PHOENIX (Feb. 13, 9:35 a.m. EST) — Medical technology provider Medtronic Inc. is moving aggressively to consolidate and outsource much of its manufacturing.
Medtronic is doing “a lot more partnering” in breaking from the medical device industry's traditional in-house control of production, Chris Oleksy said Jan. 27 at the Plastics News Executive Forum in Phoenix. Oleksy directs strategic supply-chain sourcing for Medtronic's cardiac surgery unit, which buys about $25 million in plastic components annually.
Oleksy touted the benefits of working with a small number of good suppliers, saying he “will take a flotilla of destroyers over a battleship any day.” If he has “20 very flexible suppliers, it means five in the plastics area. I don't want 30, and I don't want one. But it may be five,” he said.
“That allows me to keep everybody in the sandbox in the plastics world very competitive, one with each other but also challenging each other for the technologies I need them to develop,” he said. “This flexibility of having an anti-battleship mentality is very valuable.”
Oleksy told processors: “I need your technologies to help match up with our therapy technologies. ... I won't work with all of you, but I will do work with some of you.”
Medtronic acquisitions resulted in redundancy, which the company is dealing with by trimming its supplier base and outsourcing some manufacturing.
In 1998, for example, Oleksy said Medtronic had 16 different facilities for cardiac surgery. “Today we have eight, and we are on our way to three or four. We had 2,500 suppliers. Today, I have 700, and we are on our way to reduce that.”
Oleksy convinced Med-tronic to sell its plastics processing operations and work with allies and partners. In December 2000, for example, the cardiac surgery unit sold a Grand Rapids, Mich., medical molding facility to strategic partner Tech Group Inc. of Scottsdale, Ariz. Tech has a long-term agreement to supply Medtronic and can use the plant to mold for others.
Medtronic remains involved in such outsourcing arrangements, he said. “This is not a divest mentality. It is a partner mentality. [There is] a very subtle difference.”
Medtronic's cardiac surgery business unit, based in Spring Lake Park, Minn., near Minneapolis, provides heart valves, perfusion systems and various technologies for heart surgery. The unit's competitors include Edwards LifeSciences Corp., Guidant Corp., Johnson & Johnson and St. Jude Medical Inc.
Publicly traded Medtronic Inc. primarily develops electro-medical and electro-therapeutic devices and has annual sales of about $7.5 billion.
