Founder of Strategic footprintthat helps companies regain control of their future by moving away from subcontracted offshore production.
Many medical device manufacturers are looking for alternatives to where their production takes place, especially those operating out of China. This is because China now has many risk factors: supply chain delays, rising costs, intellectual property concerns, tariffs, COVID-imposed lockdowns. This is causing medical device manufacturers to rethink their approach.
But what viable options are there? Whether you run your own factory in China, operate in a joint venture or work through a contract manufacturer in the country, how can you shift or expand production without disrupting supply or compromising quality? As someone whose company helps manufacturers take control of their production, I know there are many factors to consider.
Understand the risks in China
If your entire product, or any of its major components, is manufactured in China, one of the first elements to look at is intellectual property control. If you move away from your subcontractor or JV partner, do you have enough knowledge of your production process to replicate it yourself at another location? Would your partner in China be able to build your product or component itself and become your competitor?
Consider the consequences of a full or partial exit from your partner. Do you know how they would react? That can help you determine if you want to keep some production in China if you’re looking at an additional manufacturing location.
Another factor to consider is rates. If you moved production from China to another LCC, would production costs increase? Would the increase be less than the rate amount, giving you a net benefit? Or is it better to just stay and hope for a change in trade policy?
Learn the value of closeness
Do your North American customers find it important that your product is on the water for six to eight weeks, or would it be a great advantage to have parts shipped to the US faster? If you can produce in America, that convenience of proximity could be worth the higher cost of production. For example, being closer to production can benefit your certification and compliance processes. It would certainly make visits from your business executives, partners, prospects and maintenance providers easier. Further, if your product is not very price sensitive, a slight increase in production costs, balanced against these added conveniences of proximity, would be sustainable.
With contract manufacturing, your customers want to see, visit, and tour your facility. They want to meet the factory management team and get a sense of capabilities before making a commitment. Traveling to China has always been difficult. With COVID restrictions it has become impossible. Going anywhere outside of North America makes life harder for potential customers. So bringing production closer can be a huge advantage on that front.
At Strategic Footprint, we worked with an Illinois-based contract manufacturer who wanted to reduce their reliance on China. The company, which has customers in the medical device industry, has been producing in China almost since the early 1990s. However, in 2019, leadership wanted to take proactive steps to increase its manufacturing footprint and achieve greater supply chain flexibility. During the pandemic, our client has set up operations in Malaysia and Mexico in addition to its manufacturing facility in China. This spread risk across three LCC countries and brought production closer to customers in the North American market. This allowed the company to better diversify its production and become a serious global competitor in contract marketing.
Know the environment
When weighing the pros and cons of relocating your production, consider how well you know the country you are evaluating. You want to assess important aspects such as political stability, security, personnel capabilities and infrastructure. It is also essential to get a clear understanding of the staff’s English proficiency, the level of technical talent required for your manufacturing process, and whether you could implement a repeatable, scalable training program.
In addition, think about your global manufacturing footprint. Would adding a new LCC to your operational presence give you an advantage in terms of agility, flexibility and risk mitigation? Moreover, can these benefits outweigh the increase in production costs? These are all important considerations when rethinking your production location.
For medical device manufacturers, whether they are contract manufacturers or not, a diverse manufacturing footprint can be a major advantage. Looking at other manufacturing locations in addition to China can help companies reduce risk, be closer to customers and prepare for future unknowns.