I recently went to Austin, TX to speak at the MPO (Medical Product Outsourcing) Summit on reshoring and nearshoring in the medical device industry. While deep diving into the healthcare products/ medtech industry, I took a few days to see the sites of Austin. See below for a few of my favorites including an incredible skyline.
What Are the Best of the Best Doing to Mitigate Risk?
The best of the best realize they need to reshore, expand manufacturing capacity and build new manufacturing capabilities close to customers in ‘friendly’ locations. Austin is one of those places.
We live in a world of VUCA (volatility, uncertainty, complexity, ambiguity), and several trends are making a low cost country footprint in manufacturing extremely risky.
- Russia/ Ukraine war – the world is dependent on commodities, materials and food from this region. If you want to keep your cell phone, you should become concerned about what’s going on and if we are diversifying from our dependence on this region.
- China/ Taiwan tensions – Taiwan makes the majority of computer chips for the world and 90% of the advanced computer chips. It is no wonder China wants to take over. Is your manufacturing dependent on computer chips?
- The China manufacturing powerhouse – China manufacturers are scale. Vietnam has been building capabilities for years as an alternative to China, and a few clients have transitioned manufacturing to Vietnam. But, they are a drop in the bucket when looking at the total output. China has shut down multiple times with their zero COVID policy, let alone due to several issues bubbling up including pollution, water, and energy.
- Supply chain disruptions: As we saw during the pandemic and continues a few years later, supply chain disruptions impact customers on a frequent basis. Are you dependent on countries and routes with potential disruptions?
- Inflation, recession, what’s next?: Look no further than the price of raw materials, transportation, and the like. There is a supply shortage which means inflationary pressures will persist; however, there are also recessionary pressures with interest rates. Do you want your inventory (and cash) tied up on the water?
With the increasing levels of risk, smart business leaders will increase manufacturing capacity closer to customers. What will they do?
- Reshore: Return manufacturing to the US, Europe and the like. There is no doubt the manufacturing of healthcare products, food and beverage, products related to national security, aerospace and defense just to name a few. Beyond the obvious, executives that want to ensure availability will look at reshoring.
- Nearshoring/ Friendly shoring: Manufacturing will also move closer to customers. For those products that require a higher labor content, it will likely make sense to locate manufacturing in countries with a lower labor rate that are close to customers and friendly to the US. There are also hubs of certain skills that could be nearshored. For example, medtech products are being nearshored to Mexico, Costa Rica and the Dominican Republic.
- Expansion of manufacturing capacity: Many companies are producing in Asia for Asia customers. In this case, they can expand capacity in the US for example while maintaining capacity in Asia.
- New capacity: It is unlikely you will move physical assets. Building new capacity is gaining momentum.
- Implement technology: Increase output with the assistance of technology.
Austin Manufacturing Hub
Austin has been in the news for its manufacturing activity. The Austin Region Manufacturing Association conducted research and found:
- Major employers: One third of the major employers are manufacturing
- Advanced manufacturing: Austin has some of the most advanced manufacturing facilities in the world
- #1 Contributor to real GDP: Manufacturing is 6% of the total employment and contributes 10.3% of the total regional GDP
- Manufacturing growth: Big names are moving or expanding to Austin. Tesla moved from CA. Perhaps Twitter will follow? Samsung is building a chip factory in Austin. Key industries such as biopharmaceuticals, medical devices, food production and more.
If business leaders want to thrive, they will get in front of this manufacturing renaissance.
Please keep us in the loop of your situation and how we can help your organization thrive during these times of volatility and disruption. There will be more winners created than at any other time than since emerging from the Great Depression. To gain additional ideas and insights on how to best navigate these volatile times and thrive, read our new eBook Thriving in 2022. Learning from Supply Chain Chaos. Download your complimentary copy.