Medical Design Briefs - June 2024 - 32

How Inflation
Is Driving Onshoring
(and What That Means to Device Manufacturers)
T
he global economy is changing,
and for the first time in
more than half a century, economic
reality is bringing manufacturing
back to the United
States. Global inflation, coupled with vulnerabilities
in the supply chain exposed
by the pandemic, makes manufacturing
in the United States cheaper and less risky.
Decades ago, the low cost of Chinese labor
made offshoring look like such an attractive
prospect that many investors jumped on
board. But in many ways, it wasn't always the
bargain they were expecting.
Take Kodak, for example. With HP
dominating the inkjet printer market
and the biggest profit margin in printer
supplies, Kodak needed a new angle.
They decided to move inkjet printer and
cartridge manufacturing to China to cut
costs and offer printer ink at a lower
price point. However, this move resulted
in a number of cost overruns and other
issues they clearly did not anticipate.1
It was not uncommon that navigating
customs at the time required paying bribes
to key officials to keep shipments moving.
Unexpected delays in customs left large
amounts of chemicals sitting at the ports
degrading as Kodak scrambled to make
necessary arrangements. Port delays became
a major issue again in 2021 when the
pandemic slowed shipping to a crawl, and
foreign container ships waited for months
with no workers to unload cargo. Whole
chemical shipments were ruined.
Quality control was another significant
issue. Kodak continued to manage every32
thing
from its headquarters in Rochester,
NY, but this proved impractical. They had
sent staffers and management to China to
train factory workers in the process and
oversee quality. Sending Americans to a
foreign country for months several times
a year is a challenge - and a test of company
culture. It was expensive both in
terms of cost and human capital.
Today, companies have a much better
grasp of the true cost and risks associated
with moving manufacturing overseas.
" Many corporations are all
about shareholder value
today and only really give lip
service to their culture,
people, or brand quality. "
These persistent issues significantly impact
the decision to manufacture in the
states, or at least between the United
States, Mexico, and Canada.
How Fast Is This Shift Happening?
We're at the beginning of the shift, and
part of the problem is that we still haven't
figured out how to be cost competitive.
The advent of automation held the promise
of cost competitiveness, but the costs of
initial investment and learning curve for
sophisticated manufacturing robots is in
the millions, and only the biggest manufacturers
can afford it. As the automation
technology matures and expanding use of
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artificial intelligence (AI) helps improve
efficiency, costs will naturally come down.
Realistically, we're looking at a 20year
timeline. Before AI-driven manufacturing
robots can become available
to smaller businesses, they'll need new
infrastructure, which will be painful and
require investment in tooling, processes,
and systems. While some are nervous
about AI, it will ultimately play a key role
in lowering manufacturing costs and
making American manufacturing affordable
for small to medium businesses.
On the Horizon
New AI-enhanced ERP programs (enterprise
resource planning) hold the
promise of providing significantly increased
predictive tools to make monitoring,
control, and quality processes
more robust. As companies grow, ERP
becomes more important for mining
and analyzing data from increasingly
complex integrated systems.
The current problem is the expense.
ERP programs are built on a subscription
model, and it easily costs six figures.
To fund an ERP for a company the size
of HP and $50K to $100K per year for a
30-100-person operation, not including
training costs, making it a huge investment.
They have an extensive learning
curve, so training your entire team is a
difficult undertaking.
A good ERP tool helps track and control
almost every aspect of a manufacturing
operation. Such tools help you collect
data to give you clear cut KPI's (key
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