As with most product decisions, determining where to manufacture your medical device involves the weighing of a variety of factors.
Before you decide to “reshore” and uproot your current manufacturing operations and transfer them to a different country, it’s important to consider the advantages and disadvantages of such a move.
In this blog post, we’ll walk through the advantages of reshoring and some of the challenges you may face bringing your medical device manufacturing back to the United States.
What are the advantages of reshoring?
In our last post, we highlighted three primary reasons reshoring is becoming more popular within the medical device industry: greater control of your supply chain, reduced lead times, and fewer import tariffs.
For this post, we’re going to expand on these reshoring advantages and add two more: job creation and the potential to improve brand perception.
Greater control of your supply chain.
In working with top medical device organizations, we’ve discovered that they all tend to have complex global supply chains.
Managing these supply chains typically require teams of people (on the side of both the medical device organization and their suppliers) in facilities located in different continents.
Getting all these moving pieces to work seamlessly can be a near impossible task—especially with large time-zone differences and potential disruptions due to outside forces (e.g., poor weather impacting Pacific shipping routes).
One of the primary advantages of reshoring is that it enables you to tighten the supply chain.
If you and your customers are based in the United States, reshoring can help alleviate some of the supply chain “unknowns.”
Coordinating with your manufacturing facility becomes easier as you don’t have to battle time difference that can extend beyond 12 hours, while physically visiting the facility itself is, at most, a short flight.
In this way, reshoring can give you greater control of your supply chain.
Reduced lead times.
The greater the distance between where your device is manufactured and where your end-customer is located, the longer you can expect your lead times to be.
However, the distance traveled isn’t the only factor that can impact lead times.
If your product is shipped from one country to another, lead times can be extended by variables such as border inspections and shipping transfer time.
If your product is built overseas, it must be transported from the manufacturing facility to the ocean freighter.
After traveling across the ocean, the product enters United States soil where it will be inspected.
Once the inspection is passed, the product must be transported from the ocean freighter to the end-customer (via freight, truck, etc.).
In this example, your lead time is extended because the product must be transported using at least three different methods and the product is being inspected once it reaches the United States.
When you choose to reshore and build your device within the United States, these factors become non-issues—you can transport the device directly from the manufacturing facility to the end-customer using one method without having to deal with any type of border inspection.
This greatly reduces your lead times and transportation costs, which enables you to react to changes in market demand faster.
Fewer import tariffs.
One of the primary reasons many United States-based medical device manufacturers began to use offshoring was due to lower costs.
These lower costs were traditionally supported, in part, by low import tariffs.
However, the recent increase in import tariffs have caused some of these cost advantages to shrink.
As tariffs are typically only applied to products entering the United States from a foreign country, reshoring means you can avoid a portion of the import tariffs.
It is likely that some of the components you will be using will originate “off-shore” and you will be responsible for the associated tariffs.
Job creation within the United States.
By introducing a new product, you create jobs.
Where those jobs are created, however, depends on the manufacturing strategy you choose to follow.
Offshoring means creating jobs in a different country.
Many medical device organizations are founded with a mission beyond simply making a profit.
Generally, this mission includes adding value to and improving the economic outlook of the community in which it operates.
When you reshore manufacturing, you create jobs within the United States—improving the economic outlook of your community.
Potential to improve brand perception.
Even in a day and age where you can sit down at an American restaurant chain in Paris and order Columbian coffee without a second thought, the country of origin/manufacture of a product still has an impact on the perception of quality.
With organizations like ISO and ASQ helping standardize quality systems for manufacturing operations around the globe, certain countries are still perceived to produce lower quality products than others.
When you reshore manufacturing from a country perceived as “low quality” to the United States, you have to potential to improve the quality perception of your brand.
What are the challenges of reshoring?
Just as there are benefits of reshoring, there are also challenges.
The primary challenges of reshoring that we’ve seen in the medical device industry are: the technical expertise required to move manufacturing, a shortfall of skilled labor, and potentially higher labor costs for non-automatable jobs.
The act of transferring manufacturing from one building to another down the street is a complex undertaking—especially in the medical device industry.
It involves moving and requalifying equipment, processes, and more.
Even with a robust ISO quality management system in place, there may be subtleties and/or tribal knowledge related to the manufacturing of your product that cannot be transferred.
The complexity of this task can be compounded by an order of magnitude when moving manufacturing from one continent to another.
Before committing to a reshore initiative, you must determine whether you have access to the technical resources necessary to execute such a complex transfer.
Finding skilled labor.
Popular Mechanics interviewed 26 of the largest manufacturers in the United States to learn more about the health of the United States manufacturing sector.
When asked “What is the biggest challenge to manufacturing in the U.S.?” the consensus answer was: finding young workers with the proficiency to perform the job.
With more and more young Americans not viewing manufacturing as a viable career path, finding skilled workers to build complex devices can be a major challenge of reshoring.
Higher labor costs for non-automatable jobs.
Historically, one of the biggest reasons for offshoring was lower costs in the form of less expensive labor.
Though the gap in labor costs hasn’t shortened significantly—a 2016 study by Deloitte found that the average hourly manufacturing labor cost within the United States was $37.96 while China stood at $3.28—the total manufacturing cost has.
With the advent and adoption of automation technology within the United States, reshoring and onshoring have become much more cost competitive (if not preferred).
However, certain manufacturing tasks—especially within the medical device market are not automatable—which means offshoring can still offer lower labor costs in select situations.
Making the decision to reshore involves considering a variety of factors.
If you are serious about reshoring, download our free ebook to learn more about reshoring and what it takes reshore your manufacturing.