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Contract manufacturers and OEMs that get the most out of working together understand effective collaborations are rooted in efforts to exceed expectations and less about counting part numbers on purchase orders.
OEMs need to team with CMs to produce high-quality orthopedic products in cost-effective ways that lead to competitive pricing and greater market access. Both types of companies should shoulder the load of forecast planning and join forces to scale production levels quickly in response to sudden changes in product demand. They must provide reliable service and hold each other accountable to meet production deadlines and lead times.
“Companies that figure out how to turn transactional relationships into true partnerships will excel,” said Corey Strege, Vice President and General Manager at Able Medical Devices. “How can you help your customers achieve their goals? That’s the ultimate measure of success for companies on both sides of the manufacturing process.”
Transparent Dialogue
Jody Scrivner, Director of Business Development at MB&A, has spent years on the staffs of major orthopedic players throughout her career. She believes OEMs want to engage in transparent and proactive communication with CM partners. If lead time commitments are not met, they want to understand the root causes and address them head-on. They’re interested in the literal nuts and bolts of a CM’s manufacturing practices and want a transparent look at the pricing structure.
This is especially true in today’s economic landscape in which inflation and pricing pressures are tightening the purse strings of even the industry’s biggest players. “The goal is to have both sides lay their numbers on the table,” Scrivner said. “Transparent discussions can help identify cost-related issues that enhance the business relationship.”
OEMs and CMs want to work with professionals who have strategic outlooks, understand true cost structures and approach challenges with a team-first attitude. “I’m always interested in having real conversations,” Scrivner said. “When challenges arise, I want to know we’re in the trenches together. When things are going great, I want to share the credit.”
Scrivner believes more CMs need to empower customer service representatives — who are essentially the face of their businesses — to handle strategic planning. “Some companies don’t equip their reps with the necessary knowledge and authority, relegating them to administrator roles,” she said. “Successful reps are empowered to interact with OEM production managers and handle requests, whether it’s expediting orders or addressing late deliveries.”
Strege has been involved in developing five-year strategic roadmaps for the trajectory of product development projects. He analyzed how his company’s current efforts would impact future developments and closely monitored product cycle times.
Strege believes CMs must support new product launches by empathizing with the needs of OEMs and always meeting agreed-upon lead times. “When we miss a target, it has consequences for the entire product line launch,” Strege said. “Substantial financial stakes are involved. Our approach is rooted in understanding what OEMs face and grasping the criticality of our role in the process.”
Strege said Able engages in conversations with OEMs to gain a holistic understanding of manufacturing projects, including how the parts that need to be made interface with a company’s other devices and its broader strategy.
“This approach enables us to create a seamless integration that ultimately fosters synergies and greater operational efficiency,” Strege said. “We are committed to the idea that our relationships with OEMs are as important as the ones we have with our internal teams. Developing strong and productive relationships through quarterly or monthly meetings is paramount.”
Strege said it’s important for CMs to align their decision-making authority with corresponding levels within OEMs. “We encounter situations in which individuals at OEMs lack decision-making power and perceive our involvement as simply related to producing widgets. They miss the broader context,” he explained. “While we understand that top-level decision-makers can’t be involved in day-to-day operations, we do think it’s important to establish a series of regular touchpoints to maintain open lines of communication with them.”
Ray DeFrain, Manager of Field Metallurgy & Medical SME at Carpenter Technology, works with OEMs and their supply chain partners to actively communicate product lead times and available capacity so they can effectively manage their production schedules.
“We routinely participate in sales, inventory and operations planning meetings, forecast reviews and long-range planning to provide transparency in the supply chain,” he said.
Willingness to Adapt
CMs must adopt a proactive approach to meeting the production needs of OEMs, even as demand ebbs and flows, according to Scrivner. She remembered working with a CM that would produce semi-finished products during open production time and stock them for when Scrivner called with a last-minute request for additional inventory.
She also pointed to the importance of a proactive approach to problem-solving. “Companies that invest in technology and employ skilled individuals capable of synthesizing customer-level data are ahead of the game,” she said. “They compare demand forecasts received from
OEMs with actual sales figures and conduct historical time studies to assess the accuracy of the reports. Not all CMs have this capability, but those who do significantly enhance their readiness when demand spikes.”
Shortages of medical-grade titanium and stainless steel have limited the ability of CMs to keep pace with the market’s demand and caused many companies to think outside the box and explore the use and availability of alternative materials.
Scrivner has noticed that OEM engineers are typically resistant to considering alternative materials, which is somewhat understandable. Changes to the materials used to produce orthopedic devices require review and approval by an OEM’s engineering team, a notoriously rigid and time-consuming multistep process.
However, Scrivner said, engineers are often suddenly more open to considering alternative materials when critical shortages put their companies at risk of losing customers and the issue is elevated to a CEO-level concern. She’d like larger OEMs to show more willingness to work with CMs on alternative manufacturing options, even in the absence of supply shortages.
“Smaller to mid-sized companies with greater agility and fewer bureaucratic hurdles have taken advantage of the availability of new materials and have outperformed the major players in this regard,” Scrivner said.
CMs also bear some responsibility for helping OEMs justify the use of alternative materials, according to Scrivner.
“They need to have solid data and subject matter expertise to support their proposals,” she said. “Approaching OEMs with well-researched ideas that are backed by data and potentially aligned with a predicate product makes it easier to sell the idea of using an alternative material and mitigate perceived risks associated with change requests.”
Carpenter collaborates directly with its customers to identify areas of waste and has a robust Business Continuity Plan (BCP) in place to help mitigate risk to the inputs of the manufacturing process.
“We have redundant and equivalent processing capabilities at various manufacturing locations that can be used interchangeably if needed,” DeFrain said. “We also maintain a robust Approved Supplier List of proven and certified suppliers for items needed for production.”
Carpenter also has a fully accredited and audited laboratory, which provides customers with assurance that certified results are representative of material performance. “In many cases,” DeFrain said, “OEMs have discontinued additional third-party testing, leading to cost-downs in the use of our products.”
Fearless Forecasting
Scrivner said CMs should request demand forecasts from OEMs before signing off on purchase orders. “This proactive approach is vital to ensure that both parties align their expectations,” she said.
She recalls the challenges of ensuring forecast accuracy while working at an OEM in the foot and ankle space. At the time, she implemented product lifecycle management and reduced the product range from 300 brands to 90 options, but still had to manage about 10,000 SKUs of products. Sudden fluctuations in demand for specific items, such as surgical screws, created operational challenges — especially given the limited flexibility of working with CMs that had 20- to 32-week lead times.
“A key part of the problem was the lack of communication, both internally and externally,” Scrivner said. “We weren’t conducting regular standard operating procedure meetings to discuss forecast accuracy, and the data we provided our CMs wasn’t always accurate.”
The company’s largest CM at the time did keep accurate forecasting data, partly to keep pace with constant changes made to the product mix. “The CM had captive machines, which gave them more flexibility to adjust production levels and made our interactions easier to manage,” she said.
Directors of sourcing at OEMs need to be constantly updated on CMs’ dedicated capacity for effective lead time planning and management of their purchasing teams, according to Scrivner. “Addressing these issues on the supplier side demands a delicate balance in determining how involved they need to be,” she said.
Scrivner pointed out that even minor alterations to designs during the new product introduction process could jeopardize production volumes. She said CMs that lack captive machines must explore creative solutions — such as scheduling third shifts and filling all available production slots to meet demand — and communicate capacity allocations to sourcing teams on the OEM side.
“Weekly open order calls and monthly supplier lean performance meetings are effective ways to keep stakeholders updated on real-time production performance,” Scrivner said.
Scrivner has seen CMs charge OEMs for additional production runs when lead times aren’t met. It’s no surprise that many OEMs push back on footing the bill for inefficiencies and a lack of planning. But tough conversations are sometimes necessary to maintain healthy business relationships and meet the needs of both sides, she said.
OEMs with mature products typically gain insight into production volumes and demand cadence, Scrivner noted. She also pointed out that CMs sometimes have a better grasp of production volumes and demand patterns than OEM planning teams because of their ability to analyze years of manufacturing history and, if they possess robust software systems, synthesize information regarding order cadence and product mix.
CMs should assess the accuracy of forecasts for mature products against a three-month lag of actual sales, Scrivner suggested.
“This ongoing measurement allows CMs and OEMs to identify inconsistencies and respond effectively,” she explained. “Forecasting accuracy for new products tends to be more challenging because their market performance is less predictable, making ongoing reviews and adjustments necessary.”
It’s common for manufacturing professionals to view forecasting with disdain, believing it’s a daunting task that’s not easily mastered. Strege said OEMs often still possess more insights into the frontline demand for their products than CMs do.
“We understand those signals won’t be perfectly accurate, but we need access to that information,” he said. “The pursuit of perfection shouldn’t hinder progress. Let’s use the information that we do have to enhance our nimbleness and optimize efficiency on both sides.”
