Specialization in certain types of processes is a key driver. It is costly to bring in
a lot of capital in new technology assets, as
well as skilled engineers and technicians
to run and maintain them. If an OEM can
outsource a component or assembly that is
hard to do in house, they can leverage that
company’s education and experience without internalizing it within the OEM itself.
Schultz: Competition and price pressures. Many of the great implants that improve patient health have been created over
the past two decades. Innovation will now
come from differentiation created by brand
building at the patient level, ease of implant
installation, surgical outcomes, implant efficacy, product availability, upfront and lifecycle cost, and reimbursement. CMs [contract
manufacturers] need to get bigger and have
broader capabilities and potentially global
facilities or retreat to niche segments where
their specialized work can command a premium and present barriers to competition.
Hence, the CM industry is tightening and
becoming more competitive and cost conscious. The industry is approaching commod-itization in some segments, requiring CMs
to absorb costs and achieve margins across
both high volume, low mix, and oftentimes,
lower margin business balanced against the
more complex or customized lower volume,
higher mix, and potentially higher margin
business. Contribution margin mix remains
very important for CMs.
Williams: Focus. OEMs are intently
aware of what they are really good at, and
are more willing to use outside resources for
the things that cause them challenges.
Zuzula: Some companies recognize that
they can’t be good at all things. They are
focusing on design and development and
bringing products to market. Sometimes,
bringing all processes in-house is not the
easiest or cheapest. OEMs don’t have the
benefit of leveraging multiple customers in
their manufacturing, while CMOs can maximize utilization.
Fenske: What tasks or projects are CMOs
being used to accomplish today that
weren’t being outsourced in recent years?
Donald Adams: Many companies are
working with supply chain management of
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