Contract manufacturing 2,150 The number of
life-saving equipment units used in the UK in 2020, when 20,900 units were ordered.
UK National Audit Office “That actually led to a surplus in some instances.
Within the first six months there was an excess of ventilators available in Western Europe. That’s a testament to the [strength of] the global supply chain for medical devices.” The surplus was significant too, with a 2020 investigation from the UK National Audit Office into the cost of ministers’ scrambles to stock up on the potentially life-saving equipment finding that, of the 20,900 units purchased, only 2,150 were used. The UK wasn’t the only country that overreacted to what it assumed would be industry-wide disruption, with the US shelling out $3bn for a national stockpile of 140,000 ventilators, half of which would go unused because they didn’t meet even basic requirements for the treatment of patients with Acute Respiratory Distress Syndrome – one of the main causes of Covid-linked mortality.
“The companies that are more affected are the high volume, low priced, more commodity end of the market. They’re the ones where disruptions to manufacturing and downstream distribution [have an impact].”
Part of the reason so many ventilators turned out to be unnecessary was the successful use of corticosteroids like Dexamethasone in Covid patients. But the impact wasn’t pronounced enough to detract from the fact the rush to secure ventilators was evidence of a profound misunderstanding at the state level of how manufacturing was being impacted by
China Plus One
An increasing shift toward regional supply chains, rising economic nationalism and persistent trade frictions between the US and China have been leading companies to reassess their global manufacturing and sourcing footprints. As a result, some companies are exploring alternative production sites or are adopting what is known as a China Plus One strategy. This means they are maintaining a strong manufacturing presence in China – which remains a crucial, fast-growing market – while looking for additional manufacturing locations. Covid-19 added further impetus to this trend by prompting companies to pay greater attention to the resilience of their supply chains and the risks of concentrating too much production in too few countries. A 2021 Gartner survey found that 87% of supply chain professionals plan to make investments that will improve resiliency; 84% of Japanese companies with domestic manufacturing operations are planning to diversify their supply chains, according to a Nikkei survey.
Southeast Asia is a prime candidate for new factory locations because
it offers a blend of low costs, specialty skills, and relatively free access to Western and Asian markets. In terms of productivity-adjusted wage rates, ASEAN economies such as Indonesia, Malaysia, the Philippines, and Thailand rank among the most cost competitive in the world. Ecosystems are also emerging to support industries beyond those seeking labour arbitrage. Among the reasons Samsung cited for selecting Vietnam as a new regional manufacturing hub, for example, were the quality of its young and educated workforce, widespread internet access, a domestic venture capital ecosystem,
and government incentives and support. Source: Boston Consulting Group (
www.bcg.com/publications/2021/asean-manufacturing)
the pandemic. When it comes to supply chain disruption, Davies says: “The companies that are more affected are the high volume, low priced, more commodity end of the market. They’re the ones where disruptions to manufacturing and downstream distribution [have an impact]. For companies that produce low volume, high priced medical devices, they’re less affected.”
A “decoupling”?
That high volume, low priced area of the market is exactly where China especially, but also India and other countries on the Asian continent, play the largest role. This meant while countries were busy prioritising equipment necessary for life-saving treatments, high demand for simple but vitally important items like Personal Protective Equipment, syringes and items used in laboratory testing was outpacing supply – much of which is concentrated in these countries. Since these shortages manifested, governments around the world have made a lot of noise about the need to move to suppliers closer to home – but has anything changed? “I distinctly remember early on in the pandemic, when there were shortages, a lot of governments were saying: ‘Gosh, we’ve got to reduce our reliance on low-cost bases in Asia’,” says Davies. “There have been some new initiatives,” he adds, pointing to science parks since established in areas like the Middle East, which has expressed a desire to play a greater role in the medical devices market, as well as moves to increase regional trade between the US, Canada and Mexico. “Looking at the data though, these initiatives are a drop in the ocean,” says Davies. “Here we are in 2022, China and other places in Asia continue to produce [at scale] and imports haven’t changed dramatically.” Cost of production, therefore, is still a main driver for choosing a manufacturing partner, whether it be for components or finished products. For China, this is hardly surprising given the amount of effort it employs to drive these costs down – including but not limited to: cheap land prices for manufacturers, government subsidies and loans with favourable interest rates.
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Medical Device Developments /
www.nsmedicaldevices.com Medical Device Developments /
www.nsmedicaldevices.com
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