Not only does volatility, uncertainty, complexity, and ambiguity (VUCA) continue to plague medtech’s supply chain, but vulnerabilities are increasing as well. According to the American Society of Health-System Pharmacists (ASHP), supply chain shortages have improved from their all-time high in Q1 2024. Yet, risks remain high, especially with the increased level of vulnerabilities. Proactive companies must focus on building resiliency, reshoring manufacturing, and investing in robotization and automation to stay ahead of these conditions and ensure success. 

Supply Chain Volatility and Vulnerabilities

Volatility and vulnerabilities will continue to create havoc in the end-to-end supply chain. Hurricane Helene, for example, showed the vulnerability of heavily relying on a single supplier. Baxter Healthcare’s North Carolina facility supplied a large portion of the nation’s IV fluids; when Helene’s floodwaters inundated the plant, shortages quickly followed. Similarly, companies with a single source of commodities such as nickel and platinum have been negatively impacted by the Russia-Ukraine war and ethylene oxide-related medical device sterilization constraints have caused significant disruptions in the availability of critical products. 

There has been a plethora of examples lately related to supply chain vulnerabilities. The China-based Salt Typhoon hacking operation that gained access to telecommunications companies late last year highlighted upstream and downstream supply chain vulnerabilities. Transportation disruptions have arisen with labor negotiations, strikes, port congestion, the Canadian trucker protests, and/or disasters such as the Baltimore Bridge collapse. 

The seriousness of geopolitical tensions and related supply chain vulnerabilities have been evidenced by exploding pagers in Lebanon and Houthi rebels attacking ships in the Suez Canal. As China continues to expand its influence throughout the world, there is heightened concern about the potential impact to critical supply chains. For example, 70% of active pharmaceutical ingredients (APIs) are produced and supplied by China and India, leaving patients potentially vulnerable throughout the world. Taiwan produces 90% of the advanced computer chips worldwide, with China producing 60% of the planet’s legacy chips and supplying the required critical minerals. These chips are used in medical devices, advanced technologies supporting infrastructure and goods movement, banking, and almost every industry. Medical devices, infrastructure, and national defense also require steel and aluminum, yet capacity is not nearly robust enough to meet demand.

To add fuel to the fire, there is vast concern about the potential impact of tariffs in the medical device and pharmaceutical industries. President Trump is attempting to encourage manufacturing by imposing tariffs. AdvaMed, one of the largest medical device trade groups, is concerned about the impact on the medical technology supply chain and is asking for an exemption, claiming that tariffs could lead to price increases and shortages. President Trump also wants to encourage regional manufacturing so that supply chain vulnerabilities will be addressed as geopolitical tensions rise. Whether it be tariffs or regional manufacturing, the common denominator in both strategies is the heightened supply chain risk. 

Resiliency Required for Survival

The heightened levels of supply chain volatility and vulnerabilities has made resiliency critical to survival. Successful companies are procuring backup supply sources, pursuing dual sourcing of critical supplies, rolling out cross-training and dual redundancy programs, formalizing agreements, and expanding deeper into their supply chains. One-stop shop supply chain partners are becoming more attractive, and vertical integration is making a comeback—at least, from an assessment standpoint. Larger companies have scale, and they will look for opportunities to buy up key end-to-end supply chain partners and expand their capabilities. Additionally, rolling out strategies that allow companies to quickly scale up and/or down is gaining momentum. For example, companies are maintaining buildings, key employees, and core equipment in markets they could use to rapidly scale up production if necessary. Companies are also searching for additional partners to quickly scale up/down while developing win-win scenarios so that both partners gain from collaboration.    

Regional Manufacturing: Required to Navigate Successfully

Regional manufacturing and reshoring can be tough in today’s interconnected global supply chains. However, volatility and vulnerabilities are dictating change. Following the pandemic, President Joe Biden designated 31 communities across the country as Regional Innovation and Technology Hubs (Tech Hubs) with many related to medical. Creating a hub of interconnected suppliers propels progress, as they catalyze investment in technologies and feed off each other. Minnesota MedTech 3.0, for instance, aims to position the North Star State as a global center for “Smart MedTech” by integrating artificial intelligence, machine learning, and data science into medical technology. Similarly, Virginia created the Advanced Pharmaceutical Manufacturing Tech Hub and Maryland created the Baltimore Tech Hub to focus on predictive healthcare technologies. 

As the volatility, vulnerabilities, and opportunities to reshore continue to gain momentum, companies are starting to act. Renal care provider Nipro Medical Corporation has selected North Carolina for its first manufacturing center of excellence and Planatome LLC, a medical device company that applies atomic-level polishing from the semiconductor industry to create advanced surgical blades, is developing a manufacturing plant in Arizona that will more than double the size of its workforce over the next five years. And molecular diagnostics firm Co-Diagnostics Inc. has officially opened a new manufacturing facility in Utah.

President Trump plans to aggressively push to increase U.S. medical manufacturing to mitigate risk and strengthen the economy. However, a portion of the supply chain cannot be reshored without considering the total impact on the medtech industry and economy. Consequently, there are related conversations about the availability of computer chips to address key vulnerabilities, key commodities required to produce medical devices and other medical products, and the energy and other natural resources required to sustain regional manufacturing. The end-to-end supply chain view will become paramount to success.

Robotization, Automation, and Advanced Technologies Use

Before the pandemic, companies favored global supply chains that focused on the lowest cost. Executives, however, are now reassessing supply chains due to manufacturing margin squeezes, higher raw material prices, product shortages, tariffs offsetting low labor costs, and more costly transportation and interest rates. As companies reshore production and/or expand capabilities, they address robotization, automation, and the use of advanced business systems and technologies to power success and mitigate the impact of higher labor costs. 

Case in point: Ascential Medical & Life Sciences decided to reshore the manufacturing of some products back to North America and took advantage of the opportunity to automate, streamline, and speed up its process. Ascential Medical Chief Commercial Officer Todd Martensen identified opportunities for automating processes at every step of the supply chain, beginning with R&D and extending to the point of building the final product. 

According to DELMIAWorks CMO Steve Bieszczat’s conversations with medical device companies, manufacturers will rely on robotic and vision system automation, data, and analytics, and will push for greater visibility across the supply chain to ensure product availability while managing costs. A medical products manufacturer, for example, increased service levels to more than 95% while reducing inventory for its key customer and reducing freight and warehousing costs by rolling out sales forecasting, inventory planning, and business analytics.

VUCA is accelerating with the threat of tariffs, and supply chain vulnerabilities are increasing with heightened geopolitical tensions throughout the world. The most successful companies are expertly navigating this sea of uncertainty by taking control of their manufacturing operations and extended supply chains to mitigate risks, support customers, and proactively manage the total cost of their end-to-end supply chain. They are building resiliency, transitioning to a regional manufacturing model, and rolling out robotization, automation, and advanced technologies to drive bottom line results.

MORE FROM THIS AUTHOR—Medical Supply Chain Optimization: The Solution to Non-Stop Disruptions

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