Component Sourcing of Medical Devices

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By: Chanderkanth -- Senior Research Analyst

27 June, 2013

Component Sourcing of Medical Devices
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Introduction: For any medical device OEM global supply chain management is top most priority and hence has to route the best practice across each purchased material products or services. While the medical device companies are bit late in boarding the outsourcing wagon in comparison to automotive and electronic companies, they are looking outsourcing as an optimal option for cost savings. Previously, medical device companies had majority of operations limited to in-house manufacturing but recently finished goods outsourcing has been looked upon as choice with high ROI. Medical device components take miniscule percentage of final product cost, however when outsourcing service provider claims to provide 10% savings on final product, it is an option that every device OEM wants to explore. Close to 40% outsourcing was recorded in year 2010 according to industry experts and MPO journals. Close to 3000 suppliers catering to different service types, ranging from machining, stamping, assembling, sterilizing, and packaging were accounted for the year 2012. Trend Shift towards to Component Sourcing Due to increased outsourcing by medical device OEMs, there has been a decreasing trend of COGS as % of revenue. This indicates the cost savings strategy followed by medical device OEMs by outsourcing their services to the corresponding contract manufacturers. Supply Chain Analysis The figure below displays options that can be considered for medical device outsourcing. While the design contributes to the major chunk in outsourcing service types, other areas include precision machining, device assembly, sterilization and supply chain management. Services such as R&D and Sales and Marketing which are close to the OEMs are generally managed in-house by device OEMs.