Originally Published MD&DI's Guide to Outsourcing April 2009
FROM THE EDITORS
Will Your Outsourcers Be Around When You Need Them?
Medical device makers may worry about the future of their contract partners.
 |
In the midst of a recession, OEMs are likely asking themselves some very serious questions. Among the most critical is the question about business relationships that have formed in medical device development. OEMs should be asking themselves if their outsourcer is going to survive the economy.
“Top management at medical device companies are expressing concerns about whether their suppliers are going to survive,” says Pamela McNamara, president of Cambridge Consultants (Cambridge, MA).
Everyone is concerned, says George Blank, CEO of the MedTech Group. “The healthcare system is certainly not immune, but typically in my experience the healthcare market is stable through most medium-length recessions.”
Although the fear that an outsource partner may fold is real, OEMs shouldn’t stifle innovation or freeze development. “You can’t. You have to move forward,” says Peter Neumann, CEO of Engel Holding (Scwertberg, Austria), an injection mold manufacturer. Waiting for the bottom to drop is the surest way to increase panic and could actually create more economic woes.
At this point, however, by most accounts, the medical device industry has not been overly affected by the economy, so it may be premature (not to mention alarmist) to worry about the health of a contracted partner. But that doesn’t mean an OEM should simply sit back and wait.
For example, Blank worries about suppliers with only a small portion of their business in medical. “The real concern for me is for suppliers that are not just in the healthcare market. Maybe 10% of their business is medical and then they get hurt in the other markets they supply, which puts their medical business at risk.” This is particularly true for electronics suppliers, he says. “The OEM has to be vigilant.”
Blank’s advice is to keep close tabs on mission-critical suppliers and to be prepared to help them if they need it. “The OEM can help partners by accelerating payments, buying more product to build up safety stock, and, in extreme cases, stepping in to fund the supplier.”
The best defense for OEMs right now is to make a call and start communicating. “Call. Check. Speak to management. Ask questions directly,” says Blank. McNamara agrees, saying this is a time to shore up qualification processes so that OEMs know their manufacturers have a plan. “They should have solid financial management, flexible operations, and the ability to manage swings.”
However the economy affects their suppliers, medical device OEMs must be ready to step in if needed—particularly for mission-critical devices. “Companies must invest in new technologies, and they may have to make a difficult choice. But not investing in technology because of the economy is surely the wrong choice,” says Neumann.
Heather Thompson for the Editors
Copyright ©2009 Medical Device & Diagnostic Industry
