Pillars of Strength in Outsourced Design and Manufacturing

If you watched the Athletes Parade in the Opening Ceremony of the 2012 London Olympic Games, you would have seen expressions of patriotic diversity in the form of colorful dress, interesting headwear, and national flags held high. Such diverse emblems not only set each country’s team apart, they also conveyed national pride.

Athletes from Team USA were immediately recognizable as they strode down the track dressed in red, white and blue, proudly waving the American flag.

Differentiation can impact medical device manufacturing in a similar way. Identifying the unique attributes of a company can help to better position the firm’s products and services in the marketplace. And by establishing a clear and specific operating plan around those unique capabilities, the company is better equipped to add more value to customers and thrive in the long-term.

The following four pillars are a guide to help support the champions within your organization and proudly set your medical device company apart.

1. Focus on Differentiation
It would be unusual for an individual athlete to compete in a wide range of games at the Olympics, such as swimming, gymnastics, and shot put. To best support their team—and prevent sheer exhaustion—athletes focus their energies where they have the most skill and expertise.

This principle also applies to medical devices. For example, outsourced design and manufacturing companies may find it difficult to grow sales and capture new business if their product and service offerings are too varied. Vast, unrelated or imbalanced product lines can also drain resources and make it challenging for an outsourced designer and manufacturer to communicate their value to potential OEM customers.

Consider, for example, an outsourced designer and manufacturer with extensive expertise in powered surgical devices. Although the company possesses all the capabilities to ensure that its powered instruments remain safe, reliable, and unscathed—even after exposure to harsh liquid environments during usage and cleaning—if the firm is known for a host of other capabilities, it’s unlikely that it’ll be seen as the go-to partner for powered surgical devices even though it may have the highest skill set and experience in the industry.

To effectively sell its value, gain new business and best support OEM partners, an outsourced designer and manufacturer must focus on its core capabilities, then develop features that reduce cost and time even further.

2. Reduction in Lead Time
In the world of individual sports, such as running, swimming and cycling, most competitive athletes must have impressive trial times in order to qualify for the Olympics. And in the world of medical devices, designers and manufacturers must be able to reduce lead times in order to stay competitive.
The reality, however, is that very few have an actual plan in place to do so.

Reducing the time period between the placement of an order and the shipment of the completed order to the customer takes an in-depth assessment of a company’s processes. Although you may find multiple areas that create delays, tackling too much, too fast often results in paralysis of analysis.

Focusing on one or two critical areas can help the team arrive at solutions more quickly. For example, take an organization that identifies order flow as an area needing immediate improvement. By putting the existing order flow process under the microscope, the team might determine that entering into frame contracts with major customers can deliver significant improvements, such as the ability to:

• Place purchase orders with long lead time vendors so that necessary parts will arrive to match-up with the anticipated delivery date;
• Provide customers with cost savings and better pricing;
• Maintain consistent quality; and
• Reduce overtime.

Having a goal to reduce lead time is not enough. Action steps must be taken to determine how it will be done and what the benefits will be to the company and the customers being served.

3. Reduction in Cost Structure
While the best approach to improving a company’s bottom line is to increase sales, there are situations when cutting costs is the best short-term solution.

Before cost reductions are made, however, it’s critical to comprehensively review every line item of every department in search of cost savings. The end result may still reveal that reductions of personnel, compensation, and overtime are necessary, but it’s also possible that non-personnel cost can be reduced through more efficient machine operation and increasing make/buy activity.

The important question is to ask, “What can we physically do that will reduce our costs?” If a significant expenditure is electricity, how can you reduce your electricity usage by 5 percent? In addition to turning off lights in rooms that aren’t in use, can you run your machines to maximize productivity and minimize wasted energy? By taking focused, incremental steps, an organization can more efficiently and effectively pursue larger goals.

Furthermore, by increasing make/buy activity, a designer and manufacturer of a specialty product can leverage the technology of other industry partners for other components. In addition to significant cost savings, this is likely to result in better quality and productivity as it enables the medical device service provider company to focus on enhancing its area of expertise and protecting its intellectual property.
Just as an Olympic sprinter who can throw a shot put shouldn’t necessarily try and go for the gold in both, nor should a designer and manufacturer of powered surgical devices, for example, try and “do it all” by making screws and motors in-house. Just because they are perfectly capable of doing so doesn’t mean they should—especially if it can be done more efficiently and cost-effectively by an industry partner.

4. Increase Focus on Quality and Innovation
A critical question that an outsourced designer and manufacturer must be able to answer clearly and consistently is, “Why would an OEM want to partner with our company?”

When a company takes a hard look at what gives them a competitive advantage and pinpoints how they can benefit customers the most, they can increase the quality and usefulness of existing products and reinvigorate their business.

For example, consider a company that makes the largest number of prosthetics in the industry. By allocating time and resources to the research and development of technology and materials that replicate natural motion and provides strength, flexibility and lightness, the company elevates the value of its products. Furthermore, the company is better positioned to develop a line of standard products with industry-leading features that can be adapted and customized for different customers.

An additional approach to increasing quality and innovation within your outsourced design and manufacturing company is to get your engineers into the operating rooms, labs and clinics.

Most outsourced designers and manufacturers sell their products to OEMs, who then sell to a distributor or end user. Because of this, an engineer usually only hears about how the products will be used. Unfortunately, that’s like someone describing how to do a back flip on a balance beam. While it might be interesting, you don’t really grasp the full effect until you actually stand in front of the person and watch them do it.

By eliminating space between the end user of your product and your medical device company, your organization will be better able to understand how your products are used in real-life application and where changes can be made to improve it for the end user.

Going for the Gold? Support Your Customer
At the end of the day, your outsourced design and manufacturing organization can only succeed as your customer succeeds. Everything you do must be aimed at helping the customer become more successful.

This includes not only evaluating what your customer’s present needs are, but also looking down the path to what they will need. It’s about forward thinking versus reactive. Accomplishing this requires developing a relationship with your customers and seeing them as a partner—not a transaction.

Collaborating with your customers about their existing and future concerns is the key to establishing a master operating plan that guides your organization in how to best meet your customer requirements and help their business—and yours—grow and thrive long term.

Michael J. Berthelot is CEO and president of Pro-Dex Inc., a publicly traded Irvine, Calif.-based company that designs, develops and manufactures powered surgical devices for world-class medical device OEMs. In addition to his duties at Pro-Dex, Berthelot currently serves as a director of Fresh Del Monte Produce Company and has served as a member of more than 30 public and private boards in the United States, Canada, England, Brazil, Spain and Germany during his career. Berthelot also is an adjunct professor at the Rady School of Management at the University of California San Diego where he teaches a graduate level course on the CEO, the board of directors, and corporate governance.