US PPE Makers Push for Reshoring Amid Cost, Capital Challenges
New York — The COVID-19 pandemic exposed gaps in the United States' medical and protective product supply chain as hospitals scrambled to purchase critical equipment to treat patients and prevent the spread of the virus. That realization prompted U.S.-based suppliers to enter those markets and provide essential items for the health care industry. "A lot more products that are used in hospitals are being made in this country now," said Alan Rust, chief growth officer at PPE supplier SafeSource Direct Personal Protective Equipment, during a panel discussion on U.S. production of critical medical supplies at MD&M East in New York, May 20-22.
That trend of reshoring medical production is expanding in the U.S., even among large, global companies, Rust said.
"The global players in med tech that have plants in the U.S. and all over the world are chemical recycling project even as actively looking to see how much they can bring back to this country," he said. "Now, will White House drops funding that be tomorrow? Probably not. It takes time. I think over the next 12 to 18 months, our trade policy will certainly push global manufacturers in that direction."
Hospitals face a difficult balancing act, Rust added."They have to control their costs," he said. "Most hospital systems can't afford a potential 20 percent increase in prices from products made in the U.S. We also advocate for those customers by partnering with the American Medical Association, which has advocated for reimbursements for health care systems that buy American-made PPE."
Nonprofits that SafeSource Direct has partnered with help "open up dialogue between industry and government," said Paul Booth, vice president at SafeSource Direct. "There are some opportunities for companies to find pathways to open discussion with the U.S. government," Booth said. "Industry and government can work together and actually talk and listen to each other to advance the production of medical devices in the United States."
Remaining suppliers ramp up Despite the struggle, some companies faced rebounding from the pandemic — and others that didn't could not survive — Rust said he remains optimistic. "The ones that are left are ready, and we're expanding," he said. "As we get those investments from the government and from private entities, we're going to be well- positioned for the future."
Dan Izhaky, CEO of PPE supplier United Safety Technology, said the U.S. must be realistic about the challenges it faces in domestic production. "As we continue to reshore more of these critical supply chains to the United States, we recognize very quickly that we're competing against foreign countries that have different standards," Izhaky said. "We have to recognize that we cannot rely on foreign countries for our critical medical supplies."
During the pandemic, suppliers could sell gloves and respirators "at any price," Izhaky said. "Fast forward to as soon as the pandemic ended, all those people that were clamoring and begging for the product just went back to buying cheap Chinese products." Eastman ‘remains confident' in Labor cost differences are a key factor, he said.
In order for us to be sustainable, in order for us to have domestic capacity of these critical supply chains, technology is an answer," he said. "It's robotics, automation, AI. The companies that don't invest — that don't really pay close attention to this right now — are going to be left behind.""Until we get technology to the point where it levels that labor factor, things that are made here are going to cost more. Unfortunately for hospitals that are running at very thin margins, sometimes that means losing money.
Purchasing decisions It's difficult for hospitals to choose domestically manufactured items, Izhaky added. "Typically, the person making the purchasing decisions is not optimizing for supply chain resilience, but for cost savings — that's how they are compensated." Rust said SafeSource Direct is "trying to be as competitive as it can be against foreign competition."
"All of our products are not only made in the U.S., but all the raw material is sourced in the U.S.," he said. While tariffs may have leveled the playing field somewhat, Booth questioned the sustainability of that approach. How long will that last?" he asked. "We made big money on things during the pandemic. If you were already producing those products, then price points went down." Automation and innovation are necessary to sustain U.S. medical manufacturing, Booth said.
"We don't expect someone to buy the products just because there's an American flag on the site. Everybody may want to, but it still comes down to a price point." The U.S. labor market and benefit requirements put small businesses at a disadvantage. "We have used a lot of automation, a lot of innovation that normally hasn't been applied to medical manufacturing to close that gap," Booth said.
Small businesses, he added, often struggle to scale while the market adjusts to tariffs and Eastman ‘remains confident' in reshoring efforts. "If you're part of a large corporation, you have a better ability to flex. If you're globally based, you can produce a large portion of your product overseas," Booth said. "As a small business, you don't want to produce for stock. Demand is the pull that we need."Being aggressive, innovative and flexible can help smaller suppliers convert customers, Booth said. "You may have one or two products, or even 100 products. But then your competitor, on a large scale, has 10,000 products that they can supply. Booth encouraged smaller firms to diversify.
"Be open to being diversified, not just in health care," he said. "We've seen some of our greatest growth in safety supplies. There are opportunities that don't always fit the model of what you thought you were going to be. Don't be afraid to step a little bit outside. You may make a complementary product." "We have to take some chances and look into some things that haven't been done before — spend some R&D money," he added. As home health care delivery increases, smaller manufacturers may have an advantage, Rust said. They can "partner directly with hospital systems to help them with that delivery concept — maybe more efficiently than a large global company," he said. "In large hospital systems now, a patient comes in and has a surgery, and 24 to 48 hours after that surgery, they go home," Rust said. "But the clinicians follow them to their home for maybe the next week or two. They show up every day and check the medications and make sure they have the supplies they need." Capital is key High interest rates on business loans make it difficult for smaller companies to invest in expanded capacity, Booth said "Occasionally, there have been opportunities as the U.S. government gives some support financially on some projects. But it's been very hit or miss," he said. Eastman ‘remains confident' i "Supply chains now have to be so short. You've got to minimize your storage costs or carrying costs. Leverage your capital down to the lowest point that you can."
For companies without a chief financial officer, Booth recommended hiring a part-time consultant."You may think, I don't make enough money to have a CFO," he said. "You're not going to make money if you don't have that kind of acumen on the financial side. Your bank is going to be able to help — not just your lenders. They have a vested interest in it. But they've got a different view than you do as an entrepreneur or small business." CFO consultants can help companies plan and find capital, Booth added. "We need more avenues for capital at a reasonable rate. That's holding a lot of us back." "When you're a smaller company, obviously, you don't have a lot of margin for error," Izhaky said. "You really have to know what you're doing, and you have to be cautious." Small companies don't need to operate perfectly to survive, he said. "There are other ways to absorb errors — making access to capital critical," Izhaky said. "We have plenty of smart people. We have lots of builders out there. But actually getting the fuel to build is the challenge.