Original equipment manufacturers (OEMs) in the medical device market are taking a close look at all their suppliers and making changes. Demand for more affordable and accessible medical devices is forcing OEMs to control costs by consolidating supply chains and outsourcing more tasks.
Outsourcing in Demand
When OEMs decrease their number of suppliers, it improves the overall quality of the finished device by simplifying the number of systems and processes used. They also eliminate costs by reducing audits, purchase orders, and shipping and receiving logistics. Vertical integration within a single-source supplier allows a supplier to fully understand and rectify all design and manufacturing issues before a product goes to the market. When OEMs can spend less time and money managing all those things, they can focus on their core competencies and remain agile for the future.
The COVID-19 pandemic has focused more attention on medtech OEMs than ever before, especially in the realm of biopharmaceuticals where demand is growing. As noted from a report by Mordor Intelligence, OEMs in the biopharmaceutical industry are being asked to create new vaccines and techniques quickly and safely for previously untreatable diseases.1 To focus on creating innovative new drugs, biopharma OEMs will be increasingly outsourcing to suppliers that can provide more solutions ranging from the complete manufacture, assembly, and packing of their products.
More Is More
Successful component suppliers must evolve to be full-service partners for OEMs, doing everything from prototyping, design, manufacturing, and scale-up, to sterilization, packaging, labeling, and shipping of finished medical devices. A full-service offering also means a component manufacturer that can assemble critical complex components for the OEM.
Component suppliers that have a large global base can provide significant savings to OEMs looking to outsource. When project teams can work across different locations with different specialties, it eliminates the need for OEMs to purchase from and work with multiple suppliers and assemble devices themselves. Global reach also makes it easier for component suppliers to navigate supply chain issues and potentially reduce lead times, providing increased certainty for OEMs. Trelleborg, for example, now has more than 40 manufacturing sites, 10 research and development centers, five logistics sites, and over 60 customer solutions centers, strategically located around the globe to provide custom solutions for the most complex challenges and provide this type of value to its customers (see the sidebar, “Strength in Many).
In healthcare and medical, high-quality, reliable supply is the primary objective; the manufacturing location can be less important. However, OEMs are increasingly asking to have a manufacturing source close to their production facilities to avoid supply chain disruptions like the ones experienced during the pandemic. For this reason, Trelleborg is expanding its manufacturing and service capabilities in the United States, Europe, and Asia.
One Trend Spurs Another
This demand for outsourcing from OEMs is spurring mergers and acquisitions (M&A) on the component manufacturer side. Many component suppliers, like Trelleborg, are focused on acquiring companies that can help round out their capabilities and geographical reach as seen with the acquisition of Minnesota Rubber & Plastics.
Together the trends of outsourcing and M&A are leading to market consolidation amongst component suppliers. As stated in an article by Forbes, companies in the healthcare industry are participating in M&A activity to enhance and expand their core operations, move into new markets, increase their employee talent pool, and build customer confidence.2
As medical device OEMs work to meet the demand for innovative products delivered to market quickly and cost effectively, their need to outsource a wide range of services is growing. When OEMs decrease their number of suppliers, it improves the overall quality of the finished device by simplifying the number of systems and processes used and cuts down on costs. Component suppliers that are prepared to take on all services from prototyping, design, manufacturing, and scale-up, to sterilization, packaging, labeling, and shipping of finished medical devices will be the ones with which OEMs increasingly do business.
The Medtech Outsourcing Market
The outsourcing market is growing faster than the device market overall. According to a report by Grand View Research, the global medical device outsourcing market was valued at $117.5 billion USD in 2022 and is expected to expand at a compound annual growth rate of 12.1 percent from 2023 to 2030. Expectations are that rising demand for medical devices combined with increasing price competition among OEMs and the continued pressure to reduce costs will drive the outsourcing market and its subsegments during this period.3
Designers of implantable medical devices must balance complexity, reliability, power consumption, and costs as they create solutions that improve patient outcomes. Companies are shifting their focus to making devices more data driven and patient friendly; therefore, outsourcing non-core activities can help launch devices faster.
What’s Being Outsourced?
Based on services, the outsourcing market is segmented into quality assurance, product design & development, product testing & sterilization, product implementation, product upgrade, product maintenance, and contract manufacturing services.
In addition, increasing complexity in manufacturing is contributing to outsourcing growth. Manufacturing high-quality and safe devices for patient care is a major concern of medical device manufacturers. Broader and more encompassing standards and regulations are driving a high level of inspection in the manufacturing process for medical devices. This is creating demand for outsourced regulatory manufacturing services.
What Subsegment Is Growing the Most?
The quality assurance services segment is projected to attain the fastest CAGR growth of 14.4 percent during the forecast period. The maintenance of an effective quality management system is an integral part of the production of every medical device. ISO 13485 governs quality management systems, development, implementation, and maintenance of the products intended for use by medical device manufacturers and suppliers. Some medical device manufacturers are outsourcing quality management services to medical device consulting companies to ensure compliance and provide high-quality components alongside safe and effective finished medical devices.
Recommendations for OEMs currently seeking outsourcing partners
Ask if your current component supplier can work with you on a project from the design phase to full-scale production so that you are only working with a single supplier throughout.
Involve your supplier during all stages of development from design iterations, prototyping, production, scale-up, sterilization and packaging. This can ensure that costs are not designed into the manufacturing process.
Ask how much experience their experts have, for example: in materials, tooling, and precision machining.
Look for a component partner that can collaborate with you to resolve your problems under one roof and deliver more than just a product.
- “Biopharmaceuticals Market — Growth, Trends, COVID-19 Impact, and Forecasts (2023–2028),” Mordor Intelligence.
- Jeffrey Bartel, “Healthcare Merger And Acquisition Trends And Outlook For 2023,” Forbes, February 8, 2023.
- “Medical Device Outsourcing Market Size, Share & Trends Analysis Report By Services (Quality Assurance, Contract Manufacturing), By Therapeutic Area, By Class, By Region, And Segment Forecasts, 2023–2030,” Report ID: 978-1-68038-279-2, Grand View Research.