WSJ Finds a Protected Industry

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Sticks and Stones May Break Bones, But Warsaw, Ind., Makes Replacements – WSJ.com

This was the fourth and final part in the WSJ series “Still Made in the USA.” There isn't as much to talk about from a lean perspective as there was in earlier installments.

The article is about orthopedic implant manufacturers that are clustered near Ft. Wayne, Indiana. The WSJ again shows its bias that any smart manufacturing company would have left the US a long time ago:

Profits are so good in the orthopedics industry that there isn't much pressure on suppliers to shave costs by going to low-cost countries. “The reason this business is in Warsaw and not Mexico is because margins are 70% or better,” says Ron Clark, an orthopedic surgeon who founded his own company in Fort Wayne…

Profits are “so good” partly because the industry is protected against imported implant devices:

The U.S. also effectively protects manufacturers in the sector with strict regulations for devices that go inside the human body. Rather than risk problems — and crippling lawsuits — U.S. health-care providers buy their artificial joints from companies they know, which generally means buying American.

This is a dangerous situation for the Indiana companies to be in. They're artificially protected against foreign competition which means they not only have less incentive to offshore (thankfully), they also have less incentive to use lean or other methods to get costs down.

To be sure, the industry's dynamics may be starting to change. Health-care providers are starting to push back against the industry's steady price increases, raising concerns among investors about whether profits for Warsaw companies and others can keep up the brisk growth.

Remember, the price is set by the market — even when that market is artificially screwed up, as most of health care is. With the artificially high profits, Indiana benefits from having good jobs, but the rest of us pay through inflated prices. I'm not saying we should rush to import “cheap” implants from other countries, but if the companies don't get their costs under control, they'll get pushed to cut costs and I'm afraid the only things they'll know how to do are layoffs and outsourcing.

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Mark Graban
Mark Graban is an internationally-recognized consultant, author, and professional speaker, and podcaster with experience in healthcare, manufacturing, and startups. Mark's new book is The Mistakes That Make Us: Cultivating a Culture of Learning and Innovation. He is also the author of Measures of Success: React Less, Lead Better, Improve More, the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, and the anthology Practicing Lean. Mark is also a Senior Advisor to the technology company KaiNexus.

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