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Medical Device Industry : Contract Manufacturing For Smarter, More Cost-Effective Production

Cost cutting pressures, accelerating time-to-market and focus on core competencies will drive original equipment manufacturers to outsource their manufacturing.

Globally, the growth of the medical device contract manufacturing market during 2014 - 2024 is expected to be driven by the growth of the medical device industry, reimbursement challenges and demand from emerging markets of the Asia-Pacific and Central and South America.

Companies are rapidly adopting the use of contract manufacturers as a strategic plan to stay ahead in an intensely competitive market space. Although traditional markets such as the US currently dominate the contract manufacturing market, there is increasing movement of facilities to lower cost regions. In order to take advantage of this fast growing sector, contract manufacturers need to satisfy their customers that they can overcome intellectual proprietary concerns, adhere to stringent quality standards and offer excellent services.

Impact on the smaller contract manufacturing companies

The market comprises of a large number of small contract manufacturing companies with relatively fewer large clients.

The activity will grow targeting the expanding markets in Asia Pacific and Central and South America.

By outsourcing manufacturing, device manufacturers will be able to adapt to any strong increases in demand for their products; a more flexible strategy for companies seeking to enter new markets especially by targeting Asian markets.

Contract manufacturers will have to implement stringent quality standards and offer added-value services which would convince a move towards increased outsourcing in the medical device sector.

China and India are becoming increasingly important outsourcing destinations for manufacturing mainly as a result of the opportunities presented by their respective domestic economies, the highly educated workforce in association with competitively low prices.

A recent study estimates that outsourced contract manufacturing ultimately allows original equipment manufacturers (OEMs) to reduce their manufacturing costs by an average of 10-30%.

Focus On Innovation

Under more pressure from the market to develop products that offer real value rather than incremental benefit, medical device OEMs are refocusing on innovation and demanding more from their contract partners.

Changing dynamics in the healthcare markets due to the Affordable Care Act in the United States and austerity measures in Europe are likely playing into that growth, and medical device companies are under more pressure than ever to develop products that offer real value and not just incremental benefit. As a result, OEMs are concentrating more and more on their core capabilities.

Other Important Considerations

  • Companies are focusing on designing new and improved medical devices, not on the manufacture of those devices.
    - As OEMs are doubling down on innovation, they’re asking more of their contract partners. Increasingly, device makers are farming out everything from front-end design to back-end services including warehousing, distribution, and regulatory

  • Overall trend is for more OEMs looking for contract manufacturers to provide more value
    - Medical device customers are seeking help with everything from engineering and design assistance to subassemblies and finished device manufacturing, as well as asking the company to work directly with other contractors that provide services such as sterilization.

According to the Millennium Research Group report, “overall trends in the medical device outsourcing space indicate that [contract manufacturers] are broadening their range of services, growing organically or through acquisition to become one-stopshop manufacturers.” OEMs want fewer suppliers that they have to visit and audit.

Key Factors For Global Outsourcing Success By Medtech Executives.

Global outsourcing is not a panacea, but it can help sales and marketing support organizations do more with less. Properly structured global outsourcing programs can result in lower costs and greater flexibility and innovation. But this requires a structured, step-by-step approach. Medtech executives considering global outsourcing need to have the proper mindset before embarking on a program. They need to reconsider any preconceived notions about outsourcing, shunting a blanket approach in which everything is outsourced in favor of a selective, discriminating view in which only certain processes are outsourced.

Medical Device Companies’ sales and marketing operations can be more flexible and innovative than before and costs can be kept low. An effective global outsourcing initiative has several key factors, including the following :

  • Selecting the right business processes to outsource and defining success clearly.

  • Choosing the right operating model, recognizing that a onesize-fits-all model will not serve different support functions.

  • Picking partners that are aligned with the overall scope and objectives of the project.

  • Establishing an appropriate performance management and tracking process, embodied in service-level agreements (SLAs).

  • Developing a workable transition process.

What To Consider When Partnering With A Contact Manufacturer?

Medical Device Contact Manufacturing Agreement defines the foundation of business partnership objectives. It is important that both parties take ownership within this process to ensure their roles and responsibilities are directly linked to service level requirements and that the teams participate in on-going review meetings to support the joint effort to produce the outcomes.

The broad components of the process of determining how a potential outsourcing partnership with a FDA registered contract manufacturer can result in a long lasting relationship are :

  • Statement of Work

  • Mutual Responsibilities

  • Shared Risks and Returns

  • Production Support Process

  • Legal Issues

Potential Obstacles for Successful Contract Manufacturer Partnerships could be :

  • Poor “cultural fit” between the OEM and the CM

  • Outsourcing of designs not ready for manufacturing, resulting in inefficient production yields

  • Poor Quality

  • Inaccurate forecasting and lead-time obstacles

  • Poor communication, incommensurate goal setting, or infrequent business reviews

  • Insufficient investment in people & time to manage outsourcing

  • Inadequate “partnering effort” for either party can create manufacturing transfer problems

  • Lack of internal buy-in support from OEM’s cross functional organization

Outsourcing the production of a medical device is a complex and difficult process, which requires due-diligence and development support by both partners.

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