Accellent Orthopaedics is a division of Accellent, a contract medical device manufacturer that also specializes in endoscopy and cardiology. Barbara Kram reports on the division’s firm footing in its market.
The name says it all: “Accellent” combines “accelerate” and “excellent” because production for the medical device industry demands both speed and precision.
“It’s a dynamic market. Things change quickly. It’s all about speed to market and being flexible,” says Tom Burns, vice president of sales and marketing for Accellent Orthopaedics, a contract manufacturer headquartered in Wilmington, Mass. Accellent has 20 U.S. plants for all three divisions including endoscopy and cardiology. “One of the things we offer is the ability to react quickly, especially having multiple manufacturing plants. We can deploy a lot of capacity very quickly.”
The advantages of contract manufacturing are well known in other industries and it’s taking hold in healthcare, where large OEMs and pharmaceutical corporations specialize in R&D and marketing and see the value of outsourcing much of what happens in between.”The attraction of outsourcing is that most of our customers do a tremendous amount of manufacturing themselves but at the end of the day, manufacturing is not what determines their success. What is going to differentiate and drive our customers’ success is innovative product design and strong distribution,” Burns says.
“It’s a changing paradigm. Other industries have adopted outsourcing much more aggressively and the orthopaedic industry is starting to do it more and more. Outsourcing is still very young in its lifecycle in the medical device and orthopaedic community compared to automotive or electronics,” he says. “We saw the opportunity to put together a large-scale supplier that had the quality systems, the resources – both engineering and financial – to service these global powerhouses [OEMs] on their own scale versus them having to rely in many cases on small, poorly capitalized companies.”
The orthopaedic business is devoted to designing and manufacturing devices such as hips, knees, and spinal implants. Products also include the needed screws, rods, connectors, etc. When a company launches a new product in this field, it must build significant inventory to meet demand, fill the distribution pipeline, as well as build the required instruments for surgeons to implant the devices. “So they have this huge spike in demand to launch a new product and then it settles down to 15 to 20 percent of those initial launch quantities,” Burns explains. That’s a nightmare from a manufacturing planning standpoint. You want to smooth your production as much as possible and that’s where using an outsource provider can dampen those spikes in demand to make for more efficient use of capital for the OEM.”
Manufacturing in the orthopaedic industry is very capital intensive Burns observes. “Using outsourcing providers like Accellent gives customers a better return on their capital. The CNC equipment we use to machine these parts costs hundreds of thousands of dollars. Our customers don’t need to make that kind of investment to meet temporary spikes in demand. They can invest their capital in R&D and sales and marketing organizations and outsource a bigger piece of their manufacturing needs.”
Fusion of Companies
In a very fragmented industry, Accellent is emerging as a powerhouse. It is the largest provider of outsourced manufacturing, engineering and supply chain services to medical device companies. Accellent has about 4,000 employees in all three divisions and 2005 revenues of $480 million. It was acquired in November 2005 for $1.27 billion by equity investors Kohlberg Kravis Roberts & Co. and Bain Capital LLC, giving Accellent the resources for future investment.
Accellent focuses on three large and growing markets for medical devices: endoscopy devices are used for minimally invasive surgery; cardiovascular devices for interventional cardiology and cardiovascular surgery; and orthopaedics: implants and instruments for reconstructive, spine, dental and trauma applications. Accellent does not develop its own products but is purely a contract engineering and manufacturing firm.
“The thing that differentiates Accellent from most of our competitors is the scale of our capabilities in terms of being able to flex our capacity when our customers need it. Also, the level of engineering support we can provide, whether it’s for product development or manufacturing solutions. We include lean process excellence to help drive costs out of a product,” Burns says.
“Cost is becoming much more critical to orthopedic manufacturing. In the past, [OEMs] could just continue to innovate and prices kept going up. But now managing costs is becoming more important so having that lean process excellence goes hand in hand with excellent process controls to deliver the best value.”