The Low-Down: The Reason Decades of Off-Shoring Led To Critical Medical Shortages

Efficiency has dominated manufacturing considerations for a generation.

But the present crisis suggests that whatever cost-benefit analysis was performed underestimated the risks of running out. JL

Tom Simonite reports in Wired:

The crisis has exposed the fragility created by decades of companies shrinking production on US soil and growing overseas supply chains, notably China. 95% of surgical masks and 70% of respirators are made overseas. Materials to make the masks are )also) produced in China (whose) vast, cheap labor pool and government incentives fostered an ecosystem of manufacturers/suppliers, that is the default place to make everything. “It’s so easy to buy from China, it’s like the easy button.” Covid-19 made the risk of concentrating production of health workers’ protective gear in one country clear.

IF YOU CAN reach him, Gus Nasrallah, president and CEO of manufacturing equipment supplier Sharpertek in Pontiac, Michigan, can sell you a machine that cranks out the N95 face masks desperately needed by health workers treating Covid-19 patients. It will cost you $250,000 or more—but don’t expect it soon. “We’re telling them six-month delivery.”

Keith Hayward, managing director of specialty fabric maker Monadnock Nonwovens in Mount Pocono, Pennsylvania, is also deluged with phone calls. Among other products, his company makes meltblown fabric that provides the ultrafine filtration in N95 masks. He estimates Monadnock has been getting upwards of 200 calls a day. “Demand is unprecedented,” he says.

Nasrallah and Hayward are in the middle of a logjam in America’s manufacturing capacity caused by the coronavirus pandemic. The crisis has exposed the fragility created by decades of companies shrinking production on US soil and growing complex overseas supply chains, most notably in China.

China’s vast, cheap labor pool and canny government incentives have fostered an extensive ecosystem of manufacturers, suppliers, and workers that is the default place to make everything from disposable face masks to $1,000 smartphones. American consumers have benefited as essentials such as kitchenware and more complex goods like TVs and computers have gotten cheaper. Covid-19 has created a natural experiment in how well the US can manage when demand spikes and China’s rich overseas supply chains are choked or cut off.

In February, when the novel coronavirus felt like a faraway problem to most Americans, Apple warned investors that its revenues would take a hit because iPhone production was hampered by factory shutdowns in China. The same month, Fiat Chrysler halted some production in Europe because Chinese parts were unavailable, and the US Food and Drug Administration began to investigate how a squeeze on Chinese exports of pharmaceutical feedstock might cause drug shortages.

Dangerous shortages of protective equipment needed for medical staff treating Covid-19 patients are the most serious supply chain symptom of the coronavirus. Some US hospitals are relying on the public to donate N95 masks, or face shields made by volunteers.

Although some companies that still make masks in the US, such as 3M and Prestige Ameritech are expanding capacity, they can’t keep pace with pandemic-spurred demand. Building out new production capacity in a country that spent decades economizing through offshoring is not easy.

Face masks are a low-value, easily shipped item well suited to offshoring in cheaper locales than America. US Department of Health and Human Services figures say 95 percent of surgical masks and 70 percent of tighter-fitting respirators, such as N95 masks, are made overseas. The materials used to make the masks are largely produced overseas, particularly in China, says Hayward, of Monadnock Nonwovens.

The emergence of Covid-19 in China made the risks of concentrating production of US health workers’ protective gear in one country painfully clear. The initial outbreak in Hubei province caused a surge in demand for masks inside China, and cut supplies when authorities shuttered factories to halt the virus’ spread. Production of masks has now resumed and companies are expanding capacity, but not much of it has shown up outside China.

One ripple effect has been ringing phones at Monadnock Nonwovens. The company has been swamped with inquiries including from manufacturers in the US, but mostly from elsewhere, such as Asia and South America, who are trying to expand their mask output, and sometimes scrambling to replace materials previously sourced from China.

Hayward says he’s hired more workers and adapted some equipment to produce face mask material, rather than other products, around the clock. The material is made from fine strands of plastic on a machine about 40 feet long and 20 feet high that operates something like a paper mill, churning out nonwoven fabric with tight pores on giant rolls. So far, supplies of the raw plastic have held up.

MSA, a big maker of industrial safety gear, stopped making N95 masks in Jacksonville, North Carolina, around 10 years ago. Spokesperson Mark Deasy says the products were not a central part of its business and the company no longer has the equipment. To help with Covid-19, MSA is hiring more staff in Jacksonville to increase production of full-face respirators used in industry and by first responders. They are not approved for use in health care, but the FDA and Centers for Disease Control and Prevention have temporarily waived usual regulations.

President Trump said at a briefing last week that industrial conglomerate Honeywell was stepping up to make N95 masks. Spokesperson Eric Krantz says the company is adapting part of a facility in Rhode Island that previously made safety glasses and goggles, but that it will take roughly a month to find and install machinery and raw materials.Nasrallah of Sharpertek in Michigan says sourcing face mask production equipment in the US is difficult because there hasn’t been much of a market for it lately. “Someone used to buy one of these machines once in a blue moon,” he says. Like face masks themselves, equipment to make them is cheaper in China.

“It’s just so easy to buy products or material or machines from China, it’s like the easy button,” Nasrallah says—although he says the quality and support are variable. His company specializes in engineering and building more customized machines for companies such as General Motors and GE. More recently, Sharpertek’s engineers have been adapting a face mask machine to work with alternatives to the usual polypropylene material, which Nasrallah says has gone from around $2 to $70 a kilogram.

Willy Shih, a professor at Harvard Business School, says the coronavirus pandemic is an opportunity to rethink the received wisdom that offshoring is the best and only way to operate.

Although the pandemic feels like a bolt out of the blue, it comes after other major disruptions to overseas supply chains, such as Trump’s trade war, the 2011 earthquake and tsunami in Japan, and Chinese quotas on exports of rare earths used in batteries and motors in 2010. “Maybe it’s time we start to ask about the need for diversity in supply chains, and discuss how we add resiliency,” Shih says.

Broadening capacity and increasing stockpiles of parts and materials would increase costs—and prices for consumers—but the pain inflicted by Covid-19 might convince corporate leaders to accept them. Although a pandemic-prompted recession will make consumers and companies more price sensitive, the crisis may also give “Made in the USA” more marketing power, Shih says.

In the suddenly vital world of cheap, disposable face masks, the pandemic may prompt government support for more onshore production. Montreal-based protective equipment maker Medicom produces face masks in China, Taiwan, France, and Augusta, Georgia. The company’s chief operating officer, Guillaume Laverdure, says after Covid-19 struck all but the US plant were subject to export controls or government directives on production.

Medicom already had agreements with some governments designed to protect stocks or local production, but interest in such arrangements has grown. “There’s a strong appetite from some governments to make sure this kind of shortage does not happen again,” Laverdure says.