Full-Service Outsourcing: Building Lasting Partnerships

May 14, 2014
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Current market trends actually could spell opportunity for contract manufacturers, but so many moving targets can make staying ahead a challenge. Full-service outsourcing providers discuss the state of today’s market and how it’s changing.

Christopher Delporte
Editorial Director

Creating solid contract manufacturing relationships, as is the case with most of the partnerships in our lives (personal or professional) takes work. Success comes through trust built by constant communication and by understanding what both sides are capable of, need and want. Sometimes, partnerships—even with the most complementary of talents on each side—aren’t meant to last forever but for periods where both sides work together efficiently and then move on as goals shift, markets shrink or grow, and capabilities change. Often, unions grow and evolve together, finding success by bringing discrete talent to common goals.

Such is the nature of outsourcing in the medical device industry. Medical device companies—large and small alike—increasingly are pushed and pulled by a host of ever-evolving financial, regulatory and market forces. These firms have learned over time to rely on manufacturing partners to get their products to market quicker, more efficiently and at a lower cost. But industry consolidation, quality and regulatory concerns have forced to shrink some supplier lists. It also means medtech companies are asking their fewer outsourcing partners to take on more responsibility, which seems to be just fine with contract manufacturers who recently spoke to Medical Product Outsourcing. That’s where the rubber of the full-service outsourcing equation really meets the road.

According to the Millennium Research Group (MRG), a Toronto, Canada-based global medical technology market intelligence firm, current market conditions may actually bode well for medical device outsourcing providers, and companies are reaping the benefit of longer relationships.

“Medical device brand owners in many countries are facing increasing budgetary pressures due to factors such as the ongoing debt crisis in Europe and the implementation of the medical device excise tax in the United States,” according to a report released earlier this year by MRG analysts. “As a result, there will be rising demand for medical device outsourcing and contract manufacturers as brand owners aim to cut down on production costs, particularly for high-volume and low-margin devices such as endoscopes and surgical instrumentation.”

Additionally, some OEMs, especially small and midsize companies, work closely with contract manufacturers when they are looking to launch new products but do not have the resources for large-scale manufacturing, the report noted. The report also pointed out that medical device outsourcing is “fairly high” in the spinal implant market in particular because it’s a sector where many smaller companies with innovative products compete.

And while medical device outsourcing is also a strategy being used by medical device companies trying to increase their presence in developing markets, offshoring is more about reaching local markets than it is low-cost labor.

“Rising interest in emerging markets, such as in Brazil, India and China, is also greatly impacting medical device outsourcing,” said MRG Analyst Julia Wall. “Working with local contract manufacturers can help foreign brand owners avoid high import and shipping costs. They can also more easily navigate local regulations and distribution networks.”

Despite the benefits of international options to serve those markets, the report noted a shift back to United States-based manufacturing due to concerns regarding quality control.

“Another trend in the medical device outsourcing market is the increasingly collaborative and long-term relationship between brand owners and contract manufacturers,” analysts wrote. “Building an established partnership encourages accountability and helps the contract manufacturers become more invested in the design process. Brand owners are thus working with contract manufacturers earlier in the design process to optimize and streamline manufacturing processes. In addition, more brand owners prefer working with fewer contract manufacturers to better manage quality control. In response, suppliers are broadening their range of products and services through acquisitions of smaller contract manufacturers and organic growth to address the increasingly diverse needs of brand owners.”

To find out how the market is responding to these challenges and opportunities, Medical Product Outsourcing spoke with leading providers of manufacturing services to get a feel for the current state of the sector, discuss the definition of “full service,” and learn more about the variables currently affecting their businesses.

Participants for this year’s installment of our annual roundtable included:

Steven Burdorf, president of CEA Medical Manufacturing in Colorado Springs, Colo. For more than 25 years, CEA has provided product design, development, manufacturing, complete product assembly and packaging services for disposable and reusable electromechanical devices used in critical care applications.

Heather Dunn, senior director of special programs based in the East Longmeadow, Mass., office of CIRTEC Medical Systems, which also has multiple West Coast offices. The company provides medical device design, development and full manufacturing solutions for OEM clients specializing in minimally invasive, implantable and electromechanical technology.

Wendy Hinchey, vice president of sales and marketing at Helix Medical LLC. Carpinteria, Calif.-based Helix Medical is a division of the Freudenberg Group. The company, which has facilities throughout the United States and worldwide, is a custom manufacturer for medical device, healthcare and pharmaceutical companies.

Mike Kaiser is executive director, business operations and account management, for New Brighton, Minn.-based Donatelle Plastics Inc., which provides product development, design and manufacturing services exclusively for the medical device industry, with expertise in such areas as cardiac rhythm management, neuromodulation, cardiovascular surgery, diabetes and spine.

Ken Lisk, president of the Boston Endo-Surgical Technologies group of Attleboro, Mass.-based Precision Engineered Products (PEP) LLC. Boston Endo-Surgical manufactures spinal and orthopedic surgical instruments. PEP makes surgical instruments including surgical stapling devices, endoscopic and laparoscopic devices, drug delivery systems and other medical components.

Alan Meyers, president of Clinton, Mass.-based Nypro Healthcare, a Jabil company. Nypro Healthcare specializes in the design, development and manufacturing of diagnostic, drug delivery and medical/surgical products for OEM clients. Jabil completed its acquisition of Nypro in July last year for $665 million.

John Walter, director of business development for eNNOVEA, a design, engineering and manufacturing firm based in Columbus, Ohio, serving the medical, energy, telecommunications and transportation industries.

1. Medical Product Outsourcing: There are all sorts of outsourcing and contract manufacturing relationships in the medical device industry. How do you define full-service outsourcing?

John Walter: Being a full-service supplier provides the benefit of a single point of contact to minimize risk and enhance overall timing. We have developed relationships throughout our supply chain providing access to more process options for our customers.

Wendy Hinchey: Full-service outsourcing refers to the practice in which the contract manufacturer manages the customer’s entire manufacturing process. This frequently begins with input into the product design and development process, which can also be fully outsourced to the contract manufacturing partner. For customers who already have a robust product design and are ready to move directly to the manufacturing process, it begins with the responsibility of managing the outsourcing of all raw materials and procured components, to the in-house manufacturing of core components via molding or extrusion capabilities, any assembly, packaging and labeling requirements, and then encompasses the final sterilization of the device prior to shipping to the customer’s distribution centers.

Alan Myers: We define it in different ways depending upon how the customer defines it. On the electronics side of our business, our customers sometimes ask us only to do electronics subassemblies, which we certainly do and that’s all they want. In many of our relationships, though, full-service outsourcing means assisting the customer with the design and ideation of the production, getting the product through the regulatory pathway—whichever constituency that might be—launching the product, manufacturing the product in finished form ready for use, and servicing the product if need be after. The whole range from development all the way to market and after is how I would characterize a fully evolved, full-service outsourcing model. We have customers who ask us to participate in every part of that.

Steven Burdorf: Having a fully vertically integrated organization that is highly responsive to our customer needs. The vertical reach ranges from design to finished packaging and sterilization management, if needed, that is supported by strong engineering, quality, supply chain and production teams.

Ken Lisk: In a true full-service outsourcing relationship, you are acting as your customer’s proxy for all elements of the medical device in question. This requires having a full complement of U.S. Food and Drug Administration (FDA)-compliant systems and competent technical, regulatory and managerial resources to handle all phases, from product development to steady state production.

Heather Dunn: For CIRTEC, full-service outsourcing means providing all of the services that a customer may need through product development and manufacturing. This includes design, human factors engineering, regulatory support, risk management, design verification, prototyping and testing, supply chain development and maintenance, and both pilot and volume manufacturing. That said, we also feel that it is important to scale a project to a customer’s needs. Some customers need a much more limited scope—perhaps just manufacturing of a customer-supplied kit of parts—and we have structured our business so we can support these customers as well.

Mike Kaiser: Donatelle defines full-service outsourcing as having the vertically integrated capabilities to take a medical device OEM’s product from concept through market launch and to production. To the OEM, it means they can entrust the manufacturing partner to manage the entire project. Ultimately, partnering with the right contract manufacturer that has a unique combination of capabilities in development and manufacturing enables the OEM to focus on other core activities within their business.

2. MPO: How has your business changed in the past year? Are requests from existing customers changing? Has it been more difficult to find new business?

Dunn: We’ve certainly seen changes in the types of therapies customers are asking us to help develop. We have seen growth in ablation therapy applications and in monitoring devices, for example. Over time, we have been adjusting the way we structure projects and contracts to better match with current funding opportunities available to our customers. As a result, we have been successful in finding new business.

Walter: Our business continues to grow and the requests from customers, more than ever, favor a full service supplier. We see more requests for design for manufacturability, low-cost tooling, design options and overall cost reductions so early involvement is key. As far as new business goes, supply base consolidation is a primary focus for many of our current and targeted customers but by identifying their sourcing criteria early and providing workable solutions, we have been winning consistently.

Burdorf: Based on anticipated industry changes and feedback from our key customers, we increased our focus on talent and equipment in engineering, supply chain and quality departments. Currently, the expectations from key and new customers are strongly aligned with our strategic plan. With regard to new business, competition is strong; however, we are not having any issues with continued growth.

Myers: We continue to see increased activity with our customers in two areas. The first is that they’re asking us to get involved much earlier in the design and development process. That’s something we’ve worked hard on over the last three to four years, to develop the incremental capacity and capability. That is an entry point for a lot of our customers these days. The other important factor without question is that we’re being engaged more often—almost exponentially—with customers to help them figure out ways to solve for emerging markets.

Lisk: While the main competition for a full-service contract manufacturer has typically been their customer’s own internal operations, we are discovering a shift where customers are concentrating on significant core business and often using external partners for smaller, yet still lucrative, product development and production.

Kaiser: Strong engineering skills and having the capability to manage an entire program are most popular and important with our customers. It begins with providing design support that includes design for manufacturability and design for reliability. Furthermore, our customers want an outsourcing partner that can not only manage all technical and manufacturing aspects for the program, but also complete validation execution to support commercialization.

3. MPO: What kinds of services are most popular with your customers? Why are these services so important?

Lisk: Customers expect that, as a given, robust systems and trained personnel are already in place, prior to being considered for business. What is increasingly important is project management skills to assure timely delivery of robust products within budget. The combination of systems, technical resources, and project management greatly reduces the burden on the customer to monitor project progress.

Kaiser: Strong engineering skills and having the capability to manage an entire program are most popular and important with our customers. It begins with providing design support that includes design for manufacturability and design for reliability. Furthermore, our customers want an outsourcing partner that can not only manage all technical and manufacturing aspects for the program, but also complete validation execution to support commercialization.

Myers: The traditional business we have, going back to the legacy of the Jabil business, is electronics. We’ve always had a strong core of customers coming to us and asking for help with their mid-tier revisions of their long-product-lifecycle capital equipment. Some of those products are in the marketplace for as long as eight to 10 years, and we’ve been very instrumental in helping customers refresh those technologies. Increasingly, customers asking us to take part in the ideation of product, early engagement in product development has really taken a hold for us, particularly over the last 12 months. In design right now—and this is being driven by the FDA, particularly with 510(k)s—the concept of human-factor development and understanding all of the human-factor usage is increasingly important for the approval of devices. Many of the companies we’re working with are looking for assistance with that, and we’re building our capabilities in that regard. This is different from just five or 10 years ago. Today, the FDA wants to know how a device might be used by or on an 85-year-old person vs. someone who is 18. Do the caregivers or practitioners understand the full gambit of how this device is used on the human being? Increasingly, our customers are asking us to help us solve those problems. And that, of course, changes how we approach the design process.

Dunn: Given CIRTEC’s expertise in minimally invasive systems and active implantable devices, our services in catheter manufacturing, hermetic sealing, and encapsulation are always in demand. In addition, we find that customers frequently look to us to perform design for manufacturability optimization of their devices—our combination of design skill sets and manufacturing expertise makes CIRTEC uniquely qualified to assist customers in this area.

Walter: Product design assistance and prototyping are popular as well as the ability to tool in low-cost countries.

Burdorf: Three things stand out. First, having best-in-class validation and documentation capabilities. Second, established risk-based supplier management system and third, subject matter expertise on RoHS (Europe’s Restriction of Hazardous Substances directive) and REACH (Registration, Evaluation, Authorization and Restriction of Chemicals—another European regulation).

4. MPO: How do you manage cost pressures?

Kaiser: Prior to beginning any project, the best way to manage cost pressures is to have a clear understanding of the cost objectives up front. Early engagement in the design process is the most effective means to impact cost and time. Leveraging effective design for manufacturability early in the process can yield some of the greatest costs savings. Proper validations and value engineering further provide efficient costing throughout the product’s life cycle. Being a metric-driven company with real-time data on quality and delivery also helps prevent unexpected costs.

Burdorf: We have to control costs by controlling variables. This requires having strong relationships with key customers as well as key suppliers. We focus on having transparent relationships. This includes having a clear understanding of current and future demand changes so that investments in capital and material produces the required ROI (return on investment). We have also implemented continuous process improvement steering committees with key accounts.

Lisk: Cost pressures are becoming more relevant for several external reasons. As material and labor costs rise, it is incumbent upon suppliers to find ways to reduce waste in every aspect of business, from front office operations through production and delivery. A combination of the employment of Lean Process tools and advanced technology to reduce waste and improve quality are the major drivers in handling cost pressures.

Dunn: We strive to provide value to our customer. The devices that we typically work on are complex, and we leverage our experience and our existing infrastructure to make development and manufacturing cost efficient for these types of devices. For our small customers in particular, we provide greater buying power with component and raw material suppliers than they have on their own, which helps to keep material costs in check. In addition, we apply Lean manufacturing techniques as products ramp from clinical to commercial volumes to streamline processes and minimize costs.

Myers: Our global footprint is very evolved from a cost perspective. We have aggressive Lean programs that are always looking for ways to take cost out and add value. Also, because we do have such a large global footprint, we bring economies of scale, which offers a competency that not everyone else does. And we use that to our cost advantage.

Walter: Creativity in the services we offer, performance and a total value proposition. Pure pricing should not be the ultimate decision maker in the business award and that should not necessarily be the approach adopted by the contract manufacturer.

5. MPO: In many ways, the medical device industry was slower to adopt the outsourcing model than some other industries—aerospace, for example. Many companies still won’t discuss how they outsource or with whom. Are there medical device sectors or types of companies that are better, more open, or more accepting of outsourcing than others? How has that evolved over the years and recently?

Burdorf: There’s no question that the medical industry has been a slow adopter. However, this is changing. I’m not sure that I have a way to rank who is stronger or more aggressive than others. If you can demonstrate strong quality controls and performance, we have found that OEMs are open to working in a partnership versus a transactional relationship.

Myers: It continues to evolve. The promise for accelerated outsourcing may finally be catching up with slow penetration in the marketplace. In our business, one of the businesses with Nypro in which we’re particularly strong is in combination and drug-delivery devices, where a medical device is paired with a pharmaceutical product. In those instances, most pharmaceutical companies don’t have their own medical device manufacturing capability, so essentially all of that market is outsourced. That’s been an advantage for Nypro because we’ve been in it such a long time. We’re applying what we’ve learned in that sector to our business with pure-play medical device companies. We continually look for ways to apply that and make it easier for medical device firms to migrate more of their business to a complete outsourcing model.

Kaiser: Early to mid-stage companies traditionally have fewer resources and tend to be more accepting of outsourcing. They need to focus their time and energy on innovating and developing, and depend on their full-service outsourcing partner to become an extension of their company. More recently, a few large OEMs have begun outsourcing specific programs in their entirety. Although larger OEMs have been somewhat more hesitant to adopt the full-service outsourcing model, they are quickly realizing the benefits of cost and time savings that can be gained when using the right outsourcing partner.

Dunn: CIRTEC excels in development and manufacturing of highly complex Class II and Class III devices. Manufacturing of these devices often requires specialized skill sets or significant capital investment, and as a result outsourcing is likely more common than for simpler devices. Given recent trends in financing for startups, our customers are increasingly looking to operate as leanly as possible. We are supplying more engineering and support services in addition to traditional contract manufacturing to allow our customers to minimize their need for internal resources.

6. MPO: How do you stay innovative? Where do you find the best talent?

Kaiser: Staying innovative necessitates staying close to your customers’ needs, particularly future needs. When the relationship is strong, a full-service outsourcer is comfortable sharing its future technology development activities and the OEM is comfortable sharing their long-term product development plans. Innovative outsourcers are either furthering the skill set of their employees or hiring individuals already strong with the desired talent. For Donatelle, Minnesota has long been recognized as one of the leading medical device regions in the country. We are fortunate to have access to a rich pool of experienced industry talent and multiple area technical colleges, training the next generation of talent with the specialized skills we are looking for.

Burdorf: First and foremost, there has to be a commitment for innovation. In order to be successful, it is paramount to see how the industry and medical needs are changing. But most importantly, you need to have continuous feedback from your customers. Many times, talent finds us. CEA has a focused culture of openness, customer commitment, quality and empowerment. Our team is committed to our culture. When we seek talent, we look for a combination of experience and education from high-potential graduates depending on our current needs and future plans.

Dunn: We try to stay up to date with trends in the medical device industry, and we have recently introduced a program to develop in-house capabilities and skill sets that will help us keep abreast of customer needs. In our hiring process, we look for people with expertise in our areas of focus, but also with expertise that can help us expand our skill set and see things from new perspectives.

Lisk: One of the best sources of talent is to grow the skill sets of the employees that already exist within your business. By fostering a learning environment, employees remain engaged and excited about the learning they are challenged to employ. At the same time, it is extremely important to scan new technology that can either be incorporated or put in place of existing methods and practices.

Walter: We have a very active R&D group that focuses not only on products, but manufacturing processes as well. We review every design from the aspect of how we can make this part as cost effective as possible.

Myers: Though we’re in the market as Nypro Healthcare, we’re able to draw on the full capabilities of our parent company, Jabil, which is a $15 billion electronics company, and one of the things from innovation we’re seeing is the convergence of technology that drives mobile products, such as Bluetooth or micro antennae, and the ability to transmit communication more easily and cost effectively. That’s accelerating as the point of care moves from the hospital to the home. We try to take themes that are broader than healthcare and bring them to the medical device space, and tying in experience from other industries allows our Healthcare business to be innovative and approach technology, products and problem solving differently. We think it’s an added value that many people, particularly in the consumable plastics part of the business, can’t match. We spend a lot of time thinking about how we develop talent and how we develop our organization to be more effective. Again, we leverage our size and expertise in other areas to help develop talent in our healthcare space.

Hinchey: By acquiring specialized companies at the top of their game, Helix Medical has been able to add the right mix of services in order to offer our customers full contract manufacturing benefits. For example, Helix Medical purchased 50 percent of Cambus Medical in 2012. Cambus Medical, now a joint venture partner, manufactures high-precision hypotubes and related micro-components for minimally invasive devices. These products enhance our portfolio of existing manufacturing services for catheters and other minimally invasive devices. Helix Medical also acquired MedVenture Technology in 2012, another company at the top of its game in terms of the design, development and manufacture of minimally invasive surgical and catheter-based devices.

As the baby boomers retire and talented, young candidates continue to be drawn to the tech industry, Helix has been able to adapt to this new recruiting climate through the creation of Helix Medical Academy, a program launched in 2012 and designed to develop future technical bench strength across the organization. In the program, Helix recruits recent graduates from top engineering programs and enrolls them in an 18-month rotational training program throughout our global manufacturing sites. The participants are able to work across many departments and facilities and gain a deep understanding of the organization’s capabilities while they are immersed in the medical device and contract manufacturing industry. After the program, they are placed into technical roles across the organization. This process has augmented our existing external recruiting efforts and provided a model to attract bright new talent into the company.

7. MPO: Are there any market forces or trends that cause you the most worry? The most excitement?

Burdorf: A concern is the growing complexity and “somewhat” subjective interpretation of the FDA quality requirements affecting patient safety. The second concern is that the United States is no longer a global leader in clinical trials due to the cost and time associated with regulatory requirements for OEMs to bring new products to market. The industry is excited that the FDA has committed to significant change to put the United States back as the global leader.

Kaiser: The regulatory path to device approval has gotten more complex and rigorous impacting the overall timeline and costs for a new product introduction. Although worrisome for many, this complexity enforces the need for an outsourcing partner who has a very strong quality management system and longstanding track record of success.

Lisk: New materials and new manufacturing methods, such as additive manufacturing, are cause for excitement. There is a constant demand for quicker, better, less expensive. This is a frightening prospect if you do not keep up with technological changes that allow you to be competitive.

Myers: In our Nypro business, we’re doing a lot of work in growing disease states such as COPD (chronic obstructive pulmonary disease) and diabetes—where devices are used in combination with pharmaceuticals. We’re well-positioned to grow in emerging markets. That’s exciting for us, too. We have seen over the last couple years, however, a lot more cyclicality in the capital-goods business and the limiting of buying behaviors for big capital items. Where we typically had longer buying cycles and quicker buying signals from the customer—particularly in the United States and Western Europe—now has slowed down. And, of course, that’s a cause of concern for us.

Dunn: Minimally invasive surgical procedures, implantable monitoring devices, and mechanical circulatory support devices all seem to be growing. These areas are a great match for CIRTEC’s skill sets, so we find these trends very exciting.

8. MPO: What qualities make for a solid outsourcing relationship?

Dunn: Communication, communication, communication and a robust quality system. The foundation of a solid outsourcing relationship is good communication between the client and the contract manufacturer. We have to start from the same place—the client should be clear about what they want, and the contract manufacturer needs to be clear about what they will deliver. If there is a development phase, the client should be clearly communicating any changing requirements in terms of scope or timeline, and the contract manufacturer should be clearly communicating project status and any challenges encountered. In production, the client must clearly communicate their forecast, and the contract manufacturer must keep the client informed on delivery dates. In addition, both sides must be available quickly to evaluate and respond to any challenges encountered with the product in manufacturing. In addition, the contract manufacturer’s quality system is very important—the client must be confident that they will receive conforming product.

Kaiser: From the onset of the relationship, clearly defined expectations by both parties are essential. For the longer term, steady communication and a willingness by both parties to share the risk in the relationship are keys to building trust. Ultimately, it becomes a commitment from both parties to create a win-win scenario in the best long-term interest of both organizations. An outsourcing partner should be financially stable, focused on medical, have a solid track record of success, and adhere to a rigorous quality management system.

Lisk: The best partnerships are based on a solid understanding of each other’s needs, shared respect and trust. The faster two companies can work together to create real, commercialized, mutual success on these foundational elements, the more successful both will be.

Walter: We look for customers who are willing to act as partners so that we all win. Those that are open to sharing ideas early in the process and evaluating manufacturing strategies make the best partnerships.

Burdorf: Again, I feel very strongly about the ability to have strong quality control and performance systems in process, equipment and within your supply chain.

Myers: I think it’s a two-way street. If we have trust in capability, people will want to give us more of their business. We’ve been able to validate that assumption. The trust comes from repeatable execution based on a long track record of great service. You need to demonstrate that. We work hard to build capability around design and acquire capability in consumables and in finished devices. We pressure test that concept every day.

9. MPO: What role do emerging markets play in a full-service outsourcing model?

Hinchey: Emerging markets will continue to support customers from a regional perspective. As customers look for internal cost reduction opportunities and are consolidating manufacturing offshore, they are seeking partners in the same regions to provide contract manufacturing services to reduce shipping and logistical challenges. This was one of the main drivers with Helix Medical’s expansion into Costa Rica. As the medical device cluster grew in Costa Rica and the general Latin America and Caribbean region, it was critical for us to provide regional contract manufacturing services to our customers. Emerging markets also play a role in the lifecycle management process with customers. Today, customers are looking for partners who can support their manufacturing process through the early design and validation stages of programs where they value proximity to their own engineering resources. In this phase, many customers prefer to begin production in the U.S. closer to their technical teams. As their products mature in the marketplace and cost pressures emerge, they also want to evaluate options and consider manufacturing in lower cost countries.

Kaiser: Emerging markets have the potential to provide substantial demand and opportunity for both OEMs and full-service outsourcers. Contract manufacturers wanting to participate in this growth and support their customers must make investments in required capabilities to support the unique needs in these regions. While the capabilities needed in these regions may be similar to what is offered elsewhere, the business model to support these services could look significantly different. Therefore, contract manufacturers must be willing to expand and adjust their model to meet the needs of the OEM.

Myers: It’s evolving. The way most of our customers had served emerging markets was to export existing Western-market goods into those markets or take a stripped-down version of that product into those markets. Increasingly, what we see is that those markets are defining unique characteristics and unique regulatory requirements around where those products need to be manufactured. This is particularly the case in China and Brazil. Essentially, we can’t—as contract manufacturers or medical device companies—export solutions from one market to another. The companies that are getting it right are building in-country with unique solutions for the market that’s served and not trying to transpose other market capabilities or products for that market. There’s no shortcut for being in that geography and having an appreciation for the regulatory requirements, the price points, and how healthcare is delivered.

Dunn: Devices for emerging markets are often most feasible if manufactured in a low-overhead setting like a contract manufacturer.

Burdorf: Clearly, this is an evolving area. You have to take into account the needs of the emerging countries related to their employment and GNP (gross national product) objectives. Providing a full-service outsourcing model within that market is a business decision that has to account for the supply of talent within those countries and the cost of producing the product versus cost of in-transit times to bring products to the region.

Lisk: In many cases, it is important to develop existing technologies in strategic locations to service multiple customers’ needs. This can be challenging for both the customer and outsourcing partner, as in many cases the level of technologically proficient human resources is just beginning to catch up.

10. MPO: How do you maintain quality in a full-service outsourcing setting? How do you tie your quality systems with your clients’ systems?

Lisk: Number one on the list is to internalize the belief that above all, the patient is the ultimate customer and their safety and surgical outcome is the basis of every decision made. In terms of quality systems, collaborating with customers to determine which aspects of each company’s quality system best serves the project goal is an ideal method of ensuring the needs of development and production are met.

Burdorf: First, quality and patient safety need to be core values within your organization. These values must be paramount to all business decisions and never be compromised. Next, ensure that your infrastructure supports a strong document management system and that the technical knowledge of team members is developed through continuous review and training. Finally, hear the voice of your customer to ensure that your organization is aligned and delivers their key success factors.

Kaiser: Commitment to quality must start at the highest level of management and be driven through the entire organization. Subsequently, the infrastructure of the organization is built around this single, fully integrated, quality management system. Thoroughly understanding the OEM’s quality needs and their interpretation of quality at the start of the project is also essential. To tie our quality system with our customers’ systems, Donatelle has a quality management system in place that provides real-time comprehensive data for quick response.

Dunn: CIRTEC strives to maintain a quality system that is robust and yet flexible enough to adapt to each project and to individual client needs. For each new project, we develop a quality plan in cooperation with our client to detail the interfaces between our quality systems.

11. MPO: How have the U.S. medical device tax and Affordable Care Act affected your business?

Kaiser: A growing trend we continue to see as a result of the U.S. medical device tax and Affordable Care Act is OEMs working more closely with suppliers to drive down total cost. This goes far beyond piece part price to include aspects such as early development costs as well as the ongoing costs of managing the program. OEMs realize cost avoidance in areas such as reducing development time and increasing speed to market materially impact the bottom line.

Lisk: The device tax has had a multifaceted effect. First and foremost, as the tax is applied to top-line sales, spending cuts must be undertaken in what has traditionally been a robust business. This often impacts R&D efforts, thus slowing down product innovation. It also places a large burden on suppliers, as much of a customer’s spend is typically on outsourced materials to perform assembly with.

Burdorf: These initiatives, while challenging, will continue to advance the need for continuous improvements in operational efficiency. While contract manufactures are not directly taxed, there are significant indirect implications. In order for contract manufacturers to be a value-added provider to OEMs, we have a responsibility to improve our operational efficiencies and share those savings with key customers.

Myers: Our customers have told us it affects their business. And if it affects their business, it affects our business. There aren’t any American companies that aren’t strained on their margins, and the pressures are unprecedented compared to five or 10 years ago. So for us to be able to provide a better value option is important.

Dunn: To date, this has not significantly affected our business.

12. MPO: If you had a crystal ball, what would you predict the medical device industry would look like in the next five to 10 years? What shape will the outsourcing market take?

Myers: It’s a bit of a broken record, but it will be more global, and more nodes within the medtech manufacturing supply chain will be tied to globalization. Healthcare, in general, will become more specialized and delivery will move from big-box hospital systems to different points of care. So companies that get the value proposition for that point of care and the products that better serve that market will be winners. The speed of change to support that is going to alter the shape of manufacturing for the OEMs and give folks like us opportunities, if we continue to give the right value to the customer.

Lisk: I believe medical devices, including single-patient-use devices, will become “smarter.” Just as computers are finding their way in nearly every consumer device, it is unfathomable to think the same will not happen with medical devices. In the non-disposable arena, data will be accessible in real time to advise both patients and doctors of conditions that require attention. Exciting times are coming.

Burdorf: I think there will be a strong advancement in regenerative medicines, replacing today’s gold standards for implants. Minimally invasive devices will be replaced by nano technologies and these devices will contain the capability to monitor and call for corrective medications and/or actions to correct diseases such as cancer or cardio abnormalities.

Kaiser: By and large, we believe OEMs will continue outsourcing more development and manufacturing activities in an effort to better focus their resources. While we are beginning to already see a consolidation of supplier lists, OEMs will seek to choose select outsourcing partners that are able to manage more components within the supply chain. As a result, OEMs will continue to realize significant value in leveraging suppliers that are true partners, offering all the necessary capabilities to bring their device to market and provide robust supply chain continuity over the life of their products.

Dunn: Minimally invasive therapies and procedures will continue to grow in popularity. Prosthetic devices, particularly those that interface with the nervous system to provide greater control, will become more prevalent. Monitoring devices will be everywhere, and everything will get smaller. Contract manufacturers will need expertise in electromechanical devices and in both building and testing micro-scale devices.

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