How smart location choices can raise profits for your medtech company

The location of a medical device manufacturing facility significantly impacts financial performance.

US production workers command some of the highest salaries in the world. Considering labour is typically the largest geographically variable cost, location can change those costs substantially.

For example, let’s assume US labour is about three-and-a-half times higher than China's and nine times higher than Vietnam's. A 500-person facility in the US would spend about US $30 million on labour. That same location in Vietnam would cost about US $3.3 million. That means the company could save US $26.7 million annually by locating overseas. However, by locating in a country with lower labour costs, a medical device manufacturer may face higher inbound and outbound shipping costs. A smart location strategy balances all the variables to arrive at a reasonable conclusion.

The cost of an unsuccessful location strategy

A well-planned location strategy aims to optimise costs across a wide spectrum of variables. Success requires long-term planning, research and analysis from a group with both medical device and commercial real estate expertise. This chart illustrates how an uninformed choice could affect the financial output of a medtech company over five years.

The advantages of a phased approach to location strategy

A successful location strategy starts with a clear business objective and continues through analysis to final negotiations. JLL factors financial and non-financial considerations into its analysis to select a location that best suits business objectives. JLL also leverages big data and advanced analytics to inform decisions. Public and private datasets provide helpful information on regional and global labour costs and availability, medical device industry presence, real estate costs, energy, taxes and logistics. Sophisticated analytics tools provide rapid insights and detailed analyses about a prospective location. Geographic modeling and visualisation, combined with predictive analytics, help spur discussions and decisions among stakeholders and provide insights related to long-term goals. The JLL approach considers not only where the medical device company is today but also where it wants to be tomorrow.

Here's how one global manufacturer saved US $100 million through location strategy

Challenge:

A global medical device manufacturer had a critical need to install new production capacity to support the growing market demand for its products. However, it required market intelligence on potential countries to consider for the new operation, recognising growing competition from a new set of companies that made a similar product for less money.

Solution:

JLL developed an approach to help the company measure the location’s alignment with the company’s project objective in each region of the world. The approach included assessing all important considerations to executive leadership, with appropriate documentation to support the steering committee and board of directors’ decision-making process.

Results:

The results of the analysis enabled the company to select the preferred location for the operations and save more than US $100 million in operating costs over a five-year period versus the default location for the investment. The location also highly aligned with the non-financial goals of the project. 

The bottom line: location matters

Choosing a site for one or more medical device manufacturing facilities is one of the most important business decisions leaderships can make. The ideal site location aligns with the company’s long-term business goals while managing costs, mitigating risk, sourcing the right talent and optimizing the supply chain.