At present, there is a lot of FDA, congressional, and consumer interest in the supplier control initiative, explains Steve Niedelman, lead quality system and compliance consultant, King & Spalding LLP (Washington, DC) who is chairing a session on the topic at MD&M West in February 2012. Niedelman was formerly the deputy associate commissioner for regulatory operations for FDA.
 
As evidence of agency concern regarding the global supply chain and the issues that accompany the globalization of the medical device industry, Niedelman points to the recently appointed and created position for deputy commissioner for global regulatory operations.
 
There have also been Senate hearings addressing the issue, Niedelman points out. “The most recent [hearing] focused on heparin, which people think of only as a drug,” he explains. “But in fact, as an outcome of the heparin situation of three years ago, there were more device recalls that resulted from it than any pharmaceutical recall.” The issue goes far beyond what many people simplistically think of as heparin as a blood thinner for dialysis, he says. Heparin is used as a flush for medical devices as well as a lubricant for many devices such as syringes. In all, the heparin issue has affected millions of devices.
 
Another topic of interest is that medical devices are becoming global commodities. “It is really difficult to blur the distinction between domestic product and imported product because so many of the components, parts, subassemblies are imported,” Niedelman says. “FDA sees 24,000,000 lines of imported products per year of which now 25% are medical devices,” he says. “That is a huge shift over a decade ago when 90% of all FDA imported products were foods,” he adds. “The volume of products of FDA imports has quadrupled in the past decade and tripled in the past five years alone.”
 
As a result of these changes, it is the manufacturer’s responsibility to ensure that a robust supplier quality program is in place to assure the quality of the products that they are distributing to their patients. “FDA has made it clear to manufacturers that it is their responsibility to stay abreast of who their suppliers are per the quality system regulation,” Niedelman says.

Why Outsourcing?

Device companies outsource for a number of reasons: Typical projects to outsource include part assemblies, components, finished devices, packaging, labelling, sterilization services, design services, consulting, cleaning, and IT support.
 
As for the reason behind outsouring, that also varies. “A company may not have in-house capacity of capability,” Niedelman says. “They may not have the space to handle these issues within house. The volume of product, perhaps, has grown so exponentially they can’t keep abreast of it and need to outsource. Or conversely, it is so small an infrequent, it doesn’t pay for them to do it themselves.”

To fill a gap. For many companies, outside technology and expertise is needed to assure that finished products are being manufactured correctly. Niedelman points to the growing numbers of virtual companies in the United States that are also contributing to increased demand for outsourcing. There are fewer and fewer brick and mortar firms, he says. "These virtual companies depend entirely on outsourcing for everything they do." 

Cost benefits. The financial benefits of outsourcing is perhaps one of its most obvious benefits. "Suppliers in low cost countries make things very enticing in the device industry," Niedelaman acknowledges. "But  people need to factor in several issues when doing business in low-cost countries." Potential savings must weighed against increased cost of surveillance. "You can’t solely rely on third-party audits," he says. "They are really not held liable at the end of the day if they fail."

Advice when Doing Business in Low-Cost Countries

Because such low-cost suppliers are remotely located, it will require greater oversight on the manufacturer’s part. "You really need to know your sources," Niedelman says. "I can’t tell you how many manufacturers never even visit their supplier in China or India because they claim it is too costly." Instead, they depend upon photos on websites that are unreliable predictor of the actual conditions of the factory. "The bottom line is, if you were to physically see some of these sites, you wouldn’t even step foot in them," he adds.
 
"Actually, the Pew Charitable Trust did a white paper on heparin that just published this past summer. And in there, there are some photographs that were taken by an auditor in China showing what the physical site looks like. It is disgusting," he says. "But anybody can put any nice photo on a website and they bank on you not coming. Or they have show and shadow setups, which is a model factory set up. You go over, you see that site. It looks great but your product is not manufactured there."

It is important that manufacturers have tight supplier quality agreements, Niedelman stresses. "They should have very specific no-change clauses. [Manufacturers] are at very high risk if they contract out design control and intellectual property."

Niedelman suggests, when doing business in low-cost countries, to look "for a U.S. company with a wholly owned low-cost third-world operation." That way, you can hold somebody in the United States accountable. This approach seems to be much more successful, he adds.
 
There really is a risk-based approach to managing outsourcing that requires six elements:

Other Advice

It is always a good idea to have some corrective action planning and follow up, Niedelman says.

Take responsibility for your product. "Manufacturers may hem and haw with the supplier over time but [FDA] is going to look to them to make sure there product is properly taken care of once it is in the market," he adds.

"Not having an adequate supplier quality program does increase your risk of FDA oversight," he says. "It is becoming increasingly commonplace that the agency is looking at supplier quality. It is now within the top ten reasons for a warning letter. It is also in the top ten for FDA 483 cites," he adds.

"At the end of the day, it is just in everybody’s best interest to have an effective supplier quality program to reduce your liabilities, risks, and to ensure that your product is safe and effective."