The medical device market is expected to grow by almost $178 billion from 2023 to 2027 according to Technavio. Moreover, a Fortune Business Insights Analysis estimates the market to reach $799 billion by 2030. With such significant growth, manufacturing and supply chains must scale and mitigate risk to ensure supplies to customers and patients.  

For the past few decades, the medical device industry’s manufacturing base has been spread around the world. However, the pandemic exposed the heightened risk associated with this strategy, so proactive companies have started to focus more on regional manufacturing. For example, large companies are starting to embrace the approach of producing goods in Asia for Asia, producing goods in Europe for Europe, and so on. This has led to growth in regional manufacturing in Mexico, Costa Rica, Puerto Rico, and U.S. medical device hubs like Minnesota to support North America’s markets. These manufacturing hubs will have to scale rapidly to support the region’s sales forecasts.

Scaling Manufacturing

One of the largest global challenges in recent years has been the labor shortage. Those with access to a high-skilled talent pool will be able to scale and meet medtech’s growing demands, leaving the rest to struggle to meet customer needs, let alone scale to meet projections. According to a study by Deloitte and The Manufacturing Institute, 2 million jobs could go unfilled in the sector by 2030. Such a staggering shortfall is prompting proactive companies to focus on building scale.

The same study by Deloitte and The Manufacturing Institute also revealed that 77% of manufacturers expect to experience ongoing difficulties attracting and retaining manufacturing employees. This statistic is not surprising, as the labor participation rate is still lower than it was before the pandemic. According to the Bureau of Labor Statistics, the rate is currently almost 1% below the pre-pandemic rate with 2 million less employees available. To succeed in the next decade and meet these aggressive growth targets, smart companies must stand above the crowd.

The standout companies are attracting employees with strong yet caring cultures, progressive training and mentoring programs, and clear opportunities for advancement. In addition—although counter intuitive—the most attractive organizations to workers have strong performance management programs and expect continuous improvement and advancement. For example, a medical products manufacturer struggled to meet customer demand following major changes (due to a merger and implementation of a new ERP system). The company’s new CEO surrounded himself with workers who could successfully fulfill their job functions rather than those who only appeared capable of doing their jobs. The chief executive also rolled out a performance management system with 90-day performance conversations accompanied by employee rating and ranking that was attached to performance-based pay. As the company rewarded their people for positive results, its bottom line improved as well.

Creative Strategies

Tried and true strategies to find and retain people are no longer sufficient. Creative strategies will be required to succeed for decades to come. According to CBS News, the U.S. population is rapidly approaching “peak 65”—younger baby boomers are expected this year to initiate the biggest wave of retirements in U.S. history. Gen X (a.k.a., the “middle child” generation) has far fewer people, but early retirement has been gaining steam among members of this cohort. With fewer people available, proactive companies must utilize creative strategies: convincing retirees to work part-time, hiring veterans, and training high school and/or community college students for manufacturing work. Hard and fast college degree requirements will fall by the wayside.  

Utilizing ERP and Related Technologies

Proactive companies will need to upgrade to a modern enterprise resource planning (ERP) system and related technologies such as CRM (customer relationship management) and e-commerce systems. To automate repetitive tasks and better support ongoing operations, smart executives are upgrading their ERP system to use the latest technologies to support their teams. ERP systems will support the end-to-end order fulfillment process from taking customer orders, purchasing materials, and producing products to shipping and invoicing orders. Modern ERP systems provide enhanced visibility to order status throughout the order fulfillment cycle, thereby eliminating the need for significant manual intervention.

For example, a healthcare products manufacturer employed multiple people to track down an order status to satisfy concerned customers. A few months later, the manufacturer rolled out advanced planning capabilities in its ERP system. The decision was worthwhile—workers no longer had to run to the production floor and call shipping companies to track down orders; instead, the customer service representative could look up the order status in real time while speaking by phone to the customer, thereby providing improved service with fewer frustrated resources.

Automation and Advanced Technologies

In addition to upgrading their ERP, proactive companies are taking a leap forward in scaling their business by introducing automation and advanced technologies. Industrial robots are performing repetitive tasks on the floor and working around the clock. An equipment manufacturer, for instance, found a way to reduce the bottleneck in its production process from 13 hours to 20 minutes while simultaneously improving manufacturing quality. And more importantly, they reallocated three people to another bottleneck operation within the facility to better support revenue growth plans.

Artificial intelligence also is relieving humans of repetitive tasks while improving both quality and safety. Predictive maintenance can help companies best optimize resources by determining specific focus areas rather than adhering to typical preventative maintenance schedules. Predictive analytics helps identify topics that must be addressed, enabling companies to avoid reviewing reports and analyzing metrics to determine the best path forward. 3D printing is another advanced technology that allows manufacturers and distributors to print on demand instead of producing, storing, and transporting products for no reason as demand patterns change.  

Advanced Processes

In addition to people and technology, smart companies are upgrading their business planning processes to better support profitable growth and scaling operations. SIOP (Sales Inventory Operations Planning) processes forecast customer demand and revenue growth by region, product line, and/or customer, and provides insights into the best ways to scale operations and most optimally fulfill those plans.

Case in point: a medical products manufacturer expected aggressive growth by re-launching its core product line. The firm utilized a SIOP process to better forecast sales for its top customer by distribution center and for its business by region and product line. Through its advanced planning and forecasting system, the company improved customer service and reallocated products by customer distribution center as needed to support last-minute client changes. This particular organization won supplier of the year for its number one customer for two consecutive years by eliminating stockouts and growing the business while minimizing inventory levels. Furthermore, this company reallocated production among its manufacturing facilities to optimize production schedules and mitigate risks, and it reduced logistics costs by 20% by optimizing freight and improving transportation planning efficiencies while supporting significant revenue growth. In addition, the firm was able to proactively work with suppliers, provide forecasts, and agree upon contracts and innovations required to support growth goals.

As medtech grows, the successful companies will scale and mitigate risks throughout their manufacturing operations and end-to-end supply chain. Proactive executives are focused on transitioning to a regional source of supply to mitigate heightened risks and working on talent strategies to stand above the crowd and meet customer demand. Smart companies are supporting their talent by upgrading their ERP systems, rolling out advanced technologies, and upgrading business processes.

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CLAREMONT, CALIFORNIA – June 3, 2024 –  As Mexico ushers in its first female president, Claudia Sheinbaum Pardo, and reaffirms its commitment to the “fourth transformation,” Lisa Anderson, MBA, CSCP, CLTD, President of LMA Consulting Group Inc., shares her insights on how this political shift is expected to enhance nearshoring opportunities for U.S. manufacturers.

During the presidential debates, candidates highlighted several key initiatives that aim to streamline the movement of goods across borders. Proposed improvements include modernizing border crossings, enhancing legal certainty, and upgrading roads and rail networks. Such advancements are crucial for U.S. businesses looking to nearshore production and reduce dependency on distant suppliers.

“With these proposed improvements in infrastructure and legal frameworks, U.S. manufacturers can anticipate more efficient and reliable supply chains,” states Ms. Anderson. “The commitment to modernizing cross-border interactions directly supports the nearshoring trend, which has been years in the making. This not only helps mitigate supply chain risks but also enhances the overall competitiveness of American manufacturing sectors.”

The nearshoring wave is not just about geographical proximity; it’s about creating a more responsive and adaptable supply chain framework. “As Mexico invests in its logistics and infrastructure, U.S. businesses stand to gain significantly. These enhancements will allow for quicker turnaround times, lower transport costs, and ultimately, boost market responsiveness.”

LMA Consulting continues to guide U.S. manufacturers in leveraging these new opportunities through strategic supply chain planning such as SIOP (Sales Inventory Operations Planning) and supply chain optimization. “Our expertise helps businesses capitalize on regional sourcing and nearshoring benefits, ensuring that they not only survive but thrive in this evolving landscape,” adds Anderson.

LMA Consulting specializes in guiding businesses through turbulent times, employing strategic processes to build resilience and drive growth. For more insights and to explore the strategies, download Ms. Anderson’s eBook, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth, from the LMA Consulting website. As LMA Consulting continues to lead the way in navigating supply chain complexities, it offers strategic insights and practical tools like the firm’s Supply Chain Profitability Assessment tool that enables organizations to critically evaluate and enhance their supply chain operations.

About LMA Consulting Group – Lisa Anderson, MBA, CSCP, CLTD

Lisa Anderson is the founder and president of LMA Consulting Group, Inc., specializing in manufacturing strategy and end-to-end supply chain transformation.  A recognized supply chain thought leader, Ms. Anderson has been named a Top 40 B2B Tech Influencer, a Top 16 ERP Expert to Follow, among the Top 10 Women in Supply Chain, in the top 55 Supply Chain & Logistics Experts and a woman leader in Supply Chain.  Her primer, “I’ve Been Thinking.” offers strategies for creating bold customer promises and profits. An expert on the SIOP process, advancing innovation and enhancing supply chain resilience, Ms. Anderson was most recently interviewed by Bloomberg, Inc. Magazine, the LA Times, PBS and the BBC. For information about the Supply Chain industry, sign up for her Profit Through People® Newsletter or for a copy of her book, visit LMA Consulting Group.                 
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Media Contact Kathleen McEntee | Kathleen McEntee & Associates, Ltd. | p. (760) 262 – 4080 | KMcEntee@KMcEnteeAssoc.com

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Modern ERP No Longer Enough

Although we have been emphasizing the need for a modern ERP system to meet continually evolving customer expectations, modern ERP alone is no longer enough. To thrive in the next decade will require business AI (artificial intelligence) to be embedded throughout your ERP system, accompanied by advanced technologies, innovative partners, and supporting learning systems. SAP has invested in the backbone of its system to support future growth which will become an assumption, not a differentiator for those that want to succeed in the next decade. 

For example, at #SAPSapphire, SAP’s generative AI copilot, Joule was a hot topic. When combined with business applications in SAP as well as Microsoft 365, it can “unlock greater employee productivity and will enable enterprises to accelerate customer-centric innovation in a unified experience.” according to Scott Guthrie, Executive Vice President, Cloud + AI, Microsoft. In today’s complex, inflationary environment, clients are looking for ways to increase productivity, engage employees, and educate users. Joule in essence performs like a ChatGPT for ERP. 

AI Driving Customer Value 

Engineering intensive companies such as engineer-to-order (ETO) and configure-to-order (CTO) industries struggle to provide customer value on the fly. Powered by generative AI, SAP can now generate product and configuration recommendations
quickly and accurately in these engineering intensive industries. Additionally, SAP announced additional strategic partnership initiatives with NVIDIA that would allow manufacturing resources to interact with a physically based digital twin of a complex product within a larger, industrial digital twin of the entire factory. This functionality will enable the optimization of the product design and the manufacturing process. 

Additionally, the better your sales forecast, the more likely your order fulfillment process will ensure a superior customer experience. Thus, predictive forecasting capabilities and predictive product and people recommendations (improving close rates) will improve your ability to serve customers with high service levels (OTIF, lead times, delivery performance) and grow revenue. AI also powers e-commerce with shopping assistants and the ability to tailor and personalize service to drive customer value. 

Resilient Supply Chains Makes the Cut

The critical importance of supply chains has been elevated to the executive suite. For example, SAP touted a 10% increase in resiliency of supply chains of their customers implementing SAP solutions. As we discuss frequently, the world is chock full of risks. For example, a few risks that pop to mind include:

• Geopolitical risk: There is a plethora of risks in today’s environment. For example, China continues to threaten Taiwan, Houthi rebels attack container ships in the Suez Canal, and China is aggressive in the South China Seas. 
• Weather related impacts: The Panama Canal ‘s capacity was reduced by around 50% in the last year due to drought conditions in Panama, thereby delaying, diverting, and increasing the cost of goods movement.
• Strikes & other labor impacts: There have been concerns over potential rail strikes, air freight strikes, port strikes, and more. Since logistics is a system of systems, one delay in the supply chain impacts the rest of the supply chain.
• Regulatory risk: Changing regulations can bring the supply chain to a halt. For example, a Senate probe found that BMW, Jaguar Land Rover and Volkswagen purchased parts from a banned Chinese supplier, some of which were used in vehicles imported to the U.S. VW voluntarily disclosed that some of its vehicles bound for the U.S. contained these parts from the banned supplier that may have used forced labor, which led to holdups at U.S. ports. 

Thus, having a resilient supply chain is of paramount importance. SAP announced an expanded strategic partnership with Google to integrate Google’s Gemini AI assistant with SAP’s Integrated Business Planning (IBP) for Supply Chain and SAP’s generative AI assistant Joule to better predict and mitigate supply chain risks in an unpredictable and volatile global context. We are especially excited about the potential for utilizing AI capabilities with SIOP (Sales Inventory Operations Planning) in the IBP solution. These solutions will help enterprises better predict and mitigate supply-chain risks to minimize disruptions and maintain optimal inventory levels.

Manufacturing Takes a Leap Forward

Manufacturing teams can take a leap forward with digital boards. Instead of relying on manual production boards that are out-of-date within minutes of being written, digitizing this information and displaying on monitors will arm your manufacturing teams with up-to-date information for decision-making. With this process upgrade, they can monitor, rapidly identify bottlenecks / issues, and evaluate solutions, thereby improving operational performance. 

Smart manufacturers are taking this a step further and digitizing their process design. By aligning their systems with the appropriate process steps, they can have work instructions at their fingertips and integrate quality confirmations and visual inspections into the process. Although a standard operating procedure, the recent missteps with Boeing prove the importance of monitoring this critical step. Advanced technologies can take it a step further. For example, digital twins can provide visual clarity and enable a leap forward when tied to IoT (internet of things) and asset management, enabling predictive maintenance and other advanced technologies. 

Proactive Approach to Supply Chain Disruptions & Sustainability

Supply chain disruptions abound, and companies don’t have the information at their fingertips to respond rapidly to changing conditions. For example, Houthi rebels started attacking container ships in the Suez Canal, diverting ships around the southern tip of Africa, extending the trip by 10 days. Depending on your suppliers, routes, customer requirements, and other factors, you could evaluate your alternatives (re-routing through the Panama Canal, re-routing to the West Coast ports of the U.S. and using rail to ship to the east coast, reallocating suppliers) and make the best decision to ensure customer service with the best profitability by using control tower capabilities. Instead of using gut feel or losing precious time for complex analyses, you will gain rapid visibility to your situation, options, and impacts (customer, financial). 

Sustainability control towers provide visibility into your carbon footprint and emissions of your end-to-end supply chain. Although clients want to achieve the triple bottom line, as ESG requirements and environmental regulations increase, having a vehicle to track, monitor, and report this type of information manually is overwhelming. Thus, control tower capabilities can automate required reporting while providing insights into your end-to-end supply chain. For example, proactive companies are incorporating carbon footprint data into their SIOP process as they evaluate suppliers, make vs buy decisions etc. Since it is a system of systems, you might be pursuing aggressive goals with a link in your supply chain while another link might more than offsets all of your efforts. Having these insights, powered with an AI engine will reveal valuable insights. 

The Bottom Line

Companies are at an inflection point. Using old technologies and manual processes will no longer “work”. The strong will get stronger, and the rest will go by the wayside. There will be more opportunities than ever before for those companies that invest in the appropriate talent, technology, and infrastructure as they will leave the competition in the dust, similarly, to driving an F1 car going from 0 to 60mph in 2.6 seconds in a race vs a Yugo going from 0 to 60mph in 14 seconds. They will have the opportunity to grow revenue and secure their position in the market for decades to come. 

Did you like this article?  Continue reading on this topic:
Industrial Robots for Manufacturing and Supply Chain Success

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Logistics = System of Systems

In attending the Southern California E-Commerce & Logistics Summit, it is clear that focusing on global logistics as a system of systems is paramount (special shout out to Fran Inman for the use of her phrase). Not one link in the supply chain can succeed on its own. For example, you might have a reliable, cost-effective supplier in Asia; however, if the product gets held up in trucks or at the Asian ports, cannot cross the South China Seas because China is aggressively doing military exercises, gets stuck in a line at the Panama Canal due to drought conditions, gets diverted from the Suez Canal due to Iran-backed Houthi rebels, gets stuck in a labor strike or diverts around a natural disaster or other event (such as the Baltimore bridge collapse), or cannot get unloaded at the ports in the U.S. due to labor shortages or technology issues, cannot get picked up at the ports due to lack of trucks or drivers due to regulations, or gets stuck at cross-dock facilities, in warehouses, trucks, rail, or at commercial airports, the entire system comes to a halt. Logistics is dependent on a system of systems.

Latest Trends in Global Logistics: Challenges & Risks

The trends in global logistics relate directly back to the challenges, risks, and opportunities in the system of systems. The highlights of key challenges and risks that pop to mind from the Summit include:

• Regulations overload: As important as sustainability and green concepts are in this industry, the common theme is the urgent need to move from an environment of unrealistic regulations overload to common sense practical progress towards environmental goals combined with business success.
• Technology & Innovations: Both a risk and opportunity, technologies cannot keep up with top-down regulations.
• Cyber security: The more technological advances, the more focus on cyber security required.
• Energy costs & availability: This topic keeps logistics executives up at night! California’s cost of electricity is twice the rest of the country, yet electricity is cornerstone to future plans. Regardless of cost, the electricity and charging stations required to support the future plans are nowhere near a practical reality, and the technology doesn’t yet exist to bring it to fruition.
• Bringing the system of system’s partners together: Each partner in the supply chain (ports, rail, trucks, brokers, manufacturers, beneficial cargo owner, public partners, etc.) has different goals and responsibilities (financial, technology, etc.). Typically, each link is a different company, potentially located in a different country with different issues.
• Theft: Since logistics relates directly to retail, cargo theft and retail theft is a big topic. 58% of ALL cargo theft occurs at the L.A. and Long Beach ports. Since they supply 40% of the country’s products, that is disproportionate.

Opportunities & The Path Forward

Substantial progress has been made. For example, the ports are performing well. In 2024 to date, they are 10% above the pre-pandemic peak and truck dwell times are the lowest since 2019. Rail dwell times are also down. There has been tremendous progress with technology advancements related to achieving sustainability goals in addition to progress with autonomous vehicles, new energy sources such as hydrogen and nuclear etc.

In addition to continuing to be cost efficient and reliable, the future will be bright for those that focus on the following:

• Technology advancements: Technology must be a critical priority to address the challenges and risks while providing additional value to customers. Each link in the global supply chain discussed technology advances, automation, AI, and more.
• Supply chain agility & resilience: We must focus on the appropriate programs to increase agility, resilience, and scalability.
• Collaboration & Partners: The only route to success with the system of systems will be collaborating with our typical and atypical partners (such as competitors).
• Practical solutions to energy: Uncommon common sense will go a long way.
• Practical regulations (fewer focused on what’s most important) with an objective of freeing up companies to focus on innovation to achieve environmental goals.
• Innovation: Only innovators will be in business down-the-line.
• People & workforce development: Goods movement can provide value-added jobs to communities that propel our goods delivery systems (Amazon, Walmart, etc.). We must be ahead of technology advances and providing education, training and workforce development.
• Process improvement: The ports are moving from pull to push to accelerate goods through the ports to trains and warehouses. People and technology must be connected with upgraded processes. For example, utilize SIOP (Sales Inventory Operations Planning) to best assess how to optimize your manufacturing and logistics network with our customer demand. If you want to learn more about how to implement these types of strategies, download our complimentary e-book, SIOP: Creating Predictable Revenue and EBITDA Growth.

Logistics has gained a “seat at the table” and is cornerstone to success. If goods don’t move, the system of systems grinds to a halt, impacting businesses, consumers and the economy.

If you are interested in reading more on this topic:
Diversify to Thrive in Manufacturing and Supply Chain

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The China Risk

The risk of China has increased dramatically over the years. Early on, executives were concerned about intellectual property theft. Although that is still a concern, there are much bigger issues. For example, executives are assessing:

• Taiwan threat: China has been aggressively threatening Taiwan, running military exercises and much more. Since Taiwan produces 90% of the world’s advanced computer chips, this is concerning on multiple levels.
• South China Seas tensions: China has also been taking the stance that they ‘own’ the South China Seas and can decide who will pass. Clearly, there is heightened risk in the South China Seas.
• Security threat: According to the laws in China, if data goes through a server in China (regardless of where the company is owned), in essence, China can take that data. In today’s advanced computer age, what data doesn’t go through a server? Companies are realizing this risk.
• Policies like Zero-COVID: Executives realized that China can cut off manufacturing and the supply chain at any time and don’t want to assume this level of risk.
• The opposite of green: Although China has been #1 in the world in manufacturing for many years, they do not have the same environmental laws as the United States. In fact, the situation is quite the opposite. The U.S. produces the cleanest natural gas and has invested heavily in environmentally friendly oil and natural gas production. For example, according to the Washington Post, the quickest route to reducing carbon emissions is American natural gas. On the other hand, China has been permitting 2 coal plants a week.
• Water shortages: Manufacturing requires water and electricity, and China has scarce supply of both (and water is used to generate electricity). In fact, a portion of China has worse water conditions than Egypt. Read about this serious issue in our article.
• Logistics risks: Supply chain chokepoints have come into focus as the Panama Canal experienced a drought (impacting 40% of the east coast shipments from Northeast Asia), the Suez Canal experienced Houthi rebel attacks (diverting container ships around the southern tip of Africa), the Baltimore bridge collapse, natural disasters, ports and goods movement strikes, and other issues like the Ukraine war’s impact on commodities.
• And more such as forced labor……

If this wasn’t enough to reevaluate your supply chain, the percentage of labor cost in products continues to go down as automation, robotics, and other improvements are rolled out. In addition, labor rates in China continue to increase. In fact, Mexico’s labor rates are lower than China, and Mexico is covered by USMCA. Aside from the sunk cost of capital invested in China, product costs are telling a different story.

Examples of Succeeding with Regional Manufacturing

The feedback we hear from most executives is concern about costs. Thus, we thought providing an example is in order. Motorola Solutions touts solving for safer communities, safer schools, safer hospitals, safer stadiums… safer everywhere. Historically, Motorola Solutions was one of the first multinationals in China that built the largest continuous cellular network and the first Chinese mobile phone with GPS. The bottom line is that they were $3 Billion revenue manufactured in China and $15,000 elsewhere.

Their CEO decided to get out of China for manufacturing and R&D after trade secrets and copywritten software were stolen. It took several years, but they are now at virtually $0 manufactured in China and $50 Billion revenue manufactured elsewhere. They support 911, first responders, police etc. with radio communications.

In another example, a company in Southern California, Do It American, built their business in taking volume from China and overseas. They serve some of the largest public utilities in the United States has several large OEM customers. Do It American focuses on lean manufacturing, people engagement, and they use robotics and technologies to supplement and support their workforce. In essence, they are going after supply chain optimization, reliability and resilience with regional manufacturing.

Go Regional in Manufacturing

Not only are proactive companies diversifying their manufacturing base and optimizing their supply chain, but they are also taking advantage of opportunities to outperform their competition with quick responsiveness, rapid R&D, and fast customization. In addition to reshoring and nearshoring (friendly-shoring), they are expanding manufacturing, partnering with additional regional manufacturers and building / opening new facilities. These advantages are leading to revenue opportunities while also creating more jobs. According to the National Association of Manufacturers, for every $1 spent in manufacturing, there is a total impact of $2.69 to the overall economy.

As you look to expand manufacturing, utilize SIOP (Sales Inventory Operations Planning) to best assess how to optimize and align your manufacturing and supply chain to your revenue plans. Assess how to best utilize your assets, resources, supplier base, working capital etc. across your network and evaluate your opportunities to expand, scale up and/or down rapidly, etc. If you want to learn more about how to implement these types of strategies, download our complimentary e-book, SIOP: Creating Predictable Revenue and EBITDA Growth.

If you are interested in reading more on this topic:
Diversify to Thrive in Manufacturing and Supply Chain

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How is the Supply Chain Changing?

Lisa Anderson, a management and supply chain consultant and founder of LMA consulting, discusses the history of container shipping, how the global supply chain has changed to become more sustainable, how COVID has affected shipping, issues with the Panama Canal, attacks at ports, logistic infrastructure, and other challenges.

Click here to download the MP3 file.

Originally posted on the Green Sense Show.

The post Supply Chain – Green Sense Minute | Green Sense Radio appeared first on LMA-Consulting Group, a supply chain consulting firm.

Companies are broadly more interested in reshoring and near-shoring now than in years past, said Lisa Anderson, a supply chain expert at LMA Consulting Group. Executives and board members see supply chain disruptions—from the pandemic uncertainty to the drought in the Panama Canal or disruptions in the Suez Canal—as headaches they’d rather avoid.

“It’s definitely getting to be in the back of executives’ minds,” Anderson said.

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Bogus ‘Made in USA’ Claims Flourish. The FTC Is Cracking Down

Old Southern Brass markets itself as a Florida-based glassware company that proudly honors and serves US veterans with specialty memorabilia such as shot glasses embedded with a copper bullet.

“Nothing says ‘Merica like making products right here at home,” the company once crowed on its American flag-adorned website.

Except it wasn’t practicing what it preached: Old Southern Brass’ glassware was made in China, according to the Federal Trade Commission.

The FTC has long been a watchdog against false “Made in USA” claims, but the agency has been ramping up enforcement. Since getting power three years ago to impose new financial penalties, it’s targeted violators as varied as tractor company Kubota and a t-shirt maker that sold “FJB” shirts to critics of President Joe Biden.

The trade commission hit homeware giant Williams Sonomawith a record $3.18 million penalty in April for falsely claiming its Pottery Barn Teen mattress pads were American-made. It was the third such FTC penalty this year, amid a string of at least 51 investigations and enforcements under its enhanced powers, according to agency records.

The heightened focus on the misleading claims coincides with a broader Biden administration push to incentivize companies to expand their US-based manufacturing.

At the same time, American customers are looking to keep money in their communities with their purchases, and they’re willing to pay a premium to do it. Some have pushed back on their own against misleading marketing; shoppers proposed a class-action lawsuit against the maker of Reynolds aluminum foil over its Made in America claims.

In other cases, the FTC has arranged refunds for buyers of mislabeled products. Its ultimate goal is to even the marketing playing field for those whose products legitimately qualify as America-made.

…

Supply Chain Moves

Depending on the industry, there are a host of benefits to making products in the US: There’s no geopolitical risk and less forced labor risk, particularly for goods made in China. There are also fewer supply chain disruptions with US-made products, and companies typically have a better handle on inventory and quality control.

For some industries, making goods in America still tends to be more expensive than abroad, but reshoring is “the long game,” said Scott Paul, president of the Alliance for American Manufacturing, a partnership between US manufacturers and the United Steelworkers.

“There are still a lot of obstacles that stand in the way, but it’s more favorable than it has been for a very long time,” he said.

Companies are broadly more interested in reshoring and near-shoring now than in years past, said Lisa Anderson, a supply chain expert at LMA Consulting Group. Executives and board members see supply chain disruptions—from the pandemic uncertainty to the drought in the Panama Canal or disruptions in the Suez Canal—as headaches they’d rather avoid.

“It’s definitely getting to be in the back of executives’ minds,” Anderson said.

Published in Bloomberg Law, 21 May 2024

Read the full article here.

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Diversify Your Supply Chain

If you are dependent on any region, non-friendly country, customer, supplier, material, or anything noteworthy to your success, you must diversify. Although this concept has always been true, the pandemic highlighted the critical importance. Some companies simply lost their source of supply overnight and have not recovered if not diversified.

From a financial and customer satisfaction perspective, it is always unacceptable, but not necessarily life threatening.  For products related to national security, medical/ healthcare, aerospace and defense, food and shelter and critical products, this outcome is completely unacceptable and high risk. Thus, companies are finally starting to diversify. For example, Mattel is closing a plant in China to diversify its production footprint. They are 50% made in China and actively working to decrease that number.

Examples of Supplier Diversification

Ripping from the headlines, you can find several examples of supplier diversification. For example, Avery Dennison credited supplier diversification for their success in working through the Finland ports strike. Speaking of port strikes, several large companies moved a portion of volume from the L.A. and Long Beach ports after suffering through the pandemic and when concerned about the labor negotiations.

A healthcare products company paid 20% more to get ongoing supply from a U.S. nonwoven supplier to supplement their Brazil supplier to the chagrin of their Board of Directors from a financial perspective. However, when a strike occurred at the ports in Brazil, they were able to seamlessly ramp up at their U.S. supplier and satisfy customer needs. If they hadn’t kept an ongoing supply, their backup supplier would not have prioritized them.

A small food and beverage manufacturer had a key customer for 70% of the business. Unfortunately, although that can happen as you grow the business, you must actively work to diversify as there is no doubt that customer will run into issues at some point in time. When that happens, you are likely to go out of business or suffer significantly.

Look no further than the current Boeing issues. Much of the commercial aerospace industry will be dependent on Boeing and Airbus. Complete diversification is not achievable. Clients have multiple customers; however, down-the-line, they are still dependent on Boeing and/or Airbus most likely. For example, with Boeing’s recent quality control issues, all down-the-line suppliers were ramping up to around 50 aircraft per month from around 36 aircraft per month when the quality issues hit. Now, the ramp up plans are uncertain if not non-existent until the quality issues are resolved and the FDA gives Boeing permission to ramp up. Airbus has experienced issues as well and so even with heavy backlogs, volumes will be down for an interim period.

Diversify Your Manufacturing Base

As we have discussed many times, being dependent on China will become a large problem. It could seem like a great, low-cost plan for the foreseeable future; however, when China gets into a global conflict (financial, military), you will be cut off. Or when your intellectual property and/or business information is stolen because it was on a China server, that might be the end. If you think you’ve diversified to Mexico but China owns the factory (for example, they are building auto factories currently), be aware of your risk. This is especially critical for national security and other key categories such as medical products. For example, to learn more about regional sourcing in MedTech read our article “MedTech’s Supply Chain: Global Risks Driving Regional Manufacturing“.

Proactive companies are diversifying their manufacturing base to multiple regions, multiple facilities related to multiple suppliers, multiple labor forces, etc. Companies are reshoring and nearshoring (friendly-shoring). Ensure you aren’t trading one issue for another as you should consider talent, regulations, energy, water, natural resources, your supplier base, transportation and logistics infrastructure, etc. Assess these types of diversification opportunities with a SIOP (Sales Inventory Operations Planning) process. Determine how to best utilize your assets, resources, supplier base, working capital etc. across your network and evaluate your opportunities to expand, scale up and/or down rapidly, etc. SIOP will also help evaluate margin opportunities If you want to learn more about how to implement these types of strategies, download our complimentary e-book, SIOP: Creating Predictable Revenue and EBITDA Growth.

If you are interested in reading more on this topic:
Sustainable Manufacturing = Uncommon Common Sense

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Manufacturers should work to reduce materials, energy consumption, and inefficiencies to improve their carbon footprint and achieve the triple bottom line.

Sustainable manufacturing practices equate to uncommon common sense. In essence, the less waste, greater efficiency, and reduced materials and energy used in the manufacturing process, the more sustainable, better for the environment, and better for the bottom line. According to the National Association of Manufacturers (NAM), sustainability is a top concern of manufacturers, and an overwhelming majority of manufacturers agree that manufacturing has a special responsibility to society to become more sustainable and accelerate the transition to a future circular industrial economy. Since manufacturers in the United States are significantly more sustainable than manufacturers in China, sustainability provides another reason for regional manufacturing and reshoring.

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According to UPS’s CEO, UPS’s network flexibility gave it an edge over FedEx in landing a deal with the U.S. Postal Service. Instead of following a hub-and-spoke model to service the USPS, UPS can use its regional gateways to support the local and regional requirements of the USPS customers. UPS believes it will be a “win” for their business as they do not expect to need to purchase additional aircraft; instead, they will hire additional pilots to support the volume.

FedEx currently handles the USPS volume with its hub-and-spoke system and will ramp down at the end of its contract on September 30th. It has been a bit of a drag on its profitability as the Postal Service shifts air cargo volume to its less-expensive ground network. The bottom line is that FedEx’s hub-and-spoke system is less flexible infrastructure in supporting regional demand.

Regional Flexibility is the Name of the Game

Similar to manufacturing circles, regional flexibility is becoming the name of the game. Although regional servicing isn’t always preferred over hub-and-spoke capabilities, it provides flexibility to meet local and regional needs. There is no reason to ship products across the country if they are needed within the region. As regional manufacturing gain momentum, regional shipping and logistics support will also increase in importance. Thus, flexibility to ensure speed, cost effectiveness, and tailored service is paramount.

Lessons Learned from UPS

UPS is focused on partnerships as demonstrated by its new partnership with USPS. Clearly, UPS is forward-thinking in how to better utilize its network and assets while serving new customers. The key will be in whether the transition can be rolled out seamlessly while providing a volume advantage for UPS.

Beyond partnerships, UPS has demonstrated that it continually invests in advanced technologies and is willing to test new ideas and pilot concepts. This type of flexibility, creativity and innovative agility will be critical in serving regional customers with the continued high levels of service expected at greater margins. For example, UPS Velocity has shown its leading edge service with its focus on artificial intelligence (AI) and automation. There are over 700 bots and it is the blueprint of the future for e-commerce. Additionally, UPS is using generative AI to streamline its customer service operations. However, the key is that UPS is not automating to automate (and simply slash costs); its goal is to provide support rapidly with customized answers while dedicating its customer service agents to the more complex problems. High tech, high touch is a winning formula, especially in servicing regional customers.

UPS is also looking across their network and cross-functionally to align demand and supply in the best way to service customers at the lowest cost. By reallocating volumes to under-utilized assets to ramp up the USPS partnership, they can increase their efficiencies and utilization rates. These types of decisions are assessed in a SIOP (Sales Inventory Operations Planning) process to better align demand with supply in a way that most effectively utilizes assets and maximizes margins. If you want to learn more about how to implement these types of strategies, download our complimentary e-book, SIOP: Creating Predictable Revenue and EBITDA Growth.

If you are interested in reading more on this topic:
A Potential UPS Strike, Supply Chain Impacts & Strategies

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