As the COVID-19 pandemic roared to life this spring, the U.S. found itself faced with an acute shortage of masks and other personal protective equipment to support front-line workers.
The issue was highlighted by images of American doctors and nurses wearing garbage bags in lieu of proper medical garb. The photos went viral.
Today, America’s PPE supply chain is lurching back to life. Yet many hospitals, businesses and state and local governments still remain short on medical-grade face coverings as they continue to exhaust existing supplies.
DemeTech, a Miami-area medical device manufacturer, has been trying to bridge the gap by hiring hundreds of new workers to make Food and Drug Administration-approved surgical masks — which only look like ones you’d buy at a corner store — and Centers for Disease Control-approved N95 respirators. While others in Florida, including Miami Gardens-based ICO Uniforms, have also begun producing face coverings, DemeTech appears to be the only firm in the state to have begun turning out N95 respirators that have been tested and approved by the Centers for Disease Control and Prevention.
But DemeTech has learned that American PPE buyers remain stuck in their ways.
“We’re very expensive,” said DemeTech vice president Luis Arguello Jr. “We’re creating jobs and paying really good salaries — the economic ripple effect is great. But how do we compete? We don’t.”
Cost remains the biggest factor — not because masks are expensive, but because DemeTech pays its workers more than firms in China do. It currently sells N95 cup-style respirators for $79.99 for a box of 20.
“To make a product in the U.S., you have to pay a living wage,” said Kim Glas, president and CEO of the National Council of Textile Organizations, a trade group whose members include mask makers.
DemeTech faces additional hurdles, including regulations and access to the industry’s primary sales channels that further impede its ability to sell. Most hospitals, Glas said, have longstanding relationships with distributors that they use regularly. Smaller companies like DemeTech struggle to find footing — especially as overseas production resumes.
“If you’re a manufacturer who wasn’t really in the space, or came into the space because of demand, the question is where do you fit now that global supply chains have been ramped up?” she said.
Right now, Arguello said, the U.S. government is DemeTech’s largest customer — but only thanks to an executive order mandating the purchase of American-made products for federal entities.
When it comes to most states, cities and private companies, Arguello said, “it’s straight price.”
DemeTech’s pivot to masks was made possible thanks to a connection through the U.S. Department of Defense’s Advanced Functional Fabrics of America, an initiative launched by the Obama administration to increase federal investment in textile technology.
When the pandemic hit, DemeTech formed a partnership with Tennessee-based Oak Ridge National Laboratory, which was developing technology to boost domestic N95-mask production.
But DemeTech quickly discovered that longstanding supply chain mechanisms aren’t easily reoriented.
“The problem is, unless you’ve got an in with a [large] distributor...it’s difficult for a manufacturer to sell,” said Rob Handfield, a professor of supply chain management at North Carolina State University and executive director of the school’s Supply Chain Resource Cooperative. “[Smaller companies] don’t have the distribution capabilities, the information systems...they don’t have a sales channel.”
The federal government has responded to the PPE supplies issue as it would to a hurricane, preferring a “locally executed, state managed, federally supported” role. But experts say this has translated into every jurisdiction fending for itself,
And the rules for many states and local municipalities dictate that, all else being equal, price wins out when it comes to making bids, said Georg Neumann, head of communications at the Open Contracting Partnership, a nonprofit that advocates for fair and effective public contracting.
“So quality, or the fact that they can deliver in time, are factors that are not integrated well into our procurement system,” Neumann said.
While most large hospitals now seem to have adequate PPE, many solo practitioners and small practices are leaning on personal connections, or simply going to Costco, for their supplies, said Abram Berens, president of the Broward County Medical Association. That, too, brings cost into the picture.
Berens said he had not heard of DemeTech, but upon learning of their pricing said it seemed above what an N95 mask would have cost prior to the pandemic.
To get its products in front of more potential buyers, DemeTech has partnered with another upstart, South Carolina-based Rhino Medical Supply. Founded by a former Wells Fargo executive in May, Rhino has tried to corner the market on new U.S. manufacturers like DemeTech.
“In this world, there’s just a lot of craziness, a lot of shadiness,” said Rhino founder and CEO Lance Brown.
The Miami Herald reported in April that Florida officials had booked $7 million worth of masks from a former contestant on the TV show “Shark Tank.”
He continued: “So having a direct relationship with a manufacturer is really important. So we saw hospitals experiencing issues with lead times, tariffs, trade wars, and we knew we wanted to position ourselves going more domestic to keep us growing.”
Most governments and healthcare providers would take an American supplier if they could, Brown said. But right now, many are operating under crushing budget constraints.
“Nine out of 10 times, they would buy American,” he said. “But during a pandemic...they have to make some tough decisions to go with something that makes more economic sense. I don’t think they want to buy overseas, but given existing purchasing systems, and no more big budgets, they’ve got to do what they’ve got to do.”
Still, Brown says he’s been able to sell at least one million DemeTech masks, mostly to healthcare providers. DemeTech declined to release client names but asked several to comment; none agreed to be interviewed.
“That speaks to the quality of DemeTech and what they produce,” he said. “A lot of folks go to what they know...even if masks do the same thing, or not as good quality, they think they can trust it.”
As the latest wave of coronavirus cases bears down, supply chains could face another stress test.
“This second wave is going to be pretty bad,” Handfield said. He added: “We’re still seeing shortages, particularly in hospitals now seeing a huge influx of patients. The burn rate is pretty significant when you look at how quickly they’re going through these masks and gloves.”
But he is pessimistic about U.S. end-users’ ability to shake their addiction to low-cost goods.
“Are we going to go back to our old ways, buying faster and cheaper and go to China? That’s got to change,” Handfield said. “We’ve learned a lesson, but people are weird that way, and forget those lessons.”
Dave Rousse, president of INDA, the leading global association representing N95 makers and other specialty fabrics producers, agreed.
“If the U.S. healthcare community wants low prices but an interruptable supply chain, it will continue to buy from Asia,” he said. “If it wants something secure, it’s going to have to pay a price premium.”
Brown said DemeTech is close to reaching an economy of scale that will bring down its price and make it more affordable. This week, DemeTech announced it was opening a fourth, 156,000-square-foot facility in Miami Lakes for $15 million. It has also opened an online store where masks can be purchased directly.
“People have to buy U.S. products,” Arguello said. “We have to spend a little more. Our long-term vision is going to depend on the U.S. consumers.”
For more information on DemeTech, email firstname.lastname@example.org.
Name: DemeTech Corporation
Description: Medical device manufacturer turned protective face covering maker
Leadership: Luis Arguello, CEO; Maria Esther Arguello, CFO; Luis Arguello Jr., vice president