How to master the medical buy

At Welch Allyn, strategic sourcing is involved in product development early on in the R&D phase.

By Karen Prema -- Purchasing, 2/16/2006

When a patient's life depends on the best and safest medical equipment, it is critical for the manufacturer's purchasing department to carefully source every component to make sure the product meets FDA requirements.

At medical device manufacturer Welch Allyn, that puts purchasing in the room when the first product sketches are made.

Welch Allyn is organized into two sourcing functions: strategic sourcing and purchasing. Strategic sourcing, the corporate-level group, is responsible for sourcing $300-350 million annually for direct and indirect spend. It includes five commodity managers: two electronic, one mechanical, one plastics and one optics.

Purchasing, located at the operational sites, supports the operation. This includes order placement, inventory management, schedule changes, ECN implementation and the disposition of materials.

Here's how it worked with the company's new CP 200 ECG monitor, according to Nancy Gianni, electronics commodity manager:

1. Strategic sourcing starts at the onset. Strategic sourcing got a head start in product's R&D. It sat at the table when marketing set the product's goal reviewed the bill of materials. Strategic sourcing began discussing potential suppliers.
   
2. Product authorization. Strategic sourcing coordinated the financial model development, which supported the authorization to design the product. This included marketing support data and the product engineering development cost data. Strategic sourcing identified the expected product cost and prepared a risk analysis matrix that focused on cost, technology and schedule.
   
3. Supplier strategy. Strategic sourcing worked with the cross-functional design team, including engineers, to select technology and suppliers. It analyzed the suppliers' capabilities to advance their own technology and determined if the suppliers could meet Welch Allyn's needs for the product throughout its lifecycle. It supported all prototype and design builds, aligning the supply channel capabilities with the project schedule.
   
4. Product release. Strategic sourcing and purchasing worked together to confirm a strategy for the new product's overall procurement, including a plan to monitor the supply base. This process finalized supplier contracts, which defined and implements the purchasing plan for the product under development. Elements of the plan included raw material, work-in-progress (WIP), finished goods, delivery quantity strategy, and the logistics/freight strategy.
   
5. Supplier feedback. At the end of the project, the cross-functional teams compiled a supplier report card that reviewed the buyers' interactions with suppliers. It looked at the quality of the product integrated into Welch Allyn products.