Although the supply chain challenges have abated since the COVID-19 pandemic, disruptions continue to persist and risks have increased. VUCA (volatility, uncertainty, complexity, ambiguity) has increased substantially in the world, negatively impacting the safety, security, and reliability of the supply chain. Successful executives are creating resilient supply chains to navigate these changing conditions, while the best find ways to create an advantage for future growth.

Most of the supply chain challenges have eased, creating an unrealistic expectation of normalcy. Yet, the risks still exist and remain elevated. Geopolitical tensions are high: The Russia-Ukraine war continues to rage, and Taiwan-China tensions are simmering. This leads to disruptions and shortages that don’t adequately support growth in customer service requirements, let alone overall growth trends in medtech.

Material Influences

Alloys are commonly used in medtech, but most are heavily concentrated in geopolitically challenged zones. Aluminum, for example, is used in many medical devices, yet the world’s top aluminum producers are China, Russia, and India.

Titanium is another key alloy used in medtech products, but the United States mostly sources the material from Japan, Ukraine, Russia, and other countries. The United States does not include titanium in the National Defense Stockpile. The reason for its absence is a mystery.

Cobalt—frequently used in such medical devices as hip and knee implants, surgical tools, and vascular stents—is sourced from the Democratic Republic of Congo, Russia, and Australia. The common thread with most of these alloys is their manufacturing base, which is concentrated in geopolitically challenged areas. Consequently, forward-thinking manufacturers must focus on the resiliency of these supply chains in order to avoid further disruptions.

Plastics—also used widely in medical devices—are derived from natural, organic materials such as cellulose, coal, natural gas, salt, and crude oil. However, the planet’s natural gas and crude oil supply is currently impacted by geopolitical events like the Russia-Ukraine war and regulations. The United States has limited crude oil production in order to save the environment but in doing so, it has become partially dependent on other countries and therefore is experiencing much more volatility in pricing and inflationary pressures. This limited supply and inflationary pricing will eventually be passed on to medical device manufacturers, potentially leading to cost-cutting pressures and inventory reductions. Unfortunately, this can become a circular issue because it leads to additional supply chain disruptions and a lack of agility in navigating these risks.

The dwindling reserve of computer chips during COVID-19 greatly impacted the medtech supply chain as well. Availability has eased considerably since the pandemic’s darkest days, when manufacturing in Asia ground to a near complete halt. It took quite a while to get supply moving again once the world reset, as China was plagued with intermittent Zero-COVID policy shutdowns. According to an April 2022 Deloitte study, more than 50% of respondents single-sourced semiconductors, although all were pursuing alternative suppliers. Such alternative sources were difficult to find, as 90% of the world’s advanced computer chips are produced in Taiwan and the largest overall producers are Taiwan, Japan, China, and Korea. Since the chip shortage, the United States has made significant investments to expand semiconductor manufacturing capabilities.

Labor Pains

There are a plethora of other reasons for continued supply chain disruptions. Labor strikes, for instance, can be particularly disruptive to supply chains. Both rail and UPS strikes were averted in the United States this past summer, but West Coast Canadian ports went on strike until a tentative deal was reached. The Southern CA ports reportedly have a tentative deal, but it hasn’t yet been ratified.

Since manufacturers cannot afford to be solely reliant on logistics providers that can bring production to a halt with foreseeable consequences, cargo volumes have been moving from the West Coast to the East Coast as a preemptive move. These types of changes occur frequently, which alter the global supply chain footprint and create additional disruptions. Proactive device companies will be able to successfully adapt to these changes with minimal impacts while unprepared firms will caught off-guard and risk losing business.

Labor issues remain a considerable pain point for the medtech industry as well as almost every manufacturing segment worldwide. Recruiting the appropriate amount of people to manufacture, distribute, and transport products is challenging, and can significantly impact a company’s ability to support customer requirements. The opening of a new semiconductor facility in Arizona, for example, has been postponed by a year due to labor challenges. The most successful companies find the best way(s) to attract, retain, and engage their employees and partners.

There is no shortage of potential supply chain risks and issues to address. Our most successful clients are turning these obstacles into opportunities by getting ahead of the game and preparing for success. Given the abundance of risks, a disruption will undoubtedly arise somewhere along the line, impacting competitors and other industry players. The best industry players will be prepared to absorb volumes from their struggling cohorts and service their customers. These companies will grow, expand their market share, and prosper. There are likely to be more opportunities for growth than at any other time in history for medtech organizations prepared for success and ready to take the plunge.

Although there is no shortage of supply chain improvement opportunities, it will be important to focus on the top priorities to gain maximum momentum. Otherwise, if everything is a priority, nothing is a priority. One priority across the board is to review supply sources. Securing backup supply alone will not suffice. Given the level of risk, at some point in the future, when things go wrong, it will not be feasible to secure supply at the scale required to satisfy demand unless a more robust plan is in place. For example, the best clients will purchase 20% continually from their backup supply sources so these sources can help them in the future.

Although the backup source may have to double or triple volume for a period of time, it is unrealistic to do that for extended periods of disruption. Thus, this strategy must be accompanied with additional methods.

Diversifying and expanding supply sources will be essential to prepare for success as opportunities arise. Smart executives are researching what makes sense in their industry, for their products, and given their supply chain footprint and expertise. One size doesn’t fit all. Medtech manufacturers are moving production and/or expanding capabilities in countries that support North American customer requirements. Mexico, Costa Rica, and the Dominican Republic are gaining significant volumes but they cannot produce to scale for the North American market rapidly. Mexico has the best opportunity as that country has experienced resources and is in close proximity to the United States.

Reshoring is another alternative. In today’s digital, automated, and robotic world, labor costs are not nearly as relevant. With investment in a culture of innovation as well as a deep dive into manufacturing and supply chain advancements and technologies, expanding U.S. manufacturing can be the best option. Reshoring enables companies to control their ability to scale up to meet customer demand and to control costs and inventories when scaling down. Investing in the appropriate technologies to improve the customer experience while minimizing labor and maximizing output will give medtech firms an advantage in the marketplace.

Reshoring in a regional cluster can provide further advantages of scale, flexibility, and responsiveness, resulting in rapid product development, quick problem resolution, and collaborative innovations, thereby improving margins.

Another critical supply chain process is SIOP (sales, inventory, operations, planning). SIOP will be essential in supporting an agile and forward-looking supply chain because it continually monitors changes to customer demand, changes in the business environment, how demand stacks up against manufacturing capacity and other sources of supply, and the risks and costs associated with alternate strategies. It also brings visibility to key strategic decisions so alternatives can be evaluated, and new options/ strategies developed. Most importantly, the process forces the organization to think about the future, evaluate and prioritize risks, and provides guidelines for decision making to ensure profitable growth and scalability.

Smart executives will establish a control tower to monitor their supply chain to ensure speed of responsiveness and resiliency. Although these actions will be essential to improving performance, the best, forward-thinking executives will take advantage of the disruption and confusion to turn disruption into opportunity. Preparation, innovation, and forward-thinking will create medtech’s future leaders. 


Originally published in MPO – Medical Product Outsourcing, 9/25/2023