Quality Focus In Outsourcing And Offshoring — What To Retain And What To Relinquish

By Marissa Fayer, President, Fayer Consulting

Sometimes letting things go is an act of far greater power than defending or hanging on — Eckhart Tolle

Hope is not a strategy and faith is not a plan. When outsourcing and offshoring your operations, it may seem daunting and scary to “let things go,” but redundancy wastes time and effort, and also distracts from the reasons you decided to outsource, which include capitalizing on cost savings and acting on synergies.

The previous article in this series discussed the emerging locations for medtech growth and when to make the move.  Here, we will delve into the business areas to retain and those to relinquish control of, while still maintaining the high quality that is expected of your company.  I am not going to act as a quality expert in this article — I speak from the perspective of operations. Considering these items as you decide what to retain and to relinquish will aid in both your peace of mind and your workload.    

What To Retain

Outsourcing and offshoring should be considered partnerships, not simply buy-and-sell transactions. Partnerships require respect, trust, and confidence; without such, OEMs will risk operational and financial inconsistencies. 

In outsourcing and offshoring, you move manufacturing processes away from the traditional corporate location, but you should never lose control, at a high level, of what is happening at other locations, as the OEM is ultimately responsible for product quality. Each of the following success factors is singularly important, but in my experience, it is a combination of these factors that ensures you maintain control where needed, while trusting your partners to accomplish their specific goals:

• High-level quality monitoring, achieved through monthly and quarterly business reviews. The monthly reviews should occur via teleconference or web-ex, and the quarterly reviews should be face-to-face meetings with your key suppliers, those who have the greatest impact on finished device quality. Specific areas for review are scrap-versus-plan, ramp-up of new processes or changes, operational efficiency of processes, and delivery metrics. The OEM also should review any quality metrics related to patient complaints and returns, as those could identify possible quality issues earlier in the process.
• Market strategy and annual forecasts should be communicated to your partners quarterly, especially as they will drive changes in demand planning, material availability, and ultimately, the product available for your end-user.
• Finished product design and technology ownership and accountability, as they are your intellectual property and traditionally belong to the OEM. Design efficacy should be routinely monitored through key quality metrics, which include testing finished device intent versus actual.
• Master Validation Plan (MVP) approval and acceptance. The creation and execution of the MVP and subsequent validations are included in the “relinquish” category. But, maintaining high-level control creates ownership for the OEM, as well as final authority on the quality and regulatory requirements related to product(s) manufactured outside its own facilities.
• Audit control and supplier management of direct suppliers, including  outsourced or offshore partners. All suppliers providing goods and services directly to the OEM should remain in the OEM’s control. Attempting to oversee the indirect, second-tier suppliers wastes time and creates unnecessary work, as they are ultimately the responsibility of your partners, and their performance will be assessed in the monthly and quarterly quality review meetings.
• Finished goods inventory control and achievement of safety stock levels. This review occurs in the monthly and quarterly quality review, but it should be monitored and communicated, as there is always the chance for anomalies in ordering, or changes based on emerging market trends.

What To Relinquish

Relinquishing control is equally important as knowing what to retain.  Micromanagement of your outsourcing and offshore partners will not only create friction in the relationship, it will decrease the value of the partnership in profits and productivity. 

The reason you outsourced and offshored was to create value for your company, not to duplicate efforts that already should be reliably occurring through your trusted partner — whom you should be auditing and monitoring, as mentioned in the “retain” section above. Relinquishing control of the following areas should create opportunities for synergies, while still maintaining the level of quality you expect to achieve:

• Management of day-to-day operations and quality. Ground-level operations should be gauged in the quality and operating metrics reviewed monthly and quarterly. Day-to-day management is precisely the reason you partnered with your outsourcing and/or offshore partner. The OEM should spend its time and effort creating additional value for the end-user client. The only time this rule should be violated is when there is a specific quality or operations issue, highlighted either by your partner or driven by a dramatic change in an end-use metric — such as complaints or returns within a short timeframe that cannot be explained as cyclical.  
• Component level inventory control. Again, this is a core competency of your partner. It should not matter if they have 2 million or 2,000 bags in inventory, so long as the end product delivery and quality do not vary, costs for their lean operations or their inefficiencies in inventory management are not passed on to you, and your end-use product is not otherwise affected.
• Equipment monitoring past initial validation. Once your partner has completed the initial master validation and all has been approved, lower-level details of equipment efficiency, and subsequent additions or changes to equipment used, should be maintained by the partner. This upkeep should be reviewed in audits and quarterly business reviews, ensuring that quality has been proven through finished unit testing.
• Sterilization ownership, with regard to inventory management and ownership of the day-to-day process.  Determination of the sterilization process remains at the discretion of the OEM, but management of the process and the relationship with the specific sterilizing partner should be retained by the outsourcing/offshore partner. This better leverages their inventory management skills and allows the OEM to take ownership of the finished device later in the process. Thus, if an issue occurs, the partner is responsible, not the OEM. Sterilization should be audited regularly, as it is a risk factor to the end user, but limit oversight to that audit capacity.
• Equipment designs related to the specialty of the partner (i.e., mold design for an injection molding partner). Allowing your partner to “do what they do best” should be more convenient and, ultimately, more profitable in the long run. By optimizing their own expertise, partners will be more able and willing to offer cost reductions and improvement in efficiencies. This also allows the OEM to further the partnership, leveraging additional cost reductions in the future and creating additional profits for both the OEM and the partner.

Audit control and supplier management for indirect suppliers, which includes your partner’s suppliers. Your direct suppliers (should) have their own quality system audit plan, meaning that OEM duplication of auditing wastes time and profits. It also stands to reason that OEM audit results would not vary from what the partner has discovered, provided the partner is reliable.  

Conclusion

What to retain control of and what to relinquish is a preference that varies company-by-company, but general industry standards should apply in order to achieve continuity in the outsourcing and offshoring model. OEM insistence on maintaining full control creates a stalemate, stalls achievement of goals, and defeats the consolidation and cost reduction objectives. Maintaining the focus on quality ensures your participation and ultimate ownership of the relationship. 

OEMs and their offshoring and outsourcing partners need to establish mutually respectful relationships, each understanding that they are getting something in return from the other. OEMs are achieving cost reductions, synergies in capabilities, and strategic alignment efficiencies. Offshore or outsource partners are achieving profits and partnerships with significant medtech OEMs, while leveraging their own expertise to provide the most innovative and valuable products to their customers.

The next article in this series will discuss how to choose the best contract manufacturer for your business, while future will discuss how to manage relationships with your partners, how to scale up your offshore facility for more effective and engaged employees, and how to give back to the community in which you and your partners work.

About The Author

Marissa Fayer is president of Fayer Consulting, a global consulting business helping small to midsize medical device companies reduce their costs and increase their profits. The firm specializes in manufacturing relocations, project management, high-performing team development, and optimization of operations. Marissa Fayer has been working in the medical device industry for over 15 years with a focus on offshore operations and project management for complex multistage integration and implementation projects. Reach her at marissa@fayerconsulting.co and on Twitter @MKFayer.