Summit Soapbox: Near-shore Outsourcing and the Case for Capital Efficiency

    MEXICO CITY, MEXICO, March 18, 2012 /24-7PressRelease/ -- At the conclusion of a recent business trip, as I was traveling from Minneapolis back to Mexico City, I had a chance to catch up on my reading. Flipping through the pages of several device-industry periodicals, it was blatantly obvious that the terms outsourcing, China, and India were key words forming a common thread through most of the literature.

Outsourcing and low-cost manufacturing options are key influences for medical device manufacturers. However, is outsourcing to Asia actually economically viable? If a device maker is manufacturing a mature product such as a drainage catheter, categorized as a commodity product for years, Asia might be the correct outsourcing solution. If the outsourcing requirements are much more prescriptive, i.e., design and development support, intellectual capital needs, project management oversight, the need to protect intellectual property (IP); or the need to shorten the actual supply chain, then the case for "Capital Efficiency" needs to be made.

Capital efficiency
In the business world, capital efficiency is a term often associated with evaluating a business process and determining if the process is capable of supporting the sustainment of profitability. If the collective output of a process does not support profitability then changes are in order. In the context of this paper, the operative word of capital efficiency can be viewed as steps taken by a device manufacturer to measure the economic reality of outsourcing while assessing if their outsourcing model is effectively addressing business needs, including the meeting of design, quality, regulatory, and clinical requirements.

The regulatory path for obtaining device clearance in the United States, although well-defined, can be unpredictable; and for a Class III Device the Pre-Market Approval (PMA) process can be a daunting task requiring a significant amount of capital. This is why identifying the correct resources in support of the outsourcing process is so critical. To ensure suppliers are capable of supporting the overall device development and subsequent approval process, resources such as:

- Talent or the intellectual capital;
- Robust design and development tools;
- A Quality Management System (QMS) in compliance with recognized standards (ISO 13485:2003, ISO 9001:2008, ISO 14155:2011, and 21 CFR, Part 820);
- Good Clinical Practices (GCP), Good Laboratory Practice (GLP), Good Documentation Practices (GDP), and Good Manufacturing Practices (GMP);
- Written procedures to support activities such as Design History File (DHF) and Device Master Record (DMR) creation and management;
- Project Management skills; and
- An economical business model that results in competitive pricing becomes basic requirements.

Need to accelerate development
Additionally, medical device innovators, from large and small companies, are driven by the need to develop and iterate new devices quickly, including the design and execution of clinical trials, often employing a virtual team. Outsourcing quickly becomes the only viable solution for ensuring product development and the overall innovation cycles are shortened.

At the end of the day, it makes perfectly good sense for organizations that routinely outsource their development and clinical activities to keep these closer to home. Accessibility is extremely important to ensure development remains on target and clinical trials are being executed in accordance with protocols approved by institutional IRBs overseeing the clinicians. The key is for organizations to keep development and clinical trials close to home to ensure accessibility.

Qualified partners
Furthermore, for outsourcing to be successful, suppliers selected must have qualified engineers. Outsourcing success will be a fleeting experience if project managers, biomedical, electrical, mechanical, quality, and software engineers, with medical-device expertise, are not available to support outsourced projects. Ease and quality of communication are also important factors that have to be considered as part of the outsourcing equation.

To summarize, suppliers selected for medical device outsourcing must be technical competent, possess excellent communication skills, be agile and responsive to the device manufacturer's needs, and have an effective QMS deployed. The salient message here needs to be as medical device innovators look to economize without the sacrifice of high quality, they will continue to look offshore for the synthesis of capable quality partners that can be categorized as affordable. However, partners in Asia are not the only viable option.

North American option
It is already a significant challenge managing and maintaining control over suppliers. In fact, FDA has already voiced concerns over an increase in product recalls due to the lack of effective supplier controls.

Why then complicate supplier oversight even more by placing design, development, and clinical trials on the other side of the world (China and India), when viable options in North America exist?

Mexico, and Mexico City specifically, can be a viable solution. There are a plethora of reasons outsourcing to Mexico City makes economic business sense. For example, the following factors should also be considered as part of the outsourcing equation.

Ease of access to intellectual capital;

Incredibly affordable costs;

IP is protected under the rule of law;

Proximity (direct flights five-hours or less) to Mexico City from all major American cities (quick and easy to get to);

No special visas, such as China (visas are granted at point of entry);

Same time zones as the U.S. to support effective collaboration during normal working hours;

NAFTA has stimulated years of rapid economic and infrastructure development and a dynamic business culture;

Strong commitment to native research and high education, as well as collaboration between American and Mexican Institutions;

Harmonization between U.S. FDA and COFEPRIS regulatory and quality requirements (cGMPs, GLPs, GDPs, GCPs, and overall standards or patient care); and

Predictability in the regulatory and institutional IRB processes.

Conclusion
Contrary to popular belief Asia is not the only economically-viable solution for outsourcing in support of the medical device industry. Viable outsourcing options in North America are capable, competent, and support the concept of capital efficiency.

Design, development, manufacturing, and clinical expertise are just a short flight away. There are many reasons device manufacturers find themselves outsourcing critical business operations. However, accessibility, availability of technical expertise with medical device experience, ease of communication, and the protection of IP must be considered as part of the overall outsourcing equation. At the end of the day, suppliers located in Mexico City are clearly an economically viable option for device manufacturers to consider as outsourcing partners.

About the Author:
David Hite is the CEO of Mexico City-based Alandra Medical, a medical device CRO and engineering outsourcing company, that provides clinical and engineering services to the innovators and Venture Capital communities in the major medical device clusters in the U.S. David has lived and worked full time in Mexico for nearly nine years. In addition, he has held high technology executive management roles in Hong Kong, Shanghai, Colombia and Brazil and worked extensively throughout Asia and Latin America.

Website: http:///www.alandramedical.com/

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