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Contract Manufacturing Of Electronic Medical Devices Can Eliminate Worries; Costs

BT Catalyst, Jan, 2001

By Richard M. West, president and CEO of TriVirix International, a medical device electronics manufacturing firm with corporate offices in Chapel Hill, N.C., and manufacturing facilities in Ireland.

Two years ago, TriVirix International began discussions with a California-based developer of an innovative screening device.

In evaluating the developer's cost of operations, we determined that we could manufacture the company's device for 10 percent less than the cost of internal manufacturing.

Since the company decided to outsource to us, we've reduced the price for the manufacture of its devices to 85 percent of the previous cost and are on track to hit 75 percent in the next year. We've never had a device returned for defect and the outsourcing model has worked so well that the firm is giving us other products to manufacture.

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One of the most rewarding days of my business career was the day that firm's vice president of operations told us, "You guys haven't given us problems, you've given us solutions."

The notion of outsourcing is not a new concept in business. For decades companies have been hiring consulting firms to perform such functions as advertising, public relations and consumer research. In some industries, particularly consumer electronics, manufacturing outsourcing has taken hold and is growing very rapidly.

But outsourcing has not yet made a major impact on the highly specialized medical device electronics industry. That is because industry executives have yet to see it work in a low-volume, highly regulated industry. Those executives may also be reluctant to trust an outside firm with the manufacturing of a proprietary product.

Without a doubt, trust is at the core of the decision to outsource. Development firms need to have a comfort level that quality and delivery needs are being met, and that regulatory procedures with the Food and Drug Administration (FDA) and other agencies are handled smoothly. Companies in our business have a unique opportunity to create a business model that is worthy of that trust.

I foresee a day when firms like ours will do the majority of medical electronics manufacturing. I see the medical device industry taking the same path as the pharmaceutical industry, where today a high percentage of clinical trials and manufacturing are outsourced. They've got a 15-year head start, but the advantages to the medical device electronics industry are the same.

The advantages of outsourcing

There are many advantages to outsourcing. First and foremost, it allows the medical device company to focus on the challenges of product and market development.

Outsourcing also reduces the per-unit manufacturing cost. The outsourcing firm makes the investment in buildings, recruiting, training and retaining manufacturing personnel, equipment, information management, and regulatory interface. The costs for these necessities are shared by all customers. Very often quality and delivery performance can also be improved even as costs are reduced, since the outsourcing firm is a manufacturing expert.

Outsourcing also provides greater flexibility to respond to increases or decreases in demand for products.

Selecting the right manufacturer

The key to outsourcing success for a medical device company lies in selecting the right contract manufacturer. Here are some issues that should be considered in selecting an outside manufacturing partner:

Trust. Select a firm that you can trust, one that will perceive itself as the manufacturing arm of your company and is willing to be a partner in your business.

Knowledge. Check on the firms knowledge and engineering skills specific to the medical devices industry, including the ability to meet all regulatory requirements and procedures.

Tools. Make sure the firm has implemented the right kind of manufacturing tools and techniques; if they are inefficient or costly, your product costs will not go down.

Quality Control. Review the firm's quality control system. Make sure that it begins at the firm's suppliers and continues through product shipment. Ask for a warranty on anything that they build for you, and ask for customer references.

Foreign contacts. Don't ignore foreign markets. In today's global economy, a firm that has relationships with overseas markets can be a tremendous asset.

Full disclosure. Choose a company that gives you total access to its operations. This includes open-book accounting to real-time sharing of information about suppliers, assembly, testing and inventory. Honest communications are the foundation of trust, which is essential to a successful partnership.

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Contract Manufacturing Of Electronic Medical Devices Can Eliminate Worries; Costs

BT Catalyst, Jan, 2001

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