2. Continued focus on velocity and costGoing back 10 or 20 years, there wasn’t as much concern about cost from OEMs. Margins were wider and there wasn’t the cost pressure that exists today. Now, part of the value proposition for contract manufacturers is about providing cost containment and speed nearly as much as it is about delivering consistent quality and a broad range of services. Outsourcing expedites product design and manufacturing cycles to get a product to market as soon as possible. OEMs turn to contract manufacturing partners that can help them launch new programs quickly, increase productivity, improve quality, reduce downtime, manage manufacturing problems efficiently and accurately and optimize performance across the manufacturing supply chain.
Contract manufacturers must position themselves to help OEMs with today’s healthcare costs and reimbursement realities. OEMs will continue to get squeezed on pricing. Margins will continue to shrink, and transparency will become increasingly important. As the healthcare market shifts toward value-based care, OEMs face new challenges. Value-based care is where cost and quality connect for healthcare providers. Value-based initiatives implemented by public and private insurers in the United States shift the care delivery focus from volume to the value of outcomes reductions in hospital stays, fewer re-admissions, eliminating hospital-acquired infections, etc. Financial incentives for the OEM will come from saving the system money. In addition, as OEMs reduce overhead and personnel to help with cost containment, contract manufacturers once again are uniquely positioned to help by providing services where OEMs once had internal manpower to accomplish certain jobs.
Another cost-containment trend that is taking shape —and cannot be overemphasized — is the concept that a noncritical part is “good enough” if the cost is right. This approach, which will become increasingly prevalent, stems from the belief that cost will continue to be such a critical driver that requirements will ease in some areas for commodity and noncritical (e.g., non-life threatening) components. There is a lot of effort to remove unnecessary costs so that only the minimum level of functionality is achieved. The FDA, for example, is starting to ease the regulatory burden on commoditized components. OEMs are reducing feature sets and outsourcing nonessential components to contract manufacturers to reduce their costs. Cleanroom production also is a good example of this concept. There are many commodity/noncritical components that have been manufactured in cleanrooms in the past that likely will be reassessed and manufactured in white rooms or other non-clean room environments in the future.