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Making Private Labeling Work

Originally Published MDDI July 2004

July 1, 2004

11 Min Read
Making Private Labeling Work

Originally Published MDDI July 2004

Product Development Insight

Meeting QSR requirements can make private label agreements complicated, but with proper considerations, compliance problems can be avoided.

David Warburton

Private labeling is ubiquitous in the medical device industry. This is not surprising, given the regulatory hurdles facing a new medical device's introduction to market. When those hurdles are weighed against the benefits an OEM can derive from privately labeling a product already on the market, private labeling seems the obvious choice.

Private labeling can add complementary products to the OEM's distribution channel, increasing the marginal sales at each sales point. It can also enable the OEM to focus on core competencies. These benefits motivated the Class III medical device company where I once worked to privately label a surgical instrument made by a small local company. The innovative instrument was used during the implant procedure for our device. However, our company had no experience in instrument design and was in no position to develop a similar one on its own. Our sales force saw an opportunity to sell a complete procedure kit, rather than give the instrument's sales profits to a competitor.

But despite the advantages of private labeling, OEMs are often suspicious about a private labeling initiative. At best, it is a potential problem in a well-oiled supplier quality machine that may cause disruptions until all the operational details are resolved. At worst, it is viewed as an end run around an OEM's internal quality system regulation (QSR) and product development systems. This viewpoint is reinforced when the OEM is large and the supplier is small. (A garage operation was the term critics in our organization used.)

For whatever reason an OEM pursues a private label partnership, the two companies must make the relationship work day after day. This article discusses some practical ways to help integrate a private label product into the OEM's quality system and meet applicable QSR requirements.

Broadly, there are two things that the OEM needs to define when purchasing a private label product from a supplier. First, the company must define the overall relationship with the supplier, which is typically done through a supplier contract. Second, and equally important, the OEM must define, in detail, the actual product that it is to receive. This includes not only the specifications of the device itself, but also labeling, which includes packaging and user instructions. 

In my company's case, we wanted our supplier to make some minor changes within its instrument's 510(k). The changes would enable the instrument to work more effectively with our implant. Naturally, we also wanted the instrument's packaging and instructions for use to prominently bear our company brand. The instructions for use also needed to illustrate the use of the instrument with our implant. However, we felt it was unnecessary and unproductive to attempt to control all the specifications of the delivered device. The whole intent of the private label arrangement, after all, is to place that burden on the private label manufacturer. We were looking to achieve the right balance of control between the two organizations.

The balance of control starts with the supplier contract. It sets up the relationship between OEM and supplier. Because FDA regulates medical devices, a private label medical device contract needs to go beyond the standard issues of pricing and delivery. It should address a number of QSR-related issues such as the following:

• Design responsibility. Who owns the design, and who is responsible for maintaining the design history file?
• Customization. Often an OEM requests special features on the product. Who owns the commercial rights to those features, and who owns design responsibility? 
• Branding and labeling. Who is 
responsible for the design of the 
labeling, and how is the labeling going to be documented?
• Document change control. How will the two companies manage changes to specifications of the product or labeling?
• Returns and repairs. Who will be responsible for product returns? Who will service the device? How will the device history record be maintained?
• Complaints and field actions. Who is responsible for tracking product complaints and filing medical device reports with FDA? Will field actions be required? If so, who will make the decision to initiate one? If a field action is initiated, who will administer it and bear the costs?
• FDA audits. If the supplier is audited, is the supplier obligated to notify the OEM? Can the OEM review the supplier's response before it is sent to FDA?

My focus here is on the first four items on the list, which cover design controls between OEM and private label supplier. I have included the last three items on this list (returns, complaints, and audits) for completeness because they are often overlooked in a contract. They will not be discussed further.

The ownership of design responsibility is the defining question in the relationship between the OEM and the private label supplier. Typically, the supplier owns the design and is responsible for the design history file as defined in Section 820.30 of the QSR. If the OEM owns major aspects of the design and the design history file, then the supplier is usually considered a contract manufacturer rather than a private label supplier.

Ownership of the design may seem obvious until the subject of customization arises. Customization of a private label product can range from a simple color change to complex changes to the device's software that require revalidation. Our company wanted some design changes to the surgical instrument so that it held our implant more firmly. But then who owned these design changes? We wanted the private label supplier to own the design history file. But from a commercial standpoint, we wanted the changes to be exclusive to us. More precisely, we did not want the supplier to incorporate them into its own brand. The contract should define who owns the regulatory responsibility and the commercial rights to any design changes to the original device.

Even if the OEM chooses to use the supplier's product essentially unchanged, the issue of branding and labeling remains. For this discussion, branding is considered the brand labels as well as any of the nonregulatory aspects of the package design. Labeling includes the regulatory labeling on the product and the instructions for device use.

There is often collateral material as well, including warranty cards, patient traceability cards, and special offers. These items are particularly hard to control in the private labeling agreement. The OEM often wants tight control of the brand aspects of the product and some lesser amount of control over the regulatory label copy. The supplier, on the other hand, must also maintain control of the branding and labeling to meet QSR requirements for label and purchasing control. Consequently, the OEM and supplier may maintain duplicate label documentation in their respective document control systems. If this duplicate documentation is not closely managed, the documentation at the two locations might not match. 

When my company placed the surgical instrument in our catalog, we wanted the device to have our logo laser-etched in the handle. This meant that the handle with our name on it became a unique part for our supplier, with a unique part number. Consequently, the supplier needed to maintain the part drawing for the handle in its document control system. We needed to be able to notify the supplier when our company logo changed but did not want to maintain a copy of the handle drawing in our files. On the other hand, we created and approved the instructions for use, but the supplier physically printed and inserted them in the packaging. So both companies' document control departments needed to maintain a copy of the instructions for use.

This leads directly into the issue of change control. It is a very good idea to create a framework for engineering change control between the two companies in the contract. Our company was going through a merger spin-off phase, which caused us to change our company logo almost monthly. It was fortunate that the two companies had agreed on a method of change control early on, because it allowed the supplier to readily adapt to our changes. It created a consistent process for OEM changes to be communicated to and, most importantly, acted upon by the supplier.

Frequently changing the name of our company also tested the effectiveness of our documentation methodology. The three key stakeholders in our document control system were the incoming inspection, engineering, and purchasing departments.

The incoming inspection staff must be able to use the documentation to ensure that the correct product has been shipped from the supplier, that it meets key specifications, that all accessories and collateral material are present, and that all label copy is present and at the correct revision.
The engineers must also be able to associate the documentation with the private label product. They then must execute changes to that documentation through their document control process.

The purchasing department must be able to access all relevant documents and have a process to consistently communicate document changes to the supplier. 

The documentation methodology we developed met the stakeholders' needs by recognizing the “one part number, many parts” problem. On one hand, the private label device is purchased, inspected, stocked, and sold as a single part number. Accordingly, the documentation has to reflect this. On the other hand, the private label device is not a typical purchased part, like a screw or a resistor. Rather, it is a collection of components, including the device itself and all the collateral items, such as instructions for use and packaging. The documentation must also reflect this, to ensure all collateral materials are present with the device, at the correct revision.

Our solution was to create a single, top-level drawing for the device, corresponding to its stocking part number. In addition, an associated materials resource planning (MRP) bill of materials (BOM) listed all the collateral materials. 

The device and everything physically attached to the device, like the brand labels, were described in the top-level “source control drawing.” The source control drawing was our principal method of controlling the private label product. Such a document is part of the ongoing contract between OEM and supplier for the product. It is also the primary source of information for the supplier quality organization. 

A typical source control drawing for a private label product contains the following information:

• Key specifications for the product, emphasizing the features unique to the OEM.
• Quality test requirements the product must meet.
• The location of, and possibly a description of, all OEM-specific labeling.
• Special packaging requirements.

We documented the laser-etched logo on the instrument handle in the source control drawing. To help the supplier recognize that there is more to the device documentation than the source control drawing, including the following note may be helpful.

“This source control drawing is incomplete without a bill of materials supplied by OEM Inc. The bill of materials lists the revision of the components that shall be supplied with this product. It is the responsibility of the supplier to obtain the latest revision of the product's bill of materials.”

Creating a BOM for a private label product was probably the most nonintuitive part of our documentation approach. Many organizations simply list or describe the collateral items on the source control drawing itself. The drawback to this approach is that the list on the drawing cannot be searched electronically. A BOM for the product enables comprehensive searches by MRP users for common items such as warranty cards, patient traceability cards, and packaging material. If the device has a BOM, a search for a warranty card will identify all products that it is used in, both internal and external. This is true even if the warranty card in the private label product is printed at the supplier. Furthermore, creating a BOM for a private label product links all the other controlled documents, such as complicated instructional labels, to the top-level product. Doing so mirrors exactly the way these items are controlled for internal products. This allows both the internal organization and the supplier to be able to know what the latest revision of the document was.

It is safe to say that most medical device companies, at some time in their corporate lives, will find themselves at one side or the other of a private label agreement. It pays to realize that QSR design and change control requirements make a private label agreement more complicated than most supplier agreements. However, if the impact of the QSR is understood and addressed in the contract and product documentation, then compliance problems can be avoided. 

Copyright ©2004 Medical Device & Diagnostic Industry

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