Anatomy of a medical electronics sourcing mess

Even the best medical doctors consult other experts. Shouldn’t electronics OEMs that spend millions of dollars on outsourcing do likewise? The following illustrates some of the risks of the insular approach.

I recently conducted a review for a large medical electronics OEM on their request-for-quotation (RFQ) and the resultant pricing they received.

The outsourcing job was a product (about the size of a breadbox) that had been re-designed and reduced in cost. As medical gear goes the anticipated volumes were relatively high, so it made for an attractive piece of business for any EMS or ODM seeking new medical business.

Nine companies bid. Based on my recent update to the Outsourcing Navigator I knew prices were rising but was still surprised by the quotes. The three suppliers who would talk to me (one of which was the OEM’s preferred source) had quoted almost twice as much for value-added services than I would have anticipated.

When asked about this they admitted padding their numbers by more than 5 percent (I made it more like 8 percent to 12 percent) as they felt the geography requested was the wrong solution and would result in problems. What a concept though: An EMS company actually priced a job to make some money!

Despite the fact that everyone talks about collaboration these days, none of the suppliers had offered an alternate suggestions to the OEM. When asked why they hadn’t, they all informed me it was “crystal clear” (from comments made by the OEM’s sourcing team) that the solution had already been decided and that the OEM’s main criterion was a contractor that would “keep its mouth shut and do what it was told.”

When I shared this information with the OEM manager working with me on the case study, he was furious and stopped the analysis –he didn’t even ask what was wrong with the geography they’d selected or what a better alternative might have been. Go figure.

The outsourcing landscape looks a lot different than it did last year, much less compared to three, four or five-years ago, and the rate of change accelerates. Given this reality, seeking alternative ideas and approaches is no longer a luxury – do yourself a favor and get a second opinion.

Posted by Charlie Barnhart, February 1st, 2008