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Published: March 12, 2013
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Beware the Fog of Outsourcing
A report cautions device manufacturers to look before they leap when it comes to outsourcing.
A report released by analyst and strategic advisory firm Axendia cautions device companies to look before they leap when it comes to outsourcing. The research report, released in June 2012, surveyed 125 individuals from 89 companies and 16 countries. The findings show that, while industry is poised to capitalize on the new opportunities, there are also areas of concern and risk with regard to outsourcing and globalization that companies need to be aware of.
Daniel Matlis, president and founder, says Axendia is predicting a trend in the life science industry toward what they have termed “smart sourcing.” In 2013, companies will have to adapt to focus on value over cost, expand insourcing efforts, and consider regionally sourced products for local markets.
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Axendia’s report shows that product quality control and maintaining quality standards is top among manufacturer’s concerns about outsourcing.
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“One of the big challenges the industry has is that it doesn’t do a good job of evaluating total cost of outsourcing,” Matlis says. “We’re seeing trends toward insourcing, bringing outsourcing back in, and companies doing a better job of evaluating total cost.”
Surveyed executives listed reducing cost of development manufacturing as one of their top two reasons for outsourcing (the second is accessing skills outside of their core competencies). However, Axendia cautions that such thinking can be problematic as companies may be too eager to jump into outsourcing as a means of saving money without looking at the proverbial fine print. Matlis calls this phenomenon “the fog of outsourcing.”
“When you look at means to lower cost as a key driver, you can get blinded by initial cost as opposed to the total value,” Matlis says. He says to visibility is key among these factors. With the majority (60%) of respondents reporting that product, material, and service quality is of major concern, it is important to look at the costs of maintaining visibility in an outsourcing endeavor.
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Axendia believes quality assurance, product R&D and design, and regulatory functions are key areas that manufacutures should be looking to continue to perform in-house.
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“A lot of it, in our opinion, has to do with culture and the perception of quality,” Matlis says. “Quality is a relative term that needs to very clearly defined and understood up front when you’re working with a partner. Just reading the letter of the law is not enough. You need to ensure that your partner understands your value system.”
Matlis lists key questions companies should consider:
- What’s the cost of travel? Personnel may need to travel between locations for routine runs or emergencies.
- What is the level of expertise you need to maintain on your staff to be able to deal intelligently with your partner?“I often hear that when an executive decision is made all of the people in that role are transferred or let go,” Matlis says. “You need to maintain a certain degree of knowledge, ability, and competency to be able to work with a partner. This is important because you cannot outsource liability and you cannot outsource regulatory compliance.”
- What is the value of time? Are there timezone differences you need to account for?
Matlis recommends steps like the platform approach adopted by the automobile industry to help alleviate some of these issues. A shared set of components as well as common design, engineering, and production efforts can help ensure quality and minimize concerns and costs associated with research and development. “Using a platform helps minimize variability you would have if you were developing multiple products for multiple geographies, for example,” Matlis says. “Once you establish the right level of competency, and once you’re able to work with your suppliers on them, everything falls into place.”
-Chris Wiltz is the Associate Editor of MD+DI
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