As geopolitical, tariff, and other supply chain risks are causing concerns with offshoring strategies and the global sourcing perspective, companies are reviewing domestic alternatives. In addition, the government is encouraging U.S. production with policies, tax law, and deregulation initiatives as there is concern about ensuring supply for citizens. Since a significant portion of the medical supply chain is produced offshore, scaling production rapidly is not an easy feat without a reasonable base of talent, manufacturing, and technology expertise. Strategic partnerships illustrate the path forward in the medical products supply chain. 

Medical Products Went Offshore

According to the United Nations Industrial Development Organization, when China joined the World Trade Organization and gained the ability to compete globally without following the same rules as U.S. manufacturers, the U.S. share of global manufacturing fell from around 23% to 15%. China rose from just over 10% to more than 32%. Not only were labor costs dramatically lower, but regulation costs, energy costs (as they were subsidized by the government), and the costs associated with having to follow financial, labor, and environmental rules were dramatically lower. Medical products went offshore.

The significance of medical products being made offshore is shown through several statistics. For example, 70% of medical devices marketed in the United States are manufactured exclusively overseas, according to the American Hospital Association. This resulted in more than $75 billion in medical devices and supplies being imported in 2024. When looking at the end-to-end supply chain, the picture becomes more concerning. According to BryceTech, 80% of key starting materials come from China and India and 88% of active pharmaceutical ingredients (APIs) are produced outside the United States. 

Since companies are only as strong as the weakest link in their supply chains, these figures are extreme. When Trump’s tariffs were introduced and tensions escalated with China, that country stopped shipping critical minerals required for many vital items, including medical devices. Thus, pressure increased tenfold to scale up the manufacturing capability of medical supply chains and shift operations towards a more regional supply chain.

Why Domestic and Regional Medical Device Production Will Grow

As the geopolitical risks become apparent, they are impossible to ignore. Since rare earths and critical minerals are essential in the medical products supply chain, executives must re-examine their risk tolerance and ability to secure materials to fulfill customers’ needs. If supply chain risks and vulnerabilities are exposed to faulty technology that could cause significant harm, it is of paramount importance to secure an end-to-end supply chain from such potential risks. From a less threatening perspective, weather incidents will disrupt supply chains. Last fall, for example, Hurricane Helene shut down Baxter International’s IV fluid production facility, creating widespread disruption at U.S. hospitals. There is a plethora of other supply chain threats as well, such as potential strikes in the logistics systems that could cause a major disruption. 

From the positive perspective, the cost to produce complex products in the United States has fallen dramatically thanks to technological advancements. The ability to automate, utilize robotics, and take advantage of autonomous capabilities can cut reduce cost differential to nearly zero in considering the end-to-end supply chain’s total cost. As investments continue to expand and artificial intelligence ramps up, manufacturing will gain momentum. Additionally, there are several policies that incentivize manufacturing, especially critical items like medical products. As domestic production increases, the regional supply chain will expand and support accordingly. 

The Conundrum of Scaling Medical Products Manufacturing

Since infrastructure and skills are in scarce supply, it likely will be difficult to ramp up medical device manufacturing. However large incentives could help companies carve a path forward and thrive. Thus, innovative solutions are required. Strategic partnerships are quickly becoming an effective way to achieve vertical integration by collaborating with top-tier experts across various specialties, helping scale and strengthen the supply chain. Companies must think creatively about whether to partner with a competitor on a particular area, and constantly search for innovative solutions.

For example, the only U.S. antibiotic manufacturer, USAntiobiotics, is teaming up with Walmart and McKesson to onshore U.S. production of amoxicillin. USAntiobiotics has the manufacturing capability but not the scale to ramp up production, so it forged a strategic partnership to complete the supply chain. 

Walmart certainly can commit shelf space to USAntibiotics, as it operates more than 4,500 pharmacies in the United States and Sam’s Club locations. The retail giant is also investing heavily in pharmacy automation and central fill centers, including a new investment in Maryland that can process 100,000 daily prescriptions, ensuring scale can be achieved. These facilities integrate robotics and artificial intelligence to handle repetitive dispensing tasks, while pharmacists in stores focus on patient care.

Walmart has relied on McKesson for years as its primary wholesale distributor of branded and generic drugs. McKesson is the largest pharmaceutical distributor in North America and delivers drugs daily to Walmart pharmacies, serving as an outsourced supply chain arm. In the Walmart–USAntibiotics partnership, McKesson will handle U.S. distribution of amoxicillin produced at USAntibiotics’ Tennessee plant.

Similarly, a medium-sized medical products manufacturer didn’t have the heft to scale alone but wanted to meet the opportunities for growth as the population aged. It also wanted to build on profitability while scaling so the manufacturer developed a strategic partnership with a Japanese supplier to produce the product supporting that growth while it could build internal capabilities. Additionally, the manufacturer partnered with key customers such as Cardinal Health and McKesson to collaborate on the logistics side and gain earlier access to demand, develop collaborative customer programs to share space, and tap into distribution systems. These strategies supported its ability to scale profitably and meet growth goals.  

Prepare to Evolve Extended Supply Chains

Not only will companies change their sourcing and supply chain networks to address issues such as tariffs—moving from high-tariff countries to lower tariff countries—they also will evolve their supply chains as medical products scale up production domestically. Not all companies will choose to manufacture domestically but forward-looking medtech firms will evolve their supply chains for future success.  

As this transformation occurs, regional supply chains will dominate, providing more opportunities to Mexico and Latin America. Since these areas already have an expertise base and countries like Mexico have developed the ability to scale, there will be significant options for companies willing to develop strategic partnerships that might be considered out of the box. 

There will also be tremendous opportunities for companies positioned to focus on starter materials. These partnerships might involve the federal government, like the recent alliances formed for critical minerals. Focusing on strengths, evaluating supply chains for their strengths, and addressing weak links will ensure success. Latin America is likely to emerge with the best prospects, as reducing the distance and potential for disruption will be a priority and many of these countries have access to and could produce starter materials. Assuming base skills and infrastructure is intact, the options in regional supply chains will be abundant. 

The Bottom Line

As global supply chains evolve, forward-looking companies will be at the forefront of this change and experimenting with strategic partnerships. It simply won’t be sufficient to grow aggressively if 500% growth results in five grains of sand versus one. Developing innovative and strategic partnerships will be required to scale quickly enough to meet customer needs. More opportunities will be available than at any other time in history in this segment for resilient and innovative medical device manufacturers and regional supply chain partners.

MORE FROM THIS AUTHOR: The Future of Medical Device Supply Chains

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