In this Supply Chain Matters blog we provide a one-year look back and current viewpoint of efforts to encourage added U.S. domestic production and supply network capability of medical personal protective equipment (PPE).

Background

One year ago, as the scope and significance of the COVID-19 pandemic’s impact on global supply chain activity became far more visible, Supply Chain Matters featured a series of blogs on the topic of near shoring supplies of personal medical protective equipment and supplies (PPE). We did so because in pandemics, virus spread and safety of human life is predicated on the ability of governments and healthcare agencies to be able to respond with required medical supplies, protective equipment, testing and availability of effective vaccines and proper medicines.

Indeed, at the height of the initial spread of coronavirus among global populations, The World Health Organization (WHO) had estimated that healthcare workers would require upwards of 89 million medical masks a month in order to respond to medical care needs. This equated to over one trillion masks on an annual basis. In those early days, national governments, individual states and local healthcare delivery facilities were collectively competing with one another for any available supply, regardless of cost. It was a lucrative but highly constrained supply environment.

In the United States, the situation was compounded by an uncoordinated federal government response. A woeful supply of N95 surgical grade face masks in the Strategic Stockpile forced individual U.S. states to fend for themselves in the default open market to obtain needed supplies. Amazon had to police opportunistic online sellers and allocate limited inventory only to healthcare providers. Making matters more challenging were certain directives among individual nations to limit exports to protect domestic healthcare needs. When the needs were critical, and the supply was indeed extremely limited, various domestic manufacturers successfully pivoted to address local needs to protect healthcare providers.

This blog featured two specific blogs relative to U.S. based manufacturers marshalling capabilities to boost domestic production capabilities. Among such them were:

Reshoring of Medical PPE Production in the United States- Jabil’s Response

Reshoring of PPE in the United States- Fallon and Shawmut Collaboration in the United States

 

Current Domestic Supply and Demand Situation

A year later, the supply and demand dynamics for the U.S. have taken on a predictable opposite turn, too much supply.

The U.S. Centers for Disease Control (CDC) recently reported that over 172 million Americans, or about 67 percent of the adult population, have received at least one dose of the COVID-19 vaccine. About 156 million have received both doses, and roughly 47 percent.  With hospitalizations dramatically and thankfully reduced, another problem has arisen. Business and general media now report that U.S. hospitals and healthcare providers have an abundance of PPE inventory basically from a combination of factors.

As an example, The Wall Street Journal reported last week (Paid subscription or metered view) that New York based hospitals have stockpiles of PPE, amounting to as much as 6 to 9 months of inventory.  In the midst of last year’s critical domestic supply shortfall, some domestic manufacturers who had to dramatically ramp-up production, required long-term supply contracts from buying organizations. By the time manufacturing supply and demand began to align, the daily consumption rates for certain supplies began to drop.

Other industry reports now indicate that foreign based PPE producers, particularly those in China, have now dramatically reduced pricing of surgical masks in order to protect market share and existing supply contracts.  Some domestic mask producers now indicate that foreign producers are literally selling inventory below cost to hold on to market share.  Meanwhile, some large hospital networks are reportedly seeking added warehousing space to hold all of the excess inventory on-hand.

If all of this sounds familiar, it is.

Many domestic producers have been burned previously by such cycles. After the emergency situation subsides and supply exceeds demand, buying healthcare buying organizations tend to revert back toward seeking lowest cost sources.

What is possibly different is that the Biden Administration had initially placed domestic supply capability of PPE as part of the initial Executive Order addressing strategic supply chain needs for the United States.  Also different are healthcare procurement professionals becoming more risk aware on PPE supply networks.

 

A View from a Domestic Producer

In light of these market dynamics, Supply Chain Matters reached out to the domestic producers that we originally reached out to during the crisis response.  Some declined our request because of other priorities.

In mid- October 2020, two Massachusetts based companies, The Fallon Company and Shawmut Corporation, announced the creation of a new domestic manufacturing operation to produce N95 respirators to provide for local healthcare provider needs.

The Shawmut Corporation plan called for supporting end-to-end production of up to 180 million masks annually primarily for Massachusetts front-line responders and business owners. Initial production was planned at the rate of 5 million masks per month. The plan’s uniqueness was the addition of domestic polypropylene melt blown extrusion and mask conversion production capabilities including the acquisition of 60 tons of specialized equipment from Reifenhauser REICOFIL GmbH of Germany, well recognized in global production circles as the premier source of such equipment.  Shawmut’s production facility was that of a premiere provider of surgical gowns, drapes, and packs to U.S. based healthcare providers, but the trend changed when countries like China leveraged their lower labor costs and access to strategic supply to become the lowest-cost provider.

With that as a backdrop, the following are the responses to our specific follow-up questions that we recently received from Joe Przepiorka, Vice President of Marketing at Shawmut Corporation.

Supply Chain Matters: How did domestic demand levels respond once Shawmut began domestic production?

Interest in domestic production has been growing and there are several customers and distribution channels we are engaged with. N95 and protective apparel usage is above pre-pandemic levels and will continue to grow in the years moving forward.

Supply Chain Matters: Did local U.S. healthcare providers value U.S. based supply as well as product innovation in terms of providing longer-term supply contracts?

There has been a lot of discussion this year at the federal and customer level about supporting a domestic supply chain for US-made PPE and critical medical supplies. At the federal level, the administration is doing a deeper dive into long-term solutions to the issue and is expected to release a report and recommendations to the President within the near term. At the customer level, many customers we have talked to, especially those smaller users who were shut off during the pandemic, have lived through the problems and risks with offshore supply and are excited to work with us. Larger hospitals, health systems and GPOs have a real desire to allocate growing portions of their forward demand with a more secure supply chain which only a fully domestic product can support. It may take a little longer to overcome the inertia of the larger customer’s current supply chains, but we feel that as we fill out our product portfolio with high-quality and innovative products produced 100% domestically, we will become a product of choice and be an important and secure resource for the long term. This is a business we are building for the long haul.

Supply Chain Matters: How have China and other foreign based face mask and PPE manufacturers responded to the U.S. market over the past twelve months in terms of pricing strategies or flooding the market with supply?

The pricing and supply experiences over the last twelve months were not a normal situation, obviously. But it has absolutely shined a light on the risks and problems associated with a supply chain that is so dependent on offshore sources. Supply outages and trans-ocean transportation issues continue to this day, and awareness of the risks and downsides is only growing, which is why we are confident a 100% domestic strategy will be embraced and desired moving forward.

Supply Chain Matters: Has the Biden Administration’s White House task force on strategic supply chains made any contact with Shawmut regarding the PPE venture?

Like many other companies and trade groups that are stakeholders in this effort, we are a participant in the discussions led by the task force.

Supply Chain Matters: Have other domestic U.S. producers come together to provide input on what needs to happen to ensure that there will always be domestic production capability to support both normal as well as future health emergency domestic PPE supply needs?

Yes, there are several efforts underway to shine a light on the short- and long-term risks and issues involved in ignoring the importance of a fully domestic supply chain for critical pandemic supplies. This includes not only PPE, but other important medical supplies such as gloves, syringes, and pharmaceuticals.

 

Thus, based on one domestic supplier’s perspective, optimism still prevails especially around more educated and more risk aware healthcare procurement teams.

 

Bob Ferrari

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