Manufacturing Matters

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Look around the parking lots of medical device companies, and you’ll find that most engineers drive Japanese cars. Even those who drive something else acknowledge the manufacturing prowess of Toyota, Honda, Nissan, Subaru and Mazda. When it comes to cars, we all know that manufacturing matters. Look inside the buildings of medical device companies though, and it’s often a different story. Most product development engineers have little understanding of the discipline of medical device manufacturing, other than a required familiarity with good manufacturing practices. It’s the rare medical device product developer who understands single-piece flow, 7 wastes, line-balancing, cell-based manufacturing, theory of constraints, poka-yoke, kanban design, kaizen events, six sigma, zero defects and the many other buzzwords/elements of lean manufacturing. It’s a real problem.

The best development engineers know that manufacturing matters, and engineers who “get” manufacturing create significantly better product designs and significantly more value. No great medical device designs make it to the end customer without being manufactured. I could even argue that medical device product development is all about manufacturing. Here’s what I mean.

First, let’s redefine the term “medical device product development.” The real product of the product development process isn’t a new medical device per se, it’s a set of instructions for manufacturing a new medical device. It’s the material specifications for purchased components, the assembly drawings, and the procedures to make and test subsystems and top-level devices. It’s the verification and validation test reports that demonstrate that when the final instructions are followed, the resulting products will meet specifications. The pure output of medical device product development is a set of documents. Think about it – those documents are all about manufacturing.

Second, let’s look at the medical device business. Value creation in a medical device business is about leveraging product innovation. Service businesses, like contract R&D firms or lawyers or physicians, make money by billing hours – reward is directly proportional to effort. With medical device technology innovation, the effort that goes into developing one new product should be leveraged by making and selling millions of profitable product units. The value created by the product-development-investment is repaid many times by the lifetime-unit-sales-volume multiplied by the profit-per-unit. Leverage is how medical innovation creates value disproportionately to development investment.

Medical device startups are all about creating value through leverage, and leverage can only be attained by manufacturing a product. An extra product design cycle to improve manufacturability reduces leverage. Poor unit profitability due to high cost-of-goods kills leverage. A deep understanding of manufacturing reduces design cycles, and minimizes cost-of-goods. By the way, you can count on these factors affecting ultimate acquisition valuations. Unit volumes, profit-per unit and additional required product investment are primary factors driving acquirers’ discounted-cash-flow models.

Medical device developers can learn a lot from other industries. Imagine if apple’s new SIRI took 30 minutes to respond to a query. No self-respecting coder would take pride in an innovation that worked in a lab, but didn’t perform in production. Great programmers write clean code that compiles concisely and executes efficiently, for optimum production performance and maintainability. Great programmers know that it’s all about the product that ships.

Really great medical device product developers think the same way. From the start, assemblies and subsystems are designed to be lean. To me, dismissive comments are warning signs: “Let’s get it to work first, and we can make it manufacturable later.” “That’s just a manufacturing issue.” “We can always cost-reduce it later.” Manufacturability issues may not always be the most urgent challenge, but they are always among the most important.

Medtronic, the world’s largest pure medical device company, spends 2.5 times as much money making products as it spends on research and development. Yet that huge manufacturing spend derives from critical decisions made during the product development process. A small percentage change in the product development outcome would have a huge impact on Medtronic’s profitability.

Leverage creates value. For medical devices, manufacturing matters.

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8 thoughts on “Manufacturing Matters

  1. Interesting thought, but taken too far. Manufacturing is key, but leverage can be attained in multiple ways. One alternative example of this is Ardian, who sold to Medtronic based on clinical trial results and IP protection. That being said, I do believe manufacturing to be of primary importance to a medical device company, new or old.

    1. Great point about Ardian – clinical data and IP are critical outputs of the development process, and are usually the most important elements of leverage for startups.

  2. Hi Jay,

    This is a fantastic post, one that I can really relate to. I work for a major device company (not quite Medtronic size but fairly close) in supplier development for new products. It is truly amazing when I work with R&D who have a manufacturing background; the designs are typically much more simplistic and with appropriately tolerances. Otherwise I spend significant time working (and sometimes battling) with R&D on the design in terms of manufacturability, assembly, and tolerances to help them understand the impact on cost and repeatability.

    While I think extra work upfront is great our business leaders are focused on time to market. This revenue driven approach causes us to leave many opportunities behind.

    1. Thanks Dan. If a hard-to-manufacture product sells well, its high cost-of-goods consumes an immense amount of money that could otherwise hit the bottom-line, or be reinvested in new product development. So short-term gain (time to market / time to revenue) can inflict real long-term pain.

  3. Jay what are your thoughts about the use of FPGA (Field Programmable Gate Arrays) chips for medical device electronics? FPGAs build hardware circuits from special software. Our device is using 4 smaller FPGAs (reduce to larger one later) for our prototype early low volume role out. How would you characterize the “circuit manufacture process”, when it is a matter of 10 minutes to load all our IP and zap our device wakes up.

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