Streamlining Product Development Outsourcing

Supplier Selection and Management Are Key to Coming Out Ahead

Russell T. Gray
Theron, Inc.

Russell T. Gray Theron, Inc.

As modern companies strive to do more with fewer resources, outsourcing has become the norm. A significant trend in today’s medical device industry is the outsourcing of product development and related tasks, not only to provide organizations with extra capacity, but to tap into the know-how and experience of external R&D partners to gain competitive advantage.

In addition to expanding internal capacity and providing additional expertise, another benefit of outsourcing medical device product development (MDPD) is the cost reduction that results from:

• Reducing the overall size of a company’s R&D staff and associated operating expenses

• Using suppliers with lower overhead cost structures (lower cost per hour for R&D services)

• Purchasing product development services by the hour instead of utilizing full-time employees

• Employing suppliers that provide specialized expertise or equipment that is cost-prohibitive to maintain in-house

Over the past 10 years, the number of firms offering product development services has rapidly grown to meet customer needs—with no apparent end to the continued demand. Because medical device regulations now cover both product design and device manufacturing, maintaining regulatory compliance when outsourcing product development presents challenges. As a result, even though outsourcing MDPD can provide multiple benefits to an OEM, it can present potential regulatory problems if not properly managed.

The primary regulatory challenge for MDPD outsourcing is maintaining compliance with Design Control requirements. Design Controls were added to the Quality System Regu-lation (QSR) for Good Manufacturing Practice (GMP) for Medical Devices (21CFR, Part 820) as the result of the harmonization of the QSRs with the Quality System Standards promulgated by the International Standards Organization (ISO) in 1998.

Current GMPs require that product designs follow a strict progression of design and development stages, with corresponding regulatory recordkeeping being required at each stage. The onus for this recordkeeping falls on the company registered with the FDA as the Manufacturer of Record.

The OEMs that outsource product development do not escape these regulatory obligations. In today’s world, it is incumbent on the device manufacturer to have management systems in place that maintain regulatory compliance—even if outsourcing product development.

A second challenge with MDPD outsourcing is that modern medical devices are typically a combination of two or more technological focus areas. A typical therapeutic device may necessitate combined skills in mech-anical engineering and biochemistry to develop these products, with particular emphasis in mechanism design, metal or plastic component design and fabrication, biocompatibility and/or chemical stability testing.

As another example, current in-vitro diagnostics (IVD) systems combine mechanical, optical, electronics, software and process engineering—as well as chemistry development—all in one product. The diverse range of technologies found in today’s medical devices mandates that the manufacturer be capable of simultaneously managing multiple suppliers with varied technical skills or that the manufacturer select a smaller number of MDPD suppliers, each capable of managing multiple technical skill areas themselves.

Because of the diverse range of technical skills required to develop today’s medical devices, many R&D departments have begun outsourcing specific portions of a product’s design and development to firms with the requisite technical skills. As an example, an OEM may hire an industrial design firm to design the product concept, develop its outer appearance package and specify the user interface software. During the development phase, the OEM may contract with separate firms for hardware, software and disposable design; manufacturing test and equipment development; product testing and validation services; and technical writing.

Outsourcing an MDPD project to a large number of suppliers can create challenges and potential issues, including:

• Multiple contracts and statements of work to manage

• Complex coordination of technical efforts between suppliers

• Multi-point coordination between external and internal resources

Outsourcing to multiple suppliers also can increase conflicts and disputes between suppliers and internal resources. Frequently, product design quality suffers because this method causes suppliers to work with an “I’ll worry about my piece and you worry about the rest” mentality. Since the critical elements of a product’s design often reside at the interfaces between technologies, components and/or subsystems, this supplier mentality usually leads to unsatisfying results.

The complications created by attempting to manage and coordinate multiple design and development suppliers can actually result in a manufacturer facing reduced management capacity, creating budget and schedule overruns and negating any anticipated outsourcing benefits.

Selecting an Outsourcing Partner

To better meet the needs of their customers, many MDPD suppliers are providing robust service offerings that span a broader range of services. These offerings now include hardware and software design, development and prototyping, design verification and validation, equipment development, product testing, regulatory and quality system compliance services as well as technical writing.

Such broad service offerings can reduce the number of suppliers required for MDPD outsourcing and increase internal capacity through the management of fewer technical and business interfaces. Because problems frequently emerge at the interfaces, having fewer interfaces to manage will provide internal project managers and supply vendors greater capacity to focus on deriving optimum benefits from outsourcing rather than directing traffic between suppliers. This improved internal focus can have a positive impact on product design quality, reduce product development costs and reduce the overall time to market for new products.

Before outsourcing MDPD activities, ensure that a good internal product development process (PDP) has been defined. Install a phase/gate project review system that fits the type of products you develop. Define what set of deliverables (technical, marketing, regulatory, quality system and operations) each project team is required to produce prior to each milestone in the process and the acceptance criteria for each deliverable. Audit the deliverable set at each milestone to assure they meet the product development process requirements and to assure that the set of deliverables for each milestone is complete.

Ensure that the senior manager(s) of the departments within your company that have a stake in the project (eg, Marketing, Sales, Operations, Service, Regulatory, Quality, etc.) participate in the project Milestone Reviews defined within your system. Create monthly project reports for each project and distribute these reports to all management stakeholders in each project.

Finally, because product development is an enterprise-wide activity, make certain that cross-functional teams are led by competent Project Managers and provide cross-functional management support and oversight to your project teams. With a viable project management system in place, the MDPD supplier becomes an extension of your internal project teams.

A PDP also must support the outsourcing of your product development activities. A good PDP should have MDPD supplier management controls and deliverable requirements identified in a global sense as part of the PDP description. Each project plan should have specific supplier controls and deliverables defined for the project. The supplier’s deliverables should include those documents and records required to meet Design Controls and other regulatory requirements. Creation, transfer, management and ownership of the Design History File, Device Master Record and CE mark Technical File for the product should be detailed in the project plan.

Once the PDP is in place and functional, the search for MDPD supplier(s) can begin. Supplier requirements and selection criteria should be developed before the hunt for a supplier begins (see Figure 1). Frequently, suppliers are selected solely on the basis of the ability to provide a single, technical element to a project team. This can be a mistake if downstream considerations such as supplier quality and capacity are not considered. The MDPD supplier selection criteria should be developed by a cross-functional team representing all of the stakeholders in the supplier’s selection throughout the product’s life cycle. R&D, Operations, Supply, Legal and other departments that will interact with the supplier throughout the product’s life should be on the selection criteria development team.

Figure 1

Successfully Managing Your Supplier

The MDPD selection process should narrow your search to two or three MDPD suppliers. Once this group of suppliers has been identified, it is helpful to get bids from each supplier for work on a specific project. The bidding process allows free insight into each supplier’s approach to projects and gives you an opportunity to interact with the supplier before committing to a relationship. Most MDPD suppliers work on a project proposal basis. It is important to have an internal procedure for developing Requests for Proposal (RFPs) and for supplier contract management. The following process outline can serve as a useful guide when engaging an MDPD supplier:

1.    Develop RFPs that explicitly define the role of the MDPD supplier within the scope of the overall project, and which specify project deliverables and their acceptance criteria. A good RFP will facilitate receiving quotes from multiple MDPD suppliers and will provide a good standard for proposal evaluation. If it is difficult to provide a high level of specificity on the RFP, consider engaging an MDPD supplier in a small time and materials-based project to establish the scope of the broader project.

2.    Give the MDPD supplier a specific time frame to complete its proposal. Usually two weeks is an adequate turnaround time for proposal development; however, complex project proposals can take four weeks or longer to develop. Be prepared to support the supplier with answers to its questions during the proposal development phase. Information passed to one supplier should be provided to all suppliers in the proposal development process so that every supplier is afforded an equal opportunity to compete for your business.

3.    Review all of the proposals and evaluate each one on its thoroughness and detail. Good proposals should provide insight into how the supplier plans to execute your project and where work products or deliverables should be created in the process. Discuss the proposals with the supplier(s) for clarification or for additional detail. Occasionally, one supplier will identify a project element that the other supplier(s) may have missed, and you may want the other suppliers to speak to this project element in their proposals. Good proposal development can be an iterative process for a complex project. Figure 2 shows a process map for proposal development and supplier selection.

Figure 2

4.    Once an MDPD supplier has been selected, a Statement of Work (SOW) for the project should be developed, based on the supplier’s proposal. The SOW should specify project work packages and deliverables moving between the supplier and your staff and the specific points in time that these work packages and deliverables should be passed. The SOW should also specify the acceptance criteria for each deliverable or work product from the supplier and the payment schedule for the project. Payment schedules can be based on project milestones, fixed-scope/fixed priced activities, project deliverables, time and material (T&M) cost or other measurable events. All but T&M payment schedules usually place the burden of project management on the supplier. T&M contracts, while generally the least expensive way to pay for project services, places the responsibility of detailed project management on the customer, so make sure that your organization is capable of managing the MDPD supplier’s activities if you opt for a T&M-based project payment schedule. Once the SOW has been completed to the satisfaction of all of its stakeholders, the SOW is attached to a Purchase Order to the supplier specifying the services to be provided as defined on the SOW. If the supplier has a broader contract defining its services, the SOW should be made an exhibit of the contract. Figure 3 shows a process map for contract and SOW development.

Figure 3

5.    After approval, place the SOW under document control. Your Project Manager and/or your supplier’s Project Manager should be mindful of and monitor the project for changes in project scope. Small changes in project scope should be reviewed and approved by both you and your supplier and changes documented through a formal document change to the SOW. Large changes in project scope may require you to generate a revised RFP requiring the supplier to respond with a new or modified project proposal. Any changes to project scope or to the terms and conditions of service should be documented through formal revisions made to the SOW.

6.    Project management and supplier monitoring should be assigned to a single person with project management experience within your organization. This person should be empowered to make all detailed project decisions, including technical trade-offs, project expenditures, risk mitigation actions and approval of supplier payments. The project manager should ensure that adequate internal resources to support the MDPD supplier are available according to the project’s plan and that internally developed deliverables and information pass to the supplier according to the plan. Most MDPD suppliers will pass the costs associated with inadequate customer resources and management back to the customer. The MDPD supplier should provide monthly project reports to the customer showing its accomplishments for the period, plans for the next period and a detailed risk assessment for the project at that point in time. Long-term or complex projects will benefit from Milestone Reviews with the MDPD supplier’s senior management in attendance. Milestone Reviews should be focused on reviewing the supplier’s achievements against its plans for the project phase and at gaining management approvals for the continued funding of the supplier into the next phase of the project.

7.    The project plan should have a task or activities scheduled for work product acceptance from the MDPD supplier. Each work product should be tested against the acceptance criteria shown on the SOW within some reasonable period (usually 30 days) upon receipt of the deliverable. Most MDPD suppliers will warranty their work against their acceptance criteria, but only if the customer tests the work product or deliverable against its acceptance criteria within a reasonable period of time. Figure 4 shows a process map for project operation.

Figure 4

And the Benefit Is…

Medical device manufacturers who successfully outsource medical device product development can expect to reap benefits in greater project capacity, increased project and supplier management capacity, reduced product development costs and reduced time to market. Successful outsourcing also will provide lower R&D overhead costs.

To achieve these benefits, the manufacturer must be accomplished at project and supplier management and utilize these skills in the oversight of their MDPD suppliers. In addition, medical device manufacturers should have a strong internal product development process in place before deciding to outsource new product development.

When the decision is made to outsource, consider suppliers who have experience in medical device development and regulations. MDPD suppliers offering a broad array of design, development, prototyping, verification, validation and product testing services in a single turnkey package can be the answer to resolving the challenges that medical product outsourcing can bring.

Russell T. Gray is president and CEO of Theron, Inc., a medical device product development firm providing the complete value chain of design and development services. For more information, please visit www.therongroup.com or call (317) 574-2445.