What Government and Big Tech Ought to Know About Global Supply Chain Efficiency

By: Kevin T. Lenahan

Some well-intentioned organizational policies are enabling this pandemic.  We must train and equip our Health Care Providers (HCPs) and the public with the right tools and resources to combat this disease.  And there doesn’t seem to be a well-actionable centralized intent driving unity of effort.  

We know from previous pandemics that social distancing, mask-wearing, and community efficacy work in stemming the spread of diseases.  Research suggests that these measures work, and government, business, and public health leaders have articulated the same.  Now, if you don’t mind—I’ll chime in on just sliver of the equation—I’d like to talk about the dearth of mask supply to the vanishing point.

Below is a process flow chart I use as a template to evaluate the feasibility of the commercialization of a product.  In the case of protective masks, I chose to tackle the challenge because our company is uniquely positioned to respond quickly to support the needs of everyday Americans.

As logistics and supply chain professionals, we know that getting the 7 Rights of Logistics (the right: product, quantity, condition, place, time, customer, price) requires a few things to happen.  Most importantly, though, is planning to a requirement and developing a concept of logistics to support that requirement.  Military planners know that when resources and timelines are tight, Operational Risk Management (ORM) measures and redundancies need implementing.  ORM training is an annual requirement for military members. See the IAMIS DoD 5-Step Model below.  

·       Identify hazards

·       Assess the hazards

·       Make risk decisions

·       Implement controls

·       Supervise and watch for change

Keep the above framework in mind when I briefly discuss two hazards: regulatory paralysis and big tech interference.

From a conceptual level, our governmental leaders need to harmonize policy across all the agencies, and it needs to be simplified.  

More guidance and legislation isn’t better; better guidance and legislation is better.  

The CDC, FDA, CBP, NIOSH, CE, WHO, and Host-Nation regulatory agencies are not harmonizing their content and guidance.  From a supply chain perspective, inadequate knowledge management has strained our ability to build fidelity with prospective manufacturers considering importing their masks into the US.  

Would you risk losing your inventory over customs seizure? 

A recent BuzzFeed article startled a medical mask supplier that I spoke with from importing masks into the USA—some of which were on order for the US Government.  The writer should have clarified that non-medical masks may not be imported for medical purposes and that only medically-cleared masks may be imported for medical purposes.  Non-medical masks may be imported if they are marketed for non-medical use: such as industrial masks.  The writer inaccurately wrote that all KN95’s were blocked from importation into the US.

I suspect that the writer did not have enough time, requisite knowledge, or a patient FDA representative to work with before writing that article.  Learning the ins and outs of healthcare regulatory measures is difficult, even for the simplest of products.  

One concern we should all have is that companies can register products with the FDA database, for $5236.00, without any actual product inspection.  The registration seems to be a marketing gimmick without any real merit unless the product listed has a 510(k) registration number.  To earn that 510(k) number, the company needs to first register their product with the National Institute for Occupational Safety and Health (NIOSH); submit for an FDA 510(k) clearance, and then list the product on the FDA global database.  If you’d like to check the validity of your masks, call 1-888-INFO-FDA, press *, and wait for about 22 minutes before reaching a COVID PPE FDA specialist.  They will provide you with what you need to know.

You may also want to consult the FDA, NIOSH, CBP, CE, and a few others before importing PPE.  Whilst sourcing for suppliers, we received multiple fake or forged FDA/ CE registration certificates.  We would encourage you to apply the same level of scrutiny before ordering products from overseas. 

When calling any government agency, the agent on the other line does not and will not speak to the policies of the different agencies.  For those who’ve tried to pull information, you’ll know your specific questions will either be answered with “check the website,” which you’ve read, or outright ignored through a full voicemail inbox (US Customs). 

Ordering PPE, as a small organization, is difficult for a few reasons.

One, if sourcing from an overseas manufacturer, be prepared to receive—in some cases—forged documents and impractical Minimum Order Quantities (MOQs).  The manufacturers control the terms and conditions.  It is a manufacturer’s market.  

And two, if your company is unable to work directly with the manufacturer, you’ll have to order from an intermediate distributor, whom will offer you a product at a higher cost, lower MOQs, and may not accept Letters of Credit, Escrow, or Surety Bonding to mitigate transportation/ fraud risk.

Now here’s where Big Tech is could help the public.  By putting forth policies such as

“Ads must not contain content that exploits crises or controversial political or social issues for commercial purposes,”

these platforms diverted efficient supply chains to multiple distributors. By adding additional channels and taxing requirements, this increases the Total Cost of Ownership (TCO) and increases Average Customer Wait Time (ACWT).

Ideally, as suppliers, the end-user benefits most from cutting out intermediaries.  This increases fidelity in the supply chain and reduces spend for your end-user.  The e-commerce route of advertising B2C is explicitly hampered by blocking advertising, which leaves companies selling to brick and mortar distributors.  By adding another distributor in the supply chain, Total Cost of Ownership (TCO) increases from yet another included profit margin.  

Adding another supplier increases your inventory turn time and reduces a business’s Gross Margin Return on Inventory Investment (GMROII).  So if your turn rate drops, and you want to keep your profits safe, the only other option is to increase margins.  Add the risk from longer ship times, trade tariff volatility, currency conversion fees, sales taxes, headcount spend, and logistics spend (warehousing, picking, packing, and shipping increases). If you have multiple distributors keeping inventory, the supply chain’s average inventory cost increases, and gross profit goes down because of the turn rate decreases.

By policing “exploitive content in a crises,” Google, Facebook, Microsoft, have elongated the supply chain, increased spend, invited additional risk in the supply chain (white labeling, forged documents), and instigated more harm than good for the end-user—the public.  Who, frankly, should get the final vote on the level of risk they’re willing to invite and their self-evident right to affix a price to the value of securing PPE. 

And if you’re looking for simple, affordable masks, I’ll share what you’re paying for:

For Chinese masks to arrive at your front door, here are some cost considerations.  As a business, we pay for:

•    The masks;

•    Shipping;

•    Chinese import tariffs (if applicable, depending on the Harmonized Schedule code, as high as 25% in some cases), 

•    T/T and L/C fees; 

•    Picking, Packing, Shipping;

•    Taxes galore;

That leaves our business’s breakeven point at 1.83X what a simple mask costs in China.  That does not cover advertising spend, licenses, permits, operating expenses, and our time.

To improve access, reduce ACWT, and lower TCO, the government should consider

• Keep your guidance centralized and straightforward;

• Consider dropping NET 30/ NET 10 payment terms to reduce your contracting costs;

• If you’re going to publish a “contact us” number, have someone available;

• If someone is available to take a phone call; a URL does not always provide the celerity needed to make decisions, talk to us.

And Tech should

•  Consider what your role is and what your desired end state looks like and backward plan; 

  •  If you want medical providers to have medical masks, 

  • Americans to honor CDC guidance and wear some protective face covering and social distance.

• Then draw up a business model canvas as a mechanism to achieve your end-state. You’ll see that blocking ads for masks may not align with your desired end state.  If you’re still on the fence, put conditional advertising in place.

I’ll leave it to you to decide what exploitive and what’s not, I just drove past a bar charging 2X our sales price.

If you’re interested in ordering industrial protective masks, you’re welcome to shop with us. I promise I’ll be a good steward of your time and money.