Building Resilience into the Nation's Medical Product Supply Chains (2022) / Chapter Skim
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3 Globalization of U.S. Medical Product Supply Chains
3 Globalization of U.S. Medical Product Supply Chains
Pages 69-94
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From page 69... ...
Act, addressing some of the gaps in medical product supply chains, as discussed in Chapter 2. COVID-19 also pushed several government actors to propose on-shoring of medical product supply chains -- the domestic manufacture and production of medical products or critical components of those products -- as a solution to make the supply chain more resilient.
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medical product supply chains and discusses the rationale for viewing on-shoring as one option among many, rather than as a panacea for improving global medical product supply chain resilience. GLOBAL LANDSCAPE OF MEDICAL PRODUCT SUPPLY CHAINS As mentioned in Chapter 1, the shift to overseas manufacturing of medical products is reflective of a broader trend on the part of the U.S.
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. Given the region's long history of medical research, some of the world's largest medical product firms have European roots.
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From page 72... ...
.3 India The emergence of India's pharmaceutical industry as a major global player in the global generic drug market provides an illustrative example of how globalization of supply chains can generate competition and drive down prices in the medical product market. Beginning in the 1970s, patent laws in India allowed the country's drug producers to engage in the practice of reverse engineering of drugs that were patent-protected by foreign companies, leading to rapid growth in its pharmaceutical sector.
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China China's growing role in global medical product supply chains is particularly striking. The country has built up substantial industrial capacity in specific sectors through state-led industrial policies, such as a pharmaceutical "megaproject" -- a large-scale goal-driven project led by China's Ministry of Health (Naughton, 2021)
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GEOGRAPHICAL CONSIDERATIONS FOR MEDICAL PRODUCT SUPPLY CHAINS In response to rising wages abroad, transportation costs, and intellectual property concerns, the U.S. government and private-sector companies had been considering policies and initiatives to strengthen and "rebalance" medical supply chains through greater reliance on domestic medical product manufacturing well before the COVID-19 pandemic (Dolega, 2012)
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health care supply chain for 290 pharmaceuticals and 128 types of medical devices and surgical equipment considered critical in various emergency scenarios.5 The study revealed a significant degree of foreign sourcing and dependency for critical components, materials, and finished products that are needed for U.S.-based manufacturing operations. Many of those components and products produced abroad had no alternative sources based in the United States.
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From page 76... ...
.6 Medical device manufacturing is also rapidly globalizing and increasingly reliant on complex, interconnected global networks of supply chains driven by specialization, global competition, and efficient capacity use. In 2020, the United States imported more than $68 billion and exported almost $59 billion in medical devices (FDA, 2020)
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Given the vast geography of such countries as India and China, the fact that a large share of medical products comes from these countries is not, in itself, a dangerous level of concentration. If, however, a large share of a product or material is concentrated in a single site or among few firms in the same location, a natural disaster, a localized health emergency, or political upheaval in that region could endanger the reliability of the entire global supply chain (Schondelmeyer et al., 2020)
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. In parallel, declines in manufacturing quality have led to an increased frequency of supply disruptions among some generic manufacturers in the global supply chain -- particularly at the finished dosage level (Fox and McLaughlin, 2018)
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The committee concludes that on-shoring, near-shoring, or friend-shoring may resolve some barriers, but these are not a one-size-fits-all solution to the problem of increasing the resilience of medical product supply chains. For example, transforming a diversified, global supply chain into a concentrated, domestic supply chain could reduce supply chain resilience.
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medical product supply chains (Austin and Dezenski, 2020; Gray et al., 2013; The White House, 2021)
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. The committee notes that medical product supply chains consist of multiple stages.
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For instance, tariffs on Chinese exports have made manufacturing in China less profitable, leading many firms to explore other countries in the region with low-cost labor -- but with similar potential for supply chain vulnerabilities -- before considering on-shoring to the United States. Given that the pharmaceutical manufacturing base comprises private investment, the existing corporate tax incentives for on-shoring critical manufacturing will likely be insufficient (Zwiefel, 2020)
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From page 83... ...
The reality of complex, multistage supply chains also makes the "nearshoring" or "friend-shoring" of the final stage of production of a drug or medical device of potentially little consequence if critical inputs remain concentrated in locations of questionable reliability. To the extent that near-shoring actually improves the functioning of supply chains, firms are likely to pursue these opportunities on their own, without the need for government subsidy or coercion.
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When the United States is engaged in open trade with other countries by, for instance, purchasing less expensive medical products abroad, it also allows the United States to focus its medical device manufacturing industry on the export of innovative products around the globe.
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This greater competition reduces medical product costs, lowers health care costs for American consumers, and creates more choices in terms of specialized drugs and medical products. Foreign drug manufacturers have the potential to help expand and sustain affordable access to essential off-patent drugs of appropriate quality in the United States even more than they currently do (Gupta et al., 2018)
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. The committee concludes that market forces create powerful incentives for medical product supply chains to remain globalized.
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International cooperation can help address these challenges, strengthen medical product supply chain resilience, and minimize the effect of shortages. To achieve this, nations and manufacturers must be better equipped to understand and manage the challenges of global medical product supply chains, including issues related to transparency, regulatory authorities, and national security.
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2020a. COVID-19: China medical supply chains and broader trade issues.
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Commissioned by the Committee on Security of America's Medical Product Supply Chain. Ellram, L
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2020. Offshoring-outsourcing and onshoring tradeoffs: The impact of coronavirus on global supply chain.
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2021. The security of America's medical product supply chain: Considerations for critical drugs and devices: Proceedings of a workshop -- In brief, edited by A
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2020. Japan allocates $2.4 billion to beef up supply chains.
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2021. Building resilient supply chains, revitalizing American manufactur ing, and fostering broad-based growth: 100-day reviews under Executive Order 14017.
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