GUIDE TO OUTSOURCING: OFFSHORE STRATEGIES
Good outsourcing starts with proper materials validation. For example, documentation should contain specific language identifying resins and compounds to be used without substitution.
As the U.S. medical device market approaches $100 billion in annual sales, a growing number of medical OEMs are looking to adopt offshore manufacturing as part of their strategy to improve cost-efficiencies, time to market, and overall competitiveness.1 Improved overseas manufacturing infrastructure, including communications, transportation, and technical proficiencies are all making offshore manufacturing increasingly attractive to medical device companies. For some manufacturers, achieving an offshore manufacturing presence is an important step toward marketing their products to the approximately 2.5 billion users in the Asian markets (including India).
If your company is considering offshoring, there are several factors to take into account before making the commitment. Intellectual property (IP) protection, economic and political stability, and cultural barriers are some of the obvious considerations. But the medical market has unique needs that can make or break a product and even a company if handled improperly. OEMs often find the following key topics difficult to approach:
How to verify raw materials to ensure product efficacy.
How to defend against product and radio-frequency identification (RFID) counterfeiting to ensure patient safety.
How to manage quality assurance (QA) processes to meet FDA requirements.
As complex as offshoring might sound, it can actually be quite safe, efficient, and profitable with a little homework and the right systems in place. And while some experts might advise U.S. device makers against manufacturing in Asia, the region's rapid growth as an economic power in the past 10 years has had a significant effect on the manufacturing expertise, talent pool, experience, and employee attrition. Such development makes Asia one of the best places for manufacturing today.
Choosing the Right Manufacturing Partner
Although a medical device OEM may have experience with domestic outsourcing, selecting the right manufacturing partners in other parts of the world often involves different expertise. Many crucial criteria used in the decision-making process that might be taken for granted in the United States must be carefully evaluated when considering overseas partners. For example, it is important to know whether the region has access to basics like clean water and reliable power supplies.
OEMs must choose partners with long-term goals in mind. It takes a lot of effort to establish relationships, good communications, trust, and understanding. It's critical to choose a partner that will be able to handle not just one program, but also the second, third, and fourth programs. OEMs must look ahead to potential future needs that may require additional capabilities, such as engineering or other services.
The Key to Success: Good Project Management
Outsourcers should have equipment from reputable builders, recognizable to the OEM.
One critical question that needs to come up early in the process is, “What is the potential offshore partner's approach to project management?” Get a clear definition of the team that will be assigned to the program and how it will make reports. Make sure that a true project manager, not the general manager or an account salesperson, is assigned as point person. A real project manager is dedicated to the project and has the time, expertise, leadership, and focus to support good communication, resolve problems, and meet project deadlines.
But selecting a good project manager on the manufacturing partner's end is just part of the process—an OEM must have a good project manager on its end as well. Once a project manager has been assigned at home, a team needs to be assembled, a budget determined, and reasonable timelines established. The team should include personnel from the supply chain, operations engineering, and, most importantly, quality control. Ideally, the team would include employees actually working on the project, not just senior management. When budgeting, be sure to include travel expenses that would allow at least five team members to travel at least three times while the program is being set up.
Table I. (click to enlarge
) Establishing a reasonable project development timeline can be daunting. This is an example that calculates the average time it takes to establish an offshore project.
With the team and budget established, the next step is to create a timeline for all phases of the project (see Table I
). Look into the future project pipeline and select an existing benchmark program to help determine a reasonable timetable.
A basic checklist should be used to help OEMs validate offshore manufacturing partners.
Power and Water. Does the potential partner have adequate power backup systems, such as diesel generators, if they're located in a region with spotty electrical service? Is the water supply adequate, and what systems does the offshorer have in place to ensure quality? If the drinking water is unsafe, then it stands to reason that it is also inadequate for washing prior to handling medical products. In areas with questionable water supplies, check for hand-sanitizing units at washing stations and throughout the assembly area. When touring the facility, periodically check hand sanitizers to see whether they are properly maintained.
Security. What security measures are in place to protect facilities and workers from acts of terrorism or internal unrest?
Training. How is the quality and reliability of the employee base? Are they well trained, well treated, and happy with their employment? Turnover is the number one indicator of a potential partner's overall working conditions. Employment opportunities for people with healthcare product experience is very strong, so high turnover can indicate underlying problems that could jeopardize the relationship. Ask to meet with the team that will be working on a project; if team members are unavailable or have worked only a few months with the company, a red flag should go up. Team members that have been around for three or more years have experience, and the OEM should take their presence as a positive sign.
Look for globally recognizable training and certification programs. Organizations like the Project Management Institute (PMI) certify project managers globally. A project management professional (PMP) in Shanghai, Bangalore, or Beijing has to pass the same requirements as one in New York City, London, or Tokyo. The quality field has its own certifications, such as CQE, CQA, CQM, and Six Sigma programs. RJG's Master Molder program shows a true commitment on the part of a manufacturer and is a sign that the potential partner understands the value of a highly trained staff.
Language. Is there a language barrier and, if so, what accommodations are available to overcome it? Heavy accents can easily be mistaken for lack of fluency, especially on long conference calls. Project notes, scope statements, and specifications are a lot more important than phone conversations. Clear, properly constructed written communications, such as e-mails, are a better indicator of fluency. Web-based translators often misinterpret phrases or statements and will seem completely out of context with the subject matter.
Work instructions should be provided in English as well as the native language. Ask to take a sample to have it checked for accuracy with an outside service. And be prepared to hire a translation service close to the home office to ensure that the OEM's own protocols are accurately translated.
Multiple visits to a prospective partner's facilities and thorough research into these issues can dramatically improve the odds of securing a reliable, effective manufacturing partner overseas. During the multiple visits to the facility, ask to meet with various team players that will be close to the project and hold discussions with them. This is the best way to get a thorough understanding of a partner's fluency. If the programs teams are not present during the first couple of visits, it may be an indication that the management of the supplier feels uncomfortable putting the team members in front of potential customers. Don't be afraid to request that team members be present during the initial presentations or during review of the requests for quotations.
The processes to produce medical devices aren't the same as those for consumer goods.
Contract manufacturers must have adequate facilities and equipment to support healthcare product manufacturing programs, including cleanroom, injection molding, and auxiliary equipment. Well-known machinery and facility providers from Europe, the Americas, and Japan are also established in most developing regions and have familiar IQ/OQ/PQ processes as well as other validating programs. The expense of validating a program can often be almost as much as the equipment it is running on. You don't want to have to revalidate your program just because your manufacturing partner has to replace an unreliable, inexpensive mold machine.
Look over the facility carefully for signs of water damage and especially mold. Dig deeper if, for example, you smell fresh paint. You may walk into an air-conditioned cleanroom but that doesn't mean it is always maintained that way. A good manufacturer can demonstrate that it has monitoring devices, an up-to-date maintenance log, and valid cleanroom certification. Try to visit during the rainy season if the region you're considering has one. It may be less enjoyable than the dry season, but it enables an OEM to see its manufacturer under the worst conditions. With such information, an OEM can anticipate the level of risk planning (against flooding, poor road conditions, etc.) that may be required.
Personnel. Employees of the outsourcing firm must have an adequate level of resources and be able to meet the complexity requirements of an OEM's projects. It is part of the OEM's job to have an idea of the required project staffing before exploring new contract manufacturers. Hold internal meetings and develop a work breakdown structure and a resource plan and match it up to a project timeline. Use this as an internal benchmark for incoming proposals. For example, if internal data suggest that a project requires 26 weeks and a staff that includes a program manager, quality engineer, tooling engineer, process engineer, and three project engineers, the proposal from the outsourcing firm should match those criteria. However, if the proposal comes back with a lead time of 10 weeks and no outline of the team, don't panic yet. Healthcare product manufacturing is relatively new to developing regions and a 10-week lead time with no dedicated resources may be an honest underestimation.
Systems. Contract manufacturers should have mature quality systems and show evidence of following CGMPs. ISO 13485 certification is a positive sign that a contract manufacturer is committed to healthcare product projects. If the contract manufacturer is not ISO 13485 certified, it is acceptable for the OEM to ask when it plans to obtain the certification. The contract firm should also show evidence that it follows safety procedures and abides by all current employment and environmental laws.
Experience. Contract manufacturers should have some level of experience managing healthcare programs and operating healthcare production. The project staff must be familiar with the documentation requirements for developing and validating production equipment and processes. The facility should also show evidence of manufacturing products following CGMPs and production batch records as well as maintaining a strict level of traceability.
Raw Materials Verification
Proper training of employees is an essential aspect of offshoring.
It almost goes without saying that verifying the compounds and materials used in medical device manufacturing is critical. The quality and reliability of offshore raw materials labeling can be problematic. This can be especially difficult for plastics, because, for example, one blue plastic can look and feel just like another blue plastic. Determining the actual compounds of that plastic can be a challenge without expensive and time-consuming testing.
Fortunately, if the process for choosing the right manufacturing partner is thorough, chances are very good that the quality and reliability of their raw materials will be good, too. It's important to raise this issue early in the selection process. Satisfactory answers can help avoid manufacturing, quality assurance, or legal problems down the road.
Documentation should contain specific language identifying resins and compounds to be used without substitution. Additional security measures such as RFID tagging can help track materials and products throughout the manufacturing and shipping process.
The Curse of High Volume
Many Asian product manufacturers cut their teeth producing high-volume consumer goods such as cell phone cases. So while it makes perfect sense to approach these companies for high-volume Class I or Class II medical devices, it's important to understand that the same processes used to produce and validate consumer goods is not sufficient for producing medical devices subject to stringent FDA requirements. Do they use good manufacturing practices as defined by FDA for the “design, manufacture, packaging, labeling, storage, installation, and servicing of finished medical devices intended for commercial distribution in the United States?”
This is important not only from a regulatory standpoint, but also from a cost-efficiency one. Many high-volume Asian manufacturers work with a business model that does not put a priority on long-lasting molds—many are willing to simply remake a mold once quality starts to drop. The production life cycle of a typical cell phone project can be less than 12 months. If the quality of the mold deteriorates during this time, it may be easier to simply replace the existing mold.
The production life cycle of a healthcare project can easily reach 10 years with many lasting 20 years. Rebuilding a mold several times throughout the production life cycle of a healthcare program is cost-prohibitive, especially when factoring in validation costs for the mold and the product. Trying to save $50,000 on an initial mold is often the most expensive mistake made in offshoring programs. There are reputable mold builders with the required capabilities, but the savings will not be as attractive by the time the required specifications and life expectancy are thoroughly defined. The familiar “you get what you pay for” adage definitely applies to molds for manufacturing.
Paying close attention to GMPs and the actual production processes can help in the short term, but it also has long-term ramifications. If spotty product quality results from inadequate mold quality, there is a potential for expensive product recalls down the line.
Counterfeiting and IP Protection
Counterfeiting is the most prevalent and visible problem with offshore manufacturing. In fact, the problem is such a concern that the WHO launched a high-profile campaign against counterfeiting two years ago. Called the International Medical Products Anti-Counterfeiting Taskforce (IMPACT), the program works with governments, manufacturers, pharmaceutical and medical device companies, and the legal community to find ways to identify and stop counterfeiting.
e sure to meet with the staff that will be working on the project.
Medical device producers have a number of options to protect products and companies, beginning with the partners they select. How intellectual property is protected, and the processes and procedures put in place to verify, validate, and monitor production and distribution are equally important. Be sure to evaluate a potential partner's policies toward data access and laptop usage. Even the manner in which medical products are packaged can make a difference—the more unique and innovative the packaging, the harder it is to reverse engineer and counterfeit. Advanced RFID tagging also makes it more difficult to counterfeit products and packaging and easier to track genuine products.
Transcending Cultural Barriers
Technology has increasingly reduced the world to what media analyst Marshall McLuhan called “the global village.”2 However, there are cultural barriers that should be taken into account to avoid misunderstandings, unnecessary technical issues, delivery delays, and quality or regulatory problems.
English is considered the international language of technology. But something as simple as the word “yes” can mean very different things in different cultures. Although it is always wise to understand the cultures, it is more important to understand that an ethical and responsible healthcare product manufacturing culture is universal and that the safety of the end patient overrides any cultural sensitivities. Not following protocols is simply unacceptable and should never be tolerated, regardless of the reason.
Global Partners: Get the Best of Both Worlds
Working with a domestic partner that has overseas manufacturing operations can perhaps reduce the risks of offshore manufacturing, yet still let OEMs benefit from its advantages.
IP Protection. Domestic manufacturers with overseas operations are self-contained, self-regulated entities that offer the highest level of protection allowed by U.S. law. The risk of IP theft and reverse engineering can often be reduced when design, manufacturing, and distribution is handled by a U.S. firm.
Best Fit Manufacturing. By choosing an international manufacturing partner with multiple regional manufacturing facilities, a medical device company can benefit from manufacturing in a region that best fits particular needs. Such needs may vary from product to product. Working with an established U.S. manufacturing partner that offers offshore facilities can greatly improve communication and the overall speed at which a program can progress. For example, the time difference between the U.S. east coast and China is 12 hours and India is 9½ hours. Project teams have to get used to late-night and early-morning calls. Working with a partner close by, and allowing them to program manage the bulk of the project will greatly ease the burden for the OEM's employees.
Supply-Chain Compression. Simply put, supply-chain compression is the elimination of unnecessary logistical steps in the process of manufacturing and distributing a product. If one company handles the offshore manufacturing, then quality assurance, international inventory maintenance, and shipping costs can be reduced and time to market minimized.
Risk Mitigation. This overall term encompasses a number of subjects, including manufacturing disruption, disaster recovery, and political or economic unrest. A partner with global operations and a documented, thorough disaster recovery program enables risk to be spread across a number of economic and geographic regions, minimizing exposure to disruptive.
Comprehensive QA. End-to-end, single-source responsibility for manufacturing and delivery, strict auditing throughout the entire process, domestically driven adherence to GMP and FDA requirements are all major advantages of working with a U.S.-based international manufacturer.
Some medical device companies have shied away from offshoring for many of the reasons stated in this article. Ensuring product efficacy, defending against product and RFID counterfeiting, and management of QA processes to meet FDA requirements are significant hurdles.
But OEMs may now want to reconsider. With WHO and governments worldwide taking steps to address counterfeiting and IP theft, the associated problems with manufacturing are beginning to abate. Advances in security technology and manufacturing methodologies are also making it easier to develop relationships and partnering arrangements offshore. By doing so, medical device companies can take advantage of highly skilled, low-cost labor worldwide, particularly with manufacturers that can offer international manufacturing facilities with experienced oversight.
Mike Fritschy is senior director, global program management, Nypro Healthcare (Clinton, MA).
1. Marco Bafan, “Keys to Offshore Outsourcing/Medical Device Makers Starting to Look for Overseas Partners,” New England Research Application Center study, 2008.
2. Understanding Media, Marshall McLuhan, 1st ed. (New York: McGraw-Hill, 1964).
Copyright ©2009 Medical Device & Diagnostic Industry