Can You Outsource Your Medical Device?

Intro by Jeff Kerns

Handing off your designs to an outside manufacturer can be difficult. Will they understand the documentation properly, will they reach out to you to ask questions, or will they just push through and hand you a final product that isn’t something you would ever sell? Fortunately, designers have been outsourcing to contract manufacturers for a long time. Mark Rutkiewics, VP of Quality at Innovize is no stranger to this in the medical community. This week, he is at the Medical Device Technology Exchange (MDTX 2018) to share his knowledge.

The following article will parallel Rutkiewics’ MDTX presentation, “5 Key Questions to Determine if That Contract Manufacturer is a Good Fit for You.” Having been on both sides of the supplier selection process in large and small companies, he learned many pitfalls and rewards associated with selecting a supplier. In this article, you will learn methods for selecting and prioritizing potential contract manufacturers. The upfront effort you put into the process will determine your long-term costs—not just the cost of the parts.

How to Select the Right Contract Manufacturer

Selecting a contract manufacturer for your medical device can be a daunting task. Your decision of who you use, what services they provide, and changes they make can have either positive or negative long-term implications for your company. The first step is not to call back the last salesperson who just called you.

The Basic Steps for Doing This Right

1. Define the product you want built
2. What are the services you want the contract manufacturer to perform?
3. What is the cost range for the piece/part?
4. How much non-recurring engineering (NRE) costs you have in your budget?

Once you have one or more documents for all these items, go through a process in which you select possible candidates, assemble a bid package, receive initial quotes, assess their quotes, select/visit the top candidates, and then re-quote with final requirements defined. This methodology provides a comprehensive analysis, so expect this project to take three to six months.

The biggest issue when going to a contract manufacturer is your undefined product requirements. This is a common issue for the medical device industry, and it also occurs in your personal life. When you go to a home builder and tell them you have a lot and you want them to build a three-bedroom rambler for $200,000, what is your house going to look like? Are there blueprints? Do you have a list of features and appliances you want in the house? Do you have a list of materials you want used or not used? Are you going to do any of the work yourself? Answers to these questions will determine if you will want to live in the house after it’s built. The same concept of having complete product requirements applies when you have someone else build your product; will you want to sell it?

Are Your Documents Ready?

Design Inputs/Requirements do not have to be given to a contract manufacturer, but by having one, you can go back to it when your contract manufacturer has questions on your product Device Master Record (DMR). Hopefully your design outputs are in your released DMR (all the information needed to build the product). Your contract manufacturer will want to know as much as possible to give you the best quote possible. Specifically, do you have any of the following information/documents?

• Product Specification
• Bill of Materials
• Packaging Design
• Labeling and Instructions for Use (IFU)
• Suppliers (for the parts/subassemblies)
• Manufacturing Build Procedures (you may want the contract manufacturer to create these)
• Inspection Procedures (with pass/fail criteria)
• Testing Procedures
• Software (as part of the product and/or in-process testing, as applicable)

On the Risk Management side, do you have a Design Failure Modes Effects and Criticality Analysis (DFMECA) and/or a Process Failure Modes Effects and Criticality Analysis (PFMECA)? These risk management analysis documents provide guidance to help build and test the product.

You should be aware that the FDA and your EU Notified Body require these documents as part of their product approval process. You may think that these documents are only paperwork required for a submission, but they are a knowledge transfer tool that can reduce the costs to build and test your medical device.

Other key requirements needed are the estimated build quantities for at least two years out (remember to account for engineering tests, sterility test parts, bioburden test parts, marketing demos, and parts for your inventory), and hopefully by quarter. Also, you need to define your product selling price and subcontract purchase price range, and then ensure there is enough margin leftover to make a profit. Other questions you must answer include:

• How much engineering support are you going to provide?
• How willing are you to make changes to the design?
• How many of the manufacturing processes produce product specifications that cannot be verified by inspection or test (e.g. bonds, welds, package sealing, and sterilization)? These used to be called special processes, but they are your manufacturing processes that will require process validation per all applicable regulations.
• How do you want it packaged and labeled? Remember to consider not only the per-unit packaging but any packaging required for shipping the product without damage.
• Do you need a certificate of compliance?
• Do you want copies of the Device History Record (DHR)?
• One last thing: once the product has been built, how are you going to get it to the next step in the product lifecycle? A contract manufacturer is only going to do exactly what you tell them to do. You have to take it to the point where the product is for sale, legally, in the countries in which you want to sell it.

Set Your Criteria

Now that you have the product and build requirements defined, determine your supplier selection criteria. A medical device contract manufacturer is considered a critical supplier in any medical device quality system. Make sure to follow the requirements defined in your own Quality System to select this new supplier (you should have a procedure specifically for supplier selection). If your own procedural requirements are not too prescriptive, you may want to rank your supplier assessments using the following seven categories.

1. Compliance: Does the contractor have the required Quality System Certifications? (ISO 9001, 13485, FDA Registered/GMP Compliant)
2. Specialization: Does the contractor specialize in medical devices? What kind of products do they build? How does it fit your needs?
1. Box build/assembly
2. Part assembly
3. Converting (sheet and rolled goods)
4. Catheter assembly
5. Cable assembly
6. Printed circuit board Assembly (PCBA)
7. Software
8. Packaging/sterile prep
3. Services: What kind of manufacturing services do they provide? Do they match your needs?
1. Process validation
2. Statistical process monitoring and controls
3. Equipment management: If you are giving them your equipment to build the product, can they maintain it and properly control any equipment software?
4. Automation needed for high-volume builds
5. Testing (electrical, mechanical, functional, optical)
6. Software delivery to the field
7. Sterile release management
8. Inventory management
9. Stocking ability (depot/manufacturing Kanban)
10. Shipping to customers
11. Repair/rework
4. Development Support: What product development support services does the contract manufacturer offer?
1. Design change management
2. Records management
3. Expertise/project experience (matches your needs)
4. Project management (run the project on budget and on schedule)
5. Availability: Meet your schedule, ability to meet your timeline
5.  Costs:
1. Tooling
2. Prototype
3. Pilot startup
4. Production quantities
5. Inventory purchases for optimizing costs
6. How much material you furnish will be used
7. Payment terms
6. Location and Support Costs:
1. How far are they from your support people? The farther away they are from your team, the higher your travel costs
2. Upfront retainer needed
3. Time needed (define hourly rates for project manager, engineer, technician, operator)
4. Travel costs
5. Shipping costs
6. International shipments/tariffs and agent fees/FDA import controls
7. Business Fit:
1. Size: How big is the contract organization compared to your organization?
2. Manufacturing capacity: Do your volumes align with their capabilities?
3. People in the organization/project member review: Is the person/people assigned to your account acceptable to you?
4. Communication/build status (e.g., website for tracking, weekly meetings, video conference calls)
5. Client References
6. Continuity: if the contract manufacturer has only one site, verify its continuity plans are acceptable.

These seven categories provide a balanced approach when looking at a contract manufacturer. The piece part cost should not be your only criteria for selecting a supplier. There may be upfront engineering and validation costs required for medical devices. Make sure you have a clear agreement on the following:

• How are these costs going to be covered?
• Will they be charged as separate costs or amortized into the piece part costs?
• Will your contract manufacturer be readily available to answer questions?
• Will it be able to design your unique manufacturing processes?

Assign Rankings to Candidates

Put these seven categories into a spreadsheet, and then rank the candidate contract manufacturer in each of the categories. Use smaller ranges when doing rankings (of any sort), because it becomes harder to agree when you have scales between 1 and 10 than between 1 and 5 or 1 and 3. Also, it’s fine to use zero to show they are not even in the ballpark. Let’s use a 0-4 ranking method with the following definitions.

• 4 – Very strong match, meets all criteria, costs extremely competitive
• 3 – Strong match, meets some criteria, costs competitive
• 2 – Average match, meets couple of the criteria, costs average
• 1 – Weak match, meets one criteria, costs high
• 0 – No match, does not meet the any criteria, costs too high

Here’s an example using these criteria. Let’s say you need to find someone to assemble a small electrocautery device that includes a small circuit board. The following four contract manufacturers are going to be ranked:

1. Medical device electronics assembler in the same state
2. Medical device packaging assembler in the same city
3. Medical device catheter assembler in a different state, but they are low bidding to get into new types of assembly
4. Commercial circuit board house in the same state that does some support, but they are the cheapest.

Which one would you chose? From this exercise, Subcontractor A and B would be looked at during the next round.

Search and Discovery

With your DMR and your assessment criteria in hand, you can start searching for your candidate contract manufacturers to bid on your project. There are many places to come up with a list of potential candidates. You can search at a trade show like MDM, your personal network, or the following websites:

• Qmed-Canon Communications
• Media Brains
• Medicaldevice-network – Kable
• Medical Alley
• Thomas Registry
• Dun and Bradstreet

The next step is to visit their websites and contact them to see if they will bid your project. Then, make sure you have a Nondisclosure Agreement (NDA) signed with all the organizations that you chose to send a bid package. Never tell your candidate contract manufacturers what you are willing to spend, but the rule of thumb is one-third of the cost is raw materials, one-third  will be direct labor and scrap, and one-third will be the overhead (purchasing, incoming/materials control, engineering, documentation, records, project management and profit).

The Bid Package

You now need to put together an initial bid package. This package should have a cover letter that tells them exactly what you want quoted (include the requirements that were discussed earlier). Provide a list of your documents (with revision numbers) that are included in the package. The biggest headache you will have is analyzing the inconsistency of what each subcontractor bids. By providing a consistent bid package and build quantity requirements with all the information defined above, you will be able to better assess your candidate contract manufacturers. Make sure to set a deadline for all responses; if they cannot bid the project in a timely manner (i.e., two weeks), you probably do not want to go with them.

One headache with the bid package is getting all the files out to the candidate contract manufacturers. If your documents are small you can attach them to an email. But with bigger bid packages, you may either setup an FTP site that all of your candidates can access or setup an account in the cloud through one of the many service providers available (e.g., Dropbox, Google Drive).

Assess and Finalize

Now, take all your bid responses and assess them per the ranking method defined earlier. Pare your list down to two or three candidates, but do not select with the top one even though they look the best from the rankings. At a minimum, you should visit the top two or three and perform a cursory audit. These visits will allow you and the candidate manufacturers to clarify requirements and discuss possible solutions on how to build the product. You will learn about new manufacturing options and perhaps even modify your product requirements. You will see how your budget matches against the bids. You may need to reassess your budget and discuss with your management, as appropriate.

Now, finalize the bid package after your education from the candidate visits. This second round allows the candidate contract manufacturers to refine their bids based on their discussions with you. The final selection will be based as much on the cost as the cultural fit between you and the manufacturing team. Once you select your contractor manufacturer, you will need to get the lawyers involved to finalize the contract and the deliverables. Typically, this contract includes a supply/manufacturing agreement, a quality plan and a schedule with milestones for payments.

Hopefully, this article provides you with a road map for making your selection. If you need assistance in creating any of the deliverables associated with this effort, please contact us to learn how employing Consiliso concepts makes contract manufacturing more efficient and compliant.