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PPE Supply Chain: Challenges and Opportunities

October 30, 2020 Jessica Tagliafierro

2020’s COVID-19 pandemic has shined a light on weaknesses in the personal protective equipment (PPE) supply chain. Unprecedented levels of global demand for PPE that have resulted from this pandemic have put pressure on manufacturers and raw material producers to expand operations to meet the needs of healthcare workers, businesses, and the general public. The increased awareness of the prevalence of foreign manufacturing in the production of PPE has opened up discussions about potential economic opportunities to recapture some of this activity domestically, while being able to better respond to future spikes in demand.

What is PPE?

Though the COVID-19 pandemic has highlighted the need for PPE in healthcare, the domestic healthcare sector accounts for just 17.5% of revenue for US PPE manufacturers.[1] In terms of global PPE end use market share, healthcare is fifth, following manufacturing, construction, oil and gas, and chemicals.[2] Other sizable end uses include transportation, pharmaceuticals, mining, and food service. As a result, overall demand for PPE is not driven exclusively by trends impacting the healthcare sector. In many cases, the same PPE product may have applications across multiple sectors.

In the context of COVID-19, PPE is the main source of protection for healthcare workers and is designed to protect the wearer from injury or the spread of infection or illness. When used properly, PPE acts as a barrier between infectious materials and the wearer’s skin, mouth, nose, or eyes. The barrier has the potential to block transmission of contaminants from blood, bodily fluids, or respiratory secretions. PPE for healthcare workers includes various types of protective clothing and equipment such as:

Face masks/coverings: N95 respirator masks, surgical masks, and face shields;
Respiratory devices: P100 filters and powered air purifying respirators (PAPRs);
Medical gowns: surgical isolation gowns, surgical gowns, coveralls;
Gloves; and
Disinfectant wipes.

US PPE Industry

A heavy reliance on imports presented a challenge for domestic consumers in the face of increased demand during the COVID-19 pandemic. US firms are typically challenged to compete on price with lower-cost regions of the world in the production of such goods as surgical gowns and masks. Key PPE exporting countries include China, Malaysia, Taiwan, Vietnam, Mexico, and Ireland. Moreover, the relative strength of the US dollar makes American firms increasingly less competitive in terms of cost. Therefore, US PPE producers typically must compete on quality.

The US PPE industry is highly concentrated among three major players: 3M, Honeywell, and MSA Safety. 3M and Honeywell alone account for over 60% of US sales of PPE. For respiratory protection equipment like N95s, these three firms represent 87% of revenue. These companies have numerous production facilities both domestically and internationally. Firms producing less complex products tend to be somewhat less concentrated, though even for surgical apparel, Cardinal Health and Medline Industries represent 57% of all US sales.

Most PPE products are manufactured from chemical and plastics inputs, with polypropylene in particular being a common input across many PPE types. Polypropylene is well suited for use in PPE due to its properties that allow fibers to trap particles effectively, protecting the wearer from infection. Demand for polypropylene for use in PPE has been strong, neutralizing some overall decreases in demand due to the slowdown in non-essential manufacturing globally. Other critical inputs include nitrile butadiene rubber (for use in gloves) and disinfecting chemicals used in disinfectant wipes.

Barriers to entry in the PPE manufacturing industry are significant, creating challenges especially for smaller producers seeking to compete. The standardized nature of industry products requires significant upfront capital investment in manufacturing facilities. Moreover, industry products are typically purchased in bulk, incentivizing industry operations that cater to economies of scale. In turn, the industry’s largest players have increasingly captured more of the market while generating outsized profit. Finally, industry products are subject to a wide variety of federal, state and local regulations, product standards, and safety requirements. This high level of regulatory oversight also serves as a significant barrier to entry for new operators.

Future Demand for PPE

Understanding the future demand level for PPE is a critical factor for assessing the viability of increasing domestic PPE production, either through business attraction or transitioning non-PPE manufacturers to PPE production.

Demand considerations include:

COVID-related demand: Increased medical demand from hospitals, frontline workers, long-term care facilities, home health aides, and outpatient care providers.
Ongoing threat of pandemics: Increased risk of new pathogens, spread of diseases through global travel and trade, and acts of bioterrorism.[3]
Other healthcare demand: Aging population and rising obesity rates that increase demand for surgery.
Non-healthcare demand: Construction, mining, and manufacturing industry regulations and requirements for PPE.

PPE Opportunities

Across the United States various efforts are underway to increase PPE supply chain resiliency. These strategies tend to fall into three broad categories: expanding domestic production capacity, building up stockpiles, and supply chain regulation and monitoring.

Camoin 310 identified the various 6-digit NAICS manufacturing industries that have commonalities with PPE manufacturing. The following table lists the top ten industries and the associated PPE products for each, along with historical jobs, current jobs, job growth (or decline), and number of companies in the United States. These companies and jobs are in industries that are related to, and could potentially be leveraged to expand production capacity, of PPE over the long term.

Areas with an existing industry presence and concentration may have the potential to capture PPE related supply chain opportunities.

In terms of number of jobs in these PPE related manufacturing industries, California leads the way with nearly 206,000. This is followed by Texas (145,757), Ohio (109,652), Pennsylvania (87,354), and Indiana (86,214).

The following heat map illustrates the number of jobs in PPE related manufacturing industries across the states. Darker blue colored states tend to have a strong presence of plastics and chemicals manufacturing companies, some of which would be well positioned to retool facilities for PPE production.