Integrated Outsourcing in the Medical Device Industry

1
Integrated Outsourcing in the Medical Device
Industry
2
Medical Product Outsourcing

• The Global Medical Device Equipment market
  was estimated to be 175 billion in 2002

2002 COGS
2007 COGS
Outsource
Outsource
20-25
30-35
75-80
65-70
Internal
Internal
Market Growth Outsourcing Growth Growth
Opportunity for Outsourcing Providers
Source Millennium Research Group.
3
Customer Solutions Provided by Outsourcing
Providers

• Integrated solution from design through delivery
• Reduced time-to-market
• Medical focus, expertise and quality
• Lower total product cost
• Financial size and strength to be a long-term
  growth partner

4
Medical Device Manufacturing Hurdles

• Medical OEMs are vertically integrated with low
  of COGS outsourced vs. other industries
• Limited number of full service suppliers capable
  of providing full suite of capabilities.
• Highly fragmented supply base focused on a single
  manufacturing competence.
• IT infrastructure of customers and suppliers in
  its infancy.
• Driven by size and materials, manufacturing
  processes are becoming increasingly complex and
  difficult for OEMs to maintain advanced
  competencies.

5
Medical OEM Manufacturing Practice

• OEMs are migrating from vertical manufacturing,
  with significant fixed asset investments, to
  virtual manufacturing, focused on manufacturing
  flexibility, markets and customers

• Vertically integrated OEMs are burdened by asset
  intensive manufacturing capabilities.
• An increased focus on RETURN ON CAPITAL is
  forcing a reevaluation of the make versus buy
  decision.
• This is driving increased levels of OUTSOURCING.

6
Principles of Integrated Outsourcing Services

• Focus on Customer Value Delivery
• Product Life Cycle Management
• Integrated Design for Manufacturability
• Effective Program Management
• Leverage Core Competencies and Process Expertise
• Clear Roles and Responsibilities
• Accountability

7
When to Consider Integrated Outsourcing

• Product Life Cycle Management
• Shift mature products from in-sourced to
  outsourced to allow for internal new product
  introductions
• Accelerate new product introductions by
  leveraging external resources and capacity for
  new product launches
• Products which will require proactive cost
  management
• Direct Manufacturing Transfer
• Rationalize under-utilized plant and equipment
• Shed non-core competencies and product lines
• Product/Asset Divestiture
• Acquire and outsource product lines free of
  manufacturing assets
• Release capital for re-allocation to higher
  return uses
• Retain revenue and earnings with reduced capital
  base

8
Case Study 1 Product Life Cycle Management

• Customer Problem
• A Medical Device OEM is preparing to launch a new
  product line in a high growth market segment
• The OEM has limited capability/capacity in
  manufacturing such devices and wants to focus all
  of their internal resources and engineering and
  marketing on the new product introduction and
  subsequent line extensions
• Partner Solution
• Partner assumes the transfer and full
  manufacturing responsibility for the core product
• Partner seamlessly ramps manufacturing in one of
  their existing facilities, thereby freeing up
  resources for the OEM
• Partner manages a collaborative cost improvement
  process with the OEM and ultimately transfers the
  product to a low cost manufacturing location
• This relationship enables the OEM to 1)
  accelerate the product launch and be the first
  one to market with this new class of device, 2)
  externalize the manufacturing to a partner with
  the competencies, and 3) proactively manage the
  cost requirements of the product over its life
  cycle

9
Integration of Design, Development and
Manufacturing improves Speed-to-Market
Detail Design and Verification
Transfer and Validation
Concept Development
10
Early Manufacturing Involvement Optimizes Product
Cost
Pre-DFMA
Post-DFMA
Major Contributions
70
63
Major re-design was not possible, but several
components were eliminated. 10 reduction in
total components.
No. of Parts
Manufacturability of Parts (, )
61 (87)
63 (100)
In the initial design 9 parts could not be
manufactured cost effectively or at adequate
process capability levels.
Product Cost
MT 10 min OD 6 min RT 8 min
Overall the assembly time remained relatively
constant but DFA re-design achieved an average
reduction of 50 in assembly time in two
assemblies.
Assembly Time
MT 10 min OD 3 min RT 4 min
Without Cost Management
low
medium
Eliminating bonding and improving the mating of
components are major contributors allows
significant yield improvements.
Yield Rate
With Cost Management
Timeline
54.60
48.41
We implemented an 12 savings in costs through
minor re-design, process and material selection
and sourcing.
Component Cost
The myth The concept is trivial to implement
The reality Achieving Functionality at target
cost is not trivial, cost reduction takes time.
11
Case Study 2 Direct Manufacturing Transfer

• Customer Problem
• A Medical Device OEM wants to close one of their
  facilities/departments to cut costs
• The OEM does not have, or want to deploy, the
  internal resources or capabilities to relocate
  all of the products from that facility to another
• Partner Solution
• Partner assumes the responsibility for one, or
  more, of the product lines from that facility
• Partner seamlessly transfers manufacturing to one
  of the Partners existing facilities, while
  maintaining quality and continuity of supply to
  the OEM and supporting 100 line fill rate to the
  end customer
• Partner delivers year-over-year cost reductions
  through continuous improvements on the
  transferred product line(s)

12
Defined Transfer Process Minimizes Risk and
Maximizes Results
Feasibility Establish feasibility of the product
and business transfer and obtain customer
approval.

• Analyze
• Current material cost and labor cost
• Processes external services identified
• Facility capital equipment requirements

Assess Assess the tribal knowledge and
risks/issues of the product line(s) to be
transferred

• Review
• Documentation and Process capability
• Mfg equipment and fixtures
• Supply chain and cost structure

Stabilize and Harmonize Stabilize the line and
establish engineered processes, Harmonize line
package to meet requirements.

• Prepare
• Documentation Package/ MRP data
• Fixtures and tooling
• Validation Protocols

Transfer and Validate Physically transfer the
line and validate.

• Implement
• Training
• Equipment and Supply Chain Transfer
• Perform and Pass Validations

13
Case Study 3 Product/Asset Divestiture

• Customer Problem
• A Medical Device OEM acquires a company or a
  family of products manufactured at a facility
  which will close or no longer supply the products
• The OEM does not want to undertake the complex
  process of integrating the manufacturing into one
  of their facilities
• Partner Solution
• Partner acquires some or all of the manufacturing
  assets, and assumes full responsibility for
  manufacturing from the OEM
• Partner enters into a multi-year supply agreement
  with the OEM to manufacture and supply all of the
  products of that product family to the OEM
• Partner capable of transferring a large number of
  product SKUs and commit to significant cost
  reductions within 12 months of taking over assets
• This relationship allows the OEM to focus their
  resources on integrating and increasing the sales
  of the acquired product offering, as well as
  creating new products based on the acquired
  technology

14
What Solutions can an Integrated Outsourcing
Partner Offer?

• Asset Management
• - Options for the OEM to manage asset
  utilization, intensity, and return on invested
  capital through outsourcing
• Risk Mitigation
• - Confidence to manage business and product
  transitions without disruption of supply or risk
  to quality/reputation
• Innovation
• - Solutions that meet dynamic business and
  product challenges

15
How can Customer Risk be Mitigated?

• Well Defined Business Integration Processes
• Opportunity assessment
• Structured Program Management and Transfer
  processes
• Tracking Metrics
• Integrated Quality System
• Unified policies and procedures
• Certified and audited
• Facilities GMP and FDA compliant
• Engineering and Manufacturing Excellence
• Engineering Services offering
• Centers of Excellence
• Broad base of advanced process technologies and
  component capabilities, backed up by process
  experts
• Business Excellence programs incorporating Six
  Sigma and Lean Manufacturing tools and
  methodologies

16
A Structured Program Management Process
Phase II Detail Design and Verification
Phase III Process Validation Pilot
Manufacturing
Phase I Concept Development
Design Review
Design Review
Goal Develop concepts to demonstrate form, fit,
and function
Goal A Verified Design
Goal Validated Manufacturing Processes

• Key Deliverables
• Models that demonstrate form fit and function
• Preliminary Manufacturing Assessment
• Preliminary Quality Plan
• Preliminary cost assessment

• Key Deliverables
• Detailed DFMA
• Risk Analysis
• Final Design Documentation
• Manufacturing Plan
• Verified Design
• Verified Processes
• Final transfer price

• Key Deliverables
• Final Manufacturing Documentation
• Final Packaging and Label copy
• Validated tooling and processes
• Biocompatibility, aging, transit test results

17
Integrated Quality Systems

• Quality System designed for seamless customer
  integration
• Systems certified and audited to ISO 9001 and
  ISO 13485 EN46001 FDA QSR 21CFR820 MDD
  93/42/EEC.
• Facilities GMP compliant and registered as
  contract manufacturer with the FDA

Level I
QM
Level II
Policy Documents
Level III
Standard Operating Procedures
Level IV
Forms Device History Record
18
Engineering Services are Designed to Overcome
Common Outsourcing Obstacles
Common Obstacles
Solutions
QFD, DFMA Process experts
Device is not easily manufactureable
Early cost modeling Integrated supply chain
Device cost target very aggressive
Manufacturing Review Process Verification
Manufacturing process is not stable
Risk Assessment
Changing process/design during transfer
19
The Ideal Medical Product Outsourcing Partner
100 Medical Focus
Scale and Financial Strength
Integration Experience
Dedicated Team
Proven Process
Value Added Services
Supply Chain Management
Customer Asset Divestitures
Engineering Design
World Class Manufacturing Systems
Integrated Quality Systems
Lean Six Sigma
Metrics
Broad Base of Manufacturing Capabilities
Plastics Processing
Secondary Processes
Assembly Packaging
Metals Processing
20
Thank You