MD&M West 2024: Brace for a Medical Devices Value Chain Overhaul

The medical devices industry is poised for growth, with global annual sales forecast to climb more than 5% a year and reach nearly $800 billion by 2030, according to KPMG. These figures are indicative of demand for innovation in new devices and services such as wearables and data-driven offerings. It also signals opportunities in emerging markets such as China and India.

The upbeat prospects should not be overrated, however, as the industry experiences downward pressure on pricing, noted KPMG analysts. They point to unsustainable costs and competitive and geopolitical forces as major threats that could alter the progress of medical device industry in the coming years. Mounting pressure is causing the entire healthcare delivery system to shift, they said, and the knock-on effects will overhaul the entire value chain. 

Value Creation Strategy

Companies banking on their medical and life sciences technologies divisions in the coming years will be hard-pressed to sharpen their stakes in the competitive landscape, both globally and locally. Ascential Technologies, for example, last year bolstered its domestic manufacturing capabilities with the opening of a 100,000-square-foot facility in Blaine, Minn. 

The location places the facility in the heart of the Minnesota MedTech Hub 3.0, which was designated as one of 31 inaugural Tech Hubs across the United States that show potential for rapid growth in key technology sectors. 

MD: What are the big challenges for Ascential this year? What are the opportunities and what should your partners be looking out for?

TM: Our challenges are our customers’ and our partners’ challenges. And, we’ve all lived through COVID over three or four years ago and the subsequent challenges in being able to get materials in a supply chain, shortages that occurred, as well as tariffs being added by the U.S. and other governments. It really became clear that the old way of doing manufacturing—that is, you innovate in medical and life sciences, you go offshore, go to low-cost regions and you produce there, you do low-cost supply chains—needed to change a little bit because of the tariffs and because of some of the challenges that occurred during COVID.

A lot of the things that are happening right now with our partners [are because] they’re trying to strike that balance between producing their devices as low cost as possible, but continue striving to have a very good supply chain. The onshoring or nearshoring of products, coming back to the United States or the Americas, is probably the hottest topic right now with our partners, and how they’re able to do that. 

What you’re trying to do as a partner is, you try to thread that needle. You help enable them to do that because, as you move a medical device, you can make changes at that point. As you nearshore back to the Americas, you try to look for ways to have them save money while they’re doing that. 

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Clearly, from low-cost regions into the Americas, the labor arbitrage is not as good. However, there are advantages that you also have. You don’t have to have as long as supply chain. You don’t have to have a weapon process on the ocean. There’s a lot of different things you do. We work to tackle those challenges with our partners in order to provide them a solution. 

Another really big piece of that is automation. If a customer or partner is doing manual manufacturing of equipment, of medical devices and life science equipment, the ability to automate that removes the labor or percentage of labor. That allows us to be able to deliver a better product, oftentimes, because you remove human error, but also at a lower cost because you’re automating things. So those are the types of challenges we’re working through with our partners and some of the solutions that we have. And we can provide as a partner that can do all of those things for that.  

MD: You touched on something that is worrying, and that is the how to do it. It seems to me like it’s a long-term game for now, anyway. Can you discuss a specific case study that illustrates how this works in practice?

TM: Sure. It’s one thing just to say, “Hey, come back to the U.S. and you can get lower prices.” We actually have a partner that has nearshored with us. Because of confidentiality, I’lI try to keep that name behind the curtain. But I will say this: The partner needed to come back to the U.S. The product was a $10 million a year product cost to them. And they had the opportunity to come back. What we were able to do is take an operation that had 50 people that were doing it in a low-cost region, and we were able to automate that device in all of the different stations, and were able to take the people that worked on the product down to 10. When you think about that, the real-life world of being able to take 50 down to 10 and be able to automate allows a little bit of that labor arbitrage to be taken care of. 

In addition to that, they were able to save up to $3 million a year of WIP, of product that’s in process, materials and processing and the like, to be able to close the gap between the cost that they had prior and the cost that they were going to have nearshoring. In addition to that, the quality of the product improved. They were getting yields of more like 60% or 70% in the low-cost region, first-time yields of their product. We’re able to raise that yield to 90%.  

So, it is a story that you may not get exactly back to the cost or the price that you’re looking for, however, you get many advantages being nearshored, having the opportunity to have higher quality of the product, which, of course, is the most important thing with our partners. And in addition to that, our partners are able to be closer to their product. And that’s something that people have gotten used to. Partners have gotten used to having 12 midnight or five in the morning calls to Thailand or to Asia. And now, when we’re in the same hemisphere, they actually have a better quality of life in working with us as a partner and being closer to their product.

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MD: You will be exhibiting at MD&M West, the B2B medical devices trade show in California. This show is co-located with three other trade shows. It really puts you in a great position because of the different verticals that you serve. When I visit your booth, what will I expect to see?

TM: Absolutely. The focus is medical/life sciences. And we also have customers that are life science customers as well. It’s less of a focus at the show. But there’s a lot of life science customers that also come to the show. So, the focus [is] around those two customer groups. But not only in engineering. If you think of the three areas we really focus on with those partners, we think of the engineering aspect, of how we can help them engineer better products. We also look at scale manufacturing with those partners. 

The third area—which very few companies have all three of those that are displaying at the booth—is our automation. As part of combining seven different companies into Ascential, we combined three different automation companies into one, each of which had incredibly good market share and a great reputation. 

Customers have the ability to take our automation capabilities with the other two things I mentioned, which is scaled manufacturing and early R&D, and do end-to-end with our partners like no other company does. That is what we’re focusing on. We’re really focused on meeting our customers and partners, because the end game to that is not only being able to nearshore, but actually getting to market quicker.

One example of that is that we work with a partner doing all three of those things: early development, scale manufacturing and applying our automation solutions. Whereas they would have worked with three different companies, we were able to get them to work with us from an end-to-end solution standpoint and lower their time to market by 18 months. 

And we believe that’s of high value to our partners in a time where capital is tight, where interest rates are higher, where the cost of money is higher. Both with large companies and with small companies, being able to take the opportunity to lower their time to market by 18 months means they get to the market quicker. They establish a brand, and they’re able to scale and make money a whole lot quicker.

Ascential Technologies (Booth 3531) will be exhibiting at MD&M West, the B2B medical devices trade show, in Anaheim, Calif. (Feb. 6-8).