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Molding Matters

Molding providers are adjusting to shifting economic and market demands to offer their medical device customers a more complete-and secure-set of services.

By: Christopher Delporte

Editorial Director, Medical Devices

Molding Matters



Molding providers are adjusting to shifting economic and market demands to offer their medical device customers a more complete—and secure—set of services.



Christopher Delporte, Group Editor



On June 1, General Motors filed for Chapter 11 bankruptcy protection. GM’s bankruptcy filing is the fourth largest in U.S. history and the largest for an industrial company. The catastrophic meltdown of

Overmolded parts, such as these “soft-touch” handles covering a metal surgical instrument, are popular products for today’s medical device molders.
one of the world’s largest automakers—and an iconic U.S. brand—certainly hasn’t happened in a vacuum. Individuals, companies and communities worldwide will feel the effects. Countless suppliers to GM will be (or already have been) forced to scramble to find or expand into new markets, or worse—close up shop. This includes a host of suppliers of injection-molded plastic parts.

For a number of years, molding companies serving the automotive sector (and others) have been trying to diversify. One industry that has provided shelter from the economic storm has been healthcare—medical devices specifically. Of course, a number of molding suppliers serve only the medical device industry—and have done so with great success over the years, building on the strength of a robust sector fueled by strong demographics. Opportunity has been the name of the game—whether medical devices make up 100 percent or 10 percent of a molder’s operations.
Given the current desperate times, industry experts have seen an increase in the number of companies trying to get into the medical device molding space.

“Many automotive molders are moving into medical. We’re seeing a lot of molders not in the medical business saying ‘medical seems to be holding steady, we should get into it,’” explained John Pfaff, vice president of U.S. Operations for the MedTech Group, a contract manufacturer and service provider based in South Plainfield, N.J. “But it’s harder than that. One of my customers has been approached by some of these companies, and he just didn’t feel comfortable doing business with a company that didn’t understand or have experience with what the medical device industry is all about and what the role of the molder should be. For example, there’s much more regulatory scrutiny.”

But some of the factors that forced GM into insolvency have reared their ugly head across all sectors of the economy, and even medical device firms (and their suppliers) aren’t immune. For some molding and contract services companies, however, a tougher economy actually has expanded opportunity in the form of fewer competitors.

“Some of the smaller injection molders have fallen victim to the downturn and haven’t been able to weather the storm, which has created opportunities for us,” said Dave Thoreson, general manager of the Phillips Medical division of Hudson, Wis.–based Phillips Plastics Corp. “We’ve seen a drop off in business as it relates to hospital capital equipment-type medical components. On the medical device side—surgical devices and patient-use medical devices—we haven’t seen the impact as much. For some of the components molded by smaller shops, we’ve been able to get some of those as takeover work because they haven’t been able to compete in this tight market. They may have had 50 percent or more automotive [business], and they’ve been hard hit. Healthcare didn’t make up a large enough percentage to help.”

Scott Herbert, president and founder of Rapidwerks Inc., said his business has continued to remain in good shape, though smaller OEMs are “feeling the pinch.” The Pleasanton, Calif.-based micro-molding business is focused almost 100 percent on the medical device industry.
“Our business has been steady and strong,” Herbert said. “We do a fair amount of work from startups. I think the investors have been holding their purse strings a little tighter. That’s not to say that everyone, in general, isn’t being cautious just to be careful. We’ve seen some belt tightening at OEMs, but not really a slow down.”

As a result of some the “belt tightening,” molding providers are looking for ways to add value for customers and reduce costs.


Services, Quality and Cost

It may seem counterintuitive to increase services while at the same time taking cost out of the equation, but the notion isn’t that far-fetched, molding suppliers tell Medical Product Outsourcing. In fact, close collaborations can foster success in both areas.

“The current economy has forced all of the participants in the industry to review their cost structures and evaluate ways in which we can operate more efficiently. I have seen this lead to some great discussions with our customers on the need to work collaboratively to help both parties address the pressures of today’s global economy,” said Jim Fitzgerald, vice president of sales and marketing for Franklin, Wis.-based Vesta Inc. “The OEMs still understand the significance of innovation and new product development, but many are being asked to do it under tighter timelines or stricter budgetary controls. Those facts are not unique to molding services, but they have allowed our team to stay very busy supporting our customers, many of whom are operating with less staff due to cutbacks or hiring freezes.”

Fitzgerald went on to say that customers continue to push for more integrated services.

“We find ourselves routinely being asked to consider new materials or new manufacturing practices in order to help our customers reduce the complexity of their supply chain, and the costs of having multiple touch points,” he added. “The key is not to have them feel as though they need to sacrifice a level of quality or expertise, so we are working hard to be sure that we have a broad enough range of services with an appropriate core competency so we can ensure that a solution for efficiency does not require a compromise in their expectations on quality.”

Better managing the supply chain is attractive to OEMs, experts said. However, Dan Tasseff, director of sales and marketing for FloMet LLC, a DeLand, Fla.-based metal injection molder, cautioned that molders must be careful not to provide services solely for services’ sake.

“The smaller the supply chain, the easier it is to manage,” Tasseff told MPO. “So if you are a molder and can provide other value-added capabilities, you will have an edge over your competitors. The key is to be able to be competent in your other capabilities. If you are an excellent molder and you offer another service that is not at the same level of your molding capabilities, you may create a whole set of new problems. Additional services are a good value-added opportunity, but it is important to provide quality to your customer.”

Kevin Bradley, director of the medical business unit for Mack Molding in Arlington, Vt., agreed that quality considerations are primary.

“No matter what you do in the medical industry, stringent quality systems have to be in place,” he said. “We have a manager for compliance and regulatory affairs. When customers outsource products to you, they need to feel comfortable that you’re managing the quality risk as much as they would be. So we need to be even more knowledgeable in certain areas than they are.”

About 30 percent of Mack Molding’s business comes from the medical device industry. Bradley said the company’s experience as a vertically integrated supplier to other industries is not a weakness in a down market but, in fact, gives it an edge. Among the services the firm offers to its medical device clients are obsolescence management and complaint investigation.

Because many medical devices are on the market for such a lengthy period of time and often go through numerous iterations—usually requiring FDA approval of a device’s changes—obsolescence management has become “critical” to many of the company’s clients, he said.

“We’re also investigating failures of products, which isn’t something many other companies do,” Bradley said. “Their products are returned to us, and we do the evaluation. We had systems in place because we’re doing refurbishment of products so we could handle products that are potentially contaminated coming back from the field.”

Bradley and MedTech’s Pfaff both said monitoring sub-suppliers is an important factor to consider in keeping quality up and costs down. It’s all part of a robust risk-management philosophy.

“Customers want you to have a good supply chain system of your own in place and be able to handle risk mitigation. They want you to manage risk not only in terms of your own facilities, but also have you manage and monitor your sub-suppliers,” Pfaff said. “Everyone wants products and processes validated, which can add cost in the short term, but makes sense overall. Customers understand the cost of validation because they have to do it too. And they have to pay for it either way.”

All levels of sub-suppliers must undergo strict qualification and validation, particularly resin and other raw materials suppliers.

“OEMs worry about that,” Pfaff said, adding that when his customers examine product failures, a large percentage—60 to 70 percent—are the result of a problem with a sub-supplier.“Often, a change is made to a material, for example, that nobody was aware of, and the change was discovered in the field. At some point a sub-supplier changed a process or material unwittingly or with great intentions for making the process better and didn’t tell anybody. It may look and feel the same, but it’s not the same. And the product is in jeopardy,” he explained.

“We’ve had OEMs ask how we monitor and check what our sub-suppliers are doing. Also, in today’s market, [customers] ask if we’re monitoring our suppliers’ financial stability. They want to know you have a plan in place in case a supplier goes out of business. If you’re dealing with someone who primarily has been an automotive supplier and now they’re crushed, our customers want to know that we’ve got well-monitored options in place.”

Bradley agreed, noting that “a big push” for Mack has been dual sourcing of their suppliers, which can translate into cost benefits for the OEM. “It gets you some cost leverage from one source to another. But you have to be involved up front far enough with validations and qualifications,” he said. “We have to educate our customers to be looking at dual-sourcing resins for applications to allow them to gain cost reduction or if there’s a supply interruption, we’ve got a second source. To go back and qualify something after the fact can be very time consuming and cost intensive. It can take you out of the market for some period of time if you have to go back to the FDA for approvals, for example.”


Material Opportunities


Should they feel uncertainty about sector growth potential, manufacturers of molded plastic parts may take some solace in positive—though somewhat modest—market predictions. According to data from the Fredonia Group, a Cleveland, Ohio-based research firm, the U.S. demand for medical plastics will increase 2.6 percent a year through 2012, reaching 5 billion pounds valued at $6.55 billion. Growth will be driven by the greater use of disposable plastic medical devices and supplies, as well as plastic packaging products, according to the report.

“Plastic medical products and packaging have advantages compared to competitive materials such as glass, metal and ceramics,” researchers noted. “These include light weight and the ability to be cost-effectively molded into ergonomic shapes.”

Commodity plastics will remain dominant with better opportunities anticipated for engineering plastics as a result of greater needs for higher-performing materials, according to Fredonia’s research. Leading commodity resins include polyvinyl chloride, polypropylene, polyethylene and polystyrene, the report outlined. Demand for engineering plastics will be boosted by growing needs for higher-performing materials in surgical, diagnostic testing, drug delivery, geriatric care, self treatment and preventative medicine—with the best opportunities expected in the surgical and medical instrument segment.

The study predicted that polycarbonate “would remain the dominant engineering resin and exhibit the best growth prospects based on the resin’s clarity and impact resistance.” Thermoplastic elastomers also will present above-average growth due to their moldability and good tactile properties, according to the report.

Many of these molded instruments also must be able to stand up to today’s sterilization technology, said experts who spoke with MPO. (For more on medical packaging and sterilization, see this month’s article atwww.mpo-mag.com/articles/2009/06/a-standard-challenge.)

Mack Molding’s Bradley said his customers are “pushing the limits” of designs for plastics to mimic the properties of some metals.

“So you’re designing larger, thicker sections so you can get stability and strength out of products,” he said.

Many molding companies cited breakthroughs in the area of implantable devices—made from a variety of materials—as a source for market growth.

Rapidwerks, for example, is working on molded implantable and absorbable polymers. “There’s a lot of demand for it,” Herbert said. But it’s not cheap. You’re talking about materials that cost $3,000, $4,000 or $5,000 a kilogram. But it’s certainly impressive—a polymer that is implanted, does its job and disappears after 30-45 days.”

Vesta’s Fitzgerald described silicone materials with antimicrobial properties as “one of the most exciting” materials challenges for his company.

Healthcare Reform Trickledown?



As if trying to build a game plan for your business given the uncertainty of the economy wasn’t enough of a moving target, what happens when you add healthcare reform as an additional—and significant—unknown?

Most of the molding providers who spoke with MPO expect to feel the effects if some sort of healthcare reform legislation is passed—though all were uncertain (as are most observers) as to what shape the reform will take.

President Obama gave Congress a deadline for drafting a reform measure before lawmakers leave for the August recess. This would provide time for final negotiations and passage after they return to

OEMs continue to push for a wider array of services from their molding suppliers, including research and development activities as well as design and material development. Photo courtesy of Mack Molding.

Washington in September. Top Democrats in the House and Senate said they would be able to meet that goal. The president called this a “make-or-break” period to get healthcare passed in Congress.

“This issue, healthcare reform, is not a luxury. It’s not something that I want to do because of campaign promises or politics. This is a necessity,” the president said during a White House gathering of Senate Democrats in early June. “This is something that has to be done. We cannot avoid bringing about change in our healthcare system. Soaring healthcare costs are unsustainable for families, they are unsustainable for businesses, and they are unsustainable for governments, both at the federal, state and local levels.”

Phillip’s Thoreson said there was “no doubt” U.S. healthcare reform would impact his domestic business.

“There’s serious pricing pressures in the healthcare industry,” he said. “So there’s a need for Lean manufacturing throughout the whole supply chain that starts from the hospital through to the medical device manufacturers and to the contract manufacturers. But we must be careful. We don’t want to make cheap components for the sake of it. We need to reduce costs with Lean principles and true continuous improvement, not with a sledgehammer beating on suppliers saying, ‘Give me five percent or else.’”

Fitzgerald said it would be impossible to escape the realities of a new healthcare paradigm in the United States.

“I don’t see how any participant in the industry cannot expect to be affected as our healthcare system evolves,” he said. “The uncertainty for everyone right now continues to be the lack of clarity on what that reform will ultimately look like. The industry has already experienced some great momentum with the reimbursement changes that were implemented in 2008 and the emphasis that they placed on quality in the healthcare delivery model, as has been observed in the focus on hospital-acquired infections. Our system has some very fragile aspects, but overall the U.S. healthcare system is still very strong. Universal healthcare coverage would naturally change the way in which providers must be structured to deliver affordable healthcare, and, as such, any member of the system should expect to experience requirements to change. But the underlying principles of high quality, affordable care, which continues to advance with a sense of urgency to treat new disease states, will keep this industry strong for a long time.”

•••

Molding: Singapore Style



During a recent trip to the Asian island of Singapore, Medical Product Outsourcing was afforded the rare opportunity of touring a number of the city state’s many medical device contract manufacturers and suppliers—including a few molding providers.

Without a doubt, these molding companies are high-tech and extremely well organized—much like the country they call home.

And just because they’re a world away doesn’t mean market demands and customer expectations are much different than the experiences of their North American counterparts. Companies in Singapore are trying to strike a balance between reducing costs and offering a menu of services that goes beyond solely providing molding.

“Some OEMs have cut down on orders, but others have asked molders to take on more supply chain functions because they believe outsourcing will help reduce costs,” said Susan Ng, general manager, corporate, of Rayco Technologies Pte. Ltd. “Our biggest challenge is maintaining competitive pricing while providing value-added services to support customers from research and development to product launch.”

Many of companies visited serve both regional and international medical device OEMs. And the global economic slowdown has impacted their business even though they may offer some cost-reduction opportunities compared to Western service providers.

“[Medical] device companies are looking for cost savings that are significant enough for them to take the risk of shifting their manufacturing base,” said Andrew Tan, director of business development for First Engineering Ltd. “Due to the unprecedented economic crisis, R&D budgets also have been reduced. In turn, we are seeing existing [manufacturing] models stretch longer into the marketplace.”
Tan said “a more cautions attitude” currently prevails among medical device companies. “This has put more pressure on molders to be efficient in reaching to lower-volume runs per order,” he added. “Customers trend to avoid liabilities in forecast and suppliers become cautious ordering raw materials and move toward shorter production runs to mitigate higher inventory risks.”

Despite the caution of medical device companies in this tight market, molders in Singapore don’t expect the current conditions to last forever and predict that international device companies will continue to seek the combination of high-tech manufacturing and lower costs that they offer.
“After six months of straight downturn, we are seeing slow recovery beginning in July onward,” explained C. P. Goh, CEO of Beyonics Technology Ltd. “Some of this is due to companies building inventory levels and some are fresh orders from the market.”

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