MPO Symposium

OEMs, Suppliers Discuss Risk Management andthe Value of Solid Partnerships

MPO Staff Report

There’s risk in nearly every endeavor. Even walking out to your car in the morning or down the street to the subway stop has a modicum of peril associated with it. Some processes and events carry more risk

than others, of course. The medical device manufacturing process, without a doubt, is one of them. But, as any medtech firm that delivers safe and effective devices to markets knows, the reward for patients—and a company’s bottom line—is worth the risk.

One way to make sure risk is kept to a minimum—particularly in outsourcing—is by carefully fostering the right relationships and making sure partnerships work well. It’s not cliché, experts said. Relationships come in many forms, but no matter what the size or shape, some basic principals remain for successful and safe medical device manufacturing.

The list of ingredients to successful relationship reads like a Boy Scout manual. It must include honesty, trust, respect, and communication. These factors alone, however, will not make a relationship successful, said OEMs and suppliers who attended the symposium.

“In a relationship, finding out what that customer is all about and what they really need is the most important thing as far as metrics or what drives a relationship,” said Tom Black, vice president, OEM sales and marketing, for B. Braun’s OEM Division in Bethlehem, Pa.

Black was one of six people who participated in a panel discussion on the most common metrics used in sourcing decisions. Other panelists included Tom Burns, vice president of sales and marketing for Tegra Medical; Rick Desmarais, worldwide supply chain director for DePuy Mitek; John Purlee, director of global sourcing at Abbott Diabetes Care; Andres Rochwerger, global sourcing manager for Boston Scientific; and Carl Resteghini, vice president, global direct materials and finished goods, at Covidien. The discussion was moderated by Chris Oleksy, president of ATEK Medical.

Deciphering a customer’s needs is not a difficult task. It’s just a matter of asking the right questions.

“It’s really simple. Ask the customer ‘how are we doing?’ Black said. “We get caught up in metrics, caught up in our BlackBerrys, caught up in email and sometimes we forget the old-school ways. Pick up the phone and ask, ‘how can we help?’ Everybody has to ask the same questions—how are we doing as a supplier? What do we need to do better? How can we do continuous improvement and help you out? If you are not asking those questions weekly, then something is going to be amiss and the relationship is not going to be very deep.”

­Purlee said his company focuses on quality and technical capabilities to find the right supplier. “We don’t focus initially on cost,” he explained. “We want suppliers that have extremely good quality systems, even if they are just making raw materials. We also look for people that are innovative and use the latest technology. With those two things—quality systems and technical capabilities—we are eventually going to get the better cost structures that we want.”

Dan Matlis, founder and president of Axendia Inc., a life science advisory firm based in Yardley, Pa., presented symposium participants with the results of a study on the industry’s adoption of the Total Product Life Cycle (TPLC) management program. The study concluded that most medical device firms have not fully adopted a TPLC program, despite its ability to improve quality and safety, and reduce product costs.

A majority of the “industry insiders” who participated in the study still use serial design models such as stage gate and waterfall, concluded the analysis by Axendia, research analyst Cambashi Limited, and FDAnews. “While the vast majority of organizations participating in this study report having key initiatives aimed at supporting Total Product Life Cycle, most have not taken all of the steps required to achieve a true TPLC environment,” the study’s executive summary stated.

The TPLC management approach involves sharing information among various product life cycle stages and between different departments within a company. It also encourages the use of preventive actions over corrective actions, encouraging firms to develop solutions that prevent problems before they occur.

The study, titled “Total Product Lifecycle Management: Lowering Costs while Increasing Quality,” found that most medical device companies do not use software applications to help them migrate to a TPLC program. Of the 212 study participants, less than half said they use software applications such as product life cycle management, manufacturing execution systems, or quality management systems. Larger companies were more likely to use software, but a significant portion of firms still do not use software systems in a collaborative manner.

“How many of you still have typewriters on your desks?” Matlis asked a room of OEMs and suppliers. “Most of you do. You’re used to printing everything out for your records. The thinking is if it’s on paper, it’s good; if it’s electronic, it might get lost. Let’s throw out the typewriter and implement true electronic [business] systems to gain visibility.”

Such sage advice is not likely to send an avalanche of typewriters to landfills any time soon, though. According to the TPLC study, less than 10 percent of companies use and keep a fully electronic database of records to be reviewed by regulatory agencies. More than 60 percent use a hybrid paper/electronic system, and about 20 percent of the companies surveyed are die-hard fans of paper records.

Internal documents are stored in much the same way, with more than 60 percent of companies using paper records, spreadsheets or an unspecified database. Corrective and preventive action paperwork also is filed mostly on paper.

The hodge-podge of paper and home-grown information systems for official regulatory records and internal documents has contributed to the inability of medical device companies to perform product recalls in just one stage. Those who can complete a product recall in one stage are significantly more likely to use packaged software applications, the study said.

Ben Dunn, managing director at Covington Associates, LLC, a Boston, Mass.-based investment bank, kicked off the second day of programming with an update on the financial health of the medical device manufacturing market.

His diagnosis? The “Great Recession” may not be so bad for business after all.

Economic downturns are notorious for driving up unemployment, slowing consumer spending and draining business budgets. In some instances though, they can be a catalyst for growth by forcing companies to consider alternative ways of reducing costs.

In the medical device sector, such forced cost-cutting can be beneficial to contract manufacturers and suppliers that provide outsourcing services to large OEMs. “Recessions cause OEMs to rethink their business models and supply chains and force them to look for ways to reduce cost,” Dunn said. “Outsourcing provides a unique way to do that. OEMs are under pressure—they want to get their [profit] margins up and they have to find ways to reduce costs.”

Dunn’s 45-minute presentation focused on the device sector’s overall health during the recession, and the impact of market variances on manufacturers.

Overall, the medical device market has fared well in the last year, Dunn said, but there are pockets of the industry that have severely been impacted by the economic downturn.

Revenue in the dental and aesthetic segments, for example, fell significantly in the first half of 2009, as patients became more selective about the medical procedures they felt were necessary. Women’s health revenues, on the other hand, skyrocketed 114 percent, due mostly to mushrooming profits at Hologic Inc., a Bedford, Mass.-based manufacturer of diagnostic, surgical and medical imaging equipment.

Besides making outsourcing more attractive to OEMs, the recession has helped reduce production costs, Dunn said. Lower prices of certain kinds of materials and flat wage rates have helped manufacturing firms keep production costs down, though the savings in certain instances has been offset by volatility in foreign and domestic currency and huge fluctuations in commodity fees.