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Supply Chain Resilience and Reshoring

The threat of disruption is even higher than ever as the world continues to battle with the high human and economic costs caused by Covid-19. But is the pandemic the master that finally forces many organizations and industries to change their supply chain strategy? With all this in play, one fact is clear: Covid-19 has exposed the vulnerabilities of many organizations’ supply chains.

A decade-long effort on global supply chain optimization and international sourcing to reduce cost, cut inventories, and increase asset utilization have allowed many corporations to deliver a large number of products to users at a relatively lower price with higher revenues. However, the optimization and globalization mean that a disruption at a single supplier has increased risk to the entire operation for an organization located on the far side of the world. For this reason, its important for organizations to build a strong supply chain resilience and put in place a reliable risk management strategy to improve performance.

A growing number of original equipment manufacturers are deciding to return production to the United States or reshoring including the medical device industry. It’s been increasing for the last few years and it is becoming evident that Covid-19 is accelerating the process further.

While some companies have had great success by offshoring operations in countries such as China, others have been less fortunate. Many medical device manufacturers that were initially outsourcing production to low-cost destinations have run into similar problems. For instance, unit labor cost in offshoring companies has continuously increased over a span of 15-years, led by China with 400% higher unit labor cost over that period. This is driving many firms to shift production back to the United States.

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Another reason for reshoring is to increase protection of intellectual property. Dealing with offshore contract medical device manufacturers leads to exposure to the ever-changing local law and regulations. This certainly has an impact on the protection of intellectual property from piracy and copyright issues. It’s worth noting that in most countries there are very few, if any effective safeguards in place when it comes exercising a companies legal right to enforce protection. This fact alone makes it easier for unethical operators to steal IP without worrying about the consequences.

The medical devices industry requires the highest quality standards possible, which cannot always be regulated and guaranteed in offshore manufacturing. Besides, the advantages of an expanded health supply chain are not only economic, but there is also a quick response when there is a crisis like the one we are facing, more lives saved, and the ability to mold our future. This makes reshoring a more stable and efficient choice.

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