Quality Partnerships to the Rescue

Why selecting a larger outsourcing partner can help fulfill growing demand in orthopedic manufacturing

Tom Burns, Accellent Orthopaedics

With all the data available, it’s clear that the orthopedic device market is poised to experience explosive growth. In 2005, this market was valued at $25.9 billion; by 2010, the market is expected to reach $38 billion, representing a five-year compound annual growth rate of 8%. The aging population, minimally invasive surgical procedures and robust product innovation all have fueled a market that offers doctors and patients more choices than ever before for enhancing and extending quality of life.

Larger medical device outsourcing companies may offer quick-turn prototyping services, helping orthopedic device companies significantly shorten production timelines.

While the opportunity for orthopedic device companies is enormous, so is competition. Consolidation in this industry has led to fewer major device manufacturers vying for loyalty from increasingly knowledgeable clinicians and patients, and increased price pressures have heightened demand for innovation that can ensure brand differentiation and value—as well as sales and profits. 

To ensure innovation and a consistently competitive market position, today’s orthopedic device companies are taking a hard look at their entire product development continuum. As a result, many are turning to strategic outsourcing firms to accelerate product development and reduce the total cost of manufacturing. With the right outsourcing partner, an orthopedic device manufacturer can improve its competitive position by augmenting its in-house team with additional technical expertise, leveraging rapid prototyping of devices under development and reducing costs associated with manufacturing, assembly and distribution.

The Outsourcing Option

The goals of today’s outsourcing partners mirror those of the rest of the device industry. Clinical efficacy and patient care are paramount, and both OEMs and their outsourcing partners want to reduce costs, increase the frequency of new product launches, reduce product development time and leverage novel materials and the latest technological innovations.

In addition to these goals, outsourcing suppliers also provide the orthopedic sector with some significant advantages for companies  looking to leverage external resources. Surge capacity, lower overhead costs and expertise in a specific technology (such as forging or custom machining) can all benefit companies that outsource.

The orthopedic outsourcing market shows that companies are reaping these benefits. Valued at $1.3 billion in 2005, this market is expected to nearly double to $2.5 billion by 2009 (for individual orthopedic market segment valuations, see Table 1 below). This is due to many factors, including a redefining of the relationships between orthopedic device manufacturers and their outsourced suppliers.

In the past, relationships were based on single transactions and mainly involved components. As a result, the outsourcing market was extremely fragmented with many small players. One shop down the street may have provided forging expertise, while another company handled machining needs, and yet another shop provided engineering assistance. Back-up suppliers were another necessity, since many of the chosen suppliers could not ramp up manufacturing capacity to meet market demands. Managing these complicated, interwoven relationships required a large staff of buyers and quality personnel.

Now, orthopedic device companies often find that their resources are too stretched to manage an army of smaller suppliers. They can’t afford the numerous hand-offs between suppliers, which drive up costs and lengthen development times. With increased regulatory scrutiny of supply chain practices, a large number of small suppliers increases the risk and audit requirements. Increasingly, orthopedic companies are consolidating the number of vendors they do business with and are forming long-term strategic partnerships.

Why Full-Service Partnership Works

As the market continues to grow, outsourcing companies are consolidating, mirroring the consolidation that has already occurred within the orthopedic market. These consolidated, larger organizations have distinct advantages over their smaller counterparts. Some of the larger players are vertically integrated, offering enormous economies of scale while managing significant portions of the supply chain. Rather than work with numerous suppliers operating diverse quality systems, orthopedic device companies can turn to full-service providers that are focused on the medical device industry. The new, larger entities also have the financial resources to invest in emerging technologies and experienced technical and project management teams.

Outsourcing companies are also starting to concentrate on core areas of expertise within the medical device sector such as orthopedics or cardiology in a move to strengthen their technology platforms, increase capacity, provide greater manufacturing options and enhance the ability to produce increasingly complex devices. 

Suppliers with in-depth industry knowledge provide benefits throughout the entire product life cycle, from material analysis to low cost manufacturing, enabling device manufacturers to speed their time to market and optimize their internal resources. For example, manufacturers that have extensive experience with implantable devices understand the quality requirements of manufacturing these devices and can implement process controls to speed both the validation approval process and the transfer to manufacturing.

Quick-Turn Development

One significant opportunity orthopedic companies find in working with outsourcing partners is the ability to jumpstart product development. Some suppliers provide engineering and rapid prototyping expertise, on both the design and manufacturing side, adding technical expertise outside the realm of the orthopedic manufacturer. These specialists can supplement design and engineering departments in the device company, reducing manufacturing costs for older products or helping to create new devices using novel technologies, new materials and unique processes.

For example, outsourcing partners can provide quick-turn prototyping services, from rough mock-ups to fully functioning prototypes. By rapidly developing a device, designs can be tested and modified, and then produced again according to new specifications. The compression of this cycle is critical to improve speed to market.

Accelerating new product introductions is especially critical to success in major markets such as the spine sector, for which novel ideas and technologies are rapidly changing the surgical options for patients in this fast growing population.

External engineering and manufacturing resources can be especially important to older products that have lost their competitive edge or seen their gross margins decline. With a fresh approach and perhaps  utilizing new processes, these products may be revitalized and manufactured at lower cost or with a modified design to be able to successfully remain competitive in the market. These revived products can help deliver additional profits and extend their product life cycle.

Choosing a Partner

When choosing an outsourcing partner, orthopedic device companies should look for larger, stable players that can provide flexible engineering and manufacturing options. As a threshold, the outsourcing partner must have excellent quality systems that are on par with the orthopedic device company’s own quality systems. In particular, evaluate a company’s compliance to ISO 13485:2003 and FDA QSR regulations.
 
It is also important to seek outsourcing partners that embrace Lean manufacturing and Six Sigma principles. These techniques have been proven to reduce waste, driving down costs and cycle times. The application of Lean manufacturing principles has been shown to  reduce cycle time dramatically, increasing throughput  and reducing the need to bring on more people and capacity to meet product launch requirements.

In addition, while geographic proximity is nice, a full range of services—from design and rapid prototyping through final manufacturing and assembly—is essential.

Finally, it is vital that the outsourcing partner be willing to customize services for the device company. Working together, the device company and the outsourcing partner can set common goals and deliverables and meet an agreed delivery timetable.

Looking Ahead

In a marketplace that demands rapid product innovation and rigorous cost control, outsourcing more of the rapid prototyping and supply chain management to large strategic partners can spell success for orthopedic device companies. Outsourcing partners can help accelerate time to market while reducing costs, improving returns on investment and increasing shareholder value. As the orthopedic marketplace continues to grow, outsourcing will play a strategic role in defining market leadership.

Tom Burns is vice president of sales for Accellent Orthopaedics. Accellent is a leading provider of outsourced design, precision manufacturing and engineering services focused exclusively on the medical device industry. For more information, please visit www.accellent.com.