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Onshoring to protect against supply chain disruption
When your supply chain is not in the same geographic location as your product demand, the risk of your customers being affected by interruptions increases and your ability to control the myriad of variables is limited. De-risking your supply chain is an urgent need for today and requires a long-term strategy to guard against tomorrow's crises. Supply chain disruption, no matter the cause, puts patients and your business at risk. In fact an organization normally focused on medical device safety, ECRI, has just listed supply chain disruption as a top risk to healthcare (Supply Chain Shortages Ranked Second Among Top 10 Risks Facing Healthcare Organizations).
On average, supply chain disruptions will cause a company losses equal to 45% of annual profits over a 10-year period, according to McKinsey & Company (Risk, Resilience, and Rebalancing in Global Value Chains). The medical devices industry loses an average of about 37.9% of annual profits over 10 years.? These are startling numbers for a healthcare industry already under intense pressure to control costs.
Problems experienced by your suppliers can occur far upstream of the finished product you need. Critical disruptions upstream may be hard to see, much less plan for. In today's environment, cyber threats are a reality, and vendors can experience unexpected and sudden financial issues. Consider the impact of a disruption in the acquisition of raw materials like aluminum and how that may affect an integral part of a product. ?A complete risk picture would need to consider the total set of possible disruptions to each and every component, and how those risks trickle down to your business.
HOW TO RESPOND
We are all well aware that the COVID-19 pandemic has caused unprecedented supply chain disruptions, slowing and in some cases halting manufacturing during the time of lockdowns and surging viral circulation. The risks of an Asia-centric supply chain and its inflexibility have now been exposed, yet this can serve as an opportunity for change. In the wake of what may appear as chaos, a time of recalibration has come.
So, what should your response be to mitigating these potential threats and disruptions? Increasing inventory might appear to be a quick and dirty solution, but that ties up cash. Think about what it costs for you to have 3 to 6 months of inventory tied up on the water, in ports, and in your supply chain.
Sourcing as many products as possible geographically close to your demand—onshoring—is perhaps the most efficient and effective way to create a strategy that minimizes potential disruption to your customers. In the past, many businesses focused narrowly on material and labor costs, perhaps offshoring to Asia for cheaper products. Increasingly these cost savings are shrinking, and in an attempt to source cheaper products companies may look to manufacturing in even less stable parts of the world. This thinking overemphasizes unit cost without taking into consideration total cost.? Shipping may be the most obvious other contributor to total cost.? With container shipments costing multiples of pre-pandemic rates, extended shipping times, and air freight prohibitive, a supply chain cannot be designed around assumptions of smooth sailing.? Flexibility, local shipments, and shorter shipping time translates to real savings.
A manufacturer on your continent, offers the flexibility to scale up when needed and allows you to weather uncertainty in a more cost-effective manner. A May 2020 Thomas Industrial Survey found that 64% of US manufacturers are likely to bring production back to North America.
WHAT WE DO
Our strategy is, and has been, to build product where the demand is. Our factory in Florida opened in 2016 to build product for North American demand, our factory servicing Europe is centrally located in Germany, and for Asia, product is built in China and Taiwan. A reliable component supply base is in place to serve each of these locations.
The benefits of onshoring include:
- quicker, cheaper response to demand changes
- simplified regulations and standards
- ability to manage supply chain in person, face-to-face
- reduced logistics cost
- political benefits, protections, and incentives
These advantages allow us to:
- reduce the risk of inventory shortages
- maintain a scalable network of domestic suppliers
- lower shipping costs, particularly for bulky goods
- reduce our impact on the environment
- reduce working capital bound up in the supply chain
- leverage on-demand production
- reduce time-to-market
- minimize risks from start to finish
It is important to understand that recent tumultuous events should no longer be considered outliers, they are the norm. Businesses must plan for unknowns. By leveraging suppliers that are where you are, you may be able to avoid some of the perils associated with global instability.