New Trends Followed in Medical Device Contract Manufacturing

MedTech Outlook | Wednesday, March 31, 2021

The OEM capital investment in technology and equipment for outsourcing facilities will guarantee product quality and efficiency.

FREMONT, CA: The relationships between medical device original equipment manufacturers (OEMs) and contract production and manufacturing organizations (CDMOs) have changed dramatically over the last decade. The demand for third-party services has risen as medtech-branded manufacturers continue to pursue cost savings and operational efficiencies.

Medical equipment OEMs have always been dependent on third-party vendors to accomplish cost-competitive outsourcing and operational performances. The extent of outsourcing has immensely increased because the OEMs are renting out more of the product value chain and value-add activities that were previously performed in-house.

Current Medical Device CDMO Trends

OEMs' vendor selection requirements have become more stringent as demand for outsourced production and manufacturing services has expanded to high value-add sections of the medical device supply chain. Contract manufacturers have become bigger, more technologically sophisticated, and vertically integrated with response to higher expectations of quality, price competitiveness, scalability, and technological expertise demanded by the customer.

Several CDMO mergers and acquisitions (M&A) have increased the speed of this change over the last decade. Corporate and private equity-backed CDMOs have also used inorganic initiatives to expand and acquire strategic competencies, with three main strategies:

Capacity and Footprint- Pursuing greater capacity is a common objective in M&A deals as CDMOs explore large-scale manufacturing capacities and shadow their customers' global reach.

Vertical Integration- Vendors with a specialized focus aim to develop full-cycle capabilities to support their OEM customers by consolidating and simplifying several supply chains moves and improve profitability by extracting more value from individual customer relationships. For example, upstream (i.e., a manufacturing company gaining product design and development know-how to serve consumers earlier in the product life cycle) and downstream (i.e., an injection molding business improving or acquiring assembly capabilities) integration.

High-Tech Innovation- CDMOs try to set themselves apart by designing innovative, technology-driven competencies and gaining experience in unique applications or manufacturing processes that could lead to long-term business.

Medical device companies would benefit significantly from the transformation of medtech CDMOs into global, technology-driven service providers. OEMs emphasize consistency, long-term stability (sustainability), and cost efficiency while hiring third-party vendors. Contract manufacturers that can produce large quantities of high-quality products or parts while saving money are often favored.