In good times and bad, the medtech outsourcing boom continues unabated. But the buyer still needs to beware.
By: Yvonne Klöpping
Although the medtech industry emerged relatively unscathed from the global economic downturn, device manufacturers have not let down their guard. Many have redoubled efforts to outsource activities that are not part of their core business to cut costs, improve flexibility and minimise risk. In fact, the global medical device outsourcing market is projected to reach approximately US$42.6 billion by 2015, according to a report published by Global Industry Analysts Inc. This potentially prosperous opportunity has not gone unnoticed by contract manufacturers of every stripe.
“Many companies that do not have core business activities in the medical device outsourcing sector are attracted by the apparent endless opportunities,” says Francis Vonrospach, Head of Sales, Medical Division, at Cendres+Métaux (Biel, Switzerland;
www.cmsa.ch), a maker of micromechanical components. “But like any other company in any other market, contract manufacturers catering to the medtech industry need to have core competencies. Otherwise, they won’t succeed in the long run. By defining their core competencies, they automatically set for themselves the framework within which they will be doing business. It’s as simple as that.”
Vonrospach goes on to explain that no matter how many growth opportunities may exist in the dental implantology or in vitro diagnostics markets, sooner or later all companies will reach a point where their growth ends because demand, resources and production capabilities are limited. “And don’t forget: competition in the OEM market is really harsh,” adds Vonrospach.
Low-cost countries
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| Electronics manufacuring services is a growing business, particularly in Germany. |
Medical device manufacturers understandably are attracted to the low-cost labour that is abundant in Mexico, China and some countries in Southeast Asia. But the calculus may be misguided. “In those countries, they are able to produce a finished product for about what it costs us to buy the raw material,” says Vonrospach. Those contract manufacturers are blinded by medtech's tremendous growth potential. In some countries such as China or South Korea, it can climb to 10% or more per year. “They forget that it takes more than a functioning infrastructure to [build] a sustainable [presence] in this industry,” Vonrospach explains. “Even state-of-the-art machines cannot guarantee that the products being manufactured are biocompatible and safe to use.” Biocompatibility and product reliability are of paramount importance in the medical industry, of course, and OEMs expect their partners to share this concern. To deliver biocompatible and safe devices, many companies would have to adapt existing production sites or invest in new facilities, establish new processes, validate them and so forth. “Unfortunately, many companies ignore these vital elements and simply start producing medical devices on the same machines and in the same production environment as their other products,” says Vonrospach.
Regulations and standards
Although they are sometimes viewed as the bane of the OEM's existence, the complex regulatory requirements of the medical device industry also make it difficult for suppliers without relevant industry expertise to break into the medical sector. US FDA registration and certification to ISO 13485:2003 and other medical standards is one way that vendors, and particularly full-service contract manufacturers, can show their commitment to the industry. That comes at a price, however. “Medical device manufacturers should be cautious when a vendor quotes a price that is clearly below the industry average,” stresses Vonrospach. “Productivity should not come at the expense of product quality and reliability.”
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| A medical device must be biocompatible and reliable, stresses Cendres+Métaux’s Francis Vonrospach. |
In addition to the aforementioned certifications, medical device contract manufacturers should also be certified by the regulatory office in the country in which they operate. “Certification is important because it ensures that the company complies with industry standards and fulfills a certain level of quality requirements,” says Vonrospach.
Electronics manufacturing services
Outsourcing operations to a country where wages are relatively low is one way to trim costs; the use of single-source suppliers and electronics manufacturing services (EMS) is another.
EMS is growing worldwide, especially in Germany, according to Robert O’Rourke, Vice President, Global Business Development, Medical Division, at EMS provider Sanmina-SCI Ireland Ltd (Fermoy, Ireland;
www.sanmina-sci.com). The Medical Division of Sanmina-SCI produces small, electronic components and also manufactures finished devices such as blood pressure or blood glucose meters, medium-sized systems for endoscopic examinations, cancer treatment or laser surgery, and complex devices such as mass spectrometers and computed tomography systems. The company links up manufacturing, logistics and supply-chain management processes to accelerate product design, assembly and distribution while achieving cost efficiencies and maintaining the highest possible standards. “With the support of a contract manufacturer, mass production of the device can start sooner,” says O’Rourke. “And the OEM not only cuts costs but achieves decisive competitive advantage and obtains a strong presence in national and international markets.”
Sanmina-SCI operates production facilities in both high- and low-cost destinations, but, adds O’Rourke, it is important to bear in mind the value of regional proximity. For instance, Sanmina-SCI maintains production facilities in Sweden, Ireland, Israel and Hungary for European manufacturers. “This arrangement has several advantages compared with producing in Asia: short travel times to the facilities, adjacent time zones, fewer cultural differences and lower language barriers,” he explains.
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