Plan for free N95 masks could save domestic mask makers — or kill them

The Biden administration’s plan to distribute 400 million high-quality N95 respirators (N95 masks) at thousands of pharmacies, free of charge, is a great way to encourage people to step up to a much higher level of protection against COVID-19. These masks will come from the government’s Strategic National Stockpile.

If we can get the American public to pick them up and use them, it will help to decrease transmission of omicron and other future variants. But we should ask what this will mean for domestic mask manufacturers. After all, competing with “free” is tough even in good times. But if the plan is to replenish the stockpile by sourcing from domestic manufacturers, that is an opportunity to correct some mistakes we made earlier in the pandemic.

N95 masks provide the highest level of filtration. They excel in both fit and filtration capabilities. According to the American Conference of Governmental Industrial Hygienists (ACGIH) Pandemic Response Task Force, it takes 25 hours for an infectious dose of COVID-19 viruses to transmit between two people wearing non-fit-tested N95 masks. If the masks are well-fitted (meaning tightly sealed to the face), the wearers have 2,500 hours of protection. This compares to one hour of protection for two people wearing disposable surgical masks, 27 minutes for two people wearing cloth masks, or 15 minutes for two people who are not wearing masks at all.

Hey leaders in Washington, cloth masks really are not good enough — at all. So we need to see you set a good example at press briefings and on C-SPAN!

When the pandemic first hit the U.S. in March of 2020, the country was caught short because of the skyrocketing demand from frontline health care workers. We discouraged other people from using them because we didn’t want to strain the supply chain; we wanted priority to go to those who needed them the most. The shortages even forced many health care workers to reuse masks for much longer than they were intended, or to attempt to recondition them for reuse. We should not forget those desperate days.

Public and private sector leaders pleaded with domestic companies to begin production, and many of them stepped up. But as I and my colleagues have pointed out, much of the supply and capability base that would facilitate the start-up of automated production of masks left this country some time ago. By the time domestic sources ramped up for large volumes, Chinese manufacturers flooded the market with a wide range of masks and personal protective equipment (PPE), often priced below the cost of the raw materials paid by American firms.

Many of the masks and PPE consumed in this country destined for the health care market are purchased and distributed by group purchasing organizations (GPOs). They are often sourced from large health care supply manufacturers who negotiate supply agreements with them. Capitalizing on the severe shortages, the large manufacturers were in a good position to sign long-term contracts, and they did. As a buyer, if you were faced with shortages, you would probably leap at the opportunity. Government procurements followed the same path.

This left the consumer market to the small domestic manufacturers who had gotten into the business in response to the urgent calls for help. Many of them started direct to consumer sales to stay alive. But they struggled as Centers for Disease Control and Prevention (CDC) guidance continued to steer consumers away from N95 masks, while Facebook, Google and Amazon followed CDC guidance to block online advertising of N95’s to the general public. Imagine trying to sell online and not being able to advertise online. Hmmm … Doesn’t sound like a winning proposition. Meanwhile, Chinese-made KN95 masks flooded the market.

Many of these domestic companies have been struggling for survival and laid off most of their employees or closed their doors entirely. Some ramped back up to supply renewed demand with the emergence of the omicron variant, just as shortages again developed.

Will “free” masks shut down these sales? Early signs are not good. Armbrust USA in Texas saw its sales drop almost 50 percent overnight after the free-mask announcement, and Shawmut Advanced Materials in Massachusetts saw a 60 to 70 percent sales decline over the last two days. Even Premier, one of the largest GPOs has expressed concerns about the free mask program.

The U.S. Department of Health and Human Services (HHS) has been developing a plan to contract for surge capacity (120-day response) of 141 million N95’s per month. These would be structured as 10-year deals that would commit to purchase some percentage on a steady basis to ensure that they would be available for the next crisis. That’s a great idea.

However, one supplier I spoke with said HHS only wanted to work with two or three companies for high-volume proposals. They told me that their company would be able to produce over 200 million N95 masks over the next 12 months — but that apparently was not enough, so they were cut. HHS appears to have reconsidered, so the company hasn’t given up.

Since supply chain resilience is what we really need in this country, here are a few things we should do. First, we should diversify the supply base, encouraging more manufacturers, especially ones who have domestic sourcing for their raw materials. Stamping out masks from foreign-sourced material won’t make us more resilient during the next crisis. This probably also means more than two or three big suppliers, as a larger base will produce more innovation. Maybe we should look for all the sites that mayors, governors, or congressional leaders called asking for help or visited to dedicate new mask-making lines, and see if we can direct some business to those companies. After all, they stepped up during our time of need, and many of them invested their own money with little or no federal assistance.

Second, we should make long-term commitments to these suppliers. U.S. companies will have higher costs than overseas competitors and buying from them for the stockpile is a good way to ensure that they can have stable demand. The large manufacturers already have a stable base and making stockpile purchases from the small producers will foster supply diversity and improved resilience. Stable demand helps them to maximize efficiency and keep people employed. In the early phase of the pandemic, we asked these companies to be swing producers. But we can’t expect them to stay in business as swing producers — only called on when they are needed — not if we want them to stay in business.

Finally, we should find ways to help smaller domestic suppliers work their way through government procurement regulations. We should find ways to help them, and to say “yes” to them, rather than simply “no.”

Giving away masks to the American public will be a truly great initiative for improving public health, and rebuilding the Strategic National Stockpile is a good way to grow a resilient, domestic supply chain. It’s also a chance to thank the firms who stepped up earlier in the pandemic. Let’s not miss this opportunity.

Willy C. Shih is the Robert and Jane Cizik professor of management practice at the Harvard Business School. His research focuses on global manufacturing and supply chains. Follow him on Twitter: @WillyShih_atHBS