Auto Industry Eyes Medical Device Manufacturing

Abstract

Medical device manufacturers are starting to get competition from an unlikely source. Spurred by a surging healthcare market and a poor economy, auto suppliers have started to delve into medical device manufacturing. Some acquired medical device manufacturers; others are expanding existing infrastructure into this new realm.One reason auto suppliers are making the transition is a ripe opportunity in the healthcare market, says J. Scot Scharland, executive director of the nonprofit Automotive Industry Action Group. The group offers courses to auto suppliers and manufacturers on quality management system regulations for medical device manufacturing.“A lot of the skill sets of auto suppliers and manufacturers are readily transferable into what is a robust and growing market,” Scharland says. “In 2008, healthcare spending was 17% of the U.S. Gross Domestic Product, and by all reports the demand continues to rise unabated.”The current recession, which hit the auto manufacturing sector especially hard, plays a part but not a significant one, Scharland says. “I think it is oversimplifying things to say it is a knee-jerk reaction to the economy. Many companies look at the standing growth of the automotive market and hopes of possible growth. I think if you look clearly from a North American perspective we will get a rebound in the economy, but the building of cars has been flat. The organic growth in the auto industry is in other parts of the world.”Freudenburg-NOK, which manufactures brakes, gaskets, and other auto parts, got into the medical device business in 2003, long before the current recession. “We looked into the entire market where we could leverage our core competence, which is elastomer and rubber technology,” says Jorg Schneewind, CEO of Helix Medical, a company Freudenburg-NOK acquired in 2006. “We identified medical as one of the key markets in which we should diversify. We already were processing silicone for aerospace and other industries. The next best thing was to go into the medical market.”Auto suppliers have taken a few different paths to get into medical device manufacturing. “The transition has been pretty straightforward,” says Scharland. “They are either making a significant new investment in planned equipment, or making an acquisition of a healthcare company.”Freudenburg-NOK acquired a small medical company called Genline in 2004, and then expanded to acquire Helix and Anura Plastics Engineering Corp. The additions helped Freudenburg understand the various complexities that exist in medical device manufacturing.“I think we knew that we would get into a business or market segment that has different rules with the U.S. Food and Drug Administration (FDA),” Schneewind says. “It was a learning process to understand what it takes for the entire corporation. By acquiring existing medical device manufacturers, we acquired institutional knowledge with the experience that we didn't have before.”Auto supplier Delphi expanded its existing manufacturing capabilities to include medical devices. The company now manufactures infusion pumps, oxygen concentrators, and software for monitoring patient care, Scharland says.It isn't a far stretch for auto suppliers to adopt quality management systems required for medical device manufacturing, Scharland says. “If you look at quality management systems the essentials are the same,” he says. “Do you have control and command of your processes and can you prove it?”There are some key differences that auto manufacturers need to be aware of, Scharland adds. “There is a much greater emphasis on reliability and risk management throughout the entire life cycle than what you will see in the automotive space,” he says.The life cycles of medical devices can be considerably shorter due to constant innovation, Schneewind says. For example, in automotive if you have a certain form of a transmission then the life cycle of that form of transmission can be long if you meet customer expectations, he says. “In medical if you have a component in a device, that device can become obsolete in two or three years because there is a new device that has a different function or solution,” he adds.Schneewind says it wasn't a large obstacle for Freudenburg-NOK to adapt to medical device regulations. “It was just going through that learning curve with the right strategic approach to acquire business rather than organically, which can be painful with a lot of setbacks,” he says. “I have seen with a lot of automotive companies that go into medical with organic growth and they face obstacles and setbacks because they really didn't understand the differences.”With the recession especially impacting auto suppliers and manufacturers, expect to see more companies follow this route. Schneewind said a transition to medical device manufacturing shouldn't be viewed as a band-aid for these harsh economic times. “It has to be part of a long-term strategy,” he says. “It cannot be a short-term emergency fix, which is how some companies look at it right now because their core automotive business has contracted.”