The Right Vendors Foster Growth: Why Firms of All Sizes Need to Outsource

I  was working as a product development engineer at AcroMed (a spinal implants manufacturer that was acquired by DePuy in 1998), when I noticed a gap in the medical device industry. There were plenty of companies coming up with great ideas for devices, but there were holes in the product development cycle thanks to a lack of resources or expertise.

That’s when I decided to grab a shovel and start filling some of those holes. First came Empirical Testing Corp. (ETC), which focused on testing devices. It was all we did, so we got good at it over the course of 20 years. Through ETC, we heard from clients who needed small-batch manufacturing and prototyping, so we launched Empirical Machine. Clients came to us for regulatory support through both of those specialty companies, so we added Empirical Consulting to our group of companies. Each branch of our corporate family tree developed as an answer for companies or individual developers lacking a critical in-house resource.

For companies large and small, outsourcing specific aspects of device development builds forward momentum and supports the entire industry.

Andy Fauth is an engineer by training. For 13 years, he’s worked in a private-equity, privately owned business he says owes its growth to finding the right vendors. He’s now chief technology officer for SMV Scientific, a company that specializes in the bone-implant interface and designs, develops, and manufactures orthopedic devices. The company began as a two-person research and development venture four years ago and has grown into a 17-person business with three devices on the market and six 510(k)s completed.

“As an emerging company, we don’t have the capital to have the equipment internally or hire everybody we’d like to hire for the right way to handle this stuff,” he said. “The only way we could incubate this company and grow was to outsource.”

Even for larger companies, it often makes sense to outsource specific parts of device development, he said.

“There’s always a bottle neck somewhere—that’s why there is an outsource market,” Fauth said. “Some of that stuff is specialty. When you’re going to do it once every couple of years, you don’t want to do that internally. There’s always specialty equipment, whether it’s a test frame or test fixture or experience with a certain protocol you don’t have in-house, or don’t want to invest in having that in-house long-term. You just need to use it once and check the box.”

Raymond Cloutier, vice president, Engineering & Development, Advanced Technologies at Exactech, said despite significant resources and commitment to Exactech’s in-house resources, he also turns to outside vendors for specialized support. Sometimes it’s an issue of capacity, but he also appreciates the benefits of outside expertise.

“[Outside vendors] are in a somewhat privileged position,” he said. “They’re also doing work for other companies, which helps them know the benchmark or industry standard. Sometimes when we’re in our own world as a company, we don’t have as much understanding of how requirements should be interpreted. An outside consultant may better understand what expectations, for example, the FDA may have. Suppliers generally have seen how multiple companies prepare submissions.”

He said bigger companies may, at times, err on the side of being overly cautious.

“Oftentimes large companies take very conservative positions because they have a lot at stake,” Cloutier said. “The question is, are they being ‘overly compliant’? Are they doing things more rigidly than what the external regulatory bodies require? Sometimes an outside perspective helps you better know the answer to that.”

David Poirier is founder and owner of spinal implant company Presidio Surgical, which has a staff of eight. He keeps quality control, marketing, sales, distribution, and accounting in-house, but the bulk of his device development work depends on outside vendors.

“Everything we do, we pay for through sales and distribution of our products,” Poirier said. “They have to be right. There’s really no room for error. We’ve made errors. They hurt.”

At first glance, it may appear outsourcing is more expensive than keeping things under your roof. But those numbers can be misleading. You may pay $200 per hour to a single vendor—which is often more than an employee’s hourly wage—but you’re not paying benefits or down time when the employee is not actively engaged on the project, Poirier said. There’s also a matter of prioritizing in-house expertise to make the best use of time and money, he said.

“If I take someone in quality engineering and say, ‘I need you to work on this gauge design,’ my project may have a mid-level priority, but I’ve taken them from a much higher-level project; there’s an opportunity cost,” Poirier said. “There’s the cost of the benefits and true cost of employees, then the opportunity cost. It’s a general management issue you have to think about. With consultants, you’re only paying them for what they deliver instead of the full cost (of an employee).”

Paying for support a la carte is less expensive than developing that service for your business, Poirier said.

“I only pay them for the work they do,” he said. “When you’re outsourcing, it can be a benefit if you have really good experts. You’re paying them for what you want and get what you need. You’re paying for specific service rather than a staff member. It’s hard to find good people.”

Working with consultants who are well-known in the industry has its advantages, Fauth said.

“Just to get the expertise for third-party validity for our customers, we’d outsource,” he said. “We actually had to challenge and re-invent new standards. We worked with the FDA to develop protocols and standards that didn’t exist at the time. When you have an outsource company that’s done all of that already and has a reputation of being a good firm, it lends a lot of credibility and merit to what you’re trying to do.”

Word-of-mouth referrals and networking are solid first steps toward finding the partner.

“Reputable is the key,” Cloutier said. “One test that gives me an indication is how careful they are at protecting other companies’ knowledge. If they share confidential information from other companies with you, then they’re probably sharing your confidential information with others. Observing this helps me judge who is a trustworthy supplier to work with and who isn’t.”

And even as you consider outsource options for aspects of your project, never forget the big picture, Fauth said.

“I look at anybody we interact with as a potential partnership, not just a customer/supplier relationship,” he said. “If something goes bump in the night, I want everyone equally committed to fixing it.
I also want it to be a win for both parties. That’s the right way to do business long-term. It’s not always about price or lead time. Those are factors. It’s also about quality, it’s about trust, it’s about faith they’re going to make it right if something goes wrong and everybody’s going to work for everybody else’s best interest.”  

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Dawn Lissy is a biomedical engineer, entrepreneur, and innovator. Since 1998, the Empirical family of companies (Empirical Testing Corp., Empirical Consulting LLC, and Empirical Machine LLC) has operated under Lissy’s direction. Empirical offers the full range of regulatory and quality systems consulting, testing, small batch and prototype manufacturing, and validations services to bring a medical device to market. Empirical is very active within standards development organization ASTM International and has one of the widest scopes of test methods of any accredited independent lab in the United States. Because Lissy was a member of the U.S. Food and Drug Administration’s Entrepreneur-in-Residence program, she has first-hand, in-depth knowledge of the regulatory landscape. Lissy holds an inventor patent for the Stackable Cage System for corpectomy and vertebrectomy. Her M.S. in biomedical engineering is from The University of Akron, Ohio.