The pandemic created ripples in industries that will be felt for years and even decades. Challenges revealed during it caused companies to rethink certain aspects of their business. One such revelation occurred within the medical device manufacturing industry; that is, maintaining global supply chains that can be located far from the customer or final manufacturing geography can create problems.
As a result, some medical device makers have been rethinking their outsourcing strategy and becoming more aware of the regions in which their supply partners are located. Rather than looking at one advantage of manufacturing in a certain area, organizations are instead evaluating the total cost and value of a location. This analysis offers a better picture of the advantages and disadvantages of working with a certain supplier.
To further explain the current trends of outsourcing and, more specifically, the move to nearshoring, Yiorgos Polizos, vice president of sales and marketing at Life Science Outsourcing Inc. responded to a number questions. He shares his insights on why nearshoring has gained popularity following the pandemic and resulting challenges, the benefits these regions provide, and the manufacturing landscape within them.
Sean Fenske: Why are companies rethinking their outsourcing model and moving manufacturing out of certain areas?
Yiorgos Polizos: While outsourcing to distant regions once seemed like the go-to choice for many OEMs seeking to optimize costs, evolving global dynamics and recent disruptions have prompted a reconsideration of this model. Beyond the often-cited competitive advantages of certain regions—such as lower overheads, access to expansive talent pools, and tax benefits—there are other significant factors now being weighed when deciding to outsource manufacturing outside of the United States.
The recent global disruptions, like the pandemic and related logistical challenges, have exposed the vulnerabilities of extended supply chains. Medical device OEMs have had to confront the reality that geographical distance can pose significant risks, especially when supply routes are obstructed or delayed.
Nearshoring, however, allows these OEMs to be more agile, responding more quickly to market changes, adjusting production levels in real-time, and ensuring a tighter feedback loop between manufacturing and market demands. OEMs and forward-thinking CMOs have been looking for strategies to be able to keep up with market demand in ways that don’t require a complete change or disruption of their operations in the U.S.
Nearshoring offers medical device OEMs a strategic pathway to reliably scale their production to high volumes while mitigating risk. By expanding their manufacturing closer to their home base, OEMs gain the advantage of a shorter and more resilient supply chain, reducing the likelihood of delays. This closer proximity enables more robust quality control, faster response times to market changes, and streamlined communication between all stakeholders, facilitating smooth scaling of production. Partnering with a forward-thinking CMO with nearshore options further alleviates the burden on OEMs, as they can rely on the CMO's existing infrastructure, expertise, and adherence to U.S. regulations, including FDA guidelines and GMP practices. In turn, OEMs can confidently focus on innovation and growth, knowing their increased production demands will be met with quality and efficiency.
Fenske: Are the nearshoring manufacturing capabilities at the same level as established manufacturing regions? Are they able to scale as needed?
Polizos: Some nearshore countries have heavily invested in infrastructure, training, and technology to become competitive in orthopedic manufacturing. As more companies move operations to these regions, there's been a subsequent increase in the development of industrial parks, training centers, and supplier networks. The presence of these elements is essential for medical device manufacturers looking to expand or increase production on demand.
It's essential to conduct thorough research and due diligence before committing to any location. It's also beneficial to consider factors beyond manufacturing capabilities, such as political stability, ease of doing business, and cultural alignment, as these can impact long-term success and the ability to scale. Proper planning and research can allow you to make the best decision when considering the location of a nearshore facility.
By partnering with a CMO that already offers nearshore capabilities, medical device OEMs can take full advantage of the benefits of nearshoring without the hassle of setting up their own operations from scratch. These CMOs have already navigated the complexities of establishing a presence in nearshore regions, including investments in infrastructure, compliance with local regulations, and the development of skilled labor forces. As a result, OEMs can focus on their core competencies, such as product development and innovation, while the CMO handles the intricacies of manufacturing. This partnership approach allows OEMs to reliably scale their production to high volumes, capitalize on the benefits of nearshoring, increase profitability, and mitigate risks associated with establishing and operating a new facility.
Fenske: What have recent logistics challenges taught orthopedic device companies about keeping manufacturing closer to home?
Polizos: Supply chain disruptions have shown us the pivotal role of contingency planning in business continuity. When traditional logistics pathways were disrupted, orthopedic device OEMs faced pressing challenges, demanding quick and innovative responses. Companies that had previously invested in nearshore operations enjoyed a clear advantage in this landscape. Their geographical proximity to both the U.S. market and their production facilities allowed them to adapt rapidly, transitioning operations, shipping, materials, and manufacturing processes with relatively little friction.
More orthopedic device companies are now recognizing the value of diversifying their manufacturing bases.
Recent logistics challenges have driven home the importance of keeping manufacturing closer to home for orthopedic device OEMs. By having a tighter control on their supply chain, quality control, and lead times, these orthopedic device companies aim to maintain a more stable and reliable production process. A key lesson learned, however, is the value of diversifying supply chains to build resilience against disruptions.
The need for diversification and nearshoring is particularly acute for orthopedic device OEMs due to the complexity and criticality of their supply chains. With potentially dozens of small distribution points, maintaining visibility of products as they move through the chain can be a considerable challenge. Ensuring the right devices are available in operating rooms, emergency departments, and even primary-care offices can be a matter of life and death. In this context, having a more controlled and streamlined supply chain becomes paramount.
One of the most effective strategies for achieving this is by partnering with a forward-thinking CMO that can reliably handle their device assembly, packaging, sterilization, and validations; already has a diversified supply chain in the U.S.; and can also offer nearshore options as a path for growth. As a result, orthopedic device OEMs can leverage these existing capabilities to quickly and efficiently diversify their supply chains.
A future-ready supply chain that is more agile and responsive can significantly reduce the likelihood of disruptions and ensure critical devices are readily available when needed. This collaborative approach represents a win-win situation for both the orthopedic device OEMs and the CMOs, as it allows for mutual growth, risk reduction, and the ability to better serve the needs of patients.
Fenske: One of the attractions of manufacturing internationally was lower labor costs. How does that compare with nearshoring options?
Polizos: International manufacturing, particularly in regions where labor costs were historically low, held an undeniable allure for many companies. The economic advantages were straightforward. However, nearshoring introduces a spectrum of considerations that go beyond more than the dollar figure.
In relation to labor costs, nearshoring destinations often occupy an intermediate position. They aren't as expensive as the developed nations, but they aren't as cheap as some other manufacturing hotspots further from us. But herein lies the nuance: the slightly higher labor costs often come with value-adds.
There’s an increasing emphasis on ethical production. The industry is becoming more conscientious about fair wages, good working conditions, and sustainable practices. Nearshoring regions, while still offering competitive labor rates, often have better regulatory frameworks and labor laws than the lowest-cost regions. This results in a product that isn’t just cost-effective, but also ethically produced—a crucial consideration for brands mindful of their reputation and corporate responsibility when producing orthopedic devices abroad.
Moreover, when partnering with an established CMO that has nearshore options, orthopedic device OEMs can rest assured the labor costs will stay low without sacrificing quality. Such CMOs have invested in a high-skilled labor pool that can manufacture products efficiently while adhering to strict quality standards. In addition, these CMOs ensure their nearshore facilities strictly follow all U.S. regulations, including FDA guidelines and GMP (good manufacturing practices) protocols. This creates a compelling value proposition for nearshoring, which extends far beyond mere cost considerations.
Fenske: Are there any concerns with nearshoring from a regulatory standpoint? Are these requirements fully understood?
Polizos: There's a misconception that nearshoring manufacturing operations can result in lax regulatory compliance, but the reality is quite the opposite. Nearshoring facilities often comply with a multitude of stringent regulatory standards, including those set by the FDA and other relevant governing bodies for orthopedic devices. This means these nearshore facilities are subject to the same rigorous regulatory requirements as those within the U.S.
In addition to adhering to U.S. regulations, nearshore facilities often have to follow additional regulatory requirements imposed by the host country. These dual regulatory demands can be complex to manage and require diligence and attention to detail. Companies must stay updated on regulatory changes in both the U.S. and the nearshore country to ensure ongoing compliance.
This added layer of regulatory compliance might necessitate a more complex audit process and additional resources. However, this rigorous framework is a testament to the commitment of nearshore facilities to producing high-quality orthopedic devices.
An experienced CMO plays a crucial role in ensuring strict regulatory compliance at their nearshore facilities. They conduct regular audits and stay updated on all relevant regulations to guarantee the highest industry standards are met. This assures customers and stakeholders that the products, while manufactured closer to home, meet or even exceed the expected quality standards.
Fenske: What about human capital considerations? Is this type of labor force available only for low-level manufacturing? What is the skill level?
Polizos: Human capital is a crucial consideration in nearshoring decisions. It's important to note the labor force in nearshore locations is not limited to low-level manufacturing roles—nearshoring isn't just about tapping into a more affordable labor force; it's about leveraging a rich tapestry of skills and expertise. Regions favored for nearshoring have invested heavily in education and technical training in recent decades, producing a workforce that's both skilled and adaptable. From entry-level technicians to experienced engineers, these areas boast a spectrum of talents ready to meet the multifaceted demands of modern orthopedic device manufacturing.
In recent years, nearshoring countries have invested heavily in education and training programs to develop a skilled workforce capable of managing advanced manufacturing technologies and processes. This investment has paid off, and many nearshore locations now boast a workforce with expertise in areas such as engineering, materials science, quality control, and regulatory compliance.
Additionally, established CMOs with nearshore facilities often provide ongoing training and development programs for their employees, ensuring their teams are equipped with the latest skills and knowledge needed to meet the demands of the orthopedic device industry.
The labor force in nearshore locations is capable of handling a wide range of manufacturing tasks, from low-level to highly specialized processes. By partnering with a forward-thinking CMO with nearshore options, orthopedic device OEMs can easily access this skilled labor pool and benefit from their expertise in producing high-quality devices, while mitigating risk.
Fenske: Do you have any additional comments you’d like to share based on any of the topics we discussed or something you’d like to tell orthopedic device manufacturers?
Polizos: It's important for orthopedic device manufacturers to recognize nearshoring is not just a cost-saving measure but a strategic approach for scaling production, managing risk, and responding to market demands with agility. By partnering with a forward-thinking CMO with established nearshore options, OEMs can bypass initial capital investments and tap into an experienced, highly skilled labor pool.
By keeping manufacturing closer to home, OEMs can have tighter control over their supply chain, quality control, and lead times, particularly during times of disruption. The advantages of nearshoring extend beyond mere cost considerations. It involves a balance of cost, quality, regulatory compliance, and supply chain resilience.
Orthopedic device OEMs should explore nearshoring as a strategic option, and when doing so, consider partnering with an experienced CMO with established nearshore capabilities. This partnership can provide the benefits of nearshoring while ensuring high-quality products that comply with U.S. regulations, including FDA guidelines and GMP practices. It's a holistic approach that aligns with the evolving demands of the orthopedic device industry and the healthcare sector at large.
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