Innovations have changed the calculus of sourcing in the medical devices industry. Electronics manufacturing services (EMS) companies bring engineering expertise to the manufacturing floor that help drive innovation.
The medical devices industry wasn't willing to trade off the risks of loss of intellectual property, potentially compromised quality, and regulatory compliance for the cost savings from relocation to far-flung destinations like China or Eastern Europe.
Increasingly, it's hard for the industry to achieve the quality it desires without partnering with EMS companies. Increasing adoption of embedded intelligence, miniaturization, sensors, electronic control systems, and 3D video technologies for remote patient monitoring all call for skills outside of the core competence of these companies.
The revenue from outsourcing of medical electronics, at $16.56 billion in 2012, is expected to grow at the rate of 11 percent per annum until 2019, according to a study by Frost and Sullivan that was cited by Circuits Assembly.
The motivation for outsourcing was revealed by a study of 89 medical devices companies worldwide by the analyst firm, Axendia, which found that 79 percent of them were looking for skills outside of their core competence, 69 percent of them wanted to reduce the cost of development. Speed to market and improving quality were a close, respectively, at 56 percent and 55 percent.
The large EMS companies that were earlier focused on low-cost production of consumer electronics have been acquiring smaller companies with specialized skills in medical electronics to beef up their capabilities for this growing market.
Flextronics, for example, acquired Stellar for its expertise in microelectronics required for deep brain stimulation, cochlear implants for ears, and neuro-modulation, as well as in sensors and monitors. Flextronics medical electronics outsourcing business has been growing at an average rate of 21 percent per annum for the last three years.
Toronto based SMTC Corporation acquired San Jose based ZF Array for its skills in product design and rapid prototyping for complex electronics equipment in segments like medical electronics.
The outsourcing strategy for medical devices clients combines joint development programs with customers close to their facilities, regional sources of production in especially Mexico for lower shipping costs and faster delivery for products that need rapid iteration in the same time zone and low-cost commodity production in more distant places like China.
Creation Technologies typifies an EMS company focused on medical devices and similar low-volume and high value product that has all but two of its plants within North America. It has another plant in Mexico and one in China.
Mexico is a favored location of new product introductions where time-to-market is as important as keeping under budget during product development. Companies like Sanmina-SCI have found that clients are more receptive when they realize that frequent changes in engineering orders will not be stymied by time lags in bringing products to market.
The intelligence and miniaturization that electronics brings to medical devices is in early stages of adoption. The bias, in the near-term future, will be towards locating high-end manufacturing like medical electronics in the USA while the peripherals will still be produced overseas.