Contract Manufacturing Market: Impacting Factors
The increasing prices of medicines and devices is leading the growth of contract manufacturing organizations (CMO), that competes to manufacture the devices and pharmaceuticals at lowest prices. Contract manufacturing is a fastest growing market within the industry. A significant shift has been witnessed in the way the companies are operating the manufacturing and outsourcing of their products. Outsourcing is an important aspect to consider while looking at the contract manufacturing industry. The factors such as rising medical devices prices in a country, unfavorable government regulations and lack of facilities is driving the companies to outsource the manufacturing facilities to other offshore places.
The competition among the medical device contract manufacturers in current scenario is much intensified in terms of manufacturing processes, designing, prototyping, clinical trials, and R&D and so thus the race for capturing new and emerging markets. The services offered by a CMO is attracting the original companies and in present time the scope of services offered has increased significantly. Unlike earlier times when the product specifications were controlled by the original company, now the outsourcing stages have increased. Further, the medical companies are not relying on a single CMO and their supply chain, rather they select few CMO’s at a time.
As per the type of devices, the market dynamics of contract manufacturing industry varies. For the manufacturing of conventional devices such as surgical supplies, there is intense price and volume competition. Whereas regarding the manufacturing of technological advanced and large medical devices such as implantable medical devices, there is no price war due to high profit margins and the focus is largely on the proximity to the technologies, profit sharing and entry barriers in the industry.
As traditionally, major objective of contract manufacturing was to boost the R&D pipelines and lowering prices, which now is not the only priority. Moreover, the location of the CMO, GMP compliances, service quality and infrastructure are also the major impacting factors while opting for contract manufacturing and selecting a CMO.
Location being the priority in choosing the CMO has led the emerging countries such as China and Mexico to take the opportunities. Moreover the increasing demand of medical devices in developing countries and availability of required resources at cheaper price, the companies have contracted manufacturing of medical equipment such as X-Ray machines to manufacture in the same country where the equipment is required to be sold. This had reduced the freight costs, and the medical OEMs have the benefit of favorable taxation of the country.
Another impacting factor is the quality standards of the medical equipment manufactured by CM. CMO registered with ISO 13485 are attracting more number of medical OEMs for contracting the tasks varying from engineering of the product to the final assembly line. This benefits both the CM and OEM to reduce the cost and achieve higher efficiency by less rejected work, less complaints and consistency in supplying orders to manage the demand.
Cost is another important factor having immense impact on the entire healthcare industry. Outsourcing has helped the OEMs to maintain the balance between the increasing prices and profits to the company. The contract manufacturers have lower cost of manufacturing model than the OEMs along with the manufacturing expertise and market reach. The materials alone cost nearly 80% of the product which is often secured better by a CMO.
Supply chain visibility is the one important aspect post the manufacturing and quality check of the product especially when the OEM expects to move their operations offshore. The OEM concerns over the supply chain lengthening, inventory, clear-to-build, end-market demand profile, MPS simulation and service parts management are easily traceable through offshore outsourcing the product manufacturing as compared to itself setting up a complete manufacturing base in other country.
The factors such as growth of the healthcare industry, new market business opportunities, technological advancements, ageing population, mergers and acquisitions are other factors impacting the original companies to go for opting contract manufacturers. Also the CMOs are striving to keep up pace with the market trends as the original companies have reached to the mammoth proportions by their megadeals. Another trend experienced in contract manufacturing industry is the focus shift towards the manufacturing of drugs as per the smaller and targeted population including the R&D, manufacturing, clinical trials and testing of the drug. This has led the OEMs to concentrate over other important things of the business related to expansion and new opportunities.
- Source: manufacturing