“Never let a serious crisis go to waste,” Rahm Emanuel famously said about the Great Recession when he served as the White House Chief of Staff under President Obama. “And what I mean by that — it’s an opportunity to do things you think you could not do before,” he added. The sentiment is equally relevant today, as companies reconsider their supply-chain strategies in the wake of COVID-19. That conversation is especially pointed among medical device manufacturers.
|Image: Denisismagilov/Adobe Stock|
The severe shortage of personal protective equipment (PPE), ventilators, and other medical devices revealed by the pandemic has led a number of companies to reevaluate their supply chains. Deciding where to invest manufacturing is a complex exercise, Matteo Mancini, Senior Partner at McKinsey in Singapore told Ruth Strachan of Verdict Medical Devices. Several elements need to be taken into account, “from safety and the resilience of the supply chain to overhead costs,” Mancini is quoted as saying in Strachan’s article, “COVID-19 forces a rethink of global supply chains.” If [Covid-19] takes some time to be resolved, some companies will take the opportunity to review the supply chain and make it ‘more local’ where demand is [strong] enough in their local countries,” said Mancini.
That echoes what Sanjiv Bhaskar, Vice President, Global PPE Practice, at Frost & Sullivan said during a recent webinar devoted to COVID-19-related disruption in the PPE industry. One of the lessons learned from this pandemic is that all manufacturers must consider domestic capacity, he said. OEMs will be under “renewed pressure to shore up domestic production and surge capacities . . . and reduce [their] dependence on a few countries.” In other words, China.
When much of China’s manufacturing shut down earlier this year, OEMs with a globalized supply chain had their come-to-Jesus moment. There are no simple alternatives, however. China has a skilled labor force and highly developed infrastructure that is unavailable at scale in most other low-wage countries. Reshoring and near-shoring can be options — and perhaps they will become more consistent ones in the wake of the pandemic — but there is a cost involved that some will find hard to bear.
“If the U.S government provides direct and proper support and incentivizes domestic manufacturers [of PPE], I believe there will be some reshoring of production,” Mark Bonifacio told PlasticsToday. “There will be at least a short-term effort to address reshoring and localization of supply chains. In medtech as in other industries, we have been talking about this for at least the last four years. There is a need to manufacture the right products in the ‘right’ places — Asia for Asia, EU for EU, and North America for North America,” said Bonifacio. When global conditions return to some sense of normalcy, however, “market forces will be back at work in terms of availability, labor, and material costs,” he added.
Bonifacio heads Bonifacio Consulting Services, which works with medical device OEMs and contract manufacturers. He readily concedes that he has ties to a Hong Kong business with operations in China, which may influence his thoughts, and is an investor and board member of several U.S. manufacturing companies.
For Paul Sturgeon, CEO of recruitment firm KLA Industries and author of the weekly Talent Talk column in PlasticsToday, current talk about revisiting our working relationship with China is the continuation of a trend. Companies started looking for alternatives to China a few years ago as the cost advantage began to shrink, said Sturgeon. “Not all of that manufacturing will come back to the United States, but there are other countries in Asia, and I feel like a lot of companies are looking at Mexico again because of the new trade agreement,” said Sturgeon. “I was shocked to learn that 90% of our antibiotics are made in China along with such products as face masks,” he added.
So, what is the way forward? Sturgeon said he would like to see a broader application of something like the Buy American Act, while Bonifacio feels that the flaws revealed by the pandemic should renew a debate on our healthcare system heading into the November election.
“I’m sure it’s not as simple as this," said Sturgeon, “but I would like to see the Buy American Act extended beyond direct government purchases and include items of national security and health so that we have enough available domestic supply if this were to happen again.” For example, said Sturgeon, you could have a second set of injection molds on the shelf. That way, “even if you bought from Vietnam or South Korea, or China, for that matter, the decision would be economic and not because we have no other option.”