Medical Device Manufacturers Looking To Move Production From China Have Options

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By: Doug Donahue

November 15, 2022

Reprinted with permission from Forbes.com

Many medical device manufacturers are seeking 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 producers to re-examine their approach.

But what viable options are there? Whether you’re running your own plant in China, operating in a joint venture or working through a contract manufacturer in the country, how do you shift or augment production without disrupting delivery or affecting quality? As someone whose company helps manufacturers gain control of their production, I know there are many factors to consider.

Understand The Risks In China

 

If your entire product, or one of its key components, is manufactured in China, one of the first elements to look at is control of intellectual property. If you were to move away from your subcontractor or JV partner, do you have enough know-how of your production process to replicate it on your own in a different location? Would your partner in China be able to build your product or component on their own and become your competitor?

Consider the ramifications of a full or partial exit from your partner. Do you know how they would react? That may help you determine whether you want to retain some manufacturing in China as you look at an additional production location.

Another factor to consider is tariffs. If you shifted production out of China to a different LCC, would production costs increase? Would the increase be less than the amount of the tariff, providing you a net advantage? Or would you be better off just staying put and hoping for a change in trade policy?

Learn The Value Of Proximity

 

Do your North American customers care if your product is on the water for six to eight weeks, or would having components delivered to the U.S. faster be a big advantage? If you’re able to produce in the Americas, that convenience of proximity may be worth the higher production costs. For example, being closer to production may be an advantage for your certification and compliance processes. It certainly would make visits by your company executives, partners, prospective customers and maintenance providers more convenient. Further, if your product is not terribly price-sensitive, a slight increase in production costs, balanced against these additional conveniences due to proximity, would be tenable.

With contract manufacturing, your customers want to see, visit and tour your facility. They want to meet the plant management team and get a feel for capabilities before making a commitment. Getting to China has always been difficult. With COVID restrictions, it has become impossible. Getting anywhere outside North America makes life harder for prospective clients. So moving production closer can be a huge advantage on that front.

At Strategic Footprint, we worked with an Illinois-based contract manufacturer that wanted to be less reliant on China. The company, which has customers in the medical device industry, had been producing in China nearly from its inception in the early 1990s. In 2019, though, leadership wanted to take proactive steps to increase its manufacturing footprint and achieve greater supply chain agility. During the pandemic, our client set up operations in Malaysia and Mexico, in addition to its China manufacturing facility. This allocated the risk over three LCC countries while putting production closer to customers in the North America market. This allowed the company to better diversify their production and become a serious global competitor in the contract marketing space.

Know The Environment

 

As you weigh the pros and cons of moving your manufacturing, consider how well you know the country you’re evaluating. You’ll want to assess key aspects such as political stability, security, capabilities of the workforce and infrastructure. It's also vital to gain a clear picture of the workforce's English language capabilities, the level of engineering talent required by your production process and whether you could implement a repeatable, scalable training program.

Additionally, think about your global production footprint. Would adding a new LCC to your operational presence give you an advantage in agility, flexibility and risk mitigation? Moreover, could those benefits outweigh production cost increases? These are all important considerations as you rethink your production location.

For medical device-makers, whether contract manufacturers or not, a diverse manufacturing footprint can be a big advantage. By looking at other production locations to complement China, companies can reduce risk, be closer to customers and be prepared for future unknowns.

Meet with us to learn more