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Sunday, September 22, 2013

EMS prospects in medical industry
The pervasiveness of electronics in the medical industry is intensifying rapidly. The use of wireless communications, robotics, and software in this sector is expected to grow rapidly in the next three to four years.

At the same time medical original equipment manufacturers (OEMs) are under increasing pressure to restructure their growth strategies and product portfolios. Increasing demand for affordable medical devices, convergence of electronics, and rising cost pressures have helped bolster electronics manufacturing service (EMS) providers' participation in the last few years.

Medical OEMs have the requisite knowledge of designing, marketing, and other core competencies. However, they require continuous investment to keep pace with advancing electronic content in medical devices and with manufacturing and quality tools. EMS providers have the ability to offer effective solutions to lower cost, while increasing quality, efficiency, value of innovation, time-to-market and supply chain management.

Market pulse:
Increasing cost pressures and generating profits in low-to-medium volume manufacturing have been the prime drivers for OEM outsourcing. The affordable healthcare act and the excise tax that have come into effect in January 2013 are expected to be key drivers for short-term EMS growth. For EMS providers, this will pave the way for increased outsourcing to mitigate the impact of these additional cost burdens. Additionally, increasing electronic content within the medical industry has further bolstered EMS growth.
All figures are rounded. The base year is 2012.
According to a soon-to-be-published Frost & Sullivan research, titled "EMS Opportunities in the Medical Industry," the EMS medical market generated revenue of approximately $16.56 billion in 2012. The market is expected to grow at a CAGR of 11.0 per cent between 2012 and 2019. The industry is witnessing rapid growth and demand in the remote diagnostics, patient monitoring, cardiovascular, neurology, consumer medical products, single use products, and other medical products.

Electronics and medical product design are becoming more technical, which will increase opportunities for value engineering. EMS providers are also adept at refreshing older designs and updating electronic design and content within an existing medical device design. This helps lower cost and obsolescence issues associated with long product lifecycles. These factors will further encourage OEM outsourcing.

There are other non-traditional avenues of growth in the medical industry. For example, traditionally, there are two types of outsourcing in the medical industry. One is related to EMS and the other related to medical grade plastics and single use devices. Currently, both markets are converging due to increasing overlap between the two areas of outsourcing. Not many EMS companies, though, have gone after the medical grade plastics, but this trend is expected to increase very gradually over the next ten years. Medical grade plastics and single use devices present a sizable market in terms of revenue opportunity.

Medical EMS contains challenges:
Increasing opportunities for outsourcing are shaking up the role EMS providers' play in the medical device ecosystem. Those OEMs for medical devices used to EMS partnerships are opening up to extending the outsourcing contract beyond only manufacturing. There is more demand from OEMs to extend capabilities and expand into full product realisation, as opposed to merely printed circuit board assembly. EMS providers are now focused on offering full product realisation services, which in turn means ramping up design services and engineering services for medical devices. There needs to be increased understanding of complex process of design and requirements in the medical industry. EMS providers are still in the building phase of capturing projects, ramping up services and generating significant revenue. This is still an evolutionary point and the increasing role of EMS in design is expected to be a gradual process over the next five years.

In spite of great progress, there are still areas of improvement and challenges for EMS providers. The challenges EMS providers face are constantly evolving. There is the challenge of meeting all regulatory compliance and successfully registering with the FDA (if the product is to be sold in the U.S.). Operating in the medical industry entails a whole new level of quality requirements and FDA registered facilities. Continuous improvement of processes, knowledge, and capabilities are some things all EMS providers must focus on in order to compete effectively.

Leading EMS providers have aligned internal strategies to better identify and seize opportunities. Companies such as Plexus have improved internal processes and focused on shaping service offerings around design services to remain competitive. Others like Celestica have reinvigorated its medical focus with identifying the high-growth product line that best suits its capabilities and organisational structure.

"Medical technology is not the safe haven investment market it was in the past. Market pressures including healthcare payer austerity programs, comparative effectiveness initiatives and the new US medical device excise tax are impacting medtech companies' top and bottom lines," said Richard Rubin, market director at Celestica HealthTech. "In the face of these challenges, medical device manufacturers are increasingly considering strategic outsourcing to help them drive balance sheet improvements—freeing up cash to invest in R&D and/or acquisitions to fuel their growth. By outsourcing manufacturing, and sustaining engineering functions, for example, companies can drive greater focus, operating flexibility and cost effectiveness across their product portfolios. Specifically, by leveraging a partner to support older platforms, they can free up their most precious resources to focus on next-generation technology and innovation. Additional bottom-line benefits can be achieved by leveraging an outsourcing partner's global operating network and information technology platform to optimise the supply chain."

Another company already making headlines for its high growth earnings, SMTC Corporation, is also witnessing interesting growth opportunities in the medical devices space.

"As we continue to grow our medical EMS business, we're seeing increased customer demand from medical OEMs for our Value Engineering service offering. Most significant demand from OEMs has been for AVL expansion, to drive cost reduction, as well as component life cycle analysis and component end-of-life inventory services, to address the OEM's broader product level life cycle requirements," said Paul Blom, executive vice president, Operations, for SMTC Corporation.

Conclusion:
As electronic content continues to revolutionise medical devices, winning strategies for OEMs will be tied to strong EMS partnerships. Similar to other traditional EMS markets, as competition intensifies, sustainable success will depend on flexibility to serve a demanding customer base, developing new business models to emulate customers, and smart marketing.

Courtesy: EET India