Change Control Agreements, Equivalency and Standardization

Lack of standardization in change control agreements and notably lack of clarity on machine equivalency are causing significant and unnecessary inefficiencies in the supply chain. Highly varied standards across medical device companies, and even divisions within medical device companies, are driving up costs and slowing down product commercialization. The time has come for medical device outsource manufacturers and medical device original equipment companies to come together and work toward a more unified approach for mutual benefit.

Peter Harris

July 6, 2012

4 Min Read
Change Control Agreements, Equivalency and Standardization

To understand the cause and effect of highly varied standards that are often subject to individual interpretation, it is first important to note one of the basic economic benefits of outsourcing—increased asset efficiency. Although outsourcing has many potential benefits, one of the most significant potential value creators is the pooling of like assets across multiple products and customers as opposed to dedicated and captive assets for single products and customers. An insourced product requires a specific set of production assets that are likely to have utilization tied to one or two products, and certainly to have utilization tied to just one customer—the user. By contrast, an outsourced product may use shared and flexible manufacturing assets serving a broader product and customer base, thus creating a higher chance of utilization and the ability to lower project cost by not forcing the product to shoulder 100% of its asset cost requirements. This asset pooling thus lowers total product costs.

To realize the benefit of reduced costs, outsourcing manufacturers need to be able to use manufacturing asset portfolios flexibly across products. A company with 20 machining centers needs to be able to flow products through the bank of assets fluidly. The obvious necessity in making this happen while still ensuring proper controls for product compliance and ultimately patient outcomes is that the assets are equivalent. Unfortunately, there is neither widespread agreement on the definition of equivalency, nor what processes need to be undertaken to demonstrate it.

The result of this lack of clarity is that often manufacturing assets in outsourced companies become practically utilized in much the same manner as they would as captive insourced assets. Artificial restrictions on flowing production across equivalent pieces of equipment can lead to a nearly one-to-one relationship between asset and product, thereby reducing efficiencies and undermining the value of the outsourced model. Moreover, highly variable practices among device companies in evaluating and approving submissions and supplier change requests creates process inefficiencies in the supply chain. Such variability introduces transaction costs for increasing capacity and makes technology improvements very complex. Standardizing processes across the industry would be a huge benefit in addressing such impediments.

To be clear, for any piece of equipment, there are important qualification requirements and processes that must be followed to ensure control and patient safety. Initial and operational qualifications are absolute musts. Suppliers must have notification rules and customer engagement protocols to ensure visibility and conformance. But do we really need to do a full product qualification and associated build before making an existing product with an existing process on an identical piece of equipment? What submissions, notifications and product builds must be undertaken? Read 10 change control agreements, and you may get ten different views. Ironically it is easy to imagine that this variability actually reduces patient safety as compliance with nonuniform standards adds unnecessary complexity to execution.

Equivalency is just one example of an industry quality issue ripe for standardization—many more such opportunities are easy to identify. The medical device industry can use examples from other industries that have worked across competitive boundaries to arrive at industry standards. The key is to engage in a conversation toward increasing clarity and standardization, holding the ambitious hope that we may just be able to come to a unified view on definitions and processes.

Others, including FDA, have recognized the need for and benefit of such a coordinated effort previously. In its October 2011 report Understanding Barriers to Medical Device Quality, FDA notes that multiple interviews suggested that “establishing an industry certification and shared auditing program for suppliers to drive quality and standardization.” If leadership from both medical device companies and their premier supply chain partners commit to working toward this goal, we have a great opportunity to increase speeds, reduce costs, and increase the efficacy of controls and risk management.
 

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Peter Harris is chairman and CEO of Cadence, Inc. Areas of expertise include strategy development, change management, transaction development, corporate governance, corporate finance, and values-based leadership. Harris is a public speaker who also teaches leadership and change management at the University of Virginia’s Darden School of Business. He has an undergraduate focus in mathematics and Mandarin, as well as an MBA from the University of Virginia. He is dangerously rusty in Mandarin, but can do rudimentary arithmetic with a calculator.

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