We’re honest with our prospects from the outset and if a project is not a good fit, we let them know early in our vetting process. Assuming it’s a good fit, evaluating a partner should be about the people and processes to ensure that new partner is not only capable from a manufacturing process, but also with their engineering, quality, etc. We’ve found many of our competitors are unable to provide a long-term roadmap showing their ability to scale manufacturing when the product is successful in the marketplace, which is critical to ensure success.
OEMs should also ensure they don’t overlook the benefits (or cost) of partnering with a CMO already registered with the FDA (or similar regulatory body) and has a mature QMS already in place with a solid track record in the medical device industry.
Rezac: Get the process started with a pilot program. We always welcome the opportunity to gain a customer’s trust through simple prototyping or a limited brainstorm activity to bolster IP. Once we’re working together, we’re confident you’ll see the value in our services and caliber of our team.
Shegda: This is a mouthful! Wow. I personally think many OEMs look for the easy, or what they perceive to be the “safe” choice. “Let’s go with XYZ supplier since they are a certain size, and are already on our ASL.” What they don’t realize is they are often shortchanging themselves from a capability perspective. Many smaller CMOs, like us, bring a different level of expertise and capability to a relationship. This is not relevant all the time but is absolutely relevant more than it is requested. We are currently dealing with one of the largest medtech OEMs on a very important project. They lost capability to manufacture the part in a facility move. Not a single other one of our competitors has shown capability to make the parts. We have now done it twice. We are in the process of proving capability for the third time to a different set of people within this behemoth of a company and if successful, we may get an opportunity to validate and run production. If we were one of our large rivals, this would have been a done-deal a year ago. It just does not seem to make sense sometimes.
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?
Budreau: Engage the CMO as early and deeply in the development process as possible. More upfront collaboration should result in a much more successful development cycle for a medical device.
Daga: OEMs must start addressing CMOs as active participants in taking their products successfully to markets. Trust plays a major role in any partnership. In the current scenario, the role of a CMO doesn’t just involve assembling and scaling; they’re more like a turnkey solution provider. As an over 40 years CMO, we help clients with design optimization, supply chain management, regulatory assistance, manufacturing, and postmarket sustainable engineering solutions. In this way, we become a crucial part of our client’s product development journey. It’s a collaborative effort to bring a medical device breakthrough to market, which serves as a testimonial of the success of a CMO and OEM partnership.
Dickson: Introduce key leaders from various functions to the CMO partner: manufacturing, R&D, quality, supply chain, etc. And give them something concrete to work on together and deliver.
Freeman: Be transparent, clear about what is important to your organization, and communicative. The right CMO partner should be your biggest supporter and will often go above and beyond to ensure the partnership is successful. Including the CMO as an extension of your business will add additional horsepower.
Horgan: Forming a strong collaboration from the beginning is key to building a long-term relationship. Unlike other CMOs, Phillips-Medisize has an extensive range of capabilities in every phase of designing, manufacturing, assembling, and testing high-performance medical products. As a CDMO, we can collaborate early in the design stage to form a true collaboration and help accelerate the delivery of products to market.
Lee: Communicate! Talk to your supplier about what you are trying to achieve instead of telling them what you want. Ask their advice. Be an active listener. Something as simple as your employees not having a phone number on their email signatures sends a clear message that you don’t want to work together. It says you want to communicate only in one direction and only at your convenience.
Muchin: Honesty is #1! While all OEM/CMO relationships are technically customer/vendor relationships, those that are more partnerships tend to be more successful since both parties benefit from product growth. Trusting your CMO is paramount to a true collaboration.
Rezac: Involve us in the design process. Concurrent engineering is the key to rapid and successful commercialization in new product development. Customers are often pleasantly surprised by our ability to bring process insights to the table early that either open the design envelope, substantially reduce cost, or both.
Shegda: I like to say every relationship in your life is based on two things—communication and respect. I think most OEMs think these aspects only flow one way: from the supplier to them. They can do what they want, and the supplier has to bow to fate. That just does not work. That is not a relationship—or not a good one, anyway. Communication must flow freely and honestly, and respect must be given in both directions at all times. If these simple fundamentals are held, then a truly impactful relationship will be able to grow.
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?
Budreau: Demonstrate full-service turnkey solutions and be as vertically integrated as possible. Understand OEM systems and requirements fully to be an extension of their team, and be in lock step throughout the product development cycle.
Daga: A CMO needs to share and believe in the product’s idea, not just perform several assigned tasks. When a CMO understands the impact a device/product creates, then only can they holistically collaborate with an OEM. Going the extra mile and supporting the OEM at all points in the product development lifecycle makes the CMO a collaborative partner rather than a passive participant.
Dickson: A partner needs to show they can deal with open-ended questions or dilemmas facing the customer. A partner asks sound clarifying questions. A partner generates suggestions and ideaflow for the product, which produce value for the OEM partner.
Freeman: Be clear as to capabilities, competencies, value-add opportunities, and have the right staff and quality system to support the OEM and its initiatives.
Gaillard: OEMs are always looking for CMOs that can resolve their problems under one roof. They want a supplier that can do more than just build a product. If a CMO can demonstrate they can be a full-service provider and come alongside the OEM to create a unique solution or add extra value, then it will be a collaborative partnership.
Horgan: The CMO should become an extension of the customer’s broader organization to ensure the customer achieves their vision and goals. This provides a clear understanding of what the customer is trying to achieve and what “good” looks like for the customer. For medical device projects, we focus on the patients and how the medical device will either help to save or improve the quality of life for patients. This shared goal builds and ensures mutual success for both companies.
Lee: CMOs need to adapt to a new work culture for their customers. Many of our customer contacts do not work directly with their product teams and may have never met their own colleagues. Often, they are not even in the same time zone. A successful CMO today needs to be a liaison not just between their own company and the customer, but increasingly as a liaison between groups and departments within the customer’s own structure.
Muchin: As mentioned previously, honesty and trust is paramount to establishing a true collaboration. Being a specialty solutions provider, we find working with our customers and prospects on alternative materials, design for manufacturing suggestions, etc. are the first steps to establishing a long-lasting relationship, hence proving our value.
Rezac: Track record is everything in this business. A capable CMO will be engaged at a clinical level in your technologies of interest and be able to provide solid references. Our sales strategy is simple: listen carefully to understand the customer need, then get our engineers with pertinent subject matter expertise in the room to begin the collaboration process.
Schultz: Provide value beyond manufacturing space, machines, throughput, and selling on price. Suppliers become partners when they can provide alternative solutions that can yield competitive advantange and barriers to competition. Then it’s more than a transactional buy/sell arrangement; rather, it’s a strategic alliance that creates a pro-compete environment and measurable value over the long term.
Shegda: Prove capability and also refer to my previous response. There is another piece here as well—seeking to understand. A CMO can develop excellent working relationships with people within an OEM but still get the short-end once in a while. The CMO needs to put this in context before deciding the relationship is not worth keeping or has been violated. Large organizations sometimes do things that don’t make sense (seemingly). Keep the emotion out of it and try to understand where the decision is coming from before making a judgment.
Fenske: Is M&A activity within the industry having an effect on the OEM/CMO relationship? If so, what is the impact?
Daga: Mergers and acquisitions within the industry have a significant impact on the OEM/CMO relationship. Specifically, EMS and medical device manufacturing mergers result in the formation of larger entities catering to global medtech firms listed under the Fortune 500 listing. The bigger impact of such mergers is very evident. In such a collaboration, the medtech manufacturer will bring its experience across technologies and strong credentials specific to quality and regulatory, whereas the EMS capabilities will lead to supply chain consolidation and reduced production costs. There are several key benefits of such acquisitions.
- Technological advancement
- Geography expansion/market expansion
- Scalability
- Positive influences on work culture with enhanced inclusivity and culture integration
- Diversification of product range
- Supply chain consolidation improves efficiency and reduces cost
Muchin: M&A activity within the medical device manufacturing sector continues to be frequent; however, the challenge with capital markets is having a short-term slowing effect. When M&As occur, the impact for both the OEM/CMO is the consolidation between the two is becoming more “value-driven,” satisfying a goal for most OEMs to reduce CMO count and partner with more preferred, versatile suppliers. However, the expectation of OEMs is that the CMO fully integrate and harmonize their systems, so as they partner with many TEAM Technologies locations our infrastructure and processes are consistent throughout the company.
Schultz: M&A activity will continue as the market matures and the typical one segment leader emerges, followed by two or three tier 2 firms in each major product segment and a handful of niche or startup technology based firms. The CMO industry will adapt to meet the throughput, lead time, and price point needs of the implant OEM leaders. CMOs will also be buying companies to gain a new technology or market share in a segment—sometimes they get both.
Shegda: This has been discussed at length in some of the previous answers. Yes—it has both strengthened it in some ways and weakened it in others. There is room in the market for non equity-owned entities. This was why my partner, Eric, and I have done what we have done.
Fenske: What trend(s) in medtech will you be following that you expect to become more important or could have a significant impact on the industry? Explain.
Budreau: Based on many of the new devices and technologies being developed, more and more, the users of these devices will be the patients themselves versus clinicians or doctors in a medical setting. Making these devices more intuitive will be critical for success, whether it is a drug delivery device or some other procedure or process.
Daga: Technology in all forms and formats will impact the industry. Unlike previous times, the focus will now be on making it more accessible and developing a more demographic healthcare ecosystem. At our level, we are incorporating advanced technologies at various stages including the DFM to improve overall efficiency. By incorporating new-age technologies, we are focusing on minimizing human error, improving efficiency, and automating redundant processes across multiple levels. AI- and ML-based devices require advanced capabilities; we’re consistently upgrading our systems to match the client requirements. We’re also planning to digitalize platforms for IQC (initial quality check), IPQC (in-process quality check), and FQC (final quality check), which will enable deriving rich, accurate, and timely data to identify quality issues at every stage and, subsequently, improve them. We are continually leveraging high-end technologies for better results, higher scalability, and improved compliance.
Dickson: At a macro level, I’ll be keeping an eye on cost management in healthcare, macroeconomic effectiveness, and healthcare budget effectiveness. If these go in favorable directions, opportunities will flow from them.
We see a key trend in international partnerships to achieve more strategic development of very distinct markets for a platform product; these can generate multiplicative benefits in growth and IP development for the partnering companies, as well as obvious benefits for health systems and patients.
Freeman: Entrance to the medtech industry by companies such as Apple and Google have significant ramifications. Historically, medical device product lifecycles were longer, and, depending on the product, may have experienced little in innovation and higher profit margins. Consumer brands such as Apple and Google will speed up innovation, increase product development turnover, and compress profit margins for products due to increased competitiveness. Medical devices was considered an industry with high barriers to entry, but there will be more entrants to the market as margins in other industries continue to be challenged.
Gaillard: Telemedicine and wearables are here to stay. Smaller, smarter devices like wearables require precision in micromolding, machining, and expert operators.
Horgan: The decentralization of healthcare delivery is a key trend we are closely watching. This trend is creating a disruption in the medtech industry with new innovations and services. For example, one way we are seeing this is in the shift to care and services delivered in the home. Another trend we are closely monitoring is the leveraging of data and digital infrastructure to achieve the triple aim of providing better care, improving health outcomes, and reducing costs.
Lee: Increasing integration of electronics in wearable devices is certainly an exciting trend. The benefits of the data that can be accumulated are tremendous, but the questions around both security and ethics are profound.
Muchin: At TEAM Technologies, we monitor a few benchmarks as leading indicators to determine the current and future health of the medical devices sector. The first indicator on the CMO side is the M&A activity. When companies are acquiring, consolidating, and growing in this sector it indicates companies are financially strong, enabling them to create a more versatile offering to OEMs. Another indicator is the Medtech Capital Markets Sector and its continued outperformance in the S&P 500 over the last 10+ years. Although there have been some recent pullbacks, the overall performance of this sector continues to be strong. Should it begin to trend downward, we should be cautious to what the future may hold for the industry.
Rezac: The key trends I expect to have a significant impact on the industry are:
- Scale/miniaturization (no surprises here)
- Sensor integration and advanced diagnostics
- Advanced imaging modalities leading to increased control and user feedback
- Advanced user skillsets taking hold in complex interventional procedures
- “Gamification” of human factors: Millennials are in the Catheter Lab now and everybody wants a joystick
- Expanding role of rapid prototyping modalities in early clinical development
Schultz: Downstream delivery and cost of sales per transaction improvements for high volume and lower complexity surgeries in the ASC setting. This is a high-growth area that is being challenged and ECA Medical offers solutions that are both clinically robust and provide measurable economic value. We help our customers proactively service this market by partnering with them on creating instrumentation and solutions optimized and tailored to build their brand, increase sales, and create barriers to competition.
Shegda: A couple here—different takes:
Robotics and automation—Surgical robotics will grow exponentially. Companies like ours that come from a background of high-end industry will serve this market very well. Better than many CMOs that grew up solely serving medical device.
The automotive or Walmart effect—Outsourcing is starting to be treated like the “Big 3” circa 1975 or Walmart of today. High cost focus to a level that could both drive and kill innovation. Scary to think of our medical devices always going to the lowest bidder.
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?
Budreau: Other than the obvious—that these relationships should be true partnerships with long-term business development and growth in mind. Transparency, collaboration, and true team approach are key to building this relationship.
Daga: We would just like to wrap up by saying that Joharis provides regulatory-compliant contract manufacturing solutions to global medtech giants, as well as innovative startups. We’ve been consistently ranking high on the primary and secondary cost index by reducing costs on primary and secondary resources involved in manufacturing and development processes. As we operate from a favorable medical device manufacturing location, we offer ease of doing business, IP protection, and best outputs with minimal investments in manpower and infrastructure.
Our manufacturing and development services span across categories of hospital equipment and critical care devices, vital monitoring devices, imaging systems, medical aesthetic devices, in-vitro diagnostics, wearable medical devices, point-of-care diagnostics, ultrasound, electrotherapy, neurostimulation, artificial intelligence, and Bluetooth- and cloud-based medical devices. To date, we’ve had over 20 U.S. FDA 510(k) certifications, successful commercialization of more than 145 medical devices, and over 100 active clients worldwide.
Freeman: We are a Hong Kong medical device contract manufacturer of Class I, II, and III devices producing in China and Vietnam. For many years, there has been a hesitancy to manufacture medical devices in China, but through our capabilities, quality systems, and management team, we can successfully manufacture medical devices in China and Vietnam that can serve the Chinese or global markets.
Horgan: In the medical device design and manufacturing space, both sides should come to the relationship from the point of view that it’s a combined effort. The OEM leads the product and access to the market. The CMO must focus on how they can create value in terms of supporting the OEM where they have gaps in their capabilities—whether it be early-stage design, design for manufacturing, support for clinical trials, or commercial manufacturing.