Can digital production bring relief?

The United States is raising tariffs on medical products imported from China as part of the Biden administration’s sweeping tariff increases announced last week.

With tariffs on syringes and needles increasing from 0% to 50% and similar increases on other critical medical items, manufacturers are grappling with the possibility of supply chain disruptions and increased production costs. And this is happening just as producers are recovering from global supply chain crisis that have plagued the industry during the Covid-19 pandemic.

“If you work in supply chain or operations, the last five years have been unprecedented and I think supply chain leaders have the hardest job in any company right now,” said Dave Evans, CEO and co-founder of Fictiv MD+DI.

President Biden’s administration has justified the tariff increases as a necessary measure to protect American workers and companies from China’s unfair trade practices, especially in the transfer of technology and intellectual property. The tariffs are intended to encourage China to refrain from these practices while strengthening the U.S. domestic industrial base.

So while tariffs on Chinese-made goods weren’t a complete surprise given ongoing geopolitical tensions and the current election year, Evans said the policy certainly has far-reaching implications for supply chain leaders who continue to be in a bind. highly dependent on China for the vast majority of their supply chain.

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Tariff rates on syringes and needles will increase from 0% to 50% in 2024. For personal protective equipment (PPE), including some respirators and face masks, tariff rates will increase from 0-7.5% to 25% this year %. Customs duties on rubber medical and surgical gloves will increase from 7.5% to 25% in 2026.

According to census data, the United States imported $14.05 billion worth of medical equipment in 2023, and has imported $14.99 billion so far this year.

The American Medical Manufacturers Association (AMMA) supports the new tariffs, calling them “a pivotal moment in America’s quest for self-reliance and true resilience, particularly for personal protective equipment and critical medical products.”

Eric Axel, AMMA’s executive director, said the organization expects the measures to have a “transformative impact, revitalizing the nation’s manufacturing base and protecting the health and safety of our nation.”

The Biden administration noted that these increases will help support and maintain a strong domestic industrial base for medical supplies that have been essential in the response to the Covid-19 pandemic and continue to be used in hospitals across the company.

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“The federal government and the private sector have made significant investments to build domestic manufacturing of these and other medical products to ensure America’s health care workers and patients have access to critical medical products when they need them,” the Biden administration said in a statement. “American companies are now struggling to compete with low-cost Chinese supplies entering the market, sometimes of such poor quality that they may raise safety concerns for health care workers and patients.”

Meanwhile, The FDA is cracking down on poorly made plastic syringes from China urging Americans not to use them.

Tariffs could lead to higher costs and potential shortages of these key medical items. This also means increased supply chain costs and variability.

Tariffs on components often used in modern medical devices, such as semiconductor chips and batteriesand materials such as aluminum will also impact the medical supply chain.

When reseating i Nearshoring offer attractive solutions to some US manufacturers, the benefits of this trend must be weighed against other factors such as labor costs. Evans noted that there remains a large disparity in labor rates between China and the United States.

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“So, even with tariffs, there are a lot of supply chain teams that today will be calculating transportation costs based on tariffs,” Evans said.

Tariffs help justify digital production

Fictiv works with a wide range of medical device manufacturers, from the likes of Medtronic, Johnson & Johnson and Intuitive Surgical to innovative startups like TransMed7. Evans said Fictiv customers now benefit from its global delivery network more than ever.

“Supply chain leaders are developing action plans that take geopolitical risk into account as part of their cost reduction efforts,” he said.

Fictiv has developed a cloud-based digital production network that has helped customers see cycle time increases of 40% or more, engineering productivity of 20% or more, and significant reductions in operational costs associated with managing an overpriced, fragmented supply chain.
TransMed7 serves as a case study that differentiates Fictiv from traditional contract manufacturers.

“Before they met with us, the typical medical product development cycle was about six to seven years. We’ve reduced that to a year,” Evans said MD+DI in a 2022 interview “…In seven months, they built just over 40 injection molding tools for us.”

Digital manufacturing can reduce fixed costs, CapEx and overhead costs, enabling just-in-time production.

“We have seen huge productivity gains when people leverage digital solutions compared to a more traditional supply chain or contract manufacturing segment,” Evans said.

Looking ahead, Evans predicts that current trade and supply chain challenges will drive greater adoption of digital manufacturing technologies. He says companies that use digital solutions will gain a competitive advantage, while those that stick to traditional methods risk being left behind.

“With all the disruption that has occurred in the supply chain over the last five years, there is no return to the status quo,” Evans said. “…What is slowly happening is that the larger echelons (of companies) are really starting to embrace this as their traditional supply chains are failing because of these threats.”