|Guide to Outsourcing|
Originally Published MDDI August 2005
If the last decade of the twentieth century was about the manufacturing floor—lean manufacturing, just-in-time delivery, and enterprise resource planning—the twenty-first century is shaping up to be about the consumer.
That is the conclusion of Kevin O'Marah, vice president of research for AMR Research (Boston, MA), in his recent report Demand Driven Supply Network: 21st Century Supply on Demand.
“The last century was all about the factory, but the biggest oversight of this factory-centered supply chain was the management of consumer demand,” says O'Marah. But most suppliers were not worried about consumer demand.
It was their OEM customers' jobs to worry about consumer demand. Take plastic parts suppliers for example. Twenty years ago, most were not concerned with new product design and development, part design (except for its effect on mold design), value-added services, packaging, or bar coding. Many simply molded and shipped parts. OEMs, particularly in the medical products industry, were performing such functions in-house a way to vertically integrate their operations, reduce costs, and gain control over FDA GMPs and other quality considerations.
By the late 1980s and early 1990s, however, some large medical products manufacturers began outsourcing their molding to custom molders. After all, mold making and molding were not the medical OEM's core competencies.
Today, plastics processors must deal with increasingly complex requirements for new products. There are several issues, such as quality regulations that are important factors. And issues concerning design and development, mold designing for manufacturability, final packaging, and bar coding, are just as critical to consider. The question is: Are suppliers ready?
O'Marah defines several problems with the global manufacturing environment.
First, there is what he terms a bull-whip effect in which disruptions downstream ripple back ever more loudly, creating tremendous uncertainty for demand.
Second, he identifies variability as an issue. O'Marah comments, “Failing to account for variability is fine for a factory with known task cycle times, but it is not good across a network of flexible productivity requirements.
Third, there's no support for product innovation. “The black box approach to R&D assumes that new products go through the same chain as existing ones,” says O'Marah. “This is slow, wasteful, and error prone.”
Custom molders and manufacturers are being challenged to play a greater role in their OEM customer's business.
Problems exist in the supply chain, and these problems are often brought about by a lack of understanding of what the mold manufacturers or the molder truly offer. According to Steve DeHoff, a consultant with Stress Engineering Services LLC (Mason, OH), OEM buyers see molds as “incidental commodities rather than the strategic link to product cost, quality, time, and performance that they are in the injection molding business.” OEMs divide the affected costs into different budgets owned by different people.
“Only at the top or near the top does one person own the total true cost,” DeHoff says. “This makes it almost impossible for those at the purchasing level to see the total cost without a third party doing it for them.”
OEMs can understand their manufacturing costs through costing models for given manufacturing scenarios. Some of the critical economic principles include the following:
• Molding is a technology-driven cost, not a labor cost.
• Molding economies are governed by classical returns with scale. There is an optimum for a given volume level and product life.
• Molds are highly differentiated, not a commodity.
• Molds largely determine molding unit costs in injection molding.
By learning to treat molding and other suppliers as integral technologies, OEMs can build a lasting business relationship that enhances the function of the supply chain. Doing so not only increases production, but also can help decrease costs. Ultimately, however, the consumer will have a better product that gives more attention to safety and usability.
Copyright ©2005 Medical Device & Diagnostic Industry