Originally Published IVD Technology October 2001
Contract manufacturing
The consolidation among diagnostic companies that has taken place over the past few years continues to change not only the number of industry players but also the roles they'll play in the future. Companies are looking at their core competencies—typically discovery, manufacturing, and the ability to market products—and evaluating where there may be opportunities to improve on agility or speed of product development. Many companies are pushing to eliminate "touch-costs" such as inventory. As a result, contract manufacturing is an increasingly important business strategy for IVD companies.
As IVD companies concentrate efforts on areas of their own expertise that will add the greatest value and quality to their products, the percentage of services contracted to outside vendors continues to grow. Significant portions of final products are now being contracted out to companies that, like those in this year's guide, offer unique and complementary core competencies.
Companies may be right in thinking that the pace of change in the IVD market is getting faster and faster, but so far we've only witnessed the qualifying round; the real race is just about to begin. At the same time, industry regulators have raised the bar for regulatory compliance. When services are contracted out, the quality of the product ultimately released to market remains the responsibility of the manufacturer. For this reason, manufacturers should be clear about what standards of quality—and what levels of product and customer service—they will require before selecting a contractor.
Adding Value
Although many diagnostic companies are contracting out for manufacturing and consulting services as a means of dealing with market competition, ultimately it is the end-user who will determine the success or failure of a company's products. Managers should be encouraged to look at outsourcing as an opportunity to utilize a dynamic business tool for the benefit of their organization. Such an approach makes the quality of a manufacturer's business performance—including its relationships with vendors—critical.
A major factor in the selection criteria for contract vendors should be their knowledge of and regard for evolving medical device regulations. How a supplier incorporates regulatory responsibilities into its R&D, manufacturing, and distribution chain should be a determining factor in its selection as a suitable vendor for a diagnostic product. In this regulated environment, quality systems compliance is not merely a means for ensuring that contracted products and services meet specifications, it is a regulatory requirement that affects both manufacturers and their suppliers.
Futures
To handle these complexities, IVD companies seek to identify the best providers of solutions and outsourcing activities. As the contract manufacturing industry evolves, it will be interesting to observe the growth of such key areas as manufacturing, controls outsourcing, laboratory testing, component assembly, and packaging technology.
Of course, this trend is not new. In the past, IVD companies performed not only all the manufacturing steps for building a final product, but also all the ancillary processing steps that the product required. Once regarded as necessities, such functions are now often judged as lying outside the core strategies of individual companies. These processes are precisely the core competencies of contract service providers that offer alternatives to in-house processing functions. Vendors with a commitment to the IVD sector contribute technical expertise as well as a valuable third-party perspective on industry and regulatory trends. In short, the growth of the contract services sector for IVD manufacturing appears to be assured.
For all of these reasons, IVD companies want and need suppliers that can act as solution providers. There is a growing demand for suppliers that can respond by shifting workloads into their operation. And manufacturers place high value on suppliers that can rapidly apply new technologies and leading industry practices. The complexity of combining a multitude of components from a collection of suppliers can strangle an organization that is already struggling to keep up with escalating regulatory and customer demands. Throwing responsibilities over a succession of fences doesn't work when the company's goal is to be fast and compliant.
In many IVD companies, resources are spread thin by attempts to enter new markets, making it impossible to support in-house efforts to optimize or integrate the many specialized components of their products. Companies that adopt the goal of creating value must progress beyond the notion that their task is to deliver one-off products or projects, to a mind-set that views their purpose as the delivery of the ultimate product coming out of a facility. That's a major challenge, and the only way to create such value is for manufacturers, contractors, and suppliers to work together.
The Starting Point
As competition and cost-reduction pressures grow, IVD companies are increasingly turning away from vertical integration in favor of outsourcing. Many major operations that were formerly performed in-house are now being accomplished through licensing agreements and contracts with outside suppliers. The decision to use contracted services brings with it a number of challenges that need to be faced straight on. However a manufacturer may justify such a decision, the result cannot be simply to delegate to the supplier all responsibility for product quality. For both parties, making a contract relationship work requires a building of trust.
The listings in this year's buyers guide offer a starting point for manufacturers seeking such vendors, but it is still in the best interests of manufacturers to assess for themselves the suitability of all contract service providers.
—Russ Hangos (Lake Forest, IL)
Copyright ©2001 IVD Technology
