A Holistic Approach to Outsourcing

Medical device OEMs are at a crossroads. Global demands for innovative and affordable medical products have never been higher, driven in part by an aging population in most developed countries and rapidly expanding urban centres in many emerging countries. That’s the good news. The challenge is how to seize these business opportunities when OEMs are also facing more stringent regulatory requirements, surging operational costs and an increasingly complex supply chain.

4 Min Read
A Holistic Approach to Outsourcing


In the United States, the Patient Protection and Affordability Care Act (PPACA) has certainly pushed medical device OEMs to think about their business differently. OEMs may face the possibility of a 2.3% excise tax next year on the sale of nearly all medical devices not sold directly to consumers. They are also facing more detailed device review and reporting processes. In this environment, outsourcing has become an appealing option to drive cost down.

Outsourcing is not new to the medical device manufacturing industry. However, in light of the current business environment, the approach to outsourcing may need to change.

The traditional piecemeal, multiple vendor approach to outsourcing is no longer suitable for this new business landscape. The risk for missteps and miscommunication among multiple vendors during the product realization process is simply too high. With the new compliance requirements, OEMs need a new strategy to enforce unified quality control across their product lines. They will also need to keep abreast of rapid technological developments within the supply chain.

Forming a single outsourcing partnership can offer a holistic approach to the entire product realization process. Instead of evaluating multiple vendors with the same framework, a strategic partnership is a form of change management. The partnership is based on a matrix to address the different aspects of product realization, from design and development to prototyping, verification and validation, quality assurance, manufacturing, supply chain management and after-market services. Cost, compliance, efficacies, and competitiveness all need to be part of the outsourcing strategy.

A strategic contract partner needs to be an extension of the OEM and should mirror the various aspects of the OEM’s in-house capabilities and processes. It is worth asking questions such as the following:

  • Does the partner share the same quality culture?

  • Does it have the same or superior technological and engineering knowledge?

  • What expertise can the partner bring to the OEM to complement its existing strengths?

It is critical for the contract manufacturer's quality system to meet the OEM's needs over the long haul.

In a recent partnership that Celestica formed with an OEM, we led the change management process and delivered some immediate returns. The OEM needed to transfer its manufacturing activities from the US to Asia to reduce production costs. At that time, all components for its products were sourced in the United States. To transport the components to Asia would not make economic sense, not to mention the impact of travel on the components.

Similar to the supply chain only being as strong as its weakest link, the quality of a product is dependent on the quality of its components. A single inferior component can undermine the operation of the product and causes significant financial and reputation damage for all. As a strategic partner, we leveraged our global supply chain footprint and expertise to work with a group of local component vendors to develop tailored solutions. Acting as an extension of the OEM, we were enabled access to important information such as design files and design history. In return, we combined our engineering knowledge, supply chain reach and regulatory expertise to deliver an immediate cost-savings solution.

The OEM was in production within seven months, meeting their go-to market schedule.

No doubt the PPACA has put many OEMs in a reactive mode. However, OEMs need to look beyond the immediate economic and regulatory pressures and plan for longer-term market changes.

For example, a strategic partner can offer a current and broad surveillance of the global supply chain and anticipate the latest technological developments or availability of components.

In addition, medical device OEMs can learn much from other industry sectors that have tackled emerging issues such as green manufacturing standards and new safety standards. A partner can share its experience and knowledge from servicing other industry sectors to help put processes in place from sourcing to production.

For example, the medical device industry has to comply with the RoHS (Restriction of Hazardous Substances) requirements by July 2014. The goal is to eliminate hazardous materials such as lead and mercury from medical devices and the transition is pressing the medical device industry to review its entire product realization process. Changes in one component can have significant impact on the reliability and durability of a device.

Fortunately the medical device industry is not the first to face the RoHS compliance mandate. Consumer electronics products sold in North America have been RoHS compliant since 2006. A strategic partner with the experience of guiding consumer electronics OEMs through the complex RoHS transition can share its knowledge with medical device OEMs. The partner can also help anticipate potential issues with lead-free components by providing guidance at the design and development phase to ensure the efficacy of the devices.

The FDA’s PPACA mandates are pressing, but OEMs don’t have to handle them all on their own. An OEM with a strategic partner who mirrors its culture, skills and processes will be in a position to embrace change and find new strengths for innovation.

Nancy Duarte-Lonnroth is director of quality and regulatory affairs for Celestica HealthTech (Toronto, ON, Canada).

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