Coronavirus: Unmasking a Supply Chain Flaw

Manufacture, assemble, ship. In an era of speed, efficiency, and lower costs, that’s been the supply chain mantra. And now, at least for surgical mask makers, it’s coming back to haunt them.

With the massive coronavirus outbreak spreading to nearly 75,000 people in 25 countries and claiming nearly 2,000 lives, people are in full protection mode, snapping up surgical masks faster than stores can stock them. At the same time, companies in China, hoping to keep operations running, are looking to buy masks wherever they can, thinning the much-needed supply for healthcare professionals and first responders who need them most.

James Day, who leads the Supply Chain, Operations, and Procurement Center of Expertise at Korn Ferry, says the epidemic exposes a flaw in the practice of streamlining inventory. “Organizations without a secondary supplier run the risk of not being able to access inventory,” says Day. Or they will have to wait longer, and quite likely have to pay a premium, for it; the World Health Organization recently noted that demand is now 200 times higher than normal and prices are 20% higher for medical equipment, including masks.

Day compares the scramble for surgical masks amid the coronavirus outbreak to the 2011 earthquake in Japan, which damaged the facilities of the only supplier of a particular kind of black paint used by automakers. As a result, automakers had to stop or cut the production of vehicles using that particular paint while they lined up new suppliers.

To be sure, automakers apparently learned from that experience. They, along with tech and energy companies in China, are securing new equipment and setting up new assembly lines to pump out surgical masks for their employees as well as first responders and front-line medical workers. Part of the reason these companies are producing their own supply is because traditional mask makers are already running their production operations at full capacity—in some cases 24 hours a day, seven days a week—and are still unable to meet demand.

Tom Flannery, a senior client partner with Korn Ferry’s Executive Pay and Governance practice who specializes in healthcare, says the mask shortage is also the result of hospitals meticulously managing inventory to control costs. “The reality is that when inventory sits on the shelf it’s a cost, so if a hospital only needs 1,000 masks a day, they aren’t going to order 100,000” just in case something happens, says Flannery.

The problem is, there’s usually a critical lag time between when something does happen and when suppliers can get ramp up production to get up to speed. In the case of the coronavirus, US mask suppliers are faced with a tight labor market that can hamstring their ability to hire enough people to get to full capacity. Similarly, suppliers in China don’t have access to people because of travel restrictions and other government-mandated precautions that are keeping them from work.

Moreover, experts caution that masks aren’t 100% effective in protecting from contamination and that the emphasis on them, particularly among the general public, could be misplaced. Health experts advise vigilance around handwashing, covering the mouth when coughing, and other healthy habits. “Wearing a face mask may help us feel that we are protecting ourselves; however, unless it is the right mask, it may be for nothing,” says Katie Bell, a senior client partner and global account lead for the healthcare sector with Korn Ferry.