Matt Jordan, vice president of operations at Providien’s subcontract operations lends his insights on medical device manufacturing in Tijuana to Tecma Talk podcast listeners.
Tecma Group of Companies
Hello and welcome to another installment of Tecma Talk Podcasts. Individuals that have frequented our website, and listened to our material before, know that what these recordings are composed of are conversations with experts that are both internal and external to the Tecma Group of Companies on subjects that have to do with manufacturing in Mexico and related topics. Today we are going to concentrate on medical device manufacturing in Tijuana. We have a very seasoned manufacturing executive that represents a company called Providien that is located in Tijuana, and doing business there. His name is Matt Jordan. I will ask him to tell the folks that are listening to this recording a little bit about the company, and about himself. Matt, how are you today?
Matt Jordan:
Good. Thanks for having me on.
Tecma Group of Companies:
Matt, please tell us a little bit about Providien and yourself.
Matt Jordan:
Sure. Providien is a medical device manufacturing company that makes devices in three primary categories: (1) metals; (2) plastics and (3) finished goods contract manufacturing. Finished goods contract manufacturing is the lion’s share of the business. That is what I am responsible for, and that is done all south of the border here in Tijuana, Mexico. We occupy five buildings and have just over one thousand employees. We have three different manufacturing offerings. We do outsourced production lines, production work cells and we do have two focused factories, which are manufacturing products that are dedicated to only one customer.
Providien does about $90 million in sales annually and has a total of 1400 hundred employees. We’ve got some ancillary locations in Southern California. For me, my background is split 50/50 in terms of the OEM and the contract manufacturing. I started my career with Medtronic, beginning my work at their ear, nose and throat division which had just won the Shingo Prize for lean manufacturing excellence. I spent a few years on an ex-pat assignment implementing “best practices” for manufacturing across eight facilities in Europe in France, Germany, Switzerland, Ireland and the Netherlands. I came back to the United States and finished up with Medtronic working for surgical navigation and cardiovascular.
After that, I moved into the contract manufacturing side and joined a company called ATEK medical, which has since been acquired by another company. I took an ex-pat assignment with them to start medical device manufacturing operations in Costa Rica. We put signs on the doors, turned the lights on and when I left, we had very large manufacturing work cells in place for catheters, perfusion tubing set cannula and tourniquet cuffs. Subsequent to that, I moved into business development. It was important to me to understand how to drive top line growth, and pricing and the financials behind the operation. I was very successful in that area, and was awarded and transferred over US $30 million worth of business. About two years ago, I joined Providien. I’m the vice president of operations and, again, operating the finished good contract manufacturing side of the business, which is south of the border.
Tecma Group of Companies:
It is clear that you have a diverse background in both geographical and in terms of functions within the industry. Let’s function on the geographic aspect of your experience. You have been in Europe. You’ve been in Central America. Given this, from your perspective, why is medical device manufacturing in Tijuana a choice that should be considered by people that are making decisions for their companies from a strategic perspective?
Matt Jordan:
Sure. Firstly, I want to say that I love the environment and the people down here in Tijuana. It is a strategic location for medical device manufacturers because of the reduced labor costs, and the stability of the labor force.
The labor pool here in Tijuana is a product of migration from all over Mexico. This set of circumstances gives us a favorable supply and demand ratio, and, thus, stable labor rates for medical device manufacturing in Tijuana. That state of affairs applies not only to direct labor, but also to indirect labor.
Let me give you an example: When I was in Costa Rica, I was down there during the medical device manufacturing boom. Large OEMs like Boston Scientific and St. Jude expanded, and Volcano set up plants down there. Consequently, the supply of indirect labor couldn’t keep up with the demand. As a result, IDL rates increased significantly almost overnight. So, stable and reduced cost labor is key here when medical device manufacturing in Tijuana. Also, from a historical perspective, manufacturing has been the economic driver here in Tijuana. That is not always the case in some other countries that are still blossoming in terms of manufacturing as in the Dominican Republic, as well as some places in Africa, for instance.
Next, it’s about the region and nearshoring. The region is what is called the “Calibaja Mega Region.” You’re looking at an area that consists of San Diego County, Imperial County and the northern part of Baja California. In terms of qualifying the “horsepower” behind this region, you’re looking at over US $215 billion of GDP. That’s billion with a “B.” There is a population in the region of over 6 million people, and, importantly, the infrastructure to support the population and resultant economic activity that it generates. In the Mega Region, there are multiple air, land and sea ports of entry, and, of course, it’s nearshore. We can do medical device manufacturing in Tijuana, Mexico utilizing reduced labor rates, and can have products sterilized and delivered to an OEM on the East Coast within five days.
Furthermore, Tijuana is really engaging in an economic partnership with San Diego, and the mayor of San Diego, Mayor Faulkner, has been quoted as say that “the area is not comprised of two cities, but is one region.” The local governments are dedicated and committed to ensuring that the Calibaja Mega Region is an attractive manufacturing location for OEMs. This is particularly so in the medical device industry.
Tecma Group of Companies:
Again, you’ve been in various places, but let’s concentrate on the differences, or lack thereof, that might exist between what you have experienced in the US, as opposed to what is going on in Mexico. You’re running a medical device manufacturing plant in Mexico today under the auspices of what’s called the “IMMEX Program,” which is more popularly known, in terms of historically used vernacular, as the “maquiladora industry.” What are the differences, if there are any, between running a plant in the US and operating one in Mexico under the maquiladora program?
Matt Jordan:
For all intents and purposes, there are not any differences. These operations are just as sophisticated as any US manufacturing location. The one guiding principle here is that a maquiladora operates under the guidelines of the NAFTA, the North American Free Trade Agreement. This allows companies in Mexico to import and export without incurring any tariffs or fees. The trick is that if you are going to be importing goods and equipment, you have got to be what is called the “importer of record.” In terms of the facility itself, there is no difference. You have to consider the size of the region, as well as that of Tijuana. Tijuana is the medical device manufacturing hub of North America. It’s important to understand that that includes the United States. Having worked for Medtronic, a lot of times people recognize Minneapolis as being the foremost medical device manufacturing location in North America. The fact is that medical device manufacturing in Tijuana is significantly larger than in Minneapolis. It is also larger than the medical device industry in Boston and Chicago combined. What that means is that we have an industry here that provides sufficient ability for companies to source locally. I have got sterilization thirty minutes away. This is a very strategic, and similar to the United States manufacturing environment.
In the plant itself, I have a very. very competent staff. They are all English speaking and demonstrate operational excellence. This is even more so at this manufacturing site, because we are in the contract manufacturing space, therefore our margins are lower. This means that there is less room for error here. Medical device manufacturing in Tijuana employs all the same methodologies. Things are process driven. Lean and Six Sigma are present here. We have Kaizen events every week, morning quality walks, and we are a metric-driven organization just like you would be in the United States.
Tecma Group of Companies:
What you are saying is that there is essentially no difference between operating a medical device manufacturing in Tijuana operation, and something similar in the United States?
Matt Jordan:
I am saying that, essentially, there is no difference except for the fact that you are able to utilize and benefit from reduced and stable labor rates.
Tecma Group of Companies:
That is a big advantage of manufacturing medical devices in Tijuana.
Matt Jordan:
It is. Additionally, when you use the term “nearshore,” you have to take the concept of “landed cost” into consideration. There are some that can rightfully argue that there are competitive manufacturing labor rates all over the world, especially in places like China and East Asia. Landed cost of Asian manufacturing, however, is starting to get very close to that of US manufacturing. On the other hand, landed costs of medical device manufacturing devices in Tijuana are holding steady, and are significantly lower. When you’re talking about “landed costs,” you’re talking about the addition of import-export fees, as well as freight and logistics. When you’re a mere ten or fifteen minutes south of the border, both these types of costs and those related to lead times simply aren’t there.
Tecma Group of Companies:
With regard to the geographic location and labor pool, obviously the nearshore strategy that you just brought up is a compelling one as regards total landed cost. There are companies, however, for some reason or other, that like to make their products themselves. There are others that prefer to have a company like Providien do their manufacturing. How would you recommend to companies that are in the mode of making a “make v. buy” decision to go about doing so?
Matt Jordan:
This certainly could be the basis of a lengthy debate here, but from my perspective it’s a fairly simple proposition to consider. The “make v. buy” analysis hinges on a company’s business direction, as well as a recognition of what a particular company’s competitive edge is. Is it innovation, and generating and developing strong intellectual property (IP), resulting in a robust pipeline of new products? Does competitive advantage lie in the area of operational excellence? If you look at the industry today, and I think that Obamacare has led to some confusion, if your core business is innovation, your default should be buy. I’d put it in these terms, if you had $1 how would you decide to use it? Would you rather spend that dollar to make eighty cents by developing new products, or would you rather spend that same dollar on bricks and mortar and save twenty cents? If your business direction is to save twenty cents, then hire the best manufacturing people in the world and get to work. If your business direction is to be an innovator, and you are looking to use that $1 to make eight cents, then the best route to go is to partner with a company like Providien and let us leverage the expertise and demonstrated operational excellence that we’ve already have been in house for years on your behalf. So, for me, it does go back to a careful consideration of business direction.
Tecma Group of Companies:
Sure. Your explanation of the “make v. buy” decision process is similar to what we see as a provider of shelter services in Mexico. Obviously, you’re services enable people to fix their focus on innovation. They hand over the production to Providien and that you free them up to spend more money and time on doing just that. In a similar fashion, while you’re company’s focus is manufacturing, the Tecma Group’s offerings free companies up to concentrate on that. This is because that all the things that manufacturers require to have around them in order to make product in Mexico such as payroll service, Mexican customs work, EH&S compliance expertise, as well as a myriad of other things that don’t have anything to do with actually making product are things that we do for our customers. In a sense, we are both outsourcing companies that are working at different levels of involvement.
Matt Jordan:
Yes, and the value is certainly there. Do you want to be involved in product innovation, or do you want to be spending time doing things like obtaining operating licenses, because the list of operating licenses to begin medical device manufacturing in Tijuana is quite lengthy and do you want to be doing things like managing a quality system? The FDA has developed a heightened awareness, and we’ll talk about this in a minute, on supplier management and EM, as well as a number of other areas. Do you want to worry about the FDA and being compliant, or do you want to concern yourself with developing innovative, new products that fill a robust pipeline? If it is the pipeline that you are concerned about, then my advice is that you leverage an outsourcing partner.
Tecma Group of Companies:
That makes sense. Again, in a lot of ways we operate, in terms of business, using the same logic. Let’s focus in on a couple of words that you just mentioned: “quality” and “regulatory.” When it comes to medical device manufacturing in Tijuana, what kind of changes, if any, have you seen in those areas?
Matt Jordan:
Real quick, I think that it is important to mention that there is no difference between an FDA audit down here in Mexico and in the United States. They are virtually the same. Here in Mexico, one area in which I have seen a heightened awareness, however, is on supplier management. When the FDA enters an OEM, they immediately want to understand the system for supplier management of the company, which brings them to us. The FDA comes to see us and audits us and our purchasing controls, as well as things such as how we do our supplier audits, and what our supplier audit scorecards look like. This is because the FDA knows that raw material and the effect of its quality impacts the entire value chain. If your plastics supplier in China is not being managed correctly, for example, although everything you do in your manufacturing process can be perfect, flaws will exist that may result in the production of a harmful product. Supplier management has really been a hot button issue for the FDA as regards medical device manufacturing in Tijuana. One area of heightened FDA interest that is evidencing itself is in the area of environmental monitoring. From a regulatory standpoint, for me, it’s clear. Please understand that we are in the contract manufacturing business, therefore, we do not own IP, but, from a regulatory standpoint, without question it is important to pay attention to import-export. In the past, the Mexican government would pretty much accept a company’s word that it was operating under the NAFTA guidelines. Now more than one’s word is required. You need to be able to demonstrate data that corroborates North American country of origin requirements, and that, in fact, if goods are originating outside of North America, associated duties and tariffs are being paid. In general terms these days, when anything regulatory pops up I immediately think import-export.
Tecma Group of Companies:
If you have any issues in that area, contact Tecma because we have expertise in that area as well. It appears that I am trying to sell to you here on this podcast.
Matt Jordan:
I’ll tell you what we did. We partnered with a third-party logistics (3PL) company. We use them for help in the area of import-export, as well as importing and consolidating raw materials. Export shipping is also an area of service that we seek their assistance as the need presents itself.
Tecma Group of Companies:
The next is a question that I always make sure that is included in a podcast that features someone with vast operational experience in Mexico. Do you have any “if I knew then what I know now” information that you are willing to share with people that may be considering doing medical device manufacturing in Tijuana?
Matt Jordan:
Yes, one lesson that I have learned from the manufacturers perspective is the fact that I should have been here sooner. This is a wonderful place to work with wonderful people. I love the people and the environment, and they appreciate the work that the manufacturing industry in Tijuana provides them. One of the objectives that we have when we partner with an OEM is to become an operational extension of their organization. We outline certain robust business processes that are customer focused. The people down here certainly adhere to those principles. It has been a wonderful experience for me so far. That’s got to be number one. Number two is, again, the importance of nearshoring. Having worked in both Europe and Central America, I see that being able to have a very short lead time to deliver finished goods, sterilized finished goods at that, is extremely important. I’ve seen some data on total landed manufacturing cost, and, while China has, perhaps, been the leader conversationally, I think that the most competitive nearshore option is going to be found in Tijuana, Mexico. Now, when you are developing a manufacturing strategy, it is important to remember that there is no “silver bullet.” I do think that it is absolutely necessary, however, to consider Tijuana as a place to manufacturer medical devices as well as other goods.
The third point that I have learned is the importance and benefit of stable labor rates in terms of being able to project into the future and being able to effectively negotiate contracts with OEMs. Being able to know and accurately forecast what your operating margin is going to be in three to five years’ time is huge. Again, having seen the fluctuation, and, then, the steady increase in Costa Rica, you don’t have that here when doing medical device manufacturing in Tijuana. For me, that is extremely significant.
Tecma Group of Companies:
That is a big boon for planning purposes for sure. One of the final questions that I would like to ask you has to do with the issue of “quality of life.” I’m going to go out on a limb and guess that you live in San Diego, and go back and forth across the border from where you live to where you work. Can you tell us about that experience, and how you rate it in terms of quality of life considerations?
Matt Jordan:
I do live in San Diego. I live downtown. I can get to the facility where we are performing medical device manufacturing in Tijuana within thirty minutes. Getting into the country is particularly easy. On the way out, I’m involved in the SENTRI program. This tacks on an extra ten minutes. So, I’m home in forty minutes and its quite easy. I can tell you that we have a large manufacturing presence in Southern California, as well. We have thirty plastics molding injection presses in Carlsbad. I’ve spent a significant amount of time there, and I can tell you that I’d much rather commute down to Tijuana than have to battle north and southbound traffic on I-5. The commute can take north of an hour, and the quality of life aspect of things has been fantastic.
Tecma Group of Companies:
This is a very important issue for firms that are thinking about doing medical device manufacturing in Tijuana. To close, I would like to mention that often when folks listen to these podcasts they have follow up questions with which they would like to contact participants for answers, advice and counsel. Would you be willing to take questions from listeners, and, if yes, how might they best be able to contact you with them?
Matt Jordan:
I would be willing to take and answer questions. I believe in having a solid network within the medical device industry, and often reach out to people for advice and direction myself. They best way to contact me is by email at:
matt.jordan@providienmedical.com
Tecma Group of Companies:
Thank you for taking the time to talk with Tecma today Matt. We wish you good luck in all future endeavors.
Matt Jordan:
Thank you for having me. I wish the same for you.
The post Tecma talks medical device manufacturing in Tijuana with Matt Jordan appeared first on TECMA » Tecma Talk Podcasts.
