Medical Device Link.

Originally Published MDDI July 2001

To compete in the new economy, medical device manufacturers must take advantage of the Internet's instant communications and collaborative platforms throughout the supply chain.

Michael J. Carroll and Christopher Williams

For better or worse, the full-time global connectivity made possible by the Internet is changing the ways medical device manufacturers make and sell products. Traditional business models based solely on process or functional efficiency simply cannot deliver the results needed to compete in a world where successful companies take advantage of the Internet for instant communication and global collaboration.

In this new world, where time truly is money, manufacturers need a new business model based on competitive efficiency that leverages the Internet, allowing them to move forward at maximum speed. Consequently, world-class manufacturers are adopting collaborative product commerce (CPC) as a core competency.

COLLABORATIVE COMMERCE: A WORKING DEFINITION

Collaborative commerce, commonly referred to as c-commerce, is the second generation of e-commerce solutions—providing significantly more value and power than existing solutions. While e-commerce focuses on cost reduction, c-commerce focuses on providing new revenue opportunities by enabling manufacturers to bring innovative products to market faster than the competition.

Collaborative commerce is more than a transaction exchange. It is an intellectual-capital exchange that can potentially deliver the much-anticipated virtual enterprise. To reach the next competitive plateau, companies must deploy new collaborative platforms and strategies. On top of these platforms, they must adopt automated business processes that facilitate the exchange of intellectual capital and capture business-process logic that can be used to improve existing and future products and processes.

The rapid growth of the Internet as a global medium through which businesses can communicate, share information, and conduct business has escalated the level of competition worldwide. The Internet has also provided the technology backplane to enable collaboration in a way that has not been explored before.

The invention of the telephone created a virtual room where two or more people could gather to talk—regardless of geography or time zone. Today, the Internet allows software to stretch business processes across multiple locations and time zones, creating a new "room" in which participants in a particular process can communicate ideas, address concerns, and initiate changes. This exchange, surrounding the definition of a product or service, has been described as CPC by the Gartner Group research firm.

The Aberdeen Group consulting firm defines CPC as "a class of software that uses Internet technology to permit individuals, no matter what role they have in the commercialization of a product, no matter what computer-based tools they use, no matter where they are located geographically or within the supply net, to collaboratively share intellectual data, improving the development, manufacture, and management of products throughout the life cycle."

The collaborative sharing of intellectual data related to the delivery of a product is dependent on the ability to encapsulate a business process and then extend that process across the entire organization or even the entire supply chain. Gartner Group analysts observe that although several vendors are providing various components of the CPC platform, no real automated business-process solutions will be readily available until 2005.

This vision of the potential of CPC solutions is nothing short of revolutionary. Business solutions, enabled by the Internet, will facilitate both active and passive collaboration, control and track tasks and actions, and provide feedback. These CPC solutions will also provide the user with information that facilitates decision making and collaboration—regardless of where data reside. The Aberdeen Group cites this as one of the primary benefits of CPC, saying, "CPC delivers two primary benefits: it improves quality and capability by connecting islands or pockets of product knowledge into a single, extended experience base; and it collapses time and distance variables, using the Internet to gain faster time to market."

Applied to medical device development, the vision of CPC is to harness the speed and efficiency of Internet-based technologies to optimize design, supply, manufacturing, and distribution channels, enabling companies to become more competitive and more profitable. Software vendors targeting the area of collaborative commerce are all offering solutions for one or more commerce-related business processes by facilitating collaboration throughout the enterprise, and between the enterprise and its partners and customers. Specific processes include product design and development, sourcing, change requests or orders, channel management, and outsourced production.

Unfortunately, most of these solutions only focus on that portion of the process relating to the flow of product data out of engineering, and not to the portion of the process that relates to the flow of intellectual capital into engineering. The entire process, outbound as well as inbound, downstream and upstream, must be included.

INTERNET RESHAPES THE COMPETITIVE LANDSCAPE FOR MANUFACTURERS

Traditional business models, such as Deming, Kiasen, and Kanban, are unable to provide total solutions to world-class manufacturers in the new economy. They were created to address only process efficiencies in the pre-Internet age—when changes to processes, products, and services took far longer to materialize than they do now. The chief differences between then and now are the pervasiveness of instant global communication between suppliers, manufacturers, and customers, and the emergence of software-driven improvements in manufacturing. Such distinctions add up to more-efficient ways to communicate and collaborate, make and ship goods, win and keep customers, and, ultimately, make money.

The growing adoption of the Internet for doing business and improving business processes has elevated the level of competition around the world. Such market forces as shorter product cycles, intense customization demands, and greater use of outsourcing services have made CPC essential for most manufacturers. To thrive in the e-economy, manufacturers must be superefficient at sharing information internally as well as with partners, suppliers, and customers in the supply chain.

The accelerating rate of technological change, coupled with growing demand for customized products, has dramatically shortened product life cycles. To keep pace, reduce costs, and increase profitability, manufacturers must speed product changes while creating an environment that promotes continuous improvement and constant innovation. As the rate and volume of product changes increase, so does the need to streamline change processes.

Today's leading medical device manufacturers understand that only by handling change efficiently and at Internet speed can they hope to outpace competitors, thereby maximizing customer satisfaction and gaining competitive advantage. This is especially true when bringing a new product to market, or keeping an existing one in production. The need for collaboration is greatest during the early design of a product and its introduction into manufacturing. One major manufacturer predicted it could save $124 million by 2004 by removing the "collaboration lag" that occurs in engineering when designers submit their designs for team review. The company also estimated that it could save $266 million by 2004 by removing the collaboration lag in manufacturing.

NEW BUSINESS MODELS FOR MANUFACTURERS

The old business models have dematerialized, said Carly Fiorina, chairman and CEO of Hewlett-Packard, at the i2 Planet2000 Conference in San Diego last October. She suggested that profits would not be made on products, but on competitive efficiency. "Speed in making decisions and handling change is the competitive advantage,'' she said. Fiorina noted that companies now have the opportunity to create an almost perfect manufacturing environment because they can initiate change in real time, with all participants involved. Furthermore, she advised that participants should be open to, and flexible with, new and constantly evolving technology. IT professionals, in particular, need to realize that current technology has not necessarily come to stay—they need to understand that today's technology will be obsolete tomorrow, and they should be receptive to new concepts and innovations.

Underscoring this shift from products to competitive efficiency, manufacturers have basically ignored the shop floor for the past 15 years, focusing their automation and technology efforts on engineering and procurement. In many cases, the trend has been to outsource production so that the shop floor is actually in another company or, in many cases, another country.

Medical device manufacturers are also feeling the changes being brought about by the widespread influence of the Internet, including an explosion in the use of contract manufacturers. There is a strong drive to develop products in an almost pure R&D environment. Unfortunately for medical device manufacturers, this process is highly regulated and requires rigorous documentation and traceability. For most, the cost of implementing an electronic change management system is prohibitive, and manual processes that are developed during research and development persist into production and rollout.

As e-commerce continues to mature into c-commerce, medical device manufacturers in particular are looking for cost-effective technology that will enhance their efficiency and productivity so they can maximize profit margins. Total cost of ownership (COO) becomes central to selecting an automated solution, and the COO for most available solutions is too high. The Gartner Group has estimated that the purchase price of an automated solution is only 20% of the COO. The remaining 80% is spent on administering and maintaining the solution. Medical device manufacturers need a solution that automates the change process throughout the product life cycle with a reasonable COO.

Such a solution provides full command and control of both inbound and outbound change requests and change orders. It will reduce the COO by providing off-the-shelf automated processes that embody a wealth of best practices and can be quickly deployed and easily maintained. This kind of CPC solution can close the loop in the change process by ensuring that everything is linked, controlled, and recorded.

Improvement in both active collaboration (such as Internet-based meetings) and passive collaboration (such as e-mail, attached documents, and captured intellectual capital) fuels innovation and efficiency. Replacing ineffective and error-prone paper-based systems, faxes, overnight delivery services, and e-mail systems enables a collaborative commerce solution to transform change management into a value-added process that improves a manufacturer's competitive position by reducing costs, improving productivity, and increasing quality.

Currently, more than 80% of companies use manual systems such as packages of files and drawings, fax machines, overnight services, couriers, travel, meetings, and e-mail. Many medical device manufacturing analysts estimate that the percentage is closer to 99% in the regulated industries because of concerns about regulatory compliance, particularly 21 CFR Part 11 electronic-signature requirements.

Companies that are actually processing change electronically are doing so mostly through homegrown electronic systems. Such systems are costly to develop, prone to error, heavy in infrastructure, high in maintenance, marginal in value, incapable of leveraging the ubiquity of the Internet, and provide no real-time interaction with external business partners.

Competitive efficiency revolves around an Internet-based business process that is manufacturing-centric—providing total command and control over what is being made at every process phase. Throughout the product life cycle, intellectual property must be accessible to all members of the supply, design, and manufacturing chains at any time.

Properly deployed and used, CPC permits all individuals in the supply chain to unleash and exchange silos of intellectual property and production data using Internet technologies. Companies can elect to purchase the components of a CPC platform and automate various business processes as focused CPC solutions, or they can find a vendor that has applied CPC technology to a business process and packaged that technology as a CPC business solution.

BENEFITS OF CPC

CPC can help manufacturers manage change, make decisions, and act on those decisions with optimum speed. It improves product quality and increases efficiency by automating complex business processes by connecting centers of product knowledge and eliminating the confusion common in non-Internet systems. Essentially, it can result in faster time to market, time to volume, and time to productivity.

• Faster time to market can yield a shorter cycle time for new product introductions, lower costs, less time required for meetings, streamlined processes, and reduced friction among departments by eliminating the walls between engineering and manufacturing.
• Faster time to volume means that a manufacturer can ramp up to full production rapidly, collapse time and distance variables by means of the Internet, and increase supply chain satisfaction through bilateral communication.
• Faster time to productivity means that manufacturers can reach the "sweet spot" of capitalizing on optimum efficiencies in order to capture profits quicker and produce a greater return to the enterprise.

Other benefits include a competitive advantage, cost reductions, productivity improvements, better quality, and a quick return on investments.

Competitive Advantage. Customers cannot be served if a factory is not prepared to respond to change. Many manufacturing professionals are unaware of how valuable manufacturing change management can be to their environment.

"Manufacturers need to change years and years of embedded thinking," says Sanji Sidhu, chairman of i2 Technologies Inc. (Dallas). "The primary problem is in the cost of variability—that is, the cost of change, [and] the primary force behind inefficiency is change. The key problem is coordination and synchronization [and] you must manage change through high-velocity planning and high-velocity collaboration with all partners. All players need to be on the same page."

Cost Reduction. Using a CPC solution, manufacturers can lower costs through a timely implementation of change. This results in less scrap, less rework, and less inventory being required. By analyzing the effectiveness of change management, manufacturers can reduce slow-moving inventory and avoid costly mistakes.

Bill-of-material cost reductions can be targeted by all participants and tracked in real time. This work can be done interactively throughout the global organization with the participation of all members of the supply chain, from the stockroom clerk and assembler to the inspector or tester on the factory floor.

Productivity Improvements. Because a CPC solution can reduce scrap and rework for a manufacturer, less overtime is required and overdue orders can be reduced. As a result, less time will be needed to monitor and track such out-of-control conditions. Additionally, because decisions can be made and implemented quickly, on-time shipments increase, requiring less manpower.

Through improved productivity, manufacturers can often reduce their head count or prevent the head count from increasing —even with high product volume.

Additional productivity benefits are derived from administrative advances that enable people to focus on creative possibilities instead of being mired in problem solving. Certainly not to be overlooked are the benefits of fewer meetings and reports.

Better Quality. When improvements can be implemented with surgical precision and timing, higher quality results. Simply put, there are fewer mistakes, fewer material reports, fewer corrective-action requirements, less rework, and less scrap. The manufacturing team is more likely to be able to do its job right the first time, which is critical in the medical device market and results in higher-quality products and greater customer satisfaction.

Additionally, a good solution facilitates synchronized relationships, allowing all members of the supply chain to move together at the same pace, which fosters an ideal manufacturing environment. This environment produces increased productivity, and ultimately faster time to profit. What were once hard-to-obtain targets can become business-as-usual expectations.

CPC can quickly focus an organization's entire business on the requirements of the new economy. Real collaboration, in real time, provides the actual competitive advantage that bridges the gap between the old economy and the new global economy. Companies that do not make the transition to new technologies will fail to compete and be left behind.

Quick Return on Investment. On average, a collaborative commerce solution will yield extraordinarily fast returns—within three months in some cases, and within a year in most.

CONCLUSION

To succeed in today's economy, medical device companies must have the fastest, most efficient business model. The development and nurturing of such a model must be pursued with missionary zeal if companies don't want to see their technologically innovative product become tomorrow's commodity.

Device manufacturers must take control of the complete manufacturing-change life cycle and communicate in real time throughout the supply chain, globally. Critical to success is the ability to collaborate and communicate—ensuring that all participants speak the same language, plan together, transact business together, and execute process change together. All departments, divisions, and members of the supply chain must work together at the same optimized pace, while eliminating friction of all types across the organization and supply chain.

Copyright ©2001 Medical Device & Diagnostic Industry