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MedTech Outlook | Friday, November 10, 2023
The rise of contract manufacturing in the medical device industry is a significant and transformative trend which reflects the industry's increasing focus on efficiency, innovation, and cost-effectiveness.
FREMONT, CA: Within the medical device industry, contract manufacturers have developed into all-inclusive service providers, encompassing product design, final manufacturing, and occasionally logistics. Original equipment manufacturers (OEMs) now depend more on outsourcing due to COVID-19 and supply chain disruptions.
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It is becoming increasingly necessary for contract manufacturers to look for new business prospects. Products like computers and cell phones are becoming commoditised, resulting in reduced profit margins. Contract manufacturers have moved to higher-margin industries like medical devices because of this.
The change in the market comes from two sources: bigger companies with scale but no experience in medical devices and smaller speciality companies with scale but no competence in these items. Both want to increase their capacity to offer full-service supply chain solutions. Medical device OEMs are being forced by shifting market dynamics to look outside help, primarily because they are under pressure to complete their product designs more quickly in the face of fiercer competition. Processes that used to take three to five years must now be finished considerably faster, which has caused traditional OEMs to realise the need for change.
It is becoming more and more necessary for contract manufacturers to look for new business prospects. Products like computers and cell phones are becoming increasingly commoditised, reducing profit margins. Contract manufacturers have moved to higher-margin industries like medical devices because of this.
Medical treatments put off are being rescheduled amid the post-pandemic demand increase, necessitating suppliers to ensure product availability. Healthcare providers require end-to-end supply chain visibility to guarantee order processing and inventory preparedness. It is difficult to do this in the intricate medical device sector; it requires insight into tier-one suppliers as well as component, subcomponent, and raw material providers. OEMs must have predictive skills to anticipate interruptions before they influence production.
The extended offshore supply chain is increasingly viewed as a possible risk in a field where responsiveness is critical. The importance of contract manufacturers is making people reassess global sourcing. A growing number of OEMs are moving their production from Asia to North and South America, with Costa Rica showing great potential as a nearshoring option for the production of medical devices. To reduce risks, supplier diversification is also being explored. However, if many supply chain tiers depend on the same source, then distributing sourcing across these tiers may lead to a false sense of security.
The production of medical devices comprises multiple nodes. Diversifying only before the final consumer is insufficient for complete risk mitigation throughout the supply chain. Medical device OEMs are likely to depend more on outsourcing partners as technologies such as implanted device performance monitoring and robotic-assisted surgery progress. But this means strict precautions must be taken to protect designs and intellectual property. As product lifecycles shrink, data transfer and manufacturing facility security will become crucial factors that promote deeper and more strategic ties between OEMs and reliable contract manufacturers.
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