Although product shortages have largely been under control, recent geopolitical and logistical challenges have redirected focus on the importance of manufacturing and end-to-end supply chains. Adding tariff uncertainty into the mix has triggered forward-thinking companies into action. In addition to substantial investments in U.S. manufacturing, companies are pursuing a global reconfiguration and reallocation of resources and upgrades to secure their supply chains, mitigate risks, and enhance their distribution network to ensure profitable growth. 

Geopolitical and Supply Chain Risks Push the Envelope

Since the pandemic, healthcare products and medtech firms have experienced various disruptions and risks to the end-to-end supply chain. Disruptions intensified when the 1,312-foot-long container ship Ever Given became wedged diagonally in the Suez Canal. The situation not only endangered the supply of essential products like COVID-19 vaccines, but also such vital components as semiconductors (used in most digital healthcare products nowadays).

A historic drought at the Panama Canal caused a 50% decrease in shipping traffic capacity, negatively impacting and delaying and/or diverting medical equipment and products. Water levels at Gatun Lake, which supplies the water used to operate the canal’s locks, were the lowest since at least 1965.

The attack on Israel by the militant group Hamas impacted the production of medical devices and later significantly impacted product transport in the region as Iran-backed Houthi rebels attacked ships in the Suez Canal, forcing the vessels to divert around Africa. 

In the United States, Hurricane Helene’s September 2024 rampage in the North Carolina mountains flooded a manufacturing plant that produces about 60% of the nation’s IV fluid supply. It took five months for the facility—operated by Baxter International—to return to pre-hurricane production levels, forcing hospitals to conserve IV fluids as best as they could in the interim. 

The Russia Ukraine war has prompted concerns about medtech component costs and supply reliability, particularly for commodities sourced in the region and plastic—the latter due to its reliance on natural gas in the manufacturing process.

New Concerns Courtesy of Tariffs

The tariffs proposed by President Donald J. Trump’s administration have caused great uncertainty among healthcare manufacturers and suppliers. Since medical devices and pharmaceuticals are heavily dependent on the global supply chain, the 10% baseline import tariffs could hike production costs, cause shipping delays, and create shortages of goods.

The United States accounts for 40% of the global medtech market with 40% of that volume imported. But in considering the entire value chain, the nation’s dependence on external sources increases dramatically. For example, 90% of advanced computer chips come from Taiwan, 70% of active pharmaceutical ingredients (APIs) are produced and supplied by China and India, and China processes 85% of the rare earth minerals used in many components. Given the heightened geopolitical risks and concerns about tariff inflation, companies should immediately take proactive steps. Although many of the top medical device companies are not lowering guidance for the year, they are reporting expected costs up to $400 million due to tariffs. The bottom line is any company that takes a wait-and-see approach will not be competitive in the future.  

Proactive Supply Chain Strategies: Reconfigure, Reallocate, and Revise

Forward-looking companies are immediately implementing corrective actions if they haven’t already done so while pursuing proactive strategies for longer term supply chain success. The pandemic proved that supply chain resilience is of paramount importance for survival. Thus, proactive companies responded accordingly to geopolitical, supply chain, and tariff risks. 

Backup supply sources are a good place to start. A backup in name only, however, is useless; companies should use their backup supply sources for ongoing requirements at a minimum capacity. Case in point: A healthcare manufacturer created backup supply sources for its overseas suppliers. Private equity backers balked at incurring higher costs for only 20% of the company’s needs, but they agreed it was necessary to ensure the backup source would be functional when needed. When a disruption occurred, the backup source increased production to meet the market’s needs while larger competitors struggled.

Proactive companies must also diversify their sources in the end-to-end supply chain. A company that sources supply from Wuhan, China, for example, wouldn’t add another supplier in Shanghai, China but rather take on a supplier in Europe or Latin America. In addition to diversifying suppliers by geography, forward-thinking companies evaluate their end-to-end supply chain sources. 

First, they focus on gaining visibility to their end-to-end supply chain, perhaps by collecting information on all second- and third-tier suppliers. Start with key materials and components, identify those most likely and most seriously impacted by one or more risks, and evaluate options. Companies might source a critical component, redesign the product and/or component, create a strategic partnership, or another strategy. A manufacturer, for example, could reshore production and redesign products to require less labor yet still meet quality standards. Or companies can partner with customers and suppliers to redesign materials to reduce waste and improve manufacturability. Some products require U.S. Food and Drug Administration approval, but expedited authorizations are gaining momentum. 

There are also advantages to sourcing domestic production and expanding to regional supply chains. Besides mitigating risks, this strategy enables organizations to better control their supply chains (and mitigate supply chain vulnerabilities), improve their agility and flexibility to adjust to changing business conditions, and enhance the bottom line over the long term. Companies can better serve customers and patients by leveraging increased tax benefits, deregulatory and energy cost reductions, and better access to credit and other business programs while mitigating tariff impacts and nearshoring. 

Many companies have announced U.S. investments: Johnson & Johnson ($55 billion), Eli Lilly ($50 billion), Roche ($50 billion), Novartis ($23 billion), AbbVie ($10 billion), Thermo Fisher ($2 billion), and Merck ($1 billion). For every $1 invested in manufacturing, $2.67 is added to the economy so these investments will have a positive longer-term effect on local economies as well.

Talent, Technologies, Business Processes

Although these forward-looking strategies are essential to securing supply chains, they must be accompanied by the appropriate talent, business process upgrades, and technological advancements. Foresighted companies are building talent long before it is needed, as the pandemic and retiring Baby Boomers have severely diluted the labor pool. Successful companies are training, developing, mentoring, and investing in talent. Organizations that create a culture of innovation will thrive long-term. 

Upgrading business systems and processes to support instantaneous visibility, resiliency, and predictive supply chains are also good survival strategies. For example, a medical products firm recently rolled out an SIOP (Sales Inventory Operations Planning) process with predictive demand planning and advanced planning and goods movement strategies to rapidly reallocate production, distribution, modes and/or transportation routes, and/or shift sourcing strategies based on changing customer needs and/or business conditions. Artificial intelligence is a foundational element in these advanced systems, so embracing this technology will be key to remaining competitive. 

As the risks of tariffs, geopolitical events, and supply chain challenges escalate, forward-thinking companies must proactively respond and lead the way to maximum productivity. There are few short cuts or quick fixes; instead, making hard decisions and proceeding while others panic is the only avenue for success. In addition to the basics (backup supply sources), proactive companies will diversify, reconfigure, and revise supply chains and products while investing in the appropriate infrastructure, business process upgrades, advanced technologies, and talent to succeed.

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Lisa Anderson is founder and president of LMA Consulting Group Inc., a consulting firm specializing in manufacturing strategy and end-to-end supply chain transformation that maximizes the customer experience and enables profitable, scalable, dramatic business growth. She recently released “SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth,” an e-book on how to better navigate supply chain chaos and ensure profitable, scalable business growth. A complimentary download can be found at www.lma-consultinggroup.com/siop-book