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Exploring Singapore’s Supply Base

The growth of Singapore’s biomedical sector could be a boon for device OEMs looking to outsource.

Audrey Soon

March 1, 2008

13 Min Read
Exploring Singapore’s Supply Base

GUIDE TO OUTSOURCING: SINGAPORE OUTSOURCING

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A quality control worker in Singapore prepares to test a printed circuit board assembly. Photo courtesy of SEM Manufacturing Pte. Ltd.

If statistics are any indication, Singapore has emerged as an attractive location for medical device manufacturing. The country's manufacturing output within the biomedical sciences sector grew to $15 billion in 2006, a 30.2% increase over the prior year, according to the Singapore Economic Development Board. A significant driver of Singapore's growth in medtech manufacturing is the country's availability of suppliers that provide a range of services to medical device manufacturers. These services include product development support, third-party registered quality systems, manufacturing strategies, and intellectual property (IP) protection.

Medical device manufacturers often have a complex mix of product requirements, and the competencies of Singapore's supply base provide medical device manufacturers with various options in structuring their sourcing strategy.

Product Development

Singapore's supply base includes both local and foreign-owned contract manufacturers and precision engineering firms that provide product development support services for their medical customers. For example, Singapore suppliers are available to help device manufacturers that only require assistance in design for manufacturability or design for testability. But there are also suppliers to help manufacturers that need support in adding product functionality such as radio-frequency capabilities, which may not be a core design discipline for some companies. Many suppliers in Singapore have invested in medical-industry-specific quality certifications such as ISO 13485, and some have met the requirements for FDA registration of their facilities. Following such steps has enabled the service providers in Singapore to better address the unique requirements of the medical device industry.

Manufacturing Strategies

Service providers in Singapore can help manufacturers develop cost-effective strategies for manufacturing. For example, device manufacturers may pursue a two-tiered strategy that shifts their mature, margin-sensitive products to regions with lower labor costs and that retains new projects for regions with skilled personnel and strong IP protection.

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A technician inspects the quality of a ball-grid array solder joint. Photo courtesy of SEM Manufacturing Pte. Ltd.

Medical OEMs need suppliers that can implement engineering change orders, support varying production volumes over the life of a product, and cost-effectively support product end-of-life needs. But they also need support for high-volume, less-complex products. Many Singapore outsourcing firms have facilities that address the needs of complex projects. However, many of these supplies also have facilities in lower-cost labor markets such as Vietnam, Malaysia, Indonesia, Thailand, China, and India that can support the needs of more margin-sensitive, high-volume products. Such an arrangement enables manufacturers to select a supplier headquartered in an English-speaking country with a strong legal system, but still have access to manufacturing facilities in other countries. This can help device manufacturers to develop a one-stop outsourcing strategy. Such a strategy can support an entire range of products instead of only high-volume, margin-sensitive products. A one-stop strategy helps minimize hidden costs that are caused by poor communications or a poor fit between project requirements and the contractor.

Unlike many emerging labor markets, there is a minimal learning curve trade-off in Singapore because the service providers have experience with supporting complex, highly regulated manufacturing projects. Typically, when Singapore-based suppliers open satellite manufacturing operations in adjoining low-cost-labor regions, they transfer a robust set of administrative, quality, and manufacturing processes and provide extensive workforce training. As regional experts with an extensive network of business relationships, they often have a better understanding of the best areas to locate facilities in terms of labor availability and associated support supply base. Singapore-based suppliers can often help device manufacturers negotiate costs associated with running facilities in the region.

Although Singapore isn't the only manufacturing option in the region, its particular advantages have made it attractive to device manufacturers with concerns about product quality, product design security, and the availability of engineering and administrative support. These advantages include the following:

  • Stable political climate with strong government support for providing the infrastructure critical to medical device manufacturing.

  • IP protection.

  • Easy access to global markets and buyers.

  • A highly educated workforce.

  • Access to a number of low-cost labor markets within the region.

  • A diverse supply base that includes electronics manufacturing services providers and a range of precision engineering firms.

For many multinational companies in the device industry, this combination of features can translate to reduced outsourcing costs without compromising quality or responsiveness. Singapore also supports companies that wish to use the region for a combination of wholly owned manufacturing and outsourcing. In some cases, this strategy may involve also using Singapore as a distribution hub for product sales within Southeast Asia or beyond.

Specialized Personnel and Processes

Singapore's supply base offers the manufacturing expertise and high levels of product quality and traceability required by device manufacturers. For example, one medical device manufacturer selected a Singapore electronics manufacturing service (EMS) provider for an electronics design and printed circuit board assembly project for a device used in physical therapy. The lead supplier then teamed up with another supplier specializing in plastics injection molding for the housing design.

The EMS provider also provided support during the design phase for approvals through FDA, SFDA (China's regulatory body), South Korea, and Europe's CE mark. With a consultant's assistance, the supplier provided failure modes and effects analysis documentation to support risk management analysis and also ensured that the design met ISO 14001 standards.

Outsourcing partners in Singapore can also consult on key designs issues such as compliance with the Restriction of Hazardous Substances (RoHS) Directive. Although medical companies are currently exempted from complying with this directive under the EU RoHS legislation, all products sold in China are required to comply with China's RoHS legislation. The EMS provider offered both traditional and RoHS-compliant manufacturing capabilities so that the device could be sold in China, and its engineering staff had expertise with various market requirements.

Many Singapore suppliers retain experienced groups of engineers and program managers who already support initiatives such as Six Sigma, lean manufacturing, design for manufacturability, and customer-driven annual cost-reduction initiatives. Most supplier teams at Singapore outsourcing companies work directly with their customer counterparts. In some cases, joint teams are formed to focus on process improvement or cost-reduction.

In other cases, customers set joint goals with a supplier team that then manages the improvement process and reports results. Communication can be through e-mail, visits to either the supplier or customer's location, or through video or teleconferences, depending on customer preference.

One challenge faced by medtech companies entering new manufacturing regions is finding service providers with skills that are adequate to support their more-complex and rigorous requirements. Finding electronics contract manufacturers or disposables packaging contract manufacturers, for example, is usually not difficult. But in many emerging regions, finding quality precision engineering services can be challenging. These service providers often specialize in consumer product manufacturing and may not automate or have equipment compatible with the tooling required for more-complex projects such as medical devices.

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A contract manufacturing firm in Singapore provides cleanroom assembly for a medical device. Photo courtesy of Beyonics Technology Ltd.

Singapore's precision engineering supply base was initially developed to support the disk-drive industry, which required both the ability to machine to tight tolerances and the ability to assemble complex products to rigorous quality and customer service requirements. This skill set transfers well to the medical industry.

Today, Singapore's precision engineering industry offers support for the medtech sector's requirements of cleanroom molding and assembly, precision machining, and stamping. Supplier capabilities range from custom components through complete unit construction. In some cases, suppliers provide a turnkey solution, while in others, they may team up with a consortium of complementary suppliers to address complex project needs. Such consortia can be formed under International Enterprise (IE) Singapore's I-Partner program, which encourages companies to band together while abroad to complement their product offerings.

The partnership enables members to provide a one-stop manufacturing option for manufacturers that require services such as precision plastic injection molding, metal stamping, precision die-casting for components, tool making, component design, and precision rubber fabrication. The country's precision engineering industry manufactures devices such as optical lenses, endoscopy video systems, electrocardiograph and neurology electrodes, anesthesia pumps, infusion pumps, infant respiration monitors, catheters, and diagnostic kits.

Key Elements of Infrastructure

In the 1980s, Singapore was focused on being a low-cost manufacturing center. But as low-cost markets emerged across Asia, Singapore started to build an electronics and precision engineering supply base that could offer high levels of responsiveness, industry specialization, and technical support. In addition, many Singapore-based suppliers, which include local suppliers as well as foreign-owned suppliers with headquarters in Singapore, began providing access to satellite manufacturing facilities in other low-cost-labor regions within Asia. At the same time, suppliers beefed up their access to manufacturing facilities in key manufacturing regions in Europe and the United States.

The infrastructure in Singapore includes a legal system based on English common law, use of English as the language of business, and strong governmental commitment to supporting the biomedical sector. Over the years, the Singapore government has designed programs addressing issues such as compatibility of quality standards and workforce training to support the critical infrastructure needs of companies. Within the medtech segment, a number of committees and agencies, such as the Singapore Accreditation Council and SPRING Singapore, provide support for research, regulatory policy standardization, workforce training, and development of key technical capabilities.

Today, Singapore's suppliers strongly adhere to ISO 13485, IEC 60601, Good Laboratory Practices, technical references, and Singapore standards. The Singapore Accreditation Council develops, maintains, and improves the standard of conformity assessment activities in Singapore. The council has signed mutual recognition arrangements (MRAs) with regional and international accreditation organizations covering more than 90 accreditation systems. These MRAs benefit companies manufacturing in the region because they help to ensure the availability of local registrars and auditors that support their specific quality standards requirements.

These efforts are meant to align Singapore's training and standards with the requirements of medical companies entering the region. Singapore suppliers have the resources to maintain robust quality systems that meet the medical device manufacturing standards requirements of FDA and its foreign counterparts in Europe and Asia. Such resources can help companies meet their objectives for cost reduction in existing markets as well as efficient entry into new markets.

The Singapore government has enabled firms to identify and assess the capabilities and offerings of potential suppliers in Singapore through IE Singapore. Under Singapore's Ministry of Trade and Industry, this agency organizes

Singapore-based events and international delegation visits to encourage networking between suppliers in Singapore and the companies seeking to outsource work to them. Companies have access to lists of relevant suppliers through IE Singapore's representatives, who are based in more than 30 locations worldwide, including New York, Los Angeles, Frankfurt, and London.

Intellectual Property Protection

Singapore is a contracting state of the Patent Cooperation Treaty and the Madrid Protocol, both of which are administered by the World Intellectual Property Organization. Under these agreements, a resident or national of Singapore may file international applications with the Intellectual Property Office of Singapore as a receiving office. Singapore is also a signatory to the Paris Convention, Berne Convention, Budapest Treaty, and the Agreement on Trade-Related Aspects of IP Rights.

With an established IP system in place, Singapore suppliers can protect the technology, products, and processes that are essential for success and protection against others in the market. This protection also benefits device manufacturers that use the products and services offered by suppliers in Singapore due to the country's strict enforcement of IP regulations. Additionally, companies that feel their IP has been infringed upon have a legal system to pursue the claim.

Free Trade Agreements

Singapore has been part of free trade agreements that support multiple-country manufacturing strategies, as well as market entry with minimal tariffs. For example, the Association of Southeast Asian Nations (ASEAN) Free Trade Area was initiated in 1992. The Common Effective Preferential Tariff Scheme, which came into effect in 1993, is the main mechanism through which tariffs are reduced in ASEAN countries. In the agreement, ASEAN countries agreed to reduce tariffs to 0–5% over 15 years.

Today ASEAN is committed to eliminating all tariffs for products on the inclusion list for ASEAN–6 (Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand) by 2010, and the new ASEAN countries (Cambodia, Laos, Myanmar, and Vietnam) by 2015. Details on the ASEAN free trade area are available at www.aseansec.org.

Singapore has more than a dozen free trade agreements in place and is involved in ongoing negotiations for additional agreements with other nations. IE Singapore maintains a list of these agreements, as well as information on the scope and current status of each, at www.fta.gov.sg. Specific benefits to device manufacturers may vary by the type of product or subassembly, the country in which the product is primarily manufactured, and the end market to which the product is shipped. But generally, the benefits of these free trade agreements for companies manufacturing in Singapore include the following:

  • Low or no tariffs for exports of goods.

  • Reduction or elimination of quantitative import restrictions.

  • Streamlined customs procedures.

  • Improved market access for various commercial and professional services.

  • Agreeable terms for investment in foreign countries.

Cost Reduction

Whether outsourcing or establishing new manufacturing facilities, device firms face two types of costs. The first type is measurable, and it includes manufacturing costs, materials, and freight. The second cost type is driven by project transition costs, expedition costs, quality issues, and other unplanned costs, which can be caused by learning curves, personnel turnover, or supplier inflexibility. Robust support systems and organized internal processes are key to minimizing total cost.

Singapore's supply base is focused on minimizing the surprise factor that can increase total product cost. Factors such as workforce education and stability, IP protection, and rigid adherence to regulatory requirements contribute to overall value for price by eliminating variables that can drive up accountability costs. Additionally, the supply base has focused on implementing internal processes such as lean manufacturing principles. Such processes include raw material or finished goods kanbans, production focused on smaller lot sizes, and minimized equipment changeover time to support the challenges of high-mix, low-volume production as a long-term strategy for supporting industries such as medtech. Some suppliers may collaborate with manufacturers to reduce costs with the following tools:

  • Six Sigma studies.

  • Analysis of supply chain and logistics elements.

  • Tooling design optimization.

  • Design for manufacturability, testability, and assembly.

  • Transfer of less-complex assembly processes to lowest-cost labor regions.

Suppliers may also lower costs through end-market support activities in North America, Asia, and Europe, such as regional support offices, localized program management, or engineering support to the company's facility, depending on project requirements.

Conclusion

Singapore's supply base focuses on many of the values and best practices found in high-cost labor markets. Its proximity to low-cost labor regions makes it a suitable place to centralize contract manufacturing activities. A manufacturing strategy with Singapore as the hub may enable OEMs to tap suppliers governed under an established legal system with mature program management and engineering structures in place.

Audrey Soon is the account manager of the Electronics and Precision Engineering Corporate Group at International Enterprise Singapore. She can be reached at [email protected].

Copyright ©2008 Medical Device & Diagnostic Industry

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