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Collaborating with Suppliers in a Changing Landscape

“Gross profit soared 20 years ago,“ says Holger Gruenert, who worked for a well-known supplier for 13 years and then started his own surgical instrument business in 2005. “The gross profit of yesterday is not the gross profit of today.” Undeniably, the medical device industry has changed, but opportunities still exist and small- to mid-cap companies still flourish. The same conundrum of costs, quality and delivery remain, but corporate visions among large OEMs, small- to mid-cap OEMS and physician owned distributorships (PODs) create stark differences in the changing landscape.

We’ve experienced OEMs that navigate more nimbly, faster, leaner and more efficiently to achieve business growth quickly by focusing on their core business and outsourcing heavily. Other OEMs acquire market share through acquisitions and have more processes, people, products and bureaucracy. We’ve also experienced the niche of PODs, whose expertise and business relationships catapulted their growth. In panel discussions, OEMs have opined a litany of supplier issues they’ve faced. Likewise, a supplier faces issues in supplying to OEMs.

This article focuses on navigating amongst OEM players from a supplier’s perspective and shares advice for better collaboration with OEMs with differing visions. In order to do so successfully, here are three questions to consider:

Question #1: Do you view your supplier as a partner, or just another supplier?

Develop a “partnership” mentality. “A partnership is a relationship existing between two or more purposes who join to carry on a trade or business.” (IRS Publication 541) While we are not forming a legal entity, conceptually, being with a partner should produce a better result than acting alone. It forges a win-win relationship rather than a “me” mentality. Successful OEMs learn quickly that a “partnership” mentality reaps more benefits than a “me” mentality, as the latter burns out suppliers, causes resources to deplete and creates short-term solutions instead of long-term security. The benefits include better value to your bottom line because time allotted is more on your core business, more flexibility, and your supplier gains a better understanding of your core business so it can customize services to help you. The result: all partners can focus.

Select the right partner. Due diligence must be conducted carefully. Are your partners ISO 13485 certified? Do they understand the regulatory compliance rules? What skills, knowledge and service are they contributing to you? Selecting the right business partner requires an OEM to review quality processes the contract manufacturer has in place and a tour of the manufacturing facility. Selecting the facility down the road due to proximity is certainly the wrong approach.1 With technology, you should demand the best quality and the best customer service from your partner, and that can be done whether they are down the road or elsewhere.

Upon selection, OEMs compile an approved supplier list (ASL) that operates as the pool of suppliers to select sourcing. In recent panel discussions, OEMs voiced concerns about supplier issues. However, despite issues, some OEMs are reluctant to resolve these by adding more competent suppliers on their ASL. Perhaps this is because additional costs, documentation and time loom too large. Still, precisely why an OEM would continue in a less-than ideal situation when presented with new opportunities from outside sources that can provide flexibility, quality products, shorter delivery times and competitive costs remains a conundrum. Time will instruct. Growth fuels innovation. Status quo doesn’t.