Upgrade your medtech location strategy with these tips

In 2022, Medtronic invested $65 million in its third manufacturing facility in Costa Rica. The same year, Boston Scientific started work on a $65 million manufacturing and supply chain facility in Johns Creek, Georgia, according to published reports. Investments like these are significant and strategic for the medtech and med device sector, and they impact not only operating margins, but also supply chain efficiency, labor costs and operating risk.

Manufacturing site location can determine whether a chosen site positively influences revenue and operating margins or creates hundreds of millions of dollars in unnecessary recurring costs. Location can also affect supply chain risk and the availability of a skilled workforce, among other factors.

“Location strategy can result in highly beneficial long-term solutions that can support you through periods of instability, growth or decline,” said Matt Jackson, Executive Managing Director at JLL. “A well-planned strategy can help an organization to operate efficiently and effectively, find the right talent and scale up when needed.”

Location strategy aligns with a medical device company’s holistic objectives to control costs and make the supply chain more agile. Medical device manufacturers are rethinking how they move from design to final product to mitigate disruptions caused by materials shortages, geopolitical unrest and competition. They’re adopting lean methodologies, improving forecasting and training, and bringing in supply chain partners earlier in the design process. Externally, they’re giving more careful consideration to where they break ground on new facilities.

Supply chain is one of several criteria considered when selecting a manufacturing site location. A smart location strategy considers the supply base, the destination of finished products, the cost and efficiency of both inbound and outbound shipments, and the impact on the overall network of manufacturing operations. Supply chain considerations must also be coupled with business, operating, financial and risk goals, as well as the strengths and limitations of the location itself.

The types of devices manufactured, volume, profit margin and labor needed all factor into the evaluation process for selecting a location. And the most beneficial location isn’t necessarily the spot with the lowest cost of living or the least expensive real estate.

“Labor talent represents the largest geographically variable cost for most medtech companies,” said Shannon Curley, executive managing director, business consulting for JLL. “However, a smart location strategy balances the financial benefits of a location with other non-financial and risk factors.”

Weighing competing priorities

When a medical device manufacturer executes a lease or breaks ground on a strategically selected facility, it builds a foundation for optimal performance. Real estate and income tax breaks and location-specific business incentives also factor into performance. The weight given to location strategy and site selection components varies by company. A prospective location may offer tax incentives that would significantly reduce production costs. But if it’s on the other end of the globe from distribution centers and major customers, those incentives likely won’t offset supply chain and logistics costs. Companies that want to reshore or nearshore operations to reduce supply chain risk, support a just-in-time inventory strategy and gain greater proximity to healthcare customers would need to balance higher location costs against the benefits of reshoring.

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Best practices for medical device location strategy process

1. Assemble a multi-functional internal and external advisory team to drive the process.

2. Decide how decisions will be made among those teams.

3. Evaluate and rank which criteria are most important to the company's long-term success.

4. Use technology to properly model locations with the correct assumptions and data inputs.

5. Leverage global and private datasets and advanced analytics to inform decision-making.

6. Conduct field investigations to research locations.

7. Follow a detailed agenda to extract maximum insights when visiting the location and reviewing the operating environment.

8. Allow sufficient time to execute a well-structured process

For example, a medical device company that manufactures a high volume of single-use or disposable products may want a location with low operating costs and access to a large labor force. A company looking for a site to manufacture a low volume of complex components or devices may prioritize proximity to its supplier base, access to highly skilled workers, nearby educational institutions and a stable environment.

Using a structured methodology, a consultant can help medical device manufacturers evaluate prospective locations' characteristics, advantages, and limitations. Many consultants run projections through multiple lenses to assess how those projections meet business objectives. For example, prioritizing cost takes labor, energy and real estate into account above close proximity to academic research centers. Another lens may prioritize close access to research sites above cost factors.