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OEM/Supplier Issues Roundtable: Orthopaedic Industry Leaders Weigh in on Commercialization Challenges

Solid communication between OEMs and suppliers keeps both sides proactively engaged in product commercialization and smooths the working relationship. As industry looks ahead to the coming year, we sought the OEM response to a single question:

As you consider the year ahead, what action(s) can your supplier partners take to help address your challenges?

Their responses reflect ways that suppliers and OEMs can best partner to soften challenges and strengthen relationships in 2013.

sflannery  rjohnson dkelman  hlevy  rgreen  bweston 
Skip Flannery, 
Vice President,
Logistics & Materials,
Wright Medical
Technology
Robert Johnson,
Vice President of
Operations &
Engineering,
Acumed
David D. Kelman,
Vice President,
Hip Product
Development –
Advanced Surgical
Devices, Smith
& Nephew
Orthopaedics
Howard Levy,
Chief Procurement
Officer, Worldwide
Operations,
Biomet
Ronald Green,
Director,
Manufacturing
Engineering &
Manufacturing,
Exactech
Bob Weston,
Director of
Strategic Business
Planning, Ortho
Development

 

On Product Development Resources for Suppliers

Skip Flannery, Vice President, Logistics & Materials, Wright Medical Technology: When it comes to design requirements, don’t be shy. Tell us when we are being unreasonable. Tell us how much easier and less costly it would be if we implemented certain design changes.

Robert Johnson, Vice President of Operations & Engineering, Acumed: As we really push down dimensional tolerances, the contractors must have state of the art metrology for accurate measurements. They must be well-versed in all aspects of machining, including screws, plates, instruments, etc., on a wide variety of materials, both traditional and nontraditional.
The more they embrace lean manufacturing overall, the better. This includes the use of metrics such as SPC, CpK and PI for constant improvement.

David D. Kelman, Vice President, Hip Product Development – Advanced Surgical Devices, Smith & Nephew Orthopaedics: As the regulatory requirements continue to increase, having suppliers that can assist in being a true partner would be beneficial. From the development side, it would be of great assistance to have a supplier quality and manufacturing engineering group that understands the OEMs requirements/paperwork to reduce the burden on the OEM. The vendor may question why they should create such an infrastructure. The answer is that as the requirements are increasing, the ability to change suppliers will become an ever-growing hurdle. I mention this for new product development, but in reality, it should also apply to transfers as well as the transfer will require PFEMAs, verifications and validations.

Howard Levy, Chief Procurement Officer, Worldwide Operations, Biomet: Many of our supplier partners have actively engaged with us early in the new product development cycle, and this will only accelerate our new product launches in the year ahead. We are finding it critical for our suppliers to have the right technical resources from a design, manufacturing and quality perspective to actively engage with our pre-production planning teams. While we recognize that we play a very large role in the success or failure of a new product launch, our suppliers need to respond flexibly to required design changes, openly communicate with us and ensure that the team doesn’t increase the potential of supplier quality rejects or recalls as we move into production. Meeting launch dates is important, but we must never jeopardize quality to do it.

 

On Production Time and Communication

Ronald Green, Director, Manufacturing Engineering & Manufacturing, Exactech: We need suppliers to communicate their available capacities and constraints. Also, ensure that process changes are communicated and approved prior to implementation to ensure that regulatory implications are considered.

Flannery: It’s important they advise well in advance of any potential missed delivery schedules.

Johnson: More than any other metric for them to focus on, outside of quality, is true lead-time. The faster they can make my parts, with the highest quality, the better.

Levy: Beyond quality, there is adherence to delivery dates. In too many instances, we find out after the promised delivery date that the supplier has a machine breakdown or outside sub-supplier issue that results in a delivery delay of weeks or months rather than days. While I appreciate that suppliers are trying to remain lean and let their scheduling systems drive their efficiencies, we need significant improvement in the adherence to delivery dates and proactive communication when issues arise. Nothing is more disappointing than working long and hard on a new critical product and then learning that we won’t be able to ship sets because we were blindsided with a late delivery.

Bob Weston, Director of Strategic Business Planning, Ortho Development: We challenge the supplier base to focus on customer service. Shipping notifications, prompt acknowledgements, no documentation issues and accurate status reports are all small stuff, but can be effective low cost sales-makers. If the customer has to request it, it’s not customer service.
A more daunting issue is internal communication between supplier facilities. This doesn’t mean hard-core management centralization, which may extinguish entrepreneurial spirit of a facility. Our observation reflects a necessity for effective internal systems to resolve short-term capacity, delivery issues and enhanced customer service functions. A breakthrough applied to information integration within supplier sister divisions is the next process improvement step.


On Time and Cost Reduction

Flannery: We need to understand material availability and cost. Suppliers should advise in advance what potential raw materials may become difficult to get or may experience longer lead times to secure. Identify what materials are expected to have a significant change in cost, either up or down. For those identified, what is the major contributing factor?

Johnson: The faster I can dependably get my parts, the less true inventory I have to carry, which reduces my costs/coverage. It would be beneficial for supplier to offer a full complement of processes such as TYPE 1 and 2 anodization, heat treatment, welding and sterile packing to reduce time.

Levy: There is tremendous global pressure to make healthcare costs more affordable. Plus, new challenges from the Affordable Care Act medical device tax in being able to compete in emerging countries at the right cost points further causes cost reduction to be a priority. We look to our suppliers to provide us with specific ideas on ways we can reduce our cost. All areas that don’t negatively impact quality are fair game for supplier cost reduction, from alternative products/materials, new lower cost facilities/processes. Admittedly, we can contribute to the cost challenge because of inconsistent demand or hesitation to change particular specifications, but the status quo on cost is no longer going to cut it. We must work together to be more effective in driving significant cost reductions.

Weston: Cost is the operative hot topic. Global reimbursement rates are soft or trending south. The Affordable Care Act and associated 2.3% medical device excise tax is a new direct expense. Other traditional commercial cost drivers remain. Certainly cost reduction is a highly visible component within our organization.

Arm-twisting by large OEMs is not uncommon. The first rule of plumbing is automatically applied to OEM subcontractors. The search and qualification of low cost suppliers has taken a global turn. Many sub-contractors outside the U.S. are aggressively pursuing U.S. opportunities. Some are even relocating manufacturing facilities in proximity to U.S. customers.

Since the advent of Mettis Orthopedic in the late 1990s, we have seen the emergence of the super supplier. Global demographics validate the increasing demand and potential growth in the orthopaedic sector. That attracts players big and small. We anticipate continued M&A activity within the orthopaedic supplier base. It makes business sense to buy backlog and/or enhance vertical integration capabilities to gain market share and reduce costs. As this strategy proliferates, who will be winners and who will be losers? We expect lower pricing as a foregone conclusion.

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