Application Cloud Computing: Back to Basics

I remember in late 90s, my discussion with customers around B2C eCommerce was mostly related to shopping cart functionalty, SSL security, CC authorization, integration with back office order mgmt, etc. In fact, I looked at some of the key challenges facing global electronic commerce in 2000:

• Security, Reliability and protocols
• Bandwidth
• Integration
• IP Rights
• Tax
• Absence of touch and feel
• Cost, etc.

At that time very few customers were looking at eCommerce as a strategy. Now, almost 15 years later, all these are all given for any eCommerce discussion. My conversation with customers are now around 

• Integrated eCommerce Channel Strategy to drive growth at a lower cost
• Customer loyalty improvements to increase average deal size and repeat customers
• Customer experience, etc.

The point is that whenever there is a paradigm shift, i.e. from offline to online (eCommerce) and now from on-premise to Cloud, initially customers and vendors focus on the basic offerings that enables the transition. In case of Cloud, you will see a lot of discussion around opex vs capex, TCO over time, demand curve optimization for IT services, etc. As most of the major vendors start offering Cloud application offerings, the discussion will shift towards business value. In fact,  in early 2000s, Amazon stock kept going up based on # of eyeballs, page views, etc, that had nothing to do with profitability of the company. The .com companies, such as Amazon,eBay, etc had really high P/E multiple vs their offline peers, such as Walmart, Toysrus, etc. Similar phenomenon is happening in the Cloud Application vendors space, such as Salesforce, Netsuite, etc.(forward looking p/e for CRM is ~69 and N is ~158 vs Oracle ~10 and IBM ~13).  It is true that these companies are growing in double digits and taking share from competitors. However, as discussed earlier, more established vendors will make inroads and the discussion will move from basic SaaS/Cloud benefits to "what are the business benefit of Cloud CRM or ERP for my organization", since the cloud will be a given factor, same as the eCommerce discussion. 

Vendor and customers should focus on building business value tree for Cloud applications such as CRM, etc. These will include the triditional benefits that all customers have realized in traditional on-premise solution. However, there will  be additional significant benefits that will come from Cloud delivery model. Some of these will be related to TCO, etc, but there will be significant amount of benefits related to business process disruption created by cloud computing. Customers and. vendors who will capitalize on these will be the winners.

Impact of “Reduction of Hazardous Substance (RoHS)” Directive on Medical Device Companies

Early compliance could result in market share gain, improved supply chain processes and product line optimization

On June 8, 2011, RoHS recast was adopted by the EU and it repealed the original RoHS directive which was in effect since June, 2006. This new directive now includes category 8 equipment (medical device) and category 9 equipment (monitoring and control instruments).  Medical device companies have until July 22, 2014 for compliance and July 22, 2016 for “in vitro” medical devices. The overall impact to medical device companies is still being identified. This compliance directive goes in effect right after the Affordable Care Act implementation in the US which imposes 2.3% excise tax on medical device companies.

 In 2006, the Hi-tech industry implemented necessary process changes & tools to comply with the RoHS directive. The Consumer Electronics Association (CEA) commissioned a study in 2008 to analyze the economic impact of this directive on the electronics industry. In this report, CEA estimated the cost of RoHS compliance at 1.5% to 2.5% of electronics companies’ cost of goods sold (COGS); this is roughly equivalent to the 1.1% of revenue costs. The medical device industry can use these findings as a baseline for cost estimates. However, medical device is a highly regulated industry and can potentially incur higher cost of RoHS compliance due to requirements/regulations imposed by various regulatory bodies globally. The CEA reports few very interesting findings related to compliance costs:

*Total weighted average cost (weighted by company revenue) was $5.94M for the initial compliance, and $1.44M for annual maintenance.

*Total median cost was $721,000 for initial compliance, $118,000 for annual maintenance

*Contract Manufacturers(CM)/ EMS spent the most effort on business process and system updates

*Component manufacturers and OEMs spent  the most effort on BOM reviews and product redesign

RoHS Compliance: The Challenge

RoHS 2.0, the new directive restricts the use of six hazardous materials in the manufacture of various types of electronic and electrical equipment. It is closely linked with the Waste Electrical and Electronic Equipment Directive (WEEE) which sets collection, recycling and recovery targets for electrical goods. The new directive added a new Module “A” which outlines the requirements for medical device companies to be RoHS compliant:

“Manufacturers must demonstrate compliance by maintaining technical documentation, citing relevant harmonized standards, implementing internal production controls, and keeping a register of nonconforming products”

So, to be compliant, companies will have to 1) Identify products that require design modifications, 2) Invest R&D dollars to change design, test, and get approvals from regulatory authorities, 3) make production and sourcing process changes for product commercialization, 3) post-market surveillance and support process changes. In addition, companies must create, and maintain all necessary documentations, DHF, DMR, etc. for traceability and audits for RoHS compliance. Non-compliance by July 2014 can potentially result in product revenue loss.  CEA reported an average loss of $1.84M for non compliance by the Hi-tech industry.

RoHS Compliance: The Opportunity

The new directive for compliance can be leveraged strategically by medical device companies to analyze their current product portfolio and weed out any low /negative margin, or commodity type products. Since, RoHS compliance will require substantial capital investments, the European Impact Assessment for medical device companies has indicated that for some complex products, the RoHS compliance costs could be as high as 7-10% of revenue (new products) or 1-10% of revenue (for existing products). So, it is very critical that companies should leverage IT tools, such as Product Lifecycle Management (PLM) / Product Information Management (PIM), to deliver an effective, automated and repeatable RoHS compliance process at a lower cost. A PLM/PIM platform will allow companies to demonstrate compliance by linking product records to technical documentations and hazardous substances data, enforcing automated stage-gate process for visibility, approval, and enforcement.  The following PLM/PIM capabilities are required for a best-in-class RoHS compliance process:

Single Product Repository: The ability to manage and control a single product data repository across the enterprise with linkage to hazardous substance data.

Supplier Collaboration: The ability to securely collaborate and exchange restricted substance and maximum concentration values with suppliers electronically

Global RoHS compliance process: The ability to enforce and monitor a global but flexible RoHS compliance process to support “design anywhere build anywhere” model

Real-time synchronization of Compliance Data: The ability to quickly and cost-effectively synchronize “as designed” and “as built” Bill-of-Materials to make sure that finished good products are RoHS compliant.

Medical device companies will have to invest and comply  with this new EU directive, however, companies  can leverage this opportunity to potentially capture larger market share from competitors by compiling early and also improving product profitability, & supply-chain processes.  

Oversight of FDA recalls?

In a recent report by the GAO, it reported that between 2005 and 2009, 3510 recalls were initiated by medical device firms - an average of ~700 per year. Most of these recalls were Class II and involved Cardiovascular and Radiological devices. In fact, there were 532 Cardiovascular recalls during this time (15% of all recalls) and number of Class I recalls for this category was 31% of total Class I recalls. The largest number for Cardiovascular devices involved automatic external defibrillators.

The top reason for recalls in 2008 and 2009 was related to production/manufacturing processes. Here are the top 3 root causes in 2008 and 2009 for medical device recalls:
1. Process Control
2. Device Design
3. Component design/selection

Interestingly, in the "additional root causes"category (36% of all Class I recalls), all recalls related to label/labeling was in that bucket. In my experience with medical device companies, enterprise label management is a big challenge and can create major recalls for minor label/labeling errors.

Out of 101 Class I recalls, 74 of the recalls (73%) were for devices through the 510(K) process, 22% were for PMA. The report highlights that FDA has not analyzed recall data to identify systemic problems underlying device recalls. Instead of using RFS - the recall database to improve quality and safety, FDA has primarily used this database for processing and tracking the progress of individual recalls. In the final scathing remark against FDA, GAO identified one of the major gaps in the recall process -  ability to ensure that the highest-risk recalls were implemented in an effective and timely manner by the FDA.

Taking Control of the Engineering Change Management Process to Stay Competitive

Companies typically instigate engineering change management initiatives to control cost or improve efficiencies. However, in a recent research published by Aberdeen, 63 percent of respondents indicated "time to market" as the top driver to improve engineering change management performance.

An efficient engineering change process can cut up to 33 percent off the typical product development cycle; however, 54 percent of companies lack a single repository to review, analyze, approve and track engineering changes across products. Some of the key drivers to improve engineering change management performance today are increased regulations and compliance, global teams and outsourcing, product complexity and variations, global competition and cost pressure, higher cost of quality, and customer satisfaction and loyalty.....

Complete article can be found here.

EU includes Medical Devices in RoHS directive

As per my previous article I had outlined that EU was contemplating to include Medical Device as part of the RoHS directive. On July 4th, 2011, EU decided to include medical devices as part of the RoHS Directive (2002/95/EC). The deadline for medical devices to comply to this directive is 22 July 2014. More to come...

Fixing Labeling Issues - Low Hanging Fruit for Medical Device Companies?

There are two critical elements for governmental regulatory attention:

1. Product

2. Use of Product

The pre-market review focuses on the product control side of the equation, and post-market surveillance ensures that the devices in use continue to be safe and effective. However, there is an additional key element, which is the representation of the product to the user: labeling during the pre-market stage, and advertising of product.

Pre-market control is conducted to make sure that the product complies with regulatory requirements. Labeling and Advertisement control is maintained for correct product representation. However, in my experience working with medical device customers, the labeling process is typically very manual process supported by several home-grown or best of breed software systems. This makes the process inefficient, but most importantly prone to human error. If you search on FDA's recall website, in 2011 there are 87 recalls related to label/labeling issues. 3 of them are class 1 recalls by Medtronic.

In addition to product recalls, incorrect, inaccurate or incomplete label/labeling information can delay 501(k) approval process. FDA has clearly outlined what is required as part of pre-market approval process, such as instruction for use (IFU), etc. Typically, these IFU's are written towards the end of the project and have very small window to complete the required literature, such as complete instruction, maintenance instruction, cleaning/sterilization instructions, etc. to meet FDA requirements.

The best-practice will be to leverage an enterprise PLM system in conjunction with a Label management system to drive efficiency and lower "cost of compliance". The key will be to enable a process which leverages version controlled label templates with product content and workflow from a PLM system to deliver compliant labels on demand anywhere in the world.

New RoHS EU Directive Is Coming To A Medical Device Company Near You…

The RoHS directive is intended to restrict the use of certain hazardous substances in electrical and electronic equipment (EEE).  The EU Commission now plans to recast RoHS as part of its overall commitment for a better regulatory environment.   The work on the revision started in 2008 and the revision is ready to be presented as “RoHS Recast” because the current directive will be repealed or replaced. One of the major modifications to the directive will be inclusion of medical devices and monitoring and control instruments in its scope and to the adaptation of the list of restricted substances.

In the current EU RoHS directive, medical device (MDD) and IVDs are exempt from RoHS compliance requirements. However, in the new proposed RoHS directive, MDD and IVDD devices will be removed from the automatic RoHS compliance exclusion list, except active implants under AIMDD. This change will have significant impact on medical device companies.  The Commission expects higher costs for complex products that are produced in low numbers and have critical applications. However, the proposed changes will be staged to allow the conversion to take place. The medical device companies must comply within three years after the publication of the directive, whereas IVDs must comply within five years.

So MDD and IVD companies have two choices available to them after the publication of this directive

(1)    Apply for specific exemptions, which is granted for 7 years

(2)    If exemption is not approved or filed, companies must comply with the directive by setting up a self-declaration of conformity referring to the RoHS. This will require manufacturers to maintain technical documentation, cite relevant standards, implement internal production controls and keep a register of the nonconforming products.  In addition, EC declaration of conformity that accompanies the finished product should be in the local language.

It is also required that manufacturers  add CE mark on the finished product, as well as their name, trademark, contact address, and a type, batch or serial number on the product labeling.

The EU Commission website for recast of RoHS Directive http://ec.europa.eu/environment/waste/weee/index_en.htm