Introduction
COVID-19, since the initial outbreak in China, it spread all over the world, infecting over 3.3 million people and taking the lives of over 235,000 individuals (“COVID-19” 2020). The majority of victims of the outbreak are old people, who are at risk due to their weakened immune system responses and a plethora of chronic diseases, making them vulnerable to COVID-19. In Italy, the populations of several small towns, occupied largely by the elderly, have been halved by the virus (Livingston and Bucher 2020). To try and contain the outbreak to buy time for the medical industry to develop a cure, all countries have announced a quarantine, closing off borders, imposing self-isolation, and increasing the standards of protection for employees of necessary systems, such as shops and hospitals. The demand for various medical products, such as masks, gloves, and disinfectant sprays increased tenfold (Livingston and Bucher 2020).
The US medical supplies industry was not ready for such a sharp spike in demand. The available production values were not enough to answer the need of over 328 million Americans, who went to drug stores and shops in-masse to purchase medical masks (Kamerow 2020). The industry was not ready to domestically produce so many masks daily, not to mention deliver them to various corners of the country. The purpose of this paper is to identify the challenges to the logistics and supply chain that caused the shortages and delays, focus on the root causes of the problem, and provide a long-term solution to ensure that the crisis does not repeat itself in the future.
Supply Chain and Logistics-Based Challenges
The medical mask production sector in the US is presented by 8 companies, which include Honeywell, 3M, Kimberley-Clark Corporation, Foss Performance Materials, Prestige Ameritech, Alpha Pro Tech, Louis M. Gerson Company, and Moldex Metric (Kamerow 2020). All of these companies have the necessary clearances and equipment to produce N95 CDC-approved facemasks, which could be used to shield off doctors and patients from the virus. Nevertheless, the combined standard production output of these companies is not enough to cover even 20% of the domestic requirements for facemasks during the so-called “peacetime” (Kamerow 2020). China remained the world’s largest producer of N95 masks and other respirators, accounting for 50% of the total market (Bradsher and Alderman 2020). During the crisis, their government managed to ramp up the production 12-fold to account for issuing protection to their vast population numbers (Bradsher and Alderman 2020). From this, the US medical mask production sector was faced with numerous supply chain and logistics-based challenges, which are as follows (Ghadimi, Wang and Lim 2019):
Challenge 1
Not enough production values. As it was mentioned, domestic companies never saw the production of facemasks as a crucial part of their enterprise. All of the firms listed above produce a plethora of other medical equipment and covered the needs of hospitals in their respective states only. It must be noted that California, Texas, Philadelphia, Massachusetts, and New Hampshire, among others, were better prepared for the crisis in comparison to New York, due to a smaller number of infected in combination with the close proximity of the domestic manufacturers (Kamerow 2020). Nevertheless, neither of these companies was anticipating such a large spike in demand. The companies have already announced additional hiring of workers to keep the presses going 24/7. However, the production capacity of these measures is finite, and without additional machines and materials to make more masks, the hiring of more workers would not drastically increase the production output (Ghadimi et al. 2019).
Challenge 2
Not enough material. The companies rely on a chain of domestic suppliers to manufacture their goods (Kamerow 2020). They are essentially implementing a downstream supply chain, where other upstream companies provide the necessary materials to facilitate production (Ko and Smith 2016). These subcontractors, just like the producers, had certain expectations on how much was needed to be supplied. They too were not ready to provide the additional materials needed to produce more masks. The problems mentioned in the first challenge effectively repeated themselves – neither were ready to sustain a 12-fold increase of production (Bradsher and Alderman 2020). Therefore, even if all of the major medical giants were ready to make more on-demand, without an adequate supply of materials, they would not be able to do so.
Challenge 3
Logistics. The majority of mask production companies are located in South or Central US (Kamerow 2020). While the approximation of these production values is enough to feed and sustain domestic demand, it requires time and effort to deliver the manufactured masks to other states (Liu, Zhang and Zhang 2017). The state in most need of masks is New York, which is located on the other end of the country from California, taking 2,913 miles if traveling by the I-80-E route. It would take weeks before the first truck full of produce reaches New York, thus creating delays and making the demand for masks worsen, to the point where people would buy in bulk, effectively increasing the already huge demand for the product several times (Kamerow 2020). Plane deliveries are possible, however, a plane carrying capacity is limited in comparison to trucks and trains, which are capable of fetching larger volumes of produce (Liu et al. 2017). In addition, the use of a single shortest road to get to the majority of affected areas promises traffic congestion.
Logistics affect not only the demand portion of the problem, but also the suppliers of raw materials as well. The manufacturers have been relying on a multitude of small suppliers in order to diversify their supply chain and become less dependent on it should one or more suppliers become unreliable, while at the same time increasing the company’s purchasing power by becoming the supply companies’ sole customers (Liu et al. 2017). The downside of this strategy, as it turned out, was that small suppliers turned out to be incapable of delivering more than was initially promised, lacking not only the production values but also the transport necessary to deliver the goods to manufacturers.
Challenge 4
Lack of Substitution. As it was already mentioned, the majority of N95 masks in the world are produced in China (Bradsher and Alderman 2020). From an economic perspective, it was more prudent to import masks in bulk from that country, whenever it was needed, due to the fact that China benefitted greatly from the proximity of their supply chains, production values, and the availability of cheap yet skilled workforce (de Jong and Benton 2019). Domestic production could not compete with that, as for the majority of hospitals it was cheaper to purchase masks from China than buy domestically (Kamerow 2020). However, when the borders were closed off and the international trade halted, the US suddenly became locked off from its primary supplier of masks.
Challenge 5
Lack of Produce Stockpiling. The US used to have a reserve of masks for dangerous disease and biological weapon outbreaks. During the 2009 Swine Flu crisis, over 95 million masks were distributed to hospitals and the populace. However, the country was not ready for the outbreak of this scope, as during the start of the COVID-19 pandemic, the government had only between 1.5 to 3.5 million masks in storage, besides the supplies already on hand in hospitals and drug stores (Yorio et al. 2019). As such, there was no way to adequately respond to a sudden surge in demand across the entirety of the US.
Challenge 6
Lack of material stockpiling. The majority of the medical companies mentioned in the scope of this paper adopted a lean logistics cycle (Costa and Godinho 2016). For healthcare, lean principles are meant to streamline clinical workflows and eliminate waste by stocking the right amount of supplies at the right time (Costa and Godinho 2016). This approach eliminates the need for large storage spaces and reduces the reliance on accrual accounting for making bigger amounts of produce (thus spending money and resources), and then waiting for months to sell them off (under normal circumstances) (Costa and Godinho 2016). The approach allowed for more control over the material and cash flows, while reducing excessive spending and expenditures associated with managing stockpiles. However, lean management demonstrated a critical inability to deal with crisis situations, when the demand jolts dramatically, and there is no safety reserve to satisfy it (Costa and Godinho 2016). Both the manufacturers and the suppliers, utilizing the on-demand approach, did not have extra resources ready to increase production.
Challenge 7
Difficulty of demand projection. Due to the mass surge of demand in the entirety of the US, the manufacturing companies were placed in a position where they had a valuable and limited resource to be delivered to various parts of the country (Kamerow 2020). The question of which states to supply first, and how much became relevant. At the same time, the companies did not have any information on the developments of the disease in every affected area. This was prevalent during the start of the pandemic in the US, when facemasks could have had a greater impact. As a result, the initial deliveries were spread thin across the map, instead of concentrated in one spot, which could have slowed the development of the disease and helped reduce the total demand in the middle-term perspective (Wang et al. 2020).
The majority of these issues could be directly or indirectly associated with the boom-and-bust cycle of need for facemasks. The last boom happened during the 2009 Swine Flu outbreak, which saw an increase in demand for facemasks similar to the one experienced nowadays (Bobdey and Ray 2020). The companies back then capitalized on the need for its duration and coped with the increase in production much better mostly due to the fact that the outbreak was contained in a relatively successful manner. The disease proved to be much less lethal and not as easily widespread as COVID-19, resulting in only 1,6 million recorded cases worldwide between September 2009-August 2010 (Bobdey and Ray 2020). In comparison, COVID-19 managed to double these numbers in just 2 months, while sporting a higher death rate, especially for older adults (“COVID-19” 2020). After the pandemic, however, the demand for facemasks returned to the “bust” stage, and the supply chains adjusted for it. Thus, they were not ready for the sudden upcoming “boom,” which placed the suppliers and the manufacturers in an unfavorable position, unprepared.
Root Causes and Solutions
The root cause of the mask shortage in the US, as well as that of other countries, lies in the fact that the individual healthcare providers, the government, and the system in general attempt to operate based on market sensibilities rather than adopting a humanitarian framework (Tumasz-Jordan 2018). This reflects on every aspect and facet of the system, including supply chain management. At the same time, the medical field is something that is not ruled by market forces alone. This has been highlighted in the medical community numerous times, and is considered to be one of the major reasons why the US healthcare system, in general, is so lacking, despite the amount of money continuously poured into it from year to year (Greer and Gonzales 2017). The core of the matter is that purpose of healthcare is to save lives first, make a profit second, and not the other way around (Reddy and Mythri 2016).
Lean management techniques and streamlined zero-waste supply chains are more economically efficient than the traditional stockpile-and-produce logistical structure (Borges et al. 2019). It also has the means of reducing the costs of facemasks, which allows for-profit maximization and competitive advantage over adversaries. However, as it was noted, the system works only when the market is stable and it is possible to predict future demand in the short-term and long-term perspectives. As COVID-19 showed us, the pandemics and outbreaks see a massive jolt in demand, one which lean management systems cannot cope with (Borges et al. 2019).
The market drive for profit maximization also explains the reasons why the richest country on Earth relied on China (its political and economic adversary) to produce the strategically-important resource that is highly sought-after during any pandemic or a similar crisis. As it was already mentioned, Chinese-based outsourcing has numerous advantages over domestic production, including the presence of already-established supply chains willing to provide cheaper materials, the availability of a cheaper workforce when compared to the US labor market, and the capacity for producing in-masse (Mayer and Phillips 2017). In short, buying and shipping masks from China is, during peacetime, much more profitable and efficient than doing so domestically, which would require additional workers, material, and manufacturing tools to do so. However, during times of crisis, when the necessity of facemasks is at its highest, the reliability of outsourcing diminishes considerably.
Finally, a market-based vision of facemasks is the reason why there were no stockpiles of finished products ready to be dispensed to the populace. Stockpiling suggests sinking resources into manufacturing a surplus of products which may or may not be needed in the short-term or even middle-term perspectives (Gonçalves & Castañeda 2018). This suggests sinking timely and financial expenditures with no clear compensation for it in any foreseeable future. In other words, producing a surplus, from a market perspective, is a waste, which could be otherwise spent on either expanding different lines of products or paying dividends to shareholders (Gonçalves & Castañeda 2018).
For medical companies operating in a market-based environment, producing a surplus simply for their own and the society’s peace of mind is not profitable (Gonçalves & Castañeda 2018). Indeed, the entirety of reasons why the US market is experiencing a crippling shortage of vital “ammunition” to fight the virus can be summarized with it not being economically sound or financially profitable to prepare for the outbreak. Such an approach proves to be faulty in the long-term, as the world economy, struck by the disease, is taking more losses, losing billions of dollars in stocks and materials (Liu et al. 2020). Human lives, which are priceless by definition, are also being lost due to a lack of vision from the companies and the government.
To prevent such issues from happening in the future, the market-based framework that most medical companies are operating under needs to be changed. It must be recognized that companies producing basic and necessary medical supplies that would be in wide demand during a crisis have not only a financial, but also humanitarian and strategic importance (Toner 2017). In many aspects, medicine is a social service, just like security, such as the police and the military. At the same time, the amount of money spent on both the military and the law enforcement agencies is tremendous, due to the realization that lawlessness and war would bring far greater damage to the US than these annual payments ever would (Toner 2017).
As COVID-19 demonstrated, medicine and medical production should be treated in the same manner, as the damage dealt by the outbreak, the closing of borders, and the isolation of the economy could be comparable to losses during wartime. The US economy is projected to lose over 1 trillion dollars in 2020 alone. In comparison, the total US budget for 2020 is at 4.45 trillion dollars (Gans 2020). Over 64,000 US citizens have already been lost, and another 15,000 are in critical condition (“COVID-19” 2020). These numbers indicate that the medical field deserves as much attention as do other parts of the US society that are not governed by strict adherence to the realities of the market. The country cannot afford to send its soldiers to Iraq or Afghanistan without weapons or bullets, and it cannot afford to undersupply its medical personnel and the general public.
To solve this crisis, a change of framework is needed. While it is impossible to completely deny the existence of market forces, such as supply and demand, it is possible to mitigate their effects on medical companies when it comes to certain types of products. Lean management systems have proven themselves to be inefficient in times of outbreaks, as they cannot account for the sharp rises in demand. For stockpiling and traditional logistic schemes to become attractive and efficient in the eyes of company owners and stakeholders, the financial drawbacks of such have to be compensated. The primary issues identified in this paper are the cost-related inefficiencies of warehousing, the reliance on smaller suppliers that cannot sharply increase supply on-demand, the attractiveness of outsourcing production in comparison to hiring domestically, and the sunken costs of stockpiling supplies to be ready for future pandemics of a similar nature.
This could be solved in a number of ways. The first and most likely solution is for the initiative to come from the government. If the companies receive favorable loans, compensations, and guaranteed government contracts on producing a surplus of masks and other related products, then the necessity of utilizing lean management to drive down costs and optimize the market efficiency of the enterprise will become redundant. It will become possible to build warehouses, increase production values, and keep the necessary amounts of readied produce as well as materials on hand, for an event of an outbreak, with the expenses partially or even fully covered by the government.
Under the same paradigm, the issues of outsourcing could also be solved. If the production of masks, medicine, and other utilities is considered a strategically-important asset, then allocating 80% of it to another country, which is located over the ocean, and could, at any time, shut off its borders and prevent the products from coming in, would be considered a risk to national security (Mann 2020). Therefore, the government will be incentivized to provide affordable solutions domestically, encouraging the enlargement of existing production values and the construction of new facilities to manufacture masks and other supplies, so that the country can support itself in the face of a similar crisis (Kamerow 2020). This could be achieved through reduced taxation, reimbursement, and a variety of other methods.
However, the solutions provided above are mostly government initiatives. Companies themselves could do much to prepare for the future crises that lie ahead. Even assuming that no cardinal changes will take place after the pandemic, just like it happened after Swine Flu, there is a number of resolutions that could be adopted by said companies within the paradigm of the free market economy. These solutions are as follows:
- Foreign market expansion. To increase the total volume of potential production values, companies need to find new markets to sell their products to (Pearson 2019). While China holds 50% of the market due to its cheaper and well-entrenched position, which it would be difficult to be dislodged from, the rest can be expanded towards at the expense of domestic producers from other regions. Europe is considered one of the high-value target markets due to its paying capacity, decentralized medical production (many countries cannot cover their expenses) and historical connections to the US (Pearson 2019). Expanding into those markets would mean the necessary expanding of domestic production, which could be turned towards internal needs in times of crisis.
- Domestic market expansion. The pandemics of 2009 and 2019-2020 have shown the necessity of having a surplus of masks and materials for individual hospitals (Yorio et al. 2019). It would be possible to make new deals with individual healthcare companies to build up their stockpiles and renew them from time to time, should the stockpiled equipment pass its expiration date. In a way, this solution also places the expenditures for building stockpiles onto the shoulders of hospitals and the government, but it does not require the implicit mandate of a government-led intervention (Mann 2020). It could be achieved on the company’s initiative, through negotiation.
- Changes to the logistical and supply chains. The company can switch from lean supply to more extensive warehousing and stockpiling type of logistics chain (Mann 2020). Monetary losses from having to maintain warehouses and sunken costs could be compensated by reduced expenditures in transportation (lean management does increase the number of travels between supplier to manufacturer), as well as preferential contracts with suppliers from buying in bulk. In addition, the companies should consider adding major suppliers to their chains in order to account for the increased volumes of materials purchased as well as the potential for increased production during a crisis. While buyer power of the company will diminish as a result, these tradeoffs could be written off by greater benefits from better crisis preparedness.
Conclusion
All of these proposed solutions, in combination with a change of paradigm for the medical industry, in general, should be enough to prepare the US for the next pandemic and reduce the chances of suffering from a critical shortage of masks like it is being done this time.
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