Megan Ray Nichols, Science Writer; Editor, Schooled By Science11.13.19
In years past, one of the more lucrative strategies for manufacturers was to move the bulk of their operations overseas. Due to cheaper and more available resources—including human labor costs—it was an effective solution for many organizations.
More recently, however, the opposite is true, giving rise to a strategic move called “reshoring” or, sometimes, rehoming. In simple terms, it means shifting manufacturing operations back into the company’s home country, which is the United States in many cases.
Although it’s a rising trend, there are many reasons reshoring is a strong move, aside from its popularity. Motivations generally relate to improved quality control, stronger protections over intellectual property, operations cost reductions, and other domestic benefits. Besides, many of the countries that were once less expensive places to do business are seeing considerable increases in labor rates, mitigating many of the cost savings gained from outsourced operations. For example, in China—where 60 percent of reshored jobs from 2010 to 2016 came from—labor has become much more expensive.
Furthermore, modern manufacturing is much more dependent on interconnected processes, which warrants a localized approach.
The effect this has on specific niches within the manufacturing industry varies. The manufacturing of medical devices, for example, has a lot to gain from reshoring. Consumer electronics manufacturing, on the other hand, sees more ideal outsourcing conditions.
Following are the benefits medical device manufacturers can realize after reshoring their operations:
1. Higher Quality Products
Most foreign and outsourced businesses focus heavily on money-saving solutions—meaning cheaper labor, more competitive resources and parts, more affordable technologies, and so on. While inexpensive manufacturing is always a plus financially, it’s not exactly conducive to high-caliber products.
Today’s consumers want to see much better value in what they buy, which means quality assurance has become a priority. More importantly, medical devices must be reliable and safe, which puts excellence even higher on the priority list.
Moving the main facilities closer to home allows more direct control over operations, better quality management, and higher-caliber resources. It results in a more sophisticated product, which is why American-made goods have a reputation for being excellent.
2. Streamlined Distribution
Items developed overseas require packaging and shipping back to their home country, typically ending up in a distribution center or warehouse. Then, they go through a series of internal processes before they can go out to customers, or, in the case of medical devices, hospitals and healthcare centers. Naturally, a long, drawn-out journey is pricier and much riskier in terms of safe transport.
For local operations, however, the process is streamlined, offering more control and better handling of the goods. When you’re talking about medical devices and equipment, you need the distribution process to be as controlled as possible, so this is a huge boon. It also means there’s a significant decrease in risk—from damage, loss, or theft—because the devices are moving a much shorter distance.
3. No More Time Zone Constraints
With any international operation, time zone differences play a role. They can make meetings, planning, and organization incredibly challenging. For sophisticated devices such as medical equipment and tools, this exacerbates the development and distribution processes affecting many traits, quality included.
Having the bulk of an operation positioned locally eliminates the need to deal with time zone differences, at least at a foundational level.
4. Better Government Incentives
Whether you’re talking about local or federal governments, there’s almost always a monetary incentive to business operations. The medical industry is no exception, with a variety of tax breaks and support incentives in place. Not to mention, many healthcare facilities will work directly with hardware and tool providers to acquire what they need, cutting out a lot of the middle ground.
Essentially, it means there’s a lot of financial benefits associated with moving operations back home, particularly within the United States’ borders.
5. Enhanced Patent Protection and Intellectual Property Management
Most foreign countries have weak or ineffective intellectual property laws and systems in place. That makes it less challenging for third parties to steal ideas, trade secrets, or clone devices. Not only does this have a financial impact directly on manufacturers, but it also means the market floods with cheap knockoffs and flawed products.
When you’re talking about proprietary medical equipment specifically, shoddy copies are never beneficial to anyone—other than the morally bankrupt companies producing them. Maintaining the integrity of medical-grade products is essential to protect patients and healthcare providers alike.
Reshored operations benefit from improved patent protection and intellectual property laws, thus better protecting the devices and equipment in question.
6. Decreased Energy Costs
There was a time when energy and resources were much cheaper in other countries. That’s no longer the case, with energy costs rising considerably all across the world. Thanks to various changes in the U.S.—such as hydraulic fracturing—gas and power prices have dropped, in comparison.
Throughout manufacturing operations, it’s essential to keep energy costs down, not just to achieve higher sustainability, but also due to the impact on the surrounding environment. More and more organizations are looking to improve green operations and reduce their carbon footprint, so it makes a lot of sense to reshore facilities—especially when you can cut down on energy costs significantly by doing so.
7. Lower Shipping Costs
The closer to home the manufacturing facilities are, the less products, devices, and equipment have to move. Reducing the distance medical-grade devices have to travel offers several improvements.
For starters, it considerably shortens the product lifecycle and time to market, meaning healthcare providers get their equipment faster. Second, all parties can save money across the board because it’s much cheaper to transport and distribute goods locally.
8. Decreased Labor Costs
Offshoring and outsourced operations generally meant more affordable labor in the past. Thanks to recent legislation, market changes, and worker demands, that’s no longer the case. The monetary gain companies once realized by offshoring is either nonexistent or quite minimal.
Couple that with the rising costs of doing business in other countries, including more expensive resources, and it’s no longer in an organization’s best interest to maintain operations outside their home region. With profit margins of 20 to 30 percent—commonly seen in medical devices—it’s vital to cut down on unnecessary costs.
Because of the many benefits reshoring has to offer, it may be in the best interests of manufacturers to implement or consider the practice. For medical devices and equipment specifically, it should hold a lot of weight.
Medical devices require the highest quality standards possible, which is not likely achievable via offshore programs. Coupled with the economic, legal, and social changes we’re seeing happen around the world, it may make sense to relocate operations to a local region.
Megan Ray Nichols is a science writer and the editor of Schooled By Science. Her work regularly appears on Real Clear Science, Manufacturing.net, and Astronaut.com. Keep up with Megan by following her on Twitter.
More recently, however, the opposite is true, giving rise to a strategic move called “reshoring” or, sometimes, rehoming. In simple terms, it means shifting manufacturing operations back into the company’s home country, which is the United States in many cases.
Although it’s a rising trend, there are many reasons reshoring is a strong move, aside from its popularity. Motivations generally relate to improved quality control, stronger protections over intellectual property, operations cost reductions, and other domestic benefits. Besides, many of the countries that were once less expensive places to do business are seeing considerable increases in labor rates, mitigating many of the cost savings gained from outsourced operations. For example, in China—where 60 percent of reshored jobs from 2010 to 2016 came from—labor has become much more expensive.
Furthermore, modern manufacturing is much more dependent on interconnected processes, which warrants a localized approach.
The effect this has on specific niches within the manufacturing industry varies. The manufacturing of medical devices, for example, has a lot to gain from reshoring. Consumer electronics manufacturing, on the other hand, sees more ideal outsourcing conditions.
Following are the benefits medical device manufacturers can realize after reshoring their operations:
1. Higher Quality Products
Most foreign and outsourced businesses focus heavily on money-saving solutions—meaning cheaper labor, more competitive resources and parts, more affordable technologies, and so on. While inexpensive manufacturing is always a plus financially, it’s not exactly conducive to high-caliber products.
Today’s consumers want to see much better value in what they buy, which means quality assurance has become a priority. More importantly, medical devices must be reliable and safe, which puts excellence even higher on the priority list.
Moving the main facilities closer to home allows more direct control over operations, better quality management, and higher-caliber resources. It results in a more sophisticated product, which is why American-made goods have a reputation for being excellent.
2. Streamlined Distribution
Items developed overseas require packaging and shipping back to their home country, typically ending up in a distribution center or warehouse. Then, they go through a series of internal processes before they can go out to customers, or, in the case of medical devices, hospitals and healthcare centers. Naturally, a long, drawn-out journey is pricier and much riskier in terms of safe transport.
For local operations, however, the process is streamlined, offering more control and better handling of the goods. When you’re talking about medical devices and equipment, you need the distribution process to be as controlled as possible, so this is a huge boon. It also means there’s a significant decrease in risk—from damage, loss, or theft—because the devices are moving a much shorter distance.
3. No More Time Zone Constraints
With any international operation, time zone differences play a role. They can make meetings, planning, and organization incredibly challenging. For sophisticated devices such as medical equipment and tools, this exacerbates the development and distribution processes affecting many traits, quality included.
Having the bulk of an operation positioned locally eliminates the need to deal with time zone differences, at least at a foundational level.
4. Better Government Incentives
Whether you’re talking about local or federal governments, there’s almost always a monetary incentive to business operations. The medical industry is no exception, with a variety of tax breaks and support incentives in place. Not to mention, many healthcare facilities will work directly with hardware and tool providers to acquire what they need, cutting out a lot of the middle ground.
Essentially, it means there’s a lot of financial benefits associated with moving operations back home, particularly within the United States’ borders.
5. Enhanced Patent Protection and Intellectual Property Management
Most foreign countries have weak or ineffective intellectual property laws and systems in place. That makes it less challenging for third parties to steal ideas, trade secrets, or clone devices. Not only does this have a financial impact directly on manufacturers, but it also means the market floods with cheap knockoffs and flawed products.
When you’re talking about proprietary medical equipment specifically, shoddy copies are never beneficial to anyone—other than the morally bankrupt companies producing them. Maintaining the integrity of medical-grade products is essential to protect patients and healthcare providers alike.
Reshored operations benefit from improved patent protection and intellectual property laws, thus better protecting the devices and equipment in question.
6. Decreased Energy Costs
There was a time when energy and resources were much cheaper in other countries. That’s no longer the case, with energy costs rising considerably all across the world. Thanks to various changes in the U.S.—such as hydraulic fracturing—gas and power prices have dropped, in comparison.
Throughout manufacturing operations, it’s essential to keep energy costs down, not just to achieve higher sustainability, but also due to the impact on the surrounding environment. More and more organizations are looking to improve green operations and reduce their carbon footprint, so it makes a lot of sense to reshore facilities—especially when you can cut down on energy costs significantly by doing so.
7. Lower Shipping Costs
The closer to home the manufacturing facilities are, the less products, devices, and equipment have to move. Reducing the distance medical-grade devices have to travel offers several improvements.
For starters, it considerably shortens the product lifecycle and time to market, meaning healthcare providers get their equipment faster. Second, all parties can save money across the board because it’s much cheaper to transport and distribute goods locally.
8. Decreased Labor Costs
Offshoring and outsourced operations generally meant more affordable labor in the past. Thanks to recent legislation, market changes, and worker demands, that’s no longer the case. The monetary gain companies once realized by offshoring is either nonexistent or quite minimal.
Couple that with the rising costs of doing business in other countries, including more expensive resources, and it’s no longer in an organization’s best interest to maintain operations outside their home region. With profit margins of 20 to 30 percent—commonly seen in medical devices—it’s vital to cut down on unnecessary costs.
Because of the many benefits reshoring has to offer, it may be in the best interests of manufacturers to implement or consider the practice. For medical devices and equipment specifically, it should hold a lot of weight.
Medical devices require the highest quality standards possible, which is not likely achievable via offshore programs. Coupled with the economic, legal, and social changes we’re seeing happen around the world, it may make sense to relocate operations to a local region.
Megan Ray Nichols is a science writer and the editor of Schooled By Science. Her work regularly appears on Real Clear Science, Manufacturing.net, and Astronaut.com. Keep up with Megan by following her on Twitter.
