At Biomerics, we are often asked about our vertically integrated manufacturing model. Although it’s not a novel concept—several notable companies maintain complete control of their supply chains—vertical integration is beginning to manifest itself within the medical device industry. To help our customers better understand our business model and the value that can be derived from using a contract manufacturer who is vertically integrated, we’ve created the blog post below.
What is Vertical Integration?
Vertical integration is a business model/strategy in which a company owns its entire supply chain. When done correctly, the incorporation of both upstream and downstream components into a manufacturer’s supply chain can improve process flow and expand the manufacturer’s offerings and capabilities.
Historically, within the medical device industry contract manufacturers have grown and survived by choosing a niche, digging their heels in, and expanding their capabilities just enough to stay relevant. Similar to the way single location niche stores are changing to compete with big-box chain stores, medical device contract manufacturing is evolving, requiring companies to integrate and become experts at multiple steps in the supply chain.
What benefits result from having a sourcing partner who is vertically integrated?
There are several benefits that can come from partnering with a well-run, vertically integrated company. Some of the most important are listed below:
Single Point of Contact
One of the main benefits of having a contract manufacturer who is vertically integrated is that it provides a single point of contact for numerous steps within the supply chain. With traditional contract manufacturers who focus solely on a single process or set of processes, customers are forced to look elsewhere to have all of their needs fulfilled. Requiring two companies to perform distinct operations not only has the potential to cause costs to run high, it can also increase the probability of project management and supply chain coordination issues because multiple people/organizations may need to be contacted to fix a single problem. Vertically integrated contract manufacturers can relieve the pain
and headache that result from having multiple contact points.
Single-Margin
Another benefit that can be realized from having a vertically integrated contract manufacturer is a single-margin. When project, product, and program managers utilize multiple vendors, they often find themselves juggling multiple margins and expenses. With a markup on every step within a supply chain that is contracted out, expenses can climb significantly and finding the true cost of the product can become difficult. Put together, these elements can hamper attempts to price a product at a profitable rate.
It is here that a distinction must be made between a single-margin vendor broker and a vertically integrated, single-margin contract manufacturer. Commonly, vendors who broker the services of other suppliers will refer to themselves as a “single-margin sourcing partner”. Although this is technically true, the way they establish their single-margin is by adding a markup to the combined services that are being offered. This means that a margin is being paid on each individual service and on the offerings as a whole. This can be even more costly than utilizing multiple vendors as two margins are now being paid.
A vertically integrated contract manufacturer, on the other hand, charges a single-margin for the collection of services being offered—there isn’t an additional markup for each step. So, rather than paying a markup on extrusion, another on molding, and another margin on top of that, a single-margin is paid for all of the processes combined. This reduces the costs of both the product and the supply chain management required to create the product.
Increase Efficiency
Arguably more important than the potential cost savings, increased efficiency is another valuable benefit that can be derived from a vertically integrated contract manufacturer. With multiple vendors, timelines and dates can become difficult to plan for and meet, while problems that arise can require a multitude of interactions with and between vendors to fix. This can end up draining resources, increasing costs, and pushing timelines out.
Due to their control of the supply chain, vertically integrated contract manufacturers are often capable of providing more accurate timelines and they are often proficient at predicting and planning for the effects of supply chain disruptions. Vertically integrated contract manufacturers also have the ability to communicate internally when issues arise, which means teams can work together to fix problems—saving time, money, and resources.
Quality & Engineering Support
With medical devices in particular, utilizing a vertically integrated contract manufacturer who can provide beginning to end quality and engineering support that is compliant to international regulatory requirements can help decrease the time and cost of bringing a product to market and post-market maintenance. Vertically integrated contract manufacturers that have quality and engineering teams in-house can help ensure that products are properly designed for manufacturing within their specific Quality Management System (QMS). Coupled with the fact that processes can also be continuously monitored, managed, and improved with little interaction from the contracting company, the costs and times associated with developing and manufacturing devices can decrease significantly.
Vertical Integration and the QMS
Within the medical device industry, a deeper look into the benefits of a vertically integrated contract manufacturer reveals that their true advantage lies in the effectiveness of their QMS.
From design to production, every step within the manufacturing process of a medical device should be compliant to the regulatory standards that the device is designed to meet. This means that the vendors involved with the device must also manufacture products in compliance with the stringent regulatory requirements that have been set forth. Managing and coordinating multiple vendors with different QMSs can become a costly, time consuming process. Quality issues and non-conformance problems can also arise, which can further increase costs and push timelines back.
Utilizing a vertically integrated contract manufacturer can help solve the QMS problems that can result from using multiple vendors. Vertical integration allows for the internal alignment of a company’s quality procedures, which aids in the quality assurance of drawings, components, and parts as they move from value stream to value stream. Having only one internal QMS enables the manufacturing process to run more effectively and efficiently. The exposure to internal continuous improvement programs that touch each of the different value streams enables the value stream that initiates the manufacturing of a product and the value stream that completes the manufacturing of the product to have the same training and understanding of the manufacturing process as a whole. This can help lower non-compliance rates and improve output.
What does Biomerics have to offer?
Biomerics operates as a vertically integrated contract manufacturer for the medical device industry. From design and development, to full scale production and fulfillment, we offer everything needed to turn a concept into a fully functioning device. The image below illustrates a sample of the many processes and contract manufacturing capabilities we offer to the medical device industry:
As we continue to grow, we evaluate each of the components we incorporate into our vertically integrated structure to ensure they are still needed within the medical device industry. Our unique ability to provide cradle to grave production within a single company is what makes us a choice sourcing partner of the medical device industry’s leading organizations. Our vertically integrated structure allows us to remove a number of outside vendors, which enables us to provide our customers with a one-stop-shop and a true, single-margin supplier.
To learn more, send us an email (csr@biomerics.com), give us a call (801-895-2578), or visit the About Us section of our website.
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