By Steve Sawin, OPERON Resource Management
Everyone is concerned about health care costs these days.
On the national level, the president and Congress are trying to find creative new ways to stem the ever-escalating cost of reasonable health care. And at your house, you and your family are probably concerned about the increasing share that health care costs are taking out of the family budget.
That cost pressure has also made its way to the front door of medical device manufacturers too, as the increased cost of doing business is forcing margin squeeze at nearly every company — even the ones that are doing well. As pressure mounts to either stem or reduce the ever-increasing cost of products, “forced creativity” will find root in many of today’s device manufacturers, whether at the component, contract or OEM/product level.
In January, Abbott Laboratories announced the layoff of 1,900 people, mostly from manufacturing positions. This is just the latest, and most visible, example of the cost pressures squeezing our sector. Trimming costs in areas of quality & compliance is just not an option, so manufacturing labor is a natural place to start for many companies.
Organizations looking for options to reduce cost and subsequently improve product pricing use some of these common practices in their manufacturing environment:
- Design (design-to-cost or design for manufacturability)
- Supply Chain (opportunities in standard components; inventory optimization; transportation & the like)
- Overhead (indirect cost options; consolidations, etc.)
- Efficiency/Productivity (Lean Mfg, Six Sigma, Kaizen, etc.)
- Quality (in product or service; reduced returns; reduced scrap; reduced support labor costs)
Notwithstanding these options, or other cost take-out philosophies, no other product cost should get more attention than labor. In a production environment, labor is almost always the number one budget line-item expense.
And in the world of manufacturing labor, no practice is more cost-effective than a flexible workforce. Having the ability to add labor when you need it and remove it when you don’t is a luxury many medical device manufacturers don’t take advantage of enough. Imagine not needing to manage risk by sitting on direct labor heads because production “could” come back in a few months. That would certainly optimize what is possibly our largest variable cost element.
That capability has been around for a long, long time. It is called contingent (or temporary) labor. The only problem is that it never applied as well in the medical/pharmaceutical manufacturing environment as it did in other, less critical product areas.
The biggest compliant in the device world, as it relates to contingent labor on the manufacturing floor, is this:
“Although we were able to ramp up well initially and get all the contingent labor oriented and trained in our unique and regulated environment over time, after the first down cycle in labor needs the cost advantage became somewhat muted. Because when the labor needs picked back up again, and the contingent labor was re-introduced to the production line, much of it was new. The previous group of well trained, oriented, skilled and knowledgeable workers had found other work in the down-cycle. So we have to start all over again!”
This is not as true anymore. The contingent labor industry has seen the short-comings of this model as well. Device manufacturers can expect a higher level of customization and content in terms of company-specific cultures, practices and procedures — as well as industry process and system training — before the manufacturing worker hits the floor.
The result is not only the ability to optimize labor utilization in the face of business fluctuations, but to gain the additional benefit borne by a consistent on-boarding process for all manufacturing labor. That process embodies all the unique regulatory, systems and process nuances of our industry.
The pressure to reduce product costs is going to continue. It is going to force innovation in design, production and logistics. But few innovations will turn back more year-after-year cost savings (or cost avoidance) than labor optimization.
Steve Sawin is president of Operon Resource Management, an operationally focused company with special expertise in managing comprehensive contingent labor on-site programs in the life sciences, high technology and defense manufacturing, working with clients to continually achieve process and productivity enhancements.
