Now More than Ever, OEMs Must Get the Most Out of Outsourcing

For most device companies, outsourcing— whether offshore or onshore—has become a fact of life. When done right, the strategic and economic advantages of outsourcing are impossible to ignore, owing to the cost advantages made possible by the economy of scale. And it just makes sense for device companies to spend capital creating new products rather than building or running factories, explains Cary Wood, CEO of Sparton (Strongsville, OH), a contract manufacturer serving the medical device sector and other industries.

Brian Buntz

August 8, 2011

3 Min Read
Now More than Ever, OEMs Must Get the Most Out of Outsourcing

buntz.jpgIn addition, the value of outsourcing has increased in recent years in the face of mergers, consolidations, and layoffs. “The pressure for medical OEMs to outsource or, at the very least, find ways to manufacture and distribute more efficiently, will only increase as the combination of pricing pressures due to legislative changes, globalization, and better-informed consumers continue to be factors,” Wood says.

So what should a device manufacturer do to most effectively take advantage of outsourcing in today’s global economy? Some medtech companies run into problems by outsourcing operations to too many contract manufacturers, says Peter Derycz, CEO of Derycz Scientific (Santa Monica, CA). “Many medical device firms are looking to reduce the number of outsourcers on their roster, which, by the way, also need managing,” he says. To deal with the problem, many medtech companies are looking at entire swaths of activities as business processes that involve multiple vendors and internal resources, and finding out how to move all of that activity to a single vendor.

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That’s a strategy that Wood also endorses. “I would suggest medtech companies find a contract manufacturing partner that can serve as the seamless manufacturing arm of your company,” he explains. “The market demands that you play to your strengths. OEMs should focus on the development and marketing of new medical technology, and contract manufacturers should focus on activities such as engineering, prototyping, manufacturing, logistics, and distribution.”

Such a setup, he says, enables the contract manufacturer and the OEM to better specialize in what each party does best. This results in better products at a more competitive price point.

Even if you think your firm is using outsourcing to its full potential, you might want to give it further consideration. “I still believe that the medical device industry is behind the curve in a lot of ways when it comes to manufacturing,” Wood says. For one thing, he says, the medical device industry is fairly new to the outsourcing model, compared to other market segments.

An article in this issue titled “Surviving the Cost Pressure Cooker” also supports this point. It explains that device companies trail other industries in cost containment and supply-chain management.

To address such challenges, OEMs should be willing to allow the contract manufacturer (CM) to participate early in the product development cycle, Wood says. “For instance, allowing the CM to facilitate a design for manufacturability and assembly process can reduce or eliminate quality and production issues before they happen,” Wood says. “The few companies that are using tools such as advanced product quality planning and Six Sigma will optimize quality systems and delivery schedules while minimizing scrap and general cost issues.”

When asked to identify a single theme relating to outsourcing in the medical device space, Wood says “it would have to be manufacturing excellence.”

“We’re seeing a lot of medtech companies abandon inefficient practices and identify their core strengths. There’s a lot of untapped potential in the medical device industry,” he says. “I absolutely believe that.”

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