CMO Trends for 2024 & What These Mean for Medical Device Companies

The medical device contract manufacturing industry is continuing to transform through 2024. A decade before COVID highlighted the critical nature of manufacturing infrastructure, there were investors eagerly moving into the space and reshaping it.

This was a response to the growing interest of medical device companies in offloading the unique operational, equipment, and workforce challenges of manufacturing.

The thousands of small specialty shops that served the manufacturing operations of the early 2000’s are being merged into large, complex partners that can eventually replace them.

Industry market reports covering the trends have been less than useful for medical device decision-makers. Focused on large financial trends that appeal to investors, reports often merge drug, device, and diagnostic-focused businesses to create more dramatic market numbers.

Reports that conflate manufacturing organizations with design or research groups supply a similarly confusing outlook. All of them supply best guesses on where and when there is money to be made in the buying and selling of contract manufacturing organizations (CMO), not how best to manage your device manufacturing if your supplier is part of the ongoing dance.

What I want to highlight in this article are four general CMO trends that will directly affect medical device companies, and what specific steps they can take to minimize disruption.

The consolidation of medical device resources will continue through 2024.

While M&A activity in pure manufacturing resources may slow down as the most profitable deals have been completed, attention is being redirected toward adjacent service providers. This includes design and engineering firms, Contract Research Organizations (CROs), and quality and regulatory service providers. Adding these capabilities gives CMOs earlier access to their customer base. For lean medical device companies launching their first product, or established companies launching into a completely new field, this could fast-track the step from regulatory approval to a shippable product.

However, any merging of separate business organizations sets off internal disruptions that will take months (if not years) to fully resolve. A particularly critical change will include the merging and pruning of the original two organization’s Approved Supplied Lists (ASLs). This is the time to re-read your Quality Agreement’s change notification terms. The new company will also likely standardize their General Supplier agreements as well, with new financial terms and conditions.

CMOs are acquiring multiple domestic and international production sites to support their client’s supply of various chain risk-mitigation strategies.

The long discussion over global outsourcing, domestic production, “reshoring,” and “nearshoring” will continue to fluctuate as wildly as the political and financial factors that drive them. Looking to address customer concerns, larger CMOs are hedging their bets by investing in production facilities across multiple sites, foreign and domestic. LATAM areas, especially the tax exemption generous Costa Rica, have jumped in popularity post-Covid. Other CMOs are providing US-based pilot production programs, with discounted services to streamline transfer to their South American or Asian-based facilities for scale-up.

Like the cost and process efficiencies promised with the mergers, these new “resilient” supply chain approaches need careful analyses before signing up. FDA registration and ISO certifications are site-based. While a CMO may list facilities in ten different countries, rarely does every facility follow and support the same formal standards. Be especially cautious of recently acquired facilities that are newly certified and may still be implementing processes on the production floor. If you do choose a multi-site CMO as part of your company’s supply chain risk mitigation, be sure to be clear on how site transfers will be scheduled, documented, and priced.

Emerging Modern Manufacturing challenges will continue to reinforce the externalization trend.

CMO transformation challenges will eventually wind down as the current investment fervor cools. However, the problems that are driving medical device companies to externalize manufacturing will not.

Modern manufacturing (and not just medical) faces multiple emerging challenges that will require increasingly specialized resources to meet. In addition to the shifting supply chains, environmental sustainability and a gap in the skilled factory workforce are pushing companies to find partners better equipped to manage them.

Many of the chemicals and processes used in medical device manufacturing (EtO sterilization being just one of the most heavily publicized) are undergoing increasing monitoring and regulation. Additionally, the heavy power consumption of industrial processes is counter to many large corporate sustainability goals. Leveraging CMOs allows highly public-facing brands to separate themselves from these challenges. It also allows smaller companies to avoid the long lead times for getting facilities certified and registered, or the overhead costs of ensuring worker safety.

Manufacturing also requires a vastly different set of workers from the typical office professionals that comprise the bulk of a medical device company. Many medical devices fall in the unique gap between too small a volume to justify the expense of fully automated assembly and requiring a high level of manual skill and training to produce consistent products. As such, the “skilled trades” gap currently plaguing all US-based manufacturing companies spills over into medical devices. Utilizing a CMO allows a medical device to avoid spreading its recruitment efforts too broadly.

This third trend means that medical device companies will need to regularly reassess the economics of keeping internal manufacturing infrastructure, especially as CMO capacity continues to grow.

CMOs will be a testing ground for Industry 4.0 to break into Medical Devices

While the rise of CMOs has been primarily due to medical device companies managing negative trends, it is also being enabled by and (in turn) promoting the growth of Industry 4.0. The highly conservative medical device industry has traditionally lagged behind less regulated manufacturing facilities. In contrast, medical device CMOs are uniquely incentivized to adopt manufacturing technology due to multiple concerns with high quality, resource optimization, and complex work streams. A factory fully owned and operated by a medical device company is primarily concerned with meeting downstream demand, not necessarily ensuring 100% infrastructure use. Compare this to a CMO, that runs products from multiple clients through the same inspection station or piece of welding equipment in 24 hours. Digital Twins, Real-Time dashboards from critical equipment, and AI-enabled routing systems allow CMOs to manage and optimize a high level of complexity. Since manufacturing optimization is much more closely tied to the profitability of a pure manufacturing company (as opposed to a company that also manages medical device development, regulatory approvals, and sales) the incentive to adopt manufacturing technologies is clearer.

While these trends represent a wide range of activities and shifting factors, medical device companies can follow some basic supplier best practices to ride it out. Like anything in medical devices, read contracts carefully and keep them current.

Modern supplier agreements should include contingency plans in case of pandemics, natural disasters, business acquisitions, or data breaches. Get to know your key suppliers as companies. For the next several years, as manufacturing companies shift their businesses, medical device companies will need to reflect carefully on how well their purchasing aligns with their suppliers’ long-term business priorities.

Finally, develop regular processes for systematically assessing your overall manufacturing strategy in light of major industry, government, and cultural shifts. In times of transition, few businesses' best practices remain valid for everyone.