Medical device manufacturers face continuing challenges to reduce cost without lowering quality. At the same time, a key benefit of globalization has been the emergence of health care market growth opportunities as the quality of medical care improves in densely populated emerging markets such as China and India. These trends drive many companies to reassess their manufacturing and supply chain choices.
To understand whether or not migrating a project to a lower cost region will save money, it is important to look at total benefits of that move. Labor cost differences alone may often not be enough to justify the transfer, since medical devices are often manufactured in highly automated environments. However, when lower labor cost is combined with other synergies such as proximity to emerging growth markets or the bulk of your supply chain, the cost equation often makes sense.
A conversion from in-house manufacturing to outsourcing may also improve the cost equation, by tapping the resources of a company already resident in the chosen region. This can eliminate learning curve, improve inventory turns, reduce internal transaction costs and simplify logistics, in addition to lowering labor cost. The key is finding a partner with the resources in place to minimize transfer cost and complexity, who also aligns well with the goals driving the migration strategy.
Forefront Medical Technology, a specialty contract manufacturer with a focus in disposable diagnostic, drug delivery systems and medical device systems, frequently helps its customers determine whether or not migration of existing production to China makes sense for their products. There are four critical elements that must be supported in order to have a successful migration:
- The contract manufacturer must be able to support regulatory requirements
- The contract manufacturer’s team must be able to document the existing process and replicate it
- Communication among teams should be clear and convenient for the customer
- The contract manufacturer should take a proactive approach to cost reduction suggestions
In short, the goal shouldn’t simply be to migrate to a lower cost region and then upgrade the contract manufacturer to your company’s standards, since the costs associated with that effort eliminate much of the savings. Instead, the goal should be to find a manufacturing partner in a lower cost region with a proven track record of meeting its customers’ needs. Read our full white paper here.