30 Day Trial

ORTHOKNOW content is posted to these pages in real time.

Monthly compilations are available in PDF form.

Voice of Industry

Suppliers Stress Customer Involvement in Strategic and Process Improvement Decisions

Listen to medical device CEOs provide perspective on global expansion, outsourcing and selecting partners.

Three of the larger suppliers to orthopaedic device companies spoke on the importance of customer relationships when they convened at OMTEC® 2014 for a panel conversation regarding global expansion. While discussing emerging markets, strategic partnerships and price pressures, they provided tactical advice that can apply to both ends of the supply chain.

Participants included Christopher Norbye, Executive Vice President Global Operations, Orchid Orthopedic Solutions; Greg Hall, Director of International Business Development, Paragon Medical and Thomas Barrett, Senior Vice President and Chief Commercial Officer OEM Solutions, Symmetry Medical. The panel was moderated by Andrew Miclot, Executive Vice President of MicroTechnologies.

Andrew Miclot: What advice can you give regarding global expansion? What are your plans for expanding globally?

Thomas Barrett: Our locations are chosen based upon customer support. You need to understand customers’ strategies. What are they thinking about five years from now? Ten years from now? These aren’t five-year investments; these are 20-, 30-, 40-year investments in new locations. It’s important that when you think about locations, you look at where your key customers are going, as well as country infrastructure.

Greg Hall: Tom hit a key point. It’s a big, long-term investment. When we first looked overseas, we looked at opportunities other than China, Europe being one of them. We realized that there’s only so much you can take on, and if you’re going to do it right, you want to make sure you can invest the resources and the manpower in making it a success. We’ll continue to look at other markets. We all know the emerging markets, and they present different challenges and opportunities.

Christopher Norbye: My advice based on experience: one, it takes a lot longer than you think. Two, find the right people before you plan. Three, learn. Because you don’t have your own product, sometimes as a contract manufacturer you can only take strategy so far. Then you have to say, Let’s do it. I know it’s not what everybody wants to hear from a strategic point of view.

Personally, from an Orchid point of view, we’re interested in China. We don’t have the resources to be in many places at the same time. These emerging markets aren’t going to be low-cost manufacturing markets; we can already see how they’re evolving. It’s important from a strategic point of view to know how you can supply the local market and region. It’s not easy to send products around emerging markets; you have to learn a lot of local knowledge.

Miclot: Would you recommend tying in with a strategic partner to expand beyond where you are now?

Barrett: It’s a benefit if you have a strategic partner who is willing to work with you. You need to assess their strategy vs. yours and make sure you’re aligned in terms of objectives. Symmetry came up through a lot of acquisitions; we never expanded by working with a strategic partner. But I would expect that it would be a good alternative.

Hall: If you’re looking at setting up a facility in another country, you either call a consultant or call a strategic partner. You have to find someone who understands how to navigate the regulatory issues with setting up a company.

If you’re looking at a strategic partner, like a joint venture, hire a good lawyer. We had a couple of companies and partners that we considered for a joint venture. We didn’t get far into it, but we started looking at what happens if we want to get out. You could lose a lot of your investment depending upon what would happen with that joint venture.

My advice is, if you’re going into other markets, find someone who knows how to work within the system there.

Norbye: I agree. If you’re a $10 billion to $30 billion company, you can choose any entry strategy you want. Joint ventures have not been that successful.

Miclot: Do you see different pricing pressures in various markets?

Hall: Pricing pressure will continue. Dealing with local domestic companies in Asia, you see price pressures there. We expected that, but it’s pretty significant.

It’s complicated when you’re looking at shipping products to other countries where you have to look at the landed cost. It’s not only making the part; it’s getting the part to a different location, different territory, different region. That adds challenges.

Norbye: The conversation we try to have with the customer is what happens when you squeeze the stone empty of every drop. You can do that, but long-term, it doesn’t help. We ask, Can we get together. Can we share ideas? How can we improve the process? How can we take the cost out? Can we share the cost? Would you approve a process change? We see more of our customers try to percent the whole cost of the project. As the supplier, we would do that; it usually helps both the customer and us. We know our customers are receiving price pressure, which wasn’t as relevant five or ten years ago in the orthopaedic industry. The U.S. is still a high-paying market vs. Europe. You get paid more in China than you do in Europe for products. It’s interesting; different pockets have completely different models. Of course there’s price pressure.

Barrett: Healthcare costs are a problem everywhere. Our customers are receiving those cost pressures. In turn, we’re receiving those cost pressures. At the same time, regulatory and quality requirements are going up. All these things challenge our ability to make a cost-competitive product. In the future, we’ll work close together with our customer, defining better ways to manufacture our product. Focusing on the supply chain, there is still a lot of waste in our processes. There are a lot of handoffs; there are a lot of inspections. Over time, for us to get cost-competitive, we’re going to have to look at how the supply chains link better together and how we can eliminate some of the wasted, non-value added cost that’s associated with how we get products from our facility into the operating room.