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How medical device companies are outsourcing and making it work.

By EXCELTA Corporation on Aug 08, 2013 at 12:05 PM in ExceltaŽ Corporation News
Outsourcing to South America, Costa Rica and Brazil is becoming a new trend

And it is easy to see why. New technologies, manufacturing process advancements, and a growing and aging population have contributed to explosive growth within the medical device market in recent years. At the same time, an evolving and increasingly complex regulatory environment and a rapidly growing and intensely competitive marketplace pose significant hurdles for the industry. As a result, more medical device manufacturers are considering outsourcing as a way to help lower costs, increase agility, reduce time-to-market, and boost their return on investment.

How medical device companies are outsourcing and making it work.

Meanwhile, industry competition continues to heat up worldwide. While the U.S. has long faced strong competition from medical device companies in Germany, Japan, The Netherlands, and Bermuda, countries such as China, Brazil, Korea, Taiwan, and India, are becoming more formidable global competitors. In particular, companies in these countries are slowly gaining traction in regional markets that have typically been underserved, such as Africa, South America and Asia.

Clear Benefits

Outsourcing offers many benefits including cost savings and business process improvements. In fact, according to a recent KPMG survey (2), which surveyed 94 respondents in the medical device and service provider industries, cost reduction and improved service delivery are two of the primary drivers for outsourcing. IT outsourcing (ITO) was identified by 38 percent of respondents as a top means for cost reduction, while 26 percent of respondents viewed it as good method to improve service delivery. In comparison, business process outsourcing (BPO) was viewed by 30 percent of respondents as a top means for cost reduction, while 19 percent of respondents believed it was a good method to improve service delivery. As these industries mature in their use of outsourcing, this gap should narrow.

Top means to improve service delivery/reduce costs

Current levels of outsourcing show significant opportunity for both the buyers and suppliers among the medical device and service providers surveyed. IT was identified as the most mature area of outsourcing, with more than a third of respondents (36 percent) reporting two or more outsourcing years under their belt, followed by another 20 percent each for R&D and customer care during this time.

Outsourcing usage levels

As the chart above indicates, IT is still the most widely adopted outsourcing function. According to the survey results, 55 percent reported the IT function was either outsourced or in the process of being outsourced, with approximately 24 percent reporting that the function remains in-house. Of the amount that remains in-house, more than half (13 percent) of respondents said it is being considered for outsourcing. The most popular areas in the process of being outsourced are Research and Development (R&D) followed by Human Resources (HR). As these two functions face increased budget pressure from healthcare and R&D, outsourcing is seen as a practical way to contain these rising costs.

Looking ahead

Looking ahead, we will likely see the lines in healthcare, pharmaceuticals and medical devices blur. As a result, companies that make sound investments to increase their agility and adaptability, reduce operational costs, ensure compliance, and look to increase efficiencies in their global delivery models will become the new market leaders. As a result, outsourcing will play an increasingly key role in the success of performance-based business strategies.

The good news for the medical device industry is that it can learn a great deal from earlier adopters. As we enter into what we believe is a new era in outsourcing, we are inherently taking ourselves farther down the road to becoming more competitive while reducing risk. If you are interested in exploring new or enhancing current outsourcing options and unsure of how to start, consider these next steps.

  1. First, objectively review where your organization is and where you want it to go in the future.
  2. Review regulations regularly and look for regulatory competence from your outsourcer.
  3. Take a look at current outsourcing relationships and shared services capabilities both within and outside the industry to find not only proven, but new ideas.
  4. Review your service delivery strategy. How are your vendors identified, evaluated and responsible for the services and functions they are providing?
  5. Consider geography. Are all current markets being served? Are you prepared for expansion into future markets? Do some markets pose geopolitical and/or environmental related risks?
  6. Look at technology. Consider whether existing platforms support the integration of processes and providers along the supply chain. Is it a competitive asset? Or is it a risk?
  7. Don’t forget culture. Will it support a governance structure that provides comprehensive oversight of services, including performance metrics? Even under changing regulations, situations and environments?

Clearly, there are risks and benefits to consider, but many innovative medical device companies are seizing great opportunities by integrating outsourcing into their business model strategies.

David Blumberg is KPMG’s Pharmaceutical practice lead advisory partner.