Medical device OEMs face ongoing pressure to develop and commercialize innovative products faster, at lower costs, and in compliance with increasingly stringent regulatory standards. As in other industries, device manufacturers often look to partner with outsource providers to fulfill both core and non-core functions within their product life cycle. OEMs from startups to Fortune 100 companies leverage outside resources to reduce fixed costs, benefit from external expertise, and mitigate business, technical, and regulatory risks.

Minnetronix’ 18,000-sq.-ft. manufacturing facility in St. Paul, MN. The company's total square footage is 57,000. (Image courtesy of Minnetronix/Rat Race Studios - Ken Friberg, Daniel Life)
As with any business approach, along with benefits, there are also challenges and trade-offs. Without preparation and careful execution, outsourced projects and outsourcing relationships can leave companies questioning their partners and even the outsourcing model. Successful outsourcing is about much more than finding someone who has “done it before.” Effective outsource relationships rely on setting clear expectations, selecting providers that fit a company’s needs and approach, and actively collaborating with partners throughout a program.

Establishing Goals and Expectations

In business and in life, people often dive into solutions without spending sufficient time defining the problem at hand. Einstein is quoted as having said that if he had one hour to save the world he would spend “55 minutes figuring out how to formulate the question and five minutes solving it.” (Cracking Creativity, Michalko, p. 23)

When considering outsourcing, it is important to ask “what and why” before jumping into “who and how.” Outsourcing can be an ideal solution for many development and production needs, but it is not optimal for all needs at all times. Likewise, in some instances, expanding the scope of outsourced activities beyond initial plans may be prudent. Being deliberate about which elements of the product commercialization process to outsource and what outcomes and benefits are expected is an important first step in the process. Even when the scope of an outsourced effort is obvious, companies can benefit from clarifying their goals and retaining this information for use during the selection and execution phases of their programs.

It is also valuable to establish realistic expectations for outsourcing and to identify potential challenges and risks up front in the process. Carrying unrealistic expectations regarding near-perfect performance or a hands-off relationship can generate friction and conflict throughout a program. Outsourcing by its nature implies partnering with another organization that has a different mission and vision, not to mention the likelihood of differences in structure and culture. These differences may in many cases contribute positively to the outsourcing process, but may also carry potential risks to successful outcomes for both parties if they go unrecognized.

Minnetronix engineers discuss one of several design projects. (Image courtesy of Minnetronix/ Rat Race Studios - Ken Friberg, Daniel Life)
As a starting point, OEMs can benefit from documenting program and relationship expectations and associated risks. Items captured pre-project might include budget and schedule expectations, partner responsibilities, documentation and communication assumptions, and risk and reward sharing concepts, among others. With each assumption and project expectation, associated risks can be identified along with contingency and mitigation approaches. Upfront expectations and assumptions will likely benefit from some iteration with the selected provider, and to be most beneficial, should be developed and viewed by both partners as useful guidance to chart the course, rather than burdens or hurdles to struggle through. In the long run, the best scenario for outsourcing is to build a foundation for a “win-win” outcome, where both partners in the relationship are motivated to achieve common outcomes and share in the rewards of a successful effort. Setting the foundation begins before a outsource provider is selected, by developing an understanding of the motivations and expectations for outsourcing.

Selecting an Outsource Provider

With plans and expectations in place, the next step to successful outsourcing is selecting a provider. Many companies that have experience with outsourcing have developed systematic approaches to the selection process, including criteria grids with numeric rankings and formal Request for Information (RFI) and Request for Quote (RFQ) templates. These are useful tools, both because of the consistency they promote as well as the required preparation, planning, and intentionality required to use these tools.

From a process standpoint, selection typically involves finding a pool of candidates; gathering initial information from each potential provider; developing a short list of contenders; conducting indepth interviews with short-list candidates; requesting and reviewing proposals and quotes; and finally, selecting and finalizing business agreements. Throughout the process, candidate providers will offer feedback and questions on the scope of work being quoted. While some of this feedback may be simple questions warranting clarification, questions and input from potential providers can often be invaluable in refining both the selection process and the scope of work being quoted. As noted, structure in the selection process, through, for instance, formal RFQs and criteria, can be very valuable. Likewise, flexibility in processing information from candidates and adapting the selection process can lead to better insight into providers and, ultimately, more effective program execution.

Minnetronix Electronics Assembler performs a device Leak Test. (Image courtesy of Minnetronix/Rat Race Studios - Ken Friberg, Daniel Life)
Criteria for selecting a provider generally fall into two categories: requirements and differentiators. Requirements for medical device development and manufacturing commonly include Quality Management System (QMS) fundamentals, regulatory certification, and alignment of in-house capabilities with program needs. Differentiators include items such as breadth and depth of capabilities, experience and expertise; communications and program management methodologies; tools and processes for QMS compliance; and emphasis on efficiency and process improvement. While criteria for individual programs should be tailored to fit the “what, why, and how” information addressed earlier, there are some fundamental questions that can benefit any selection process, including the following:

• Does the requested scope of work fall within the provider’s sweet spot?

Outsource providers all have certain technology, project size, and product complexity boundaries that they work best within. It is important to understand these boundaries and limitations; however this information is often not readily offered when an outsourcing company is trying to win business. It may be necessary for an OEM to push on a prospective provider to reveal the limitations of their capabilities and their true sweet spot. If a provider doesn’t reply with “we don’t do that” at least once during the selection process, their practical boundaries may not be fully appreciated.

• Is there a cultural fit?

Are fundamental values and working environments of both the OEM and outsource provider compatible, or are there some critical differences in approach? Cultural compatibility grows in importance and impact with the size and complexity of a program.

• Does the provider have the experience and bandwidth necessary for the planned effort?

It is important to recognize that any given program is likely unique in some aspects from anything anyone has ever done before. Finding perfect alignment of experience with specific program needs is unlikely, but finding a good fit is not. Experience and bandwidth can be assessed by looking for skilled resources that have applicable experience — demonstrable efforts similar in technology, complexity, and scope — with strengths aligned with the required program tasks, and particularly solid capabilities in areas outside the OEM’s core expertise.

Finding a good outsource provider is a time-consuming and challenging task, particularly when the scope of work involved is significant. The objective of the process is ultimately to find the best value in a provider, i.e. the best solution for completing the outsourced work while optimizing quality, time, and efficiency, and overall cost or ROI relative to program goals. Being intentional about selection criteria and the selection process prior to talking with prospective providers will aid in keeping the focus on important aspects of the overall program, and will help balance the influence of upfront cost estimates against critical program goals and long-term value.

Aligning and Executing

Once outsourcing goals have been established and an appropriate provider has been selected, the foundation for effective program execution is in place. From here, active collaboration and management of the outsourcing relationship are essential to ensuring successful outcomes. Alignment and communication are necessary components of effectively managing outsourcing relationships, and involve some of the following important activities and approaches.

Communicating the Mission. Even when an outsource provider’s scope is limited, there is value in having the entire team understand big-picture objectives. Communicating business objectives and keeping them visible throughout a program promotes long-range, value-based thinking when making decisions and taking actions. Educating an outsource provider on the clinical use of a product, along with important clinical, regulatory, and business milestones, can go a long way toward communicating the overall mission and instilling a sense of value and urgency in the team. Maintaining “big-picture” awareness can be difficult in the midst of day-to-day challenges, but it is critical to effective decision-making and keeping a project on track.

Consistency in Decision-Making. Whether developing a new product or outsourcing production, leadership within the OEM and outsource provider will be called upon to set direction and make decisions on a regular basis. For efficiency in execution and confidence within the team, it is important that decisions be made based on consistent guiding criteria. Teams, whether internal or external, generally can tolerate change and redirection as they occur naturally during the product life cycle. However, when the basis for decision-making shifts or is inconsistent, team members begin to lose confidence in the path, and their motivation declines. Maintaining a strong product champion whose role is to set direction and keep the team focused on what matters most can greatly aid in consistent decision-making and effective execution.

Responsibility, Accountability, and Trust. Trust is essential to an effective outsourcing relationship. Generally, OEMs outsource to companies that have recognized expertise and experience aligned with the tasks they are asked to complete. Trust between partners in the outsourcing equation should be developed during the selection process and built upon during project execution. It is essential to trust in each other’s expertise and also in each other’s genuine desire to fulfill obligations and meet project goals. Clearly defining roles and responsibilities and establishing bi-direction accountability mechanisms will promote clarity in the outsourcing relationship and establish an environment where partners can be trusted. Set clear expectations, trust team members to execute, and then verify performance, acknowledging success and working together to address challenges.

Expect Challenges, Solve Problems. Whether a company outsources or not, challenges during development and manufacturing are inevitable. When outsourcing, unforeseen problems will disrupt the overall working relationship if not managed proactively, making more evident the self-interests of the OEM and outsource provider companies. It can be argued that the mark of an effective team is not how it operates when things are going according to plan, but rather how it functions when confronted with challenges and unexpected deviations from the plan.

Anticipating challenges and mitigating risk, via risk analysis, contingency allotments, and parallel approaches, is prudent and will alleviate or temper many challenges. However, problems will occur, whether by outside influence or otherwise, and outsourced programs should have mechanisms in place to address these problems. Maintaining and regularly reviewing issues lists can aid teams in assessing, prioritizing, and addressing challenges. Also, putting contractual mechanisms in place to address the process for dealing with challenges and the associated impacts on the project plan will not only set the expectation, but also assist in the logistics of addressing challenges — thereby freeing up the project team to focus on solving problems.

High-performance outsourcing relationships bring two or more teams together, with overlapping and complementary goals and objectives. Creating alignment, focusing on common goals, and fostering an environment of trust within an outsourcing relationship will not eliminate problems and allow flawless execution. However, these actions will help build a team structure and business relationship that can adapt and execute effectively.

The benefits of outsourcing are often discussed and well evidenced in effective outsourcing relationships. When well executed, medical device companies can benefit from adding resources to their team to enable faster, more efficient product development and commercialization. To make the most of outsourcing relationships, OEMs must avoid the pitfall of assuming that simply selecting an experienced outsourcing partner will take care of all their needs. Every device company should recognize the importance of preparing for outsourcing, selecting a partner based on fit and overall value, and actively collaborating with their outsource provider for shared and mutual success.

This article was written by Dirk Smith, Chief Technology Officer for Minnetronix, Inc. in St. Paul, MN. For more information, Click Here 

Medical Design Briefs Magazine

This article first appeared in the June, 2012 issue of Medical Design Briefs Magazine.

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