Designing Products with an Outsourcing Partner

Originally Published MDDI March 2005

Guide to Outsourcing

Designing Products with an Outsourcing Partner

As contract firms handle more aspects of device manufacturing, to what extent should OEMs outsource their new-product development?

Christina Elston

Outsourcing in the medical industry is familiar territory to most. A small company with an idea for a new type of surgical catheter, but not the means to manufacture it, will find a contractor to do the job. Or a large electronics company will bring in outside help to manufacture a disposable component that is part of a new product it is developing.

But there is also plenty of outsourcing going on before the manufacturing stage, and company size doesn't seem to be a factor, according to J. Randall Keene, president and CEO of Avail Medical Products (Fort Worth, TX). It isn't just small or “virtual” companies calling in outside help for research and development. Currently, Avail is seeing many large companies outsource product development as well, Keene says.

And while large device companies previously outsourced mainly in areas not core to their business, “that's less and less true now,” says Ken Fine of Proven Process Medical Devices (East Walpole, MA). During the past three to four years, Fine has noticed larger companies outsourcing for reasons other than bringing in outside expertise. Many companies, Fine suggests, are outsourcing as a way to stay competitive in a world of ever-shorter product life cycles. Companies of all sizes are also developing more parallel-type products and trying to do more with fewer people on staff. “As companies gain more experience with outsourcing, they find that it provides them with a level of flexibility they didn't previously have,” Fine says.

Sometimes larger OEMs find themselves in need of development help because they have grown through acquisitions—rather than organically—and haven't retained the necessary in-house talent, according to Jeff DuBois, vice president of business development, Nova Biomedical (Waltham, MA). “Many of the major companies reach a critical point in internal resources,” he says. They want to continue to be recognized as time-to-market leaders, “but there's only so much an internal R&D group can do.”

Ways to Be Nimble
“To have a complete R&D team in-house is a fairly costly enterprise,” says David Huff of Coastal Life Technology (San Antonio, TX). Even a large company with a full complement of design and test engineers may not have anyone who can design the product's required tooling or packaging. But more likely, a large company choosing to outsource its R&D has found its in-house resources already dedicated to day-to-day operations. Or the company's resources may be “strapped down with internal bureaucracy that can slow down a project,” Huff explains. In these cases, contractors working outside the corporate structure can often develop a product more quickly.

An outside developer can complete a project “in a portion of the time it would take the OEM,” says Gil Reich, vice president of sales and marketing of The MedTech Group Inc. (South Plainfield, NJ). OEMs have a lot going on, and there is a lot of bureaucracy to work through in the decision-making process. Even hiring an additional engineer could take several months. However, development groups can be more flexible. “Sometimes we are like the catalyst that comes in and refocuses everyone on the project,” Reich says.

Outsource providers may also have resources and expertise not available to the average OEM, enabling them to be “more nimble” in getting to design solutions, says Jason M. Howey, business development manager of Okay Industries (New Britain, CT). “They have their niche, and they have the best resources and best capability of doing that for the OEM,” Howey says.

“One of our customers spent almost a year developing a technique to join two materials for their specific application requirement,” says Rick J. Yoon, PhD, president and CEO of IJ Research Inc. (Santa Ana, CA). The company hired one PhD-level engineer, purchased equipment and tools, and then found its new method was insufficient. “The project was completed within three months once the firm decided to outsource the development work,” Yoon says.

Foster-Miller (Waltham, MA) is able to put up to 60 people on a project with one or two months of lead time, according to senior vice president Ed Goldman. Trying to hire all of those people in-house, and letting them go again once the project is over, would wreak havoc at most medical companies. Companies do need to maintain some in-house expertise, however.
Because these resources are available on a flexible basis, an OEM has the luxury of postponing or even stopping project development without affecting internal staff. As an example, Fine cites one case where Proven Process was hired to develop a major product for a device company. When the company had financial difficulties halfway through its fiscal year, it shut the project down. It then resumed development six months later, after the new fiscal year began.

In some cases, an outsource partner is more familiar with the product development and launch process, and so it is more efficient, says Keene. Whereas the average medical device company may launch two products per year, for instance, Avail has launched approximately one product per month for the past 18 months. “We tend to be able to get to market faster than our customers,” says Keene.

B. Braun OEM/Industrial Div. (Bethlehem, PA) saves its customers time by having part of the development already completed for them, says Tom Black, vice president of OEM sales and marketing. “More and more firms are looking for someone who has an existing product line to utilize,” he says. “It's a huge resource to customers looking to outsource.” B. Braun gives OEMs the opportunity to use or customize its existing products, eliminating the need to begin development from scratch.

A Good Plan of Attack
When beginning any product development project, form an internal team to go over options and requirements before deciding whether to outsource—and to whom, suggests Huff. Failing to fully define your goals before jumping into an outsourcing relationship can mean wasting money and time working with a partner to figure out things you should have determined internally. “You should have an expected outcome before you go to anyone,” Huff advises.

Make sure that the project you are outsourcing is a well-defined package, advises Peter DeBakker, business development manager at Foster-Miller. Don't hire a company to develop, for instance, only a few lines of code for the software. Have them develop an entire function. “You have to have a well-defined interface point,” he explains. “It could be a small subset, but it has to be a completed subset.”

Creating a clinical specification at the outset will also help during the selection process if you do decide to outsource. If you know what you need to accomplish, it is easier to determine whether potential partners have the right capabilities for the job. It will also make things go more smoothly once the project begins. “An outsource provider may not know your business specifically,” says Huff. “It needs specific requirements to create the product you want the first time.”

Once the internal team and project requirements are set, begin checking out potential partners to find the one that best meets your needs. You want a company with the right expertise, compatible experience, and ability to innovate when necessary. You also need a partner you can trust with intellectual property that will come out of the project, as well as one that is a solid, reliable business. But it doesn't stop there. “All the other business checklists that you have still apply,” says Reich.

The Right Expertise

Make sure the company you are considering has the capabilities and staff you need, so that it can take a team-based approach to your project, advises Joel Bartholomew, manager of the OEM R&D group at B. Braun. “Do your due diligence if you're looking to outsource.”

Many outsource providers have specific niches. In the case of Nova Biomedical, “we don't do development unless it involves our biosensors,” says DuBois. “OEMs have to look for the strategic core competencies that are required for their product development,” he explains. “You really cut through a lot of the issues up front if you go to a group with the right core competencies.” There are a plethora of design houses, but they may not have all the resident credentials, and may have to bring in consultants to complete projects. “That adds time, and the resources aren't as easily marshaled,” says DuBois.

One tendency is to seek out universities for R&D. Labor costs are low, but such projects tend not to be time-driven, warns Goldman. Professors have other responsibilities and are not concerned with time to market. In addition, they tend to want to publish their research throughout the industry, which could hurt your patent position.

Good potential partners will have completed projects similar to yours for other clients, though the fit need not be exact. “If it's a perfect fit, it's probably your competitor,” says Keene. The outsourcer should also have a full staff of resources to devote to your project, including regulatory, legal, quality assurance, manufacturing, and validation personnel.

There are nuances to medical devices that differ from other industries, so choose partners based on their experience, advises Coastal Life Technology's Huff. He recalls hiring a partner that successfully handled the solid works modeling, engineering drawings, and tool design for molded plastic components in a pressure monitoring system. In that case, he was careful to choose an engineering partner he had worked with before and who had extensive experience in medical engineering design. But Huff once made the mistake of choosing engineers with experience in industrial design but not in the device industry to develop a product. “It looked good, but it didn't work,” he says. The design's tolerances were too tight to be molded on a production-volume level, and the part had to be completely redesigned. “Everything was lost,” Huff says.

It is also important to look for development partners that have proven they will stay in business—and be available to assist with needed information—throughout the product life cycle, says Fine. In one case, Proven Process lost a bid on a project for a major device company solely because it didn't have a long-enough track record in the industry. “We've been around for 10 years, and that wasn't long enough for them,” says Fine.

The Right Perspective
Innovation can be an essential element of a product's development—especially in the medical field—so try to find design engineers who can handle a degree of risk. “Rather than shooting down ideas, they're willing to give some things a try,” says Howey. You're looking for a partner that is comfortable putting in the work necessary to test and prove concepts and to go through a process of design experiments to develop innovative solutions. Trial and error are part of the process. “If everything's right initially, you may be being too conservative,” Howey says.

An ideal partner will also look at things from a big-picture perspective rather than just considering the feature or components it is hired to develop, says Howey. If a developer can become part of the R&D process, spotting and addressing issues regarding how the component will fit into the product, this is a big advantage for the OEM.

You also want a design partner that won't lose sight of the project objective. “At the end of the day, the OEM wants to get the product to market,” says Eric Resnick, vice president of engineering at The Tech Group (Scottsdale, AZ). “Remember what it is you're trying to accomplish.” Resnick advises choosing a partner that treats design as a formal, objective-driven process, “and not just a bunch of activities.” Having a process such as six sigma in place—especially if both the OEM and development partner are working within the same parameters—drives discipline, speed, and effectiveness.

Manufacturability

Manufacturability should be an important consideration in your outsource partner's design processes. “The more manufacturing input you can push into the design phase of the project, the fewer mistakes you will have later during the manufacturing phase,” says B. Braun's Bartholomew.

The Tech Group, primarily a contract manufacturer, has often found itself working with both an OEM and the design firm it has hired to develop a product. In many cases, according to Resnick, the company works closely with the designers to adapt products for manufacturing. “The designers we've had the most success with understand the nuances of the materials and have a basic understanding of manufacturing technology,” Resnick says. To help ensure that the contract manufacturer, design partner, and OEM form a seamless team, choose partners that can work well together. If the contract manufacturer and the design partner have a prior relationship, that can be an advantage, Resnick says.

At very least, a design firm shouldn't be shy about communicating with a manufacturing partner or internal manufacturing team. “We like to work with people who are willing to discuss the functionality of the part,” says Bob Lamson of MicroGroup (Medway, MA). If a part will be particularly difficult to manufacture, understanding the part's functionality often enables the manufacturing partner to offer alternatives, he explains.

It is important to hire designers who can put quantifiable definitions on features. If something needs to be “sharp,” how sharp? If something should be “soft,” how soft? Someone should be readily available to answer these types of questions. “If [the designers] don't have the information, they should be able to work with us to get to that goal,” Lamson says. “Answering those questions may mean the difference between providing an accurate estimate and part and an overpriced, less-desirable component.”

Of course, outsourcing both design and manufacturing to the same company means the OEM doesn't need to manage such relationships. When working with separate development and manufacturing partners, “you, the customer, are going to be in the middle of a dispute at some point,” warns Avail's Keene. “At some point, you will have to reconcile the design to manufacturing.” Avail eliminates this need by pulling operational people into the design process to help ensure design creations that will be cost-effective to manufacture, Keene says.

Black, of B. Braun, also warns of potential wasted time and money when OEMs assign design and manufacturing to separate companies. “We R&D products for long-term manufacturing,” Black says. “We base the design of the product on how we're going to manufacture it.”

Regulatory Experience

Even the most manufacturable product might as well have never left the drawing board if it fails compliance testing or doesn't meet regulatory standards. So, a design partner that understands the regulatory environment, invention protocol, and processes that the medical industry requires is essential, says The MedTech Group's Reich.

Companies that work exclusively with medical devices understand the regulatory and quality environment of the device industry, making them worth a higher bid, Reich says.

Proven Process has lost bids to lower-priced competitors outside the industry, only to be hired later to redesign portions of the project when it failed compliance, according to Fine. One particular product went through the design process four different times, with four different companies. The finished Class II product cost almost an order of magnitude more than the original estimate and launched three years later than planned, Fine recalls.

An outsourcer with enough development experience may be even better equipped to navigate the process than an OEM, says Keene. If a company is launching just one or two products per year, “its chances of a mistake on the documentation side of the process are fairly high,” he says. Large-scale outsource firms such as Avail can afford to have employees who do nothing but prepare regulatory documentation. Most device companies couldn't justify that expense.

Intellectual Property Protection

Entering into any outsourcing agreement—but especially one for product development—means trusting your partner with your company's intellectual property (IP). Yoon advises keeping technology-based products and their R&D under good control, particularly when dealing with overseas sources. “I have noticed, especially in recent years, that other countries copy our technology, and sometimes improve it, so that their copied versions appear in our own market with upgrades and lower prices,” he says.

Nondisclosure agreements (NDAs) are a standard part of any outsourcing partnership. However, there are other steps that development partners can and should take to protect an OEM's assets.

Reich advises finding a development partner that knows the market and is willing to do a thorough IP and patent search prior to beginning development. “Make sure it's done up front,” he says. “Sometimes we're being asked to work in a field that is already fairly saturated.”

Many companies that provide development services make it a practice not to own any IP that comes out of projects they undertake for customers. “We believe that a designer should assign all intellectual property inventions to the OEM,” says Reich.

B. Braun works to create “sincere firewalls” within the company. Project team members do not share development information outside the team, according to Black. Avail keeps its development labs off-site, so that only personnel directly involved with development projects are at the facility. “That solves 90% of IP problems,” says Keene.

Huff advises having a clear understanding regarding what your NDA covers. In addition, he says, it is important to maintain good communication with your partner during development to clear up any gray areas that may emerge. Occasionally, certain design elements might be considered proprietary by the outsource provider, so know what you are getting into. “Selection of your partner is as critical as what you get on paper,” says Huff.

Goldman believes outsource firms are actually in a better position to protect intellectual property than medical companies. “Secrecy is a big thing,” he says. “We think external sources can keep a project secret better than internal.” This is because people within the industry like to hire engineers away from competing firms, but don't generally think to look for personnel at independent engineering firms. “The head hunters don't come here to hunt out the people,” Goldman says.

Establishing trust is key in making sure IP is protected, agrees Howey. So look for a partner that is willing to go the extra step to establish that trust. “The best way for an OEM to get confidence in Okay's capabilities and R&D team is for them to visit our facility,” Hovey says. “This also begins to establish a strong relationship. Our R&D budget permits us to put people on a plane at 24 hours' notice.”

Being Hands-On

Finding a competent development partner that you can trust with your project is far from the end of the process, warns Reich. OEMs should stay involved through the entire development cycle, have engineers available to work with the design firm, and maintain an understanding of the market and the product. “The OEM needs to maintain some core competencies,” Reich says.
Maintaining a certain level of in-house expertise enables the OEM to educate its sales force and to answer customer questions, says Huff. “You don't want to always be calling an outside design group to answer routine questions.”

Treat the design partner as if it is part of the OEM's internal development staff and you'll enjoy a more fruitful collaboration, says Fine. “Clients that are engaged in the project and help you work through their company's quality and development processes tend to be the most successful,” he says. “Companies that take a hands-off approach and just wait for quarterly reports are less successful.”

A design partner should also be ready to assist with knowledge transfer and retention. Proven Process ensures that the design history file is duplicated in the formats the OEM uses internally. It also holds training sessions for key personnel and sometimes even has representatives from the OEM take up offices in its facility. Fine compares it with a shopping-mall approach. “We like to have lots of anchor stores that want to give us continuous business.”

The Relationship

Building a good relationship with a development partner can help avoid many pitfalls of outsourcing an R&D project. One of the major hazards to avoid is not communicating closely enough, according to Black. Representatives from every discipline within a company—including marketing, sales, and engineering—need to be involved from the outset to ensure success.
Communicate a clearly defined scope for your project to your outsource partner up front. OEMs that set goals and milestones for the project, and that follow up and monitor its progress to make sure those are being met, are at an advantage. If project requirements aren't discussed thoroughly at the outset, you risk hiring an outsource partner that cannot meet project goals, warns Bartholomew.

Those requirements should include a clear delineation of who is going to do what, says Keene. He explains that there is often a gray area in terms of which responsibilities fall to the customer and which to the outsource partner. Clear product requirements defined at the outset—and adhered to throughout the project—help avoid the design creep that occurs when new requirements are continually added.

And despite the indisputable need to get to market as quickly as possible, keep project timelines reasonable, advises Keene. He says that if faced with a set launch deadline, such as a trade show, OEMs must be careful about adding project requirements and delaying design completion until the eleventh hour. “Unreasonable timelines are absolute killers,” he says. “They kill the cost-effectiveness of the project and create a sense of chaos that is very difficult to manage through.”

During the project, provide constant communication and feedback, and be honest if things aren't going well, advises Howey. Point out problems sooner, rather than later, and be patient with the necessary design experiments along the way.

Communications with your outsource partner should be coordinated, to avoid having different messages come from different parts of the company. “You don't want your in-house engineer telling your partner one thing, and your marketing department telling it something else,” says Huff. Make sure the process is documented, but look for a partner that can document thoroughly without getting carried away. “The documents can't become the project,” Huff says.

As in all relationships, OEMs and their development partners need to learn to respect and acknowledge each other's expertise. Being able to ask questions as needed, and “being able to admit your shortcomings,” helps projects run more smoothly, Resnick says.

In fact, when an OEM and a developer are both doing what they do best, they strike a good balance, according to Reich. “OEMs are experts at the market,” he says. And when they continually feed their knowledge of the market to development partners with the right technical expertise, it creates an ideal environment for creating new products.

Christina Elston is a freelance writer who frequently contributes to MD&DI.

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