10 Reasons to Outsource Product Design & Development
By Robert R. Andrews, Medical Division Manager, Foster-Miller, Inc.
The highly competitive medical industry requires firms to utilize every possible resource, both
internal and external, to stay ahead of the curve. While many medical device companies have
been capitalizing on the benefits of outsourced labor and manufacturing for years, only recently
have upstream functions such as product design and development become a major part of the
outsourcing trend. Medical device manufacturers are realizing that they can capitalize on external
engineering expertise to gain several advantages, such as market leading products and reduced
time-to-market, without jeopardizing trade secrets or intellectual property.
There are many factors that must be considered to determine if outsourcing product design
and development is a strategic fit for your company. Outlined below are 10 key benefits that
medical device manufacturers can realize by contracting these functions.
1. Leverage Multidisciplinary Expertise
Two heads are better than one, as the adage goes. This is particularly true for product design
and development, where truly innovative products rely on a multitude of concepts and theories for
differentiation and market leadership. A design team with industry-spanning expertise can apply
the best technology to the product concept. A team of engineers confined to one industry does
not have this pool of knowledge from which to draw, and this can impede finding the best
solutions to complex problems.
There are many cases of breakthrough products that were a result of fresh ideas and cuttingedge
technologies from unrelated disciplines. For example, when doctors were finding it
increasingly difficult to obtain high-resolution internal imaging of their patients due to the growing
obesity epidemic, a defense industry technology provided the solution. To meet the doctors’ need,
a technology based on military sonar mine detection was developed. This enabled imaging devices
to resolve objects at twice the distance of current systems. In addition, the same sonar technology
used by the navy to detect enemy submarines was applied to fetal heart monitoring. Many leading
medical devices were results of technological innovations from an unrelated industry.
2. Quickly and Easily Expand Internal Engineering Capabilities
Some projects require rapid scale-up of manpower for short-term assignments. Hiring fulltime
employees is not economical and adding temporary help is time-consuming and presents
confidentiality risks. Outsourcing, on the other hand, allows you to assign your partner’s full-time
staff to device development projects quickly and cost effectively. The proper amount of the
targeted expertise can be applied at the right time. Companies can therefore avoid paying for
excess labor and engineering costs. The various staff scale-up options are presented in Table 1.
3. Capitalize on Technology Forecasting
2
Experienced partners have foresight as to what future technologies can play a role in
developing products and how these advancements will impact your business. These firms have the
time and resources to survey the field and look at what is coming down the pike. They also have
networks to rely upon for up-to-date information. Larger engineering firms have the ability to test
emerging technologies in their laboratories, providing an additional benefit to the outsourcing
relationship.
Due to a growing aging population and rising healthcare costs, the need to monitor patients
from their homes has become more urgent. The advancement of wireless technology made
possible the development of cost-effective devices for convenient and efficient patient home care.
Now, patients with low mobility can be diagnosed and treated inexpensively in the comfort of
their own homes.
4. Manage Project Timeline
Many medical device design projects fall victim to mismanaged or unmanaged timelines. With
internal engineering and management resources stretched thin, it is often hard to fully commit
resources to product development projects. Outsourcing partnerships offer an advantage because
the engineering firm not only assumes project time management responsibilities but also assigns
and manages resources. The partners will agree on a program timeline at the start of the
agreement and schedule periodic meetings for status updates. A contract with established
deadlines and deliverables for each party helps to keep projects on track.
G.D. Searle realized this advantage when working with an outsourced partner to develop its
trandsdermal nitroglycerine patch to treat patients with angina. The company’s engineering
partner designed the product and manufacturing process and completed the production facility in
53 weeks. A project timeline was established by the product development firm, detailing project
stages from first sketch through product release along with corresponding timeframes. Scheduled
meetings and deadlines rapidly advanced the project, enabling G.D. Searle to beat competitors to
market.
5. Control Project Costs
Similar to providing project timeline management, external engineering partners can help
medical device companies keep product development costs within budgeted goals. At contract
signing, the project budget is set and resources allocated, with written approval required for any
changes. Reports are developed and delivered on an agreed-upon periodic basis to keep all
parties abreast of current expenditures versus budgeted amounts. As opposed to internal product
development, during which it can be difficult to account for time and resources, outsourcing
relationships provide clear dollar values for each project stage. This will prevent costs from
unknowingly spiraling out of control. An example of a project cost sheet is illustrated in Table 2.
6. Reduce Time-to-Market
End-to-end solutions are another benefit of working with external design teams. Qualified
partners can provide complete guidance from concept development to product development
through equipment design, build and installation. Having one point of contact for all aspects will
lend efficiency to the project. Additionally, experienced firms can apply knowledge of similar
3
projects and technologies to enhance productivity and overcome technical obstacles that can delay
product introductions.
The design challenges posed by C.R. Bard’s one-hand biopsy tool called for knowledge of
several disciplines. Since a timely release was critical to the product’s success, the firm turned to
an outside engineering team. This third-party applied expertise in medical product design,
materials, and mechanism development to create a proprietary process for a more ergonomic
biopsy tool. This device, operated with one-hand, satisfied C.R. Bard’s objectives, including a
speedy market introduction.
7. Maintain Confidentiality
One of the major misconceptions about outsourcing product design and development is that it
will compromise corporate trade secrets. However, working with a third-party engineering firm
can actually provide stronger protection for a company’s proprietary position than would internal
development. First, outsourcing engineering functions can reduce the threat of an employee
takeover by competitors because engineering partnerships provide anonymity. Competitors will
not be able to track down the engineers responsible for the development of your market leading
medical device if the design was outsourced. In addition, reputable and well-established design
firms sign confidentiality agreements and provide competitive exclusivity to their clients.
Velcro® Group of Companies experienced first-hand the power of confidentiality in its
outsourced engineering relationship. The company worked with a partner who designed the
innovative and proprietary production process for its molded hook and loop fasteners, and
consequently assigned patent rights and competitive exclusivity to Velcro®. When Velcro’s
design firm was approached by a major U.S. diaper manufacturer with a project that conflicted
with its Velcro® partnership, the project was declined by the design firm because it posed a
possible client conflict. However, the engineering firm was able to establish a connection between
Velcro® and this company, leading to a prosperous and profitable business relationship. This
result of this relationship was the development of a truly market-dominating product – a diaper
with Velcro® resealable closures.
8. Create a Proprietary Market Position with Innovative Products
To gain market ownership, companies must develop medical devices that provide an
innovative solution to some unsatisfied need. An experienced partner will be fluent in industry
trends and up-to-date on current happenings and can therefore gauge which niche your company
can effectively fill.
Innovative products are also difficult to replicate, leading to complete and lengthy market
ownership. Medical device manufacturers can get caught up in the modification maze, making
small alterations to existing products and re-launching them. However, these types of projects do
not command price premiums. Relying on external sources for product design and development
brings novel ideas and wide-ranging expertise to the table, leading to innovative products.
Becton Dickinson leveraged the multidisciplinary expertise of an engineering partner to
develop a superior and convenient insulin delivery device that earned a market leading position.
4
This partner applied insight on ergonomic design, injection molding and materials to the project.
The result was an innovative insulin injector pen, superior due to its ease of use, audible dosage
delivery indication for visually impaired users and low cost.
9. Protect Intellectual Property Rights
Medical device manufacturers can outsource upstream product development functions
without compromising intellectual property by working with partners that agree to assign IP
rights after the program’s completion. This means that the engineering company will either
cooperate in preparing patent applications or will maintain the development process as a trade
secret.
Nova Biomedical lacked a high-volume production capability for its innovative and
proprietary disposable strips. Part of the sub-micro liter glucose monitoring system selfadministered
by diabetics to check blood sugar levels, these unique strips contain a miniaturized
biosensor to convey blood to an electronic reader. Nova Biomedical recognized that an
experienced equipment-engineering firm was needed to design and build customized
manufacturing equipment to fit their unique product requirements. But, involving a third-party
could jeopardize trade secrets. To solve the problem, Nova Biomedical chose an outside design
firm that guaranteed the security of its intellectual property and agreed to assign intellectual
property rights once complete.
Within nine months, two units were designed, built, and installed in the manufacturing facility,
with ownership assumed by Nova Biomedical. Nova Biomedical now possesses the necessary
capacity to meet market demand and maintain its competitive edge.
10. Because the Competition is Outsourcing R&D
Medical device manufacturers are increasingly allocating funds to outsourcing product design
and development functions. This is supported by the growing budget percentages allocated to
R&D. For example, in 2002, the medical industry spent 11.4 percent of its sales on R&D, higher
than any industry except that for drugs and medicine.1 And in 2003, medical companies increased
the R&D portion of their budgets by an average of eight percent.2 Whether their strategy is to
maintain or gain market leadership, an increasing number of medical device companies are
recognizing that outsourcing product design and development is a critical strategic tool.
SIDEBAR
Answer true or false to the following statements to find out if your product design and
development process can benefit from outsourced engineering.
1. Internal resources are stretched thin.
2. Medical device development projects often run over budget.
3. Product launches are often delayed, costing the company a significant dollar amount due
to lost sales and extended expenses.
4. My company has not released a market-dominating product in several years.
5. My engineering staff’s expertise is concentrated in a few core industries.
5
6. Our R&D department has several new ideas, but we cannot develop efficient
manufacturing processes.
7. It is difficult to keep up with the competition in terms of new product development.
If any of the above statements hold true for your company, outsourcing product design and
development may be the solution.
About the Author
Robert R. Andrews is medical division manager for the commercial group at Foster-Miller,
Inc., a QinetiQ company. He has more than 25 years of medical device experience managing
product development and operations. He has 11 issued U.S. medical device patents. He received
an MBA from Bryant College and Bachelor’s and Master’s degrees in plastics engineering from
The University of Lowell. He can be contacted at (781) 684-4639 or randrews@fostermiller.
com.
6
Tables
Table 1. This table depicts the various scale-up options available to medical device
manufacturers for product design and development projects
Factors Permanent Hiring Temporary Hiring Outsourcing
Employment Costs High recruitment and
employee benefits
costs
High recruitment costs Ability to pay for fractions of
people reduces costs
Confidentiality Potential layoffs pose
confidentiality risks
Quality and
confidentiality risks
Confidentiality and IP
protection agreements
Program
Management and
Administration
Human resource and
administrative burdens
Administrative and
management burdens
Partner assumes program
management and
administration
Expertise Tradeoff of skill sets Tradeoff of skill sets Diversity and depth of skill
sets
Learning Curve High High Low. Team of experienced
engineers who have worked
together minimizes learning
curve
7
Table 2. A product development cost sheet clearly categorizes incurred expenses and explicitly
states contract budgets
PROJECT STATUS REPORT
For Fiscal Year 2006 Period 5
Project Number: DVOC.005123 Status: Active
Project Name: Medical Device X Period of Performance: 08/04-10/04/05
Customer: John Smith Inc. Project Manager: Jane Jones
Account Name Prior Year
Current
Period Year to Date
Contract to
Date
Total Contract
Budget
Labor Operations $218,020.37 $20,504.14 $90,422.18 $308,442.55 $332,800.00
Total Labor Cost $218,020.37 $20,504.14 $90,422.18 $308,442.55 $332,800.00
Consultants Independent $0.00 $0.00 $8,000.00 $8,000.00 $0.00
Travel/Meals $382.66 $180.44 $300.12 $682.78 $0.00
Courier & Freight $140.88 $0.00 $40.67 $181.55 $0.00
Materials $4,530.85 $892.54 $2,542.77 $7,073.62 $58,500.00
Total Non-Labor Cost $5,054.39 $1,072.98 $10,883.56 $15,937.95 $58,500.00
Overhead $24,502.41 $2,209.61 $15,404.88 $39,907.29 $41,225.50
Material Handling $418.14 $100.33 $1,786.25 $2,204.39 $20,000.00
General & Admin. Expenses $18,309.67 $1,088.88 $10,454.05 $28,763.72 $33,750.00
Total Indirect Cost $43,230.22 $3,398.82 $27,645.18 $70,875.40 $94,975.50
Total Expense $266,304.98 $24,975.94 $128,950.92 $395,255.90 $486,275.50
Labor Hours 412.00 28.00 301.00 713.00
8
References
1 The Medical Industry at a Glance 2004, Washington, DC, AdvaMed, 2004.
2 “Corporate R&D Scorecard 2004,” Technology Review. December 2004
1. Leverage Multidisciplinary Expertise
2. Quickly and Easily Expand Internal Engineering Capabilities
3. Capitalize on Technology Forecasting
4. Manage Project Timeline
5. Control Project Costs
6. Reduce Time-to-Market
7. Maintain Confidentiality
8. Create a Proprietary Market Position with Innovative Products
9. Protect Intellectual Property Rights
10. Because the Competition is Outsourcing R&D
Sidebar:True or False
10 Reasons to Outsource Product Design & Development
Two heads are better than one, as the adage goes. This is particularly true for product design
and development, where truly innovative products rely on a multitude of concepts and theories for
differentiation and market leadership. A design team with industry-spanning expertise can apply
the best technology to the product concept. A team of engineers confined to one industry does
not have this pool of knowledge from which to draw, and this can impede finding the best
solutions to complex problems.
There are many cases of breakthrough products that were a result of fresh ideas and cuttingedge
technologies from unrelated disciplines.
2. Quickly and Easily Expand Internal Engineering Capabilities
Some projects require rapid scale-up of manpower for short-term assignments. Hiring fulltime
employees is not economical and adding temporary help is time-consuming and presents
confidentiality risks. Outsourcing, on the other hand, allows you to assign your partner’s full-time
staff to device development projects quickly and cost effectively. The proper amount of the
targeted expertise can be applied at the right time. Companies can therefore avoid paying for
excess labor and engineering costs.
Experienced partners have foresight as to what future technologies can play a role in
developing products and how these advancements will impact your business. These firms have the
time and resources to survey the field and look at what is coming down the pike. They also have
networks to rely upon for up-to-date information. Larger engineering firms have the ability to test
emerging technologies in their laboratories, providing an additional benefit to the outsourcing
relationship.
Many design projects fall victim to mismanaged or unmanaged timelines. With
internal engineering and management resources stretched thin, it is often hard to fully commit
resources to product development projects. Outsourcing partnerships offer an advantage because
the engineering firm not only assumes project time management responsibilities but also assigns
and manages resources. The partners will agree on a program timeline at the start of the
agreement and schedule periodic meetings for status updates. A contract with established
deadlines and deliverables for each party helps to keep projects on track.
Similar to providing project timeline management, external engineering partners can help
companies keep product development costs within budgeted goals. At contract
signing, the project budget is set and resources allocated, with written approval required for any
changes. Reports are developed and delivered on an agreed-upon periodic basis to keep all
parties abreast of current expenditures versus budgeted amounts. As opposed to internal product
development, during which it can be difficult to account for time and resources, outsourcing
relationships provide clear dollar values for each project stage. This will prevent costs from
unknowingly spiraling out of control.
End-to-end solutions are another benefit of working with external design teams. Qualified
partners can provide complete guidance from concept development to product development
through equipment design, build and installation. Having one point of contact for all aspects will
lend efficiency to the project. Additionally, experienced firms can apply knowledge of similar
projects and technologies to enhance productivity and overcome technical obstacles that can delay
product introductions.
One of the major misconceptions about outsourcing product design and development is that it
will compromise corporate trade secrets. However, working with a third-party engineering firm
can actually provide stronger protection for a company’s proprietary position than would internal
development. First, outsourcing engineering functions can reduce the threat of an employee
takeover by competitors because engineering partnerships provide anonymity. Competitors will
not be able to track down the engineers responsible for the development of your market leading
device if the design was outsourced. In addition, reputable and well-established design
firms sign confidentiality agreements and provide competitive exclusivity to their clients.
Velcro® Group of Companies experienced first-hand the power of confidentiality in its
outsourced engineering relationship. The company worked with a partner who designed the
innovative and proprietary production process for its molded hook and loop fasteners, and
consequently assigned patent rights and competitive exclusivity to Velcro®. When Velcro’s
design firm was approached by a major U.S. diaper manufacturer with a project that conflicted
with its Velcro® partnership, the project was declined by the design firm because it posed a
possible client conflict. However, the engineering firm was able to establish a connection between
Velcro® and this company, leading to a prosperous and profitable business relationship. This
result of this relationship was the development of a truly market-dominating product – a diaper
with Velcro® resealable closures.
To gain market ownership, companies must develop products that provide an
innovative solution to some unsatisfied need. An experienced partner will be fluent in industry
trends and up-to-date on current happenings and can therefore gauge which niche your company
can effectively fill.
Innovative products are also difficult to replicate, leading to complete and lengthy market
ownership.
Manufacturers can outsource upstream product development functions
without compromising intellectual property by working with partners that agree to assign IP
rights after the program’s completion. This means that the engineering company will either
cooperate in preparing patent applications or will maintain the development process as a trade
secret.
Manufacturers are increasingly allocating funds to outsourcing product design
and development functions. This is supported by the growing budget percentages allocated to
R&D. For example, in 2002, the medical industry spent 11.4 percent of its sales on R&D, higher
than any industry except that for drugs and medicine.1 And in 2003, medical companies increased
the R&D portion of their budgets by an average of eight percent.2 Whether their strategy is to
maintain or gain market leadership, an increasing number of medical device companies are
recognizing that outsourcing product design and development is a critical strategic tool.
Answer true or false to the following statements to find out if your product design and
development process can benefit from outsourced engineering.
1. Internal resources are stretched thin.
2. Product development projects often run over budget.
3. Product launches are often delayed, costing the company a significant dollar amount due
to lost sales and extended expenses.
4. My company has not released a market-dominating product in several years.
5. My engineering staff’s expertise is concentrated in a few core industries.
6. Our R&D department has several new ideas, but we cannot develop efficient
manufacturing processes.
7. It is difficult to keep up with the competition in terms of new product development.
If any of the above statements hold true for your company, outsourcing product design and
development may be the solution.