Medical device companies and auto manufacturers depend on a network of dealers or distributors, to market, sell and service manufacturers’ products around the world. It’s the accepted way of doing business, and it’s expensive. I’ve had great relationships with distributors, in the US and around the world. They perform an important set of services, but they are also expensive. Distributors can cost 25% of revenues (or more depending on local pricing). Compare that percentage to the percentage of revenues you spend on R&D.
So I’ve been pretty impressed that Tesla has gone dealer-free. They’ve up-ended the traditional model, and I think it’s time for medical device companies to rethink the role of the medical device distributor. If you’re a medical device distributor, it’s time you rethink your business model too.
To understand why Tesla went dealer-free, let’s look at the reasons auto manufacturers needed dealers in the first place, and what has changed.
In almost every business, customers weigh the downside of poor product reliability more than the upside of new product features. Consumer demand for reliability has driven automotive industry design improvements for the last few decades.
Achieving reliability for innovative products is pretty hard. Tesla has delayed new models to hit performance, cost and reliability objectives. My guess is that they have some pretty sophisticated product testing. Nevertheless, real world experience is never the same as bench testing, and even for Tesla the need for after-sales service is a fact-of-life.
Most vehicle manufacturers and medical equipment manufacturers manage after-sales service as a profit center. Tesla has taken a different approach to its real world reliability issues. Innovative medical equipment companies can learn a few things from Tesla’s approach.
My colleague Chris recently noted: “the right way to do things is often a pain in the butt.” No question that most engineers see protocols as a pain in the butt – yet another file to sherpa through the document approval process.
There’s an important logic behind the practice of doing protocols. Imagine doing an experiment on humans (aka a clinical study) without one. But “good product development practice” isn’t the only reason star medical device engineers write protocols. Believe it or not, star medical device engineers view protocol writing as a key element of team leadership and team effectiveness.
If you haven’t learned to fear adhesive bonds, you haven’t lived a complete medical device life. Adhesives are truly marvels of transmutation: liquids stay liquid until they magically become solid, and a drop or two of base substance can hold dissimilar materials together with superhuman strength.
Yet control of adhesive processes is always a nightmare. UV fluence or position changes from lamp-to-lamp, and oven temperature varies seasonally. The environment is always too damp or too dry. Dispenser accuracy varies. Somehow the location of your adhesive on today’s device has shifted slightly from last year’s location. With adhesives, you just never know which variable is going to cross the line from in-control to out-of-control. You don’t need a masters in statistics to see that a large number of low-probability process failures adds up to a higher-than-desirable probability of bond failure.
I routinely bore people with my assertion that everyone should be required to study and master statistics in high school. We all need statistics to better understand the world we live in and the news we read. Without statistics literacy, we can easily be misled. In our personal lives, we make financial investments, buy insurance, and make decisions with risks. At work, engineers and scientists need statistics to understand designs, processes and experiments. Sales and marketing people need statistics to understand market attractiveness and sales probabilities. Supply chain and operations experts need statistics to understand forecasts, materials plans, and manufacturing processes. Even accountants and finance types need statistics to understand currency risks, stock options, and financial instruments.
Technically creative product designs stoke engineering pride. Most medical device engineers are happiest when flexing their technical muscle – developing elegant mechanisms, designing clever electrical circuits, and writing creative code. Technical muscle grows stronger with every new product developed.
Strong technical muscle alone doesn’t make a medical device engineer a star. A great attitude is necessary too, but still not sufficient. Star medical device engineers also develop several other muscles needed to bring great products to market. One critical strength is the ability to develop great engineering specifications and tests.
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.