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A
report by Frost & Sullivan noted that full service
outsourcing is a trend that will continue to grow. In
2004, outsourced component manufacturing comprised 86%
of the market; finished goods represented 14% of the
space. By 2010, outsourced finished goods
manufacturing is expected to nearly double and
comprise 27% of the market. It is also expected that
the annual revenues of medical technology outsourcing
to more than double during the same time frame.
Another
survey by Pittiglio Rabin Todd & McGrath (PRTM)
Management Consultants, based in Waltham, MA, on
high-growth companies in cardiology, in vitro
diagnostics, ortho-pedics and endoscopy found that
those companies outsourced 10% to 60% of their cost of
goods .The companies in these segments are growing at
10% to 15% annually, compared with the 6% to 8% yearly
growth experienced by companies across the whole
medical device sector.
A
survey made by Mark Kesti, vice president of Thomas
Medical Products Inc. states that the medical device
industry is growing and will continue to do so, and
increased outsourcing is one way that manufactures can
keep up with changing demands and a dynamic market.
Understanding these implications can help device
manufacturers determine whether to outsource.
Driving Demand
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"Higher-growth companies look at outsourcing for
volume flexibility and cost advantages, but they
also use outsourcing to support a more strategic
focus, to differentiate themselves in the market,"
explained John Lamb, PRTM director. "They are
looking to work faster and with more partners to
get more complex products and more integrated
solutions that incorporate more technology. They
recognize they can't be experts in all
technologies, so they partner with companies that
are." |
There
are number of market forces that are influencing the
use of outsourcing partners for everything from
product development to finished device manufacturing.
The factors which forces medical device companies to
continue the trend of using contract manufacturers and
other outsourcing partners are:
1).
Novel devices coming into market:
Novel devices like catheter delivery systems for
percutaneous-delivered therapies necessitates device
companies to bring innovative and high-quality medical
device design and manufacturing techniques that meet
or exceed their in-house capabilities.
2). An aging (but active) population and more
minimally invasive surgical techniques:
The
increased customer demand from an aging population and
growing global markets, coupled with fast innovations
in technology and competition has created an impetus
for outsourcing.
3). Procedures that use medical devices are on the
rise
Procedures that use medical devices have been
drastically changing. For example such as coronary
artery bypass graft (CABG) procedures, has declined
over the past 10 years. Interventional cardiologists
are getting either better or similar results with much
less risk by using percutaneously delivered
drug-eluting coronary stents and atrial fibrillation
ablation. |
4).
Changing focus to shift resources to value-added
processes
In
order to lift non-core activities from their
shoulders, the medical device companies are looking to
outsourcing partners
In
earlier days, companies often turned to outsourcing so
that they could concentrate on their core
competencies, cut costs and increase product speed to
market. Indeed, for many companies, those reasons
continue to prevail. Rather than invest in new factory
space or equipment, OEMs find it more beneficial to
use their people and capital resources on developing
new IP.
Even as they offer manufacturing at costs below what
many customers can achieve themselves, operational
savings are just one benefit medical device
manufacturers have come to expect when outsourcing.
The others include vendor consolidation and an
accompanying shortening of the supply chain, access to
technology, quicker turnaround on delivery and other
productivity gains.
What
Medical Device companies are seeking for outsourcing?
Quality, Compliance, Time to Market, and Cost are the
things which are important to device makers while
outsourcing. Device manufacturers depend on their
contract manufacturers or other outsourcing partners
to help them achieve business objectives and deliver
quality products to their markets. Contract
manufacturers must develop high-quality products that
consistently meet or exceed regulatory requirements.
Device
companies expect their contract manufacturers to be
able to differentiate their core strengths and
manufacturing capabilities.
Device companies examine a number of suppliers to
determine which has the most flexible,
state-of-the-art facilities and techniques.
Increasingly, global medical device companies are
requiring their partners to use Six Sigma and lean
manufacturing techniques.
Medical device manufacturers are also requiring that
their partners incorporate more-exhaustive process
validation into the product development phase.
Another expectation is shorter lead times to support
companies' push to increase inventory turns and
decrease warehouse costs.
Device
companies expect partners to attract and retain the
best people-from manufacturing engineers to
technicians and customer service staff. In addition,
device companies should expect their partners to have
a proven track record for delivery of quality products
on time.
Outsourcing from Product Development to Finished
Device Manufacturer
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The
entire definition of outsourcing has changed. Few
years ago it was called contract manufacturing,
not outsourcing. Outsourcing has evolved from a
process of making components to making a finished
device and offering all of the services associated
with finished devices. Modern outsourcers provide
engineering, design, sterilization and
sophisticated supply chain services under a robust
quality system that is as comprehensive as their
OEM customers', as well as everything through
distribution to the ultimate end user-services the
market didn't even think of outsourcing half a
dozen years ago. |
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