Lately, “reshoring” and “nearshoring” have become trending terms within the medical device industry.
Determining the best manufacturing location for your product requires weighing and considering numerous factors and variables.
Over time, however, external (e.g., policy decisions, socio-economic trends, etc.) and internal (e.g., organizational structure adjustments, product line extensions, etc.) changes may force you to reconsider your manufacturing strategy.
As an organization with manufacturing facilities across three countries, we wanted to share some of the information we’ve gathered running a global supply chain to help you make better decisions when it comes to choosing (or re-choosing) a manufacturing location for your medical device.
In this post, we explain what reshoring and nearshoring are, their advantages, and the potential impact they can have on your business.
What is reshoring?
In the early 1960s, American companies began a trend of moving their labor-intensive manufacturing operations to countries with lower costs of labor.
As this practice, commonly known as “offshoring,” helped create a competitive cost structure, it became a popular exercise for an increasing number of American companies.
However, with the introduction of new tariffs on imported goods and the emergence of global crises, many organizations within the medical device industry are looking to “reshoring” as an option for reducing global supply chain risk.
In a nutshell, reshoring is the act of bringing offshored manufacturing (and services) back to the United States.
What is backshoring?
“Backshoring,” is a common variant of the term reshoring.
In most situations (besides concrete working), backshoring is a reshoring synonym.
What is an advantage of reshoring?
There are many reasons an organization may want to reshore its manufacturing operations.
In our experience, the three primary reasons reshoring is becoming more popular within the medical device industry are: greater supply chain control, shorter lead times, and no import tariffs.
Greater supply chain control.
Managing a supply chain that consists of multiple facilities in far-reaching continents can be an arduous task.
Even arranging the production and shipment of a single product line from one foreign facility to a domestic location can involve a team of people working across different time zones.
Through reshoring, manufacturing operations can be brought closer to domestic facilities—removing the potential friction that can occur within a supply chain and making it easier to coordinate if problems do arise.
Shorter lead times.
Whether it’s the distance traveled or the time it takes to pass through inspection and transfer points, transporting products from one country to another can extend lead times.
This inevitably makes it more difficult to manage the supply chain, perform strategic planning, and ensure output is meeting market demand.
Reshoring brings manufacturing closer to the end-customer of the product—shortening lead times and decreasing transportation costs.
No import tariffs.
Many device manufacturers have seen the cost advantages of offshoring shrink with the new and expanded tariffs put in place by the United States government.
By reshoring manufacturing, medical device organizations can avoid these import tariffs because they are producing devices within the United States.
What is nearshoring?
Within the medical device industry, the term nearshoring refers to the practice of manufacturing your product in a nearby country.
Though nearshoring still involves manufacturing a product outside of the United States, it differs from traditional offshoring because the decision to nearshore isn’t solely based on labor costs (as is typical for offshoring decisions), but on factors such as speed of delivery and supply chain control.
What is an advantage of nearshoring?
Like reshoring, nearshoring offers several potential advantages compared to offshoring.
From what we’ve seen, the three primary reasons medical device organizations choose to nearshore are: greater supply chain control, shorter lead times, and labor-cost competitiveness.
Greater supply chain control.
Though nearshoring still means your product made and imported from outside of the United States, it offers greater supply chain control than traditional offshoring because the manufacturing is performed in a closer country with a minor (if any) time-zone difference.
This makes it easier to iterate or solve problems as traveling to-and-from the manufacturing facility takes less time and involves fewer (if any) time-zone changes.
Shorter lead times.
By relocating your manufacturing operations to a closer country, you cut the distance that your product has to travel to get to its end customer.
This is especially true if the product currently has to travel via ocean freight to reach the United States.
Nearshoring helps decrease lead times and transportation costs.
One of the most attractive benefits of offshoring is lower labor costs.
Though countries within the range considered “nearshore” for United States companies may not have the lowest labor cost, they are still competitive.
If a product is labor intensive and non-automatable, nearshoring provides an opportunity to keep costs down while giving you greater supply chain control and shorter lead times.
Is reshoring and/or nearshoring right for your product?
At some point in the history of your product, the decision was made to offshore the manufacturing.
That decision was likely based on a multitude of different variables.
When looking into reshoring or nearshoring, it’s important to keep this point in mind.
Below are some of the key questions you should answer before making the decision.
If you reshore/nearshore, will you be able to maintain continuity and quality?
Transferring a manufacturing operation from one location to another is a complex undertaking—it’s not easy to move molds, fixtures, and other equipment used to manufacture medical devices.
As extensive and robust as ISO quality management systems are, there may be subtle nuances and tribal knowledge associated with the manufacturing of your product that will be difficult—if not impossible—to transfer.
What are your desired manufacturing characteristics for a domestic/nearshore partner?
Creating a list of the desired outcomes you hope to achieve by reshoring or nearshoring can help you determine whether your demands can be met by moving the manufacturing location.
If you’re looking to increase your control of a product’s supply chain, one of the desired traits you may look for in a reshoring/nearshoring manufacturer partner is transparency and access to people and the facility itself.
If you’re looking to lower per-piece labor costs, on the other hand, a low-automation reshore/nearshore partner may not be competitive with an offshore, low-cost labor partner.
Does your company have the technical expertise to support a transfer?
Now that you know what you expect of your domestic manufacturing partner, you need to challenge your own expertise related to your product and determine the internal team needed to make this reshoring successful.
As we mentioned before, transferring manufacturing operations is not an easy process, it takes a lot of technical expertise and experience.
Knowing your team’s strengths and weaknesses can help you prepare for the transfer and identify solutions for filling in the gaps.
This post is based on the questions ATL asks when we are approached about reshoring or nearshoring products.
Regardless of whether a company is working to change the country of origin designation considering the current tariffs or has a desire to be able to more closely oversee the manufacturing of a good or product, we are well versed in the process of transferring the manufacturing of a medical device.
If you believe you are ready to have the conversation about transferring production from offshore, connect with us to start the discussion.
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