Medical Device Link.

OUTSOURCING FOR IVD MANUFACTURERS

Figure 1. A strategic supply partner delivered this miniature in-line pump for a flow cytometry instrument after the OEM and supplier together determined that a full syringe pump was unnecessary.

Aiming to be first to market with innovative products, a growing number of IVD equipment manufacturers wrestle with a critical question: that is, whether it is more profitable for original equipment manufacturers (OEMs) to divert resources from their core competencies to design, develop, assemble, and test integrated subsystems for functions such as precision fluidics themselves, or to codevelop key subassemblies with suppliers that are technical experts in that specialty. OEMs that are ahead of the curve in innovation and product differentiation are recognizing a competitive advantage in working with a codevelopment partner for specialized technology platforms.

This competitive advantage is magnified as the demand for IVD instrumentation increases. The global IVD market exceeded $38 billion in 2007 and is expected to grow at a rate of 6.72% between 2007 and 2012.¹ The fastest-growing sectors, cancer screening and testing and molecular diagnostics, are projected to expand during that period by 11% and 15.4%, respectively.^1,2

This growth trend is propelled by rapidly changing demographics and technology. An aging population in the United States and Europe, the increasing prevalence of chronic and infectious disease, and greater access to healthcare for people in developing economies all contribute to demand. China alone is expected to double its use of IVD devices in the next five years.³

On the technology side, point-of-care diagnostics and the emerging field of individual diagnosis–driven therapies (theranostics) are stimulating demand for specialized, miniaturized equipment. Laboratory automation, the purpose of which is to provide accurate and timely output with a minimum of human interaction, necessitates the use of highly precise and accurate instrumentation with optimized throughput and maintenance cycles.

Rapid growth and increasing specialization in the industry are creating unprecedented demands for manufacturers of IVD devices. To meet them, OEMs are fast-tracking new instrument technology platforms by adopting a modular approach, developing compact, fully integrated work cells, or subassemblies, for technologies such as microfluidics, microarrays, and lab-on-chip.⁴

This technological modularity in system development raises that question introduced at the beginning of this article, the shorthand for which is, make or buy? To identify whether the codevelopment option provides viable opportunities for adding value and protecting profitability, OEMs should work out answers to the following questions.

• Can the OEM leverage the codevelopment partnership to optimize its allocation of time, money, and other resources?
  
• Can the codevelopment partner help the OEM get to market first and earn top-line revenues sooner?
  
• Will leveraging a codevelopment partner allow the OEM to redeploy engineering resources to focus on innovation and differentiation efforts that will increase profitability?
  
• Does the OEM have existing staff to design and engineer functional modules such as precision fluidic systems, or can its human resources be better utilized to produce critical project deliverables for which their strategic competencies are required?

Supply Partners versus Contract Manufacturers

In the current new era of rapid industry growth and compressed development cycles, traditional outsourcing and contract manufacturing are increasingly cumbersome, costly, and ineffective. Traditional contract manufacturers that lack the engineering capabilities to offer advanced product quality planning (APQP), rapid prototyping, and scalable manufacturing can add no real value. Furthermore, the associated costs of quality auditing, duplicate testing, logistics, and documentation quickly erode OEM profit margins. The practice of choosing outsourcing simply to lower labor or assembly costs in the short term is quickly becoming outmoded.

Instead, OEMs are turning to innovative supply partners in order to leverage their particular experience, engineering resources, and products. These specialists manage the design of various subassemblies, such as precision fluidics systems, all the way from concept to production to ensure that the OEM’s application-specific design, performance, manufacturing, and qualification requirements are met.

The most successful outcomes of codevelopment partnerships occur when the arrangement is established at the beginning of the system design cycle—that is, at the concept and feasibility stage. The OEM and its codevelopment partner can then proceed through each stage gate or project milestone together, benefiting from joint review and definition of critical technical and performance parameters. A codevelopment partner adds value at each APQP stage of the project.

Feasibility and Concept Testing

A partner that specializes in a particular process or system and its associated components can help shorten the time the OEM needs to determine the feasibility of a concept, while also helping the manufacturer avoid costly mistakes and technical problems. This contribution begins with technically competent commercial representatives who can interpret a fluid diagram and continues with professional project managers and engineers who are knowledgeable and experienced both in the OEM’s area of instrumentation and in FDA regulatory compliance requirements.

Getting the supplier involved at the concept stage is the best way to optimize the size, features, and efficiency of the subassembly. For example, this type of partnership results in effective trade-offs. When the supplier knows which characteristics and outcomes are most important to the OEM, it can take out costs by eliminating features that do not add value to the instrument’s design while optimizing those that do.

The design of the subassembly can be fine-tuned for a specific application. An example is provided by a pump assembly for which the OEM customer demanded an application-specific flow rate and significant reduction in overall size in order to meet the requirements of its next-generation flow cytometry instrument. Working with its strategic supply partner, Kloehn Inc. (Las Vegas; a company of Norgren Life Sciences), the manufacturer quickly determined that the cytometry application did not require all the features of a full syringe pump. Kloehn engineers were able to design, test, and deliver a miniature in-line pump optimized to meet the OEM’s needs (see Figure 1).

The high-volume/low-price business model for outsourcing suppliers dictates that the service providers manufacture a limited number of different products in large amounts. This way of doing business makes small runs of specialized products nearly impossible. In contrast, the preferred business model of the strategic supply partner is typically one of high mix and low volume with fast turnaround. A structure like this makes it easy and cost-effective to test early benchtop designs for proof of concept.

Here, the advantage of working with a global supplier that can deliver seamless supply and service becomes apparent. A partner with a high-product/low-volume mix and global logistic capability can deliver sample modules in as little as 15 working days. This compares favorably with the typical 8 to 10 weeks and means that the OEM can move much more rapidly into the prototyping stage.

Prototyping

OEMs can achieve significant time and cost savings by working with an expert partner during the prototyping stage. A rapid prototyping service should add more value than merely making a prototype product quickly. For the OEM, value comes from being able to take a concept from the laboratory bench to the manufacturing floor without variability, error, or delay. A world-class supplier will have rapid prototyping equipment and process capability, along with the necessary personnel and a dedicated area. Prototyping should be an element of its core business, and audited, repeatable processes should be in place.

A supplier that manufactures a robust line of components and maintains strong alliances with key vendors can leverage its existing infrastructure and expertise to create multiple prototypes quickly and economically. Such a company can create prototypes in four to six weeks—half the normal time—without violating the process or compromising production. Using a supplier with these capabilities also eliminates the need for the OEM to retain an outside engineering firm to design and create the prototype, and the extra cost that goes with that.

Sustained Production

All of these start-up capabilities will eventually contribute to the OEM’s bottom line by leading to a subassembly that fits seamlessly into the larger equipment assembly. The supplier’s engineering team will have already optimized the subassembly’s performance and its compatibility with the rest of the OEM device during the concept, feasibility, and prototype stages. Importantly, a partnership that spans the entire design process allows the supplier to design for manufacture. This ensures that the module will be robust enough to undergo the rigors of OEM assembly and manufacturing operations without sustaining damage or slowing any processes.

Another way a supplier adds value is by synchronizing subassembly manufacture and delivery with OEM consumption of its components, queuing up lot sizes and delivery times to match the customer’s inventory and process requirements. This requires a higher level of planning and flexibility than the typical contract manufacturer can provide. A supplier that can dedicate a production line to one particular subassembly delivers greater repeatability, process control, and supply reliability than a service provider that cannot.

A dedicated line offers an additional key advantage, which is documentation and revision control. With a dedicated line, inspecting and documenting assembly procedures and keeping training records for all personnel involved in building the module can be more efficiently managed. The delivered subassembly is backed up by a well-documented and proven process that is compatible with the OEM’s internal quality and regulatory processes and documentation formats.

The documents most important to OEMs and their customers are test results, including data from initial validation testing and final production testing, and certifications. OEMs should take on as strategic partners companies that already have capabilities for testing and data acquisition; such companies are equipped to perform a final test of each module and provide a certificate of performance or compliance. By combining components into an integrated module, the supplier relieves the OEM of the burden of testing and qualifying each component separately and then requalifying the completed subassembly.

A key cost savings associated with modular subassemblies resides in the documentation and paperwork. In deciding whether to outsource, OEMs must consider not only the price of components, but also the costs of dealing with drawings, documentation, and component testing from multiple suppliers, plus the burden of multiple invoicing. To receive all these things from a single supplier lowers overall administrative costs and reduces the risk of error.

Figure 2. By embedding shear-valve components in an acrylic manifold, the supplier provided an application-specific syringe pump fluidic platform with an efficient and space-saving design.

A final example illustrates how an OEM working with a strategic codevelopment and supply partner for the design and production of a functional subassembly enjoys enhanced profitability. Working closely with an OEM customer, Kloehn was able to make a syringe pump fluidics platform smaller and more efficient by embedding the ceramic shear-valve rotor and stator in the acrylic manifold instead of in a separate housing (see Figure 2). This offered the additional advantage of reducing internal volume so that less critical fluid would be needed. It also reduced dead volume, diminishing the risk of sample contamination from unswept volume. This precision fluidic system is application specific, so there is no wasteful overdesign. And because it is a self-contained functional module with all components encompassed by a single top-level part number from a single supplier, purchasing and inventory are streamlined.

Total Cost of Ownership

Working with a strategic supply partner for modular functional subassemblies helps an OEM to preserve profit margins by minimizing the total cost of ownership. The codevelopment strategy accomplishes this by eliminating some obscure costs—which are multiplied when working with multiple suppliers—that add no value to the final product.

Two areas in which sourcing subassemblies from a single supplier lowers the total cost of ownership are documentation and drawings and global supply chain and sourcing. Documentation comprises component specifications, validation and qualification protocols, test procedures for all components and the final subassembly, assembly outline drawings, manufacturing test procedures, data acquisition criteria for production final testing, and highly accelerated life testing, or HALT, criteria, test data, and certifications.

An effective partner for subassemblies should be on the same level as the OEM in terms of global reach. An OEM must have confidence that its partner can reliably deliver consistent, seamless service and timely supply to all of its operational facilities, wherever they may be located. Thus, a global supply partner should possess both local and global expertise. This means supplying components and modules that meet FDA and ISO standards anywhere in the world while at the same time understanding and meeting the requirements of less technically advanced local markets, such as those emerging in Asia. A truly global partner will have resources in place to make sensible, cost-effective decisions about where to manufacture components and subassemblies such that currency fluctuations, supply bottlenecks, and labor challenges are as unlikely to affect production as possible.

A global supply partner is markedly different from an offshore contract manufacturer. While industrial growth in Asia has resulted in the appearance of lower-cost box-build contractors in countries such as Singapore, Taiwan, and China, these suppliers cannot offer the same engineering, quality control, or resources for regulatory compliance that a global supply partner can. Ultimately, it is false economy to sacrifice quality, documentation, global logistics, and infrastructure in order to get a lower component price.

Choosing a Partner

To get the full benefit from partnerships for the codevelopment and manufacture of subassemblies, OEMs should look for several things in a supply partner.

The partner should be a strong, proven supplier of a wide range of high-quality components. This will reflect a broad expertise that means the company can use components as system building blocks, optimizing component selection for application-specific subassemblies. In fact, the supplier should have a portfolio of products extensive enough to supply all, or certainly most of, the components required for the subassembly, minimizing or eliminating the need for the OEM to find, qualify, and administer multiple vendors.

The supplier should be the partnership’s technical expert in the functional area of the subassembly. OEMs obtain the greatest benefit from a strategic partnership when the supplier’s specialized skills surpass their own.

Engineering capability is important. The supplier’s engineers should be able to identify and define challenges, devise solutions to them, and collaborate with the OEM’s engineers in both functions.

The partner should have facilities and personnel suitable for prototyping, manufacturing, and testing the subassembly. It should also be able to provide process and test documentation.

The supplier should have a track record of meeting customers’ development and manufacturing schedules by adhering to a timetable agreed upon by both parties.

An OEM with global operations and customers should work with a counterpart who offers consistent quality and seamless product supply and service worldwide.

Finally, an OEM should look for a strategic codevelopment partner that has a solid history in the industry. The supplier should be recognized as an industry expert and should have resources in depth sufficient to qualify it to be a long-term partner.

Case Studies

Real-world examples of successful strategic supply partnerships show how OEMs can solve technical problems and optimize allocation of their own time, money, and resources.

Figure 3. An autosampler subassembly consisting of integrated syringe, valve, and pump eliminated duplication of components and reduced system size.

In one situation, OEM engineers working on an autosampler for a separation instrument needed a precision fluidic system. The make or buy question arose. The OEM wondered whether it should spend time on design and the logistics of finding, qualifying, and purchasing pumps, valves, and syringes from multiple suppliers, and then try to build the fluidics subassembly on its own. Its question later escalated to include technical feasibility and reliability issues, causing a significant project delay.

The solution the manufacturer settled on was to work with a codevelopment partner that had core competencies in precision fluidics and the capability to design and develop a fast-track engineered solution optimized for the basic OEM design. What resulted from the partnership was a concentric syringe-valve-and-pump subassembly that eliminated duplicate components and reduced assembly size by approximately 50% by fitting two syringes, one for the sample and one for the reagent, into the space of one (see Figure 3). The supply partner was equipped with established manufacturing capacity and the infrastructure to allow assembly and testing to the OEM’s quality standards and delivery direct to the OEM production floor.

In another case, a precision liquid-handling system designed by an OEM using standard syringe pumps and various other components kept failing during the OEM’s final instrument test. Four and a half months behind schedule, the fluidics subassembly design was preventing the system from reaching design freeze and release to pilot production.

Figure 4. This integrated fluidic platform met performance specifications that a liquid-handling system composed of standard components could not, while reducing space requirements and cost.

This OEM chose to partner with an expert supplier offering the precision components and design capabilities to develop and manufacture an integrated fluidic platform that would meet technical and performance specifications. Besides satisfying the specs, the platform added value by reducing space and cost by means of combining components and functions (see Figure 4). For example, the supplier was able to engineer the optical detection method into an acrylic manifold, a space-saving feature that would have been practically impossible to achieve by sourcing and compiling components from multiple manufacturers. Taking the approach of an integrated fluidic platform also reduced total cost of ownership by eliminating the sourcing of components from multiple suppliers.

Rob Howard is the global commercial leader for Norgren Life Sciences (Littleton, CO). He can reached at rhoward@ usa.norgren.com.

Now, nearly 10 years later, the codevelopment partner continues to manufacture, test, and deliver the fluidic platform to the OEM customer, who in turn has benefited from the redeployment of engineering and operations resources that would otherwise have been required to sustain, support, and test this subassembly.

Conclusion

In the end, the most productive and profitable partnerships benefit the strategic supply partner, the OEM, and the end-user alike. Long-term design and production relationships are good for the supplier. The OEM takes advantage of the opportunity to concentrate its highly developed special resources and capabilities where they can add the most value. And the end-user benefits from getting just what has always been the medical technology industry’s objective—improved equipment performance and faster delivery of new technology.