Similar to many other areas of technology, a considerable shift is taking place within the contract manufacturing marketplace. Both original equipment manufacturers (OEMs) and electronics manufacturing services (EMS) firms are finding their margins heavily affected by rising hardware commoditization. Consequently, many EMS companies are broadening their range of services to accommodate the increased margins.

OEMs then have the opportunity to transfer more of their design and development work to EMS partners to reduce total cost, as well as shift from fixed to variable costs. This manufacturing landscape allows OEMs more options than ever for outsourcing design, development, and manufacturing services. EMS companies are providing more services across the board—at one end, more design services for either sub-assemblies or finished devices, and at the other, more testing and prototyping offerings.

OEMs will always partner with the firms offering the highest quality at the most competitive price, but there are many other factors determining the selection of an appropriate EMS provider. Medical devices contain a slew of highly differentiated components, so splitting design responsibilities can be challenging. There are numerous tradeoffs involved in parsing these responsibilities. (Where is the line drawn between each party’s involvement in manufacturing and design? Who’s in charge of quality control and verification? How will the OEM oversee multiple management teams?)

In order to answer some of these questions and better grasp the factors and challenges affecting the medical EMS industry, Medical Product Outsourcing spoke with six EMS professionals over the past few weeks. They included:

• Kate Benedict, president, health solutions at Flex
• Ray Cottrell, executive VP at Flexible Circuit Technologies
• Tyler Prillaman, manufacturing engineer at P1 Technologies
• Joe Rosenblum, director of marketing at Keystone Electronics
• John Sheehan, president of SigmaTron International
• Shane Smith, VP global business units at Jabil

Sam Brusco: What traits are often overlooked in a long-term OEM/EMS provider relationship?

Kate Benedict: The first is the mutual agreement to focus on core competencies. Outsourcing goes beyond moving production lines away from in-house manufacturing. By strategically leveraging an outsourcing partner’s capital assets, technological investments, expertise, and other resources, OEMs can invest fully in their core innovations and move with greater agility while reducing risk. This is also important considering the larger, more transformative shifts in manufacturing that involve new sites or lift & shift of an existing site, which we call Network Optimization. When done right, companies can revamp their entire network—transforming their resources to reduce risk and lower capital costs in the process.

Another trait is the commitment to continuous improvement. A focus on ongoing improvement in processes, quality, and technology can lead to better outcomes.

Supply chain resilience continues to be a characteristic that should never be overlooked. The ability to manage and mitigate supply chain disruptions is increasingly important. Providers that have robust global risk management strategies can better navigate challenges. A commitment to end-to-end sustainability in design and manufacturing can also be a significant differentiator. 

Partnerships that recognize and build on these traits leads to more resilient relationships, deeper collaboration, and ultimately, better business outcomes supporting the OEM’s strategic goals.

Ray Cottrell: A few areas for medical OEMs to consider that may not be reviewed closely enough are regional program management, business fit and alignment, and an EMS partner with a medical technology portfolio.

At times, the OEM is so focused on short-term unit costs that long-term business alignment and how they will communicate and interact with their EMS partner isn’t fully understood. For instance, understanding the time and effort needed to support an OEM during NPI launch for medical products differs drastically from ongoing production. Having an experienced program manager with medical experience within the OEM’s time zone(s) is helpful to alleviate friction during a product’s lifecycle. 

EMS companies have vastly different financial and volume requirements per region and manufacturing plant. Choosing a partner that fits the OEM’s volumes and revenues is critical to ensuring their voice is heard within the factory for a long-term, mutually beneficial partnership. 

Having an EMS partner with a strong medical technology portfolio with some vertical integration can help support a faster time to market and offer product innovation for next- generation products. This portfolio could include PCB/flexible circuits, plastics, high-density interconnects (HDI), membrane switches, or cutting-edge SLP (substrate like PCB) with other manufacturing services that shorten possible supply chain issues, alleviate risk, and support OEM innovation.

Tyler Prillaman: Two traits would be customer service and direct collaboration. While focus is often on new product development and cost reduction in existing products, some of the best interactions with our OEM customers come from virtual meetings and factory visits. The latter can take time to plan and carry out, but our customers reflect positively after seeing their products being assembled and we enjoy visits to their facilities to see how those products are integrated. Each visit in either direction fosters engagement and provides fulfillment, while collaboration helps identify opportunities for improvement. Where the OEM/EMS relationship can often be detached, personal involvement on both sides motivates our employees and reassures our customers of our capability to deliver quality product. We find this often leads to further new product development and a stronger mutually beneficial relationship.

Joe Rosenblum: Communication is key in any industrial long-term relationship. Frequently, the OEM/EMS provider fails to pay attention to terms and conditions of sale, so much so that quote specifics such as lead time, ordering minimums, and non-cancelable/non-returnable terms get ignored. This creates great strain on a component supplier’s ability, specifically when custom designs are involved, to be able to support the OEM/EMS customer in responding to and working with market/technology and other lifecycle factors in the supply chain.

John Sheehan: I think the biggest issue that gets overlooked is the level of service that a long-term relationship can deliver. Product launches are smoother, design for excellence (DFX) recommendations can consider the total OEM spend in terms of optimizing component commonality and automation, and there’s greater efficiency in the way the parties collaborate.

Shane Smith: One common trait is keeping a narrow focus on the EMS provider’s core capabilities and missing the chance to explore additional capabilities your manufacturing partner uses for other industries. We have and are developing capabilities to support many industries, including healthcare, automotive and transportation, AI, renewable energy, and more. A relationship with a myopic focus on medical devices might overlook, or not be aware of, useful capabilities developed for automotive with applications in healthcare (and vice versa). As the relationship grows and manufacturing providers gain visibility into a customer’s broader platform and product roadmap, they should try to explore the breadth of capabilities. 

Another often overlooked trait is advanced manufacturing. We have teams around the world focused on developing and perfecting manufacturing processes to support upcoming technical advancements. This could entail smaller components, printed electronics, embedded components, or any number of other PCB advancements. Many times, customers design their next-generation products based on current manufacturing capabilities. They could be missing potential product advantages to ensure their products are designed with forethought about manufacturing capabilities that will be in place when their product is ready to launch.

Brusco: Why is it important for EMS suppliers to have a product lifecycle management (PLM) focus?

Benedict: Since it can take from three to 12 years to bring a new medical device or drug to market, it’s critical to have both a lifecycle plan for current products as well as the agility to move faster and more efficiently with new product commercialization. External manufacturing partners can help their customers ensure both. 

Having a robust lifecycle management system means that OEMs can see streamlined processes from design to manufacturing. A strong end-to-end product lifecycle strategy ensures that quality standards are maintained throughout the product lifecycle, from initial design through to end-of-life, which is essential for maintaining customer satisfaction and compliance with industry regulations.

We help customers optimize their entire product lifecycle—from ensuring product design manufacturability to scaling production efficiently, leveraging the best supply chain options, all the way to delivering reverse logistics and circular economy services.

A comprehensive product lifecycle program also helps EMS suppliers manage the environmental impact of products by tracking materials, compliance with regulations, and planning for end-of-life recycling or disposal.

When both supplier and OEM are aligned on lifecycle management solutions, what follows is enhanced operational efficiency, improved product quality, greater innovation, and better value for healthcare providers.

Cottrell: With recent supply chain and inflationary challenges still fresh in our memories and tariff uncertainty a reality, medical EMS suppliers will be required to have a holistic PLM approach. With the OEM’s EMS team in place (PM, QE, ME, TE, SE) and a strong manufacturing execution system (MES) with full component and product traceability, open and dynamic communication on product deliveries and quality and/or FDA updates becomes easier. This allows for discussions and alignment during the product’s lifecycle; from initial design qualification and DFx, NPI, and managing through cost-down strategies as products mature to EOL.

Collaboration with strong and open communication can help provide more accurate forecasting with a focus on identifying potential cost-saving opportunities on materials, testing, and manufacturing efficiencies throughout the entire lifecycle. With the above in mind, and having an initiative-taking risk management approach, EMS providers can identify and address potential material challenges and possible manufacturing capacity issues before they disrupt deliveries and cause revenue and profit shortfalls for the OEM.

Prillaman: PLM focus helps a company remain adaptive and competitive. During development, technical requirements are captured and incorporated into the product, but even before the product is on the production floor focus is put toward support during its tenure and eventual phase-out. 

This is something we have experienced across different product volumes. Some projects we’ve undertaken see the manufacture of high-complexity low-volume products, but we also have several products that need high-volume considerations. That means establishing with the OEM timelines, forecasting, and cross-over between equipment designs. We provide value by being flexible: from establishing complex products with uncertain but innovative futures to providing established products with uncompromising material and process improvements, keeping reliability high while lowering cost. Manufacturing tools such as rapid prototyping, agile development, kaizen events, and lean processing all start with and depend on lifecycle analysis.

Rosenblum: The OEM/EMS provider knows what level of life their device is at. (New, legacy, nearing end of life, etc.) If they don’t share this stage of their product life with component suppliers, we have no way to present them alternatives prior to end of life of a component. As a manufacturer,  a non-custom item may be used in the medical device industry but also in a few other industries. We can’t monitor every device they are used in and their associated lifecycles to support the needs of the EMS provider.

Sheehan: OEMs don’t just want us to build their product, they want that product delivered when and where they want it. If one or more components are suddenly unavailable, none of that happens. Taking a proactive approach by doing an initial PLM evaluation helps identify obsolescence and availability risk in a timely enough manner that contingency planning can be done.

Smith: It’s important for EMS suppliers to have a PLM focus for continuity of supply and cost management. We want a healthy bill of materials, which entails knowing when components are going end-of-life, ensuring we have replacements ready to drop in, and finding alternate components that are cost-competitive. 

Another attribute of a product lifecycle management focus should be technical relevance. We need to know the capabilities of the next-gen LTE module or chipset and understand if these capabilities could give a technological advantage to a competing product. If we can map out these design changes with customers and update their products with the latest chips, we can maximize the market share their products will have for a longer period.

Brusco: In a constantly evolving technology landscape, how do EMS companies address potential component obsolescence?

Cottrell: We know for medical products especially, EMS companies must be able to deploy and constantly manage a variety of tools and resources to ensure material continues to flow. The complexity and speed of technological advancements and supply chain changes can be managed by being proactive with periodic material reviews for cross-referencing components, discussing options for possible redesigning PCBAs/FPCAs and/or products, and maintaining strong supplier and distributor relationships in multiple geographies.

An experienced EMS partner with a global footprint that has human resources to strengthen supplier bonds is important. Additionally, having design engineers with design and component software tools available is important for quick reviews should issues arise. Medical EMS companies can minimize and manage the impact of material obsolescence with a cadence of consistent forecasts provided by the OEM. They can also suggest alternate material and procuring last-time buy on critical components based as appropriate. This process involves open communication and strong program management to ensure success and continuity in material flow.

Prillaman: We are ISO 9001 and 13485 certified, so when obsolescence happens we take steps to evaluate replacements and notify affected customers. Before that, we focus on maintaining good relationships with suppliers and establish second sources and alternatives where possible. Just as customers communicate with us to address issues that arise, we communicate with our suppliers. Suppliers notify us as soon as possible—or even in advance—for component obsolescence, and we have worked with them to identify replacements well before supply runs out. Where a component is custom-made for use in our products, we will evaluate supply and seek out other providers. Most beneficial is to identify alternates early so a shortage or obsolescence merely requires swapping feedstock to guarantee a smooth transition and avoid a line-down situation. Our challenge and focus as a medical electronics provider is to ensure customers are part of the process so they can maintain the integrity of their equipment systems. Despite the ever-evolving technology, we find simple open communication remains the largest part of addressing issues like obsolescence.

Rosenblum: Automated emails and spreadsheets seem to be the trend. Third-party logistics companies gather a list or bill of materials and send out criteria blindly to the component manufacturers. I have no idea as to how proactive this is, or if it’s just data collection. Based on our experience, it seems to be data collection and not proactively monitoring an OEM’s product to ensure components are readily available.

Sheehan: We start with a PLM analysis to assess risk within the bill of materials (BOM), recommending alternates for sole-sourced components or those near end of life that have viable alternates available in the market. We continue to monitor any components deemed risky over the life of the project. Our International Purchasing Office in Taiwan and design team helps customers identify a range of options if an obsolescence issue can’t be resolved with identification of alternate suppliers.

Smith: We manage risks from component obsolescence using two approaches: proactively and reactively. For new product designs, our engineering and supply chain teams scrutinize and optimize semiconductor component selection by reviewing and understanding the downstream technology and supply chain used for the components. We analyze and raise multiple questions in determining potential risks.

For example, we evaluate how the wafer is sourced—in-house, outsourced, single vs. dual-sourced? What technology is used: older, smaller wafers or larger wafers? How does the semiconductor OEM manage their assembly, testing, and packaging operation? By understanding downstream supply chain risks during component selection, we believe we’re able to mitigate future obsolescence risks to support the long product lifecycle common in healthcare applications.

Most EMS providers in our industry have systems and tools that indicate component obsolescence many years out. Throughout the product lifecycle, we constantly put our bill of materials through reviews and monitor outputs for changes. As with most systems and tools, the output is only as good as the input. It’s imperative to be able to cross-reference and have great relationships with your component suppliers. 

Unfortunately, we may not always have the luxury of taking proactive steps in addressing component obsolescence. We do get program transfers from customers where some programs are near the end of their lifecycles with many obsolete components in the bill of materials. To help address this issue, we acquired Retronix in 2023. For over 30 years, Retronix has been a market leader in component recovery and harvesting, reballing, retinning, and component authenticity testing services. With the Retronix acquisition, we can offer these services to customers for extending lifecycles beyond component availability.

Brusco: How will the EMS industry evolve over the next 5-10 years?

Cottrell: Geopolitical actions and economic policies will continue to shape the manufacturing and supply chain landscape for the medical EMS community. Asia manufacturing and electronics sourcing will continue to be a core part of an OEM’s supply chain solution. But a continued evolution and risk management with local-for-local manufacturing will be incorporated as part of an OEM’s supply chain strategy.

This regional and blended manufacturing strategy will provide additional challenges for the OEM to manage. Tariffs, freight and labor costs, and labor shortages in certain geographies will need to be considered. Choosing an EMS partner that’s flexible and financially stable and will guide and support the OEM in rough waters will become increasingly important.

Miniaturization in electronics and package sizes will continue to drive advancements in materials, manufacturing techniques, and capital investment in equipment to support new medical products. Innovation in telemedicine, AR/VR for training, wearables, robotics, and AI are a few markets that will set the pace of this change. EMS companies with advanced medical manufacturing capabilities offering innovative technologies will be well positioned for growth.

Prillaman: Recent trends show more product lines are moving towards simplified but deeper supply chains. Taking advantage of integrated manufacturing services available allows an OEM to stay focused on end-use and technical requirements, while contract manufacturers provide expertise and quality in the delivered product. OEMs prefer turnkey but custom manufacturing solutions, wherein the electronics and assembly are both included. We feel particularly suited to this task, with resources to develop and directly provide custom housings and electrical connections. Often we source raw materials to provide assembly and encapsulation, anything from standard cable products up to finished electrical devices. We also source electronic components and circuit sub-assemblies that allow our products to be more capable and better integrated. I expect the industry to continue to find companies that provide increased value in what they offer by using qualified sources to build up custom products for the OEM.

Rosenblum: We are seeing the consolidation of the smaller, regional EMS industry being taken over by the larger global organizations. Greater regulatory restrictions will also impact availability of materials and likely force obsolescence.

Sheehan: The options for improving quality cost competitively are going to increase. For example, we’ve progressed from using machine learning in implementing Industry 4.0 capabilities in our SMT lines to incorporating higher level artificial intelligence (AI) capabilities in our inspection programming. 

Our SMT line not only automatically makes paste deposition adjustments based on what solder paste inspection (SPI) and automated optical inspection (AOI) indicates should be done, it tells us when tool wear or any other variable is impacting placement. In secondary assembly, AI enables us to inspect a broad range of critical to quality (CTQ) criteria. For example, instead of inspecting for label placement, we’ve also automated checking label content. The machines continue to learn over time. These capabilities broaden our ability to monitor the variables that can cause defects without increasing cost because an existing automated inspection process is checking more as it views the board.

Smith: AI and automation are already integrated in today’s manufacturing environment. AI is assisting in supply chain strategies and machine learning. We’re now operating AI-enabled manufacturing lines at some of our facilities. This innovative solution is only possible through our expertise and creativity with AI, ML, and automation. Automation used to be reserved for high-volume manufacturing, but it has become cost-competitive enough to be worked into critical test and operation functions and risk mitigation. Printed mechanical and electronic parts continue to evolve and should play a larger role in the future. 

In our 2024 Digital Healthcare survey, we found enthusiastic agreement among OEMs for AI and ML, with 98% of respondents agreeing that AI and ML will transform the healthcare sector, and 92% believing they have the internal expertise to capture the AI opportunity. Looking forward five to 10 years, I see great advancements in all three—AI, ML, and automation.