Friday, November 16, 2007

Medical OEMs see outsourcing as lifesaver


Under pressure to cut costs and get to market faster, medical device makers are slowly overcoming their doubts and turning to electronics manufacturing services providers.

Medical-equipment manufacturers are notoriously skittish about outsourcing the building of their products. But indications are that they are getting more comfortable with the idea. The reason: Like manufacturers in other fields they are under pressure to cut costs, avoid capital investment and bring products to market sooner. Enter electronics manufacturing services (EMS) providers.

Only about 10% of electronics in medical equipment is outsourced now, but that percentage will grow over the next five years, according to medical OEMs and EMS providers. In fact, the medical EMS market will more than double from $3.3 billion in 2006 to $7.4 billion in 2011, according to researcher Technology Forecasters. And much of that outsourcing will be for entire systems rather than just printed circuit boards. In addition, the OEMs will look to their EMS providers to help them design products.

The nervousness many medical OEMs have felt about outsourcing relates to the special requirements their products have to meet, and the applications they are used in.

Medical equipment design issues are often different than the issues with computers or telecom equipment. Failure of medical equipment could be catastrophic. That's why U. S. Food and Drug Administration (FDA) regulations govern medical-equipment products. "With medical equipment you are not just building a box, you are building something that can save a life or take a life if it is not done right," says Andy Hyatt, vice president of Plexus' Medical Sector in Neenah, Wis. "When the FDA issues a consent degree that shuts down shipment of a given medical product, that gets a whole lot of attention," he says.

As a result medical OEMs have traditionally felt no one can build a piece of medical equipment as well as they can, Hyatt says. In some cases, they're right. Not all EMS providers have expertise in medical equipment manufacturing. Many EMS providers are good at high-volume, low-mix products such as computer and cell phones, but aren't as proficient at low-volume, high-mix products such as magnetic resonance imaging (MRI) systems or computed aided tomography (CAT) scanners.

Medical OEMs are slowly gaining more trust that EMS companies are capable of building higher and higher levels of their products, says Hyatt. "However, the acceptance rate is much less than more mature and established outsourcing arrangements in networking and computing," he says.