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Kristian O'Meara - SVP Strategic Initiatives

What Has Coronavirus Taught Us about Managing Supply in Healthcare?

  • Blog
  • Healthcare
  • Supply Chain Management

Every sector was affected in some way by the Covid-19 crisis. Some positively, most negatively. But the greatest immediate challenge was faced by the those who are most directly concerned with our health and wellbeing: hospitals, clinics, specialist epidemiological practitioners and laboratories, general practitioners and the care sector, in particular nursing homes. And one of the greatest real-time challenges across the entire healthcare spectrum was supplier management. To keep their costs down and save on inventory, many healthcare institutions had, over the years, become very adept at managing supplies such as personal protection equipment (PPE) on a “just in time” basis. Or, more accurately, “just in time plus”, the plus being what they imagined to be the worst-case scenario based on previous experience of past outbreaks such as SARS (2002-04) and H1N1 (2009).

However, Covid-19 proved more deadly and spread more rapidly than past epidemics, and in supply chain management, things had moved on since the first decade of this century. Most notably, healthcare providers in America and Europe became far more reliant, directly or indirectly, on finished goods and materials manufactured in China and elsewhere in the Far East. We soon witnessed how well-planned and resilient global supply networks can break down entirely as soon as national governments pursue “our citizens first” policies. Back in February when Covid-19 first started to spread through Wuhan province in China and to other regions, the Chinese government acquired most of the PPE being produced in the country. When the disease spread to Italy this led to tensions with its European neighbors and in particular France and Germany, which imposed limits on the export of masks and other PPE.

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Interestingly, the structure of the healthcare sector in different countries (distributed or centralized, public or private) did not seem to have a huge influence on who came out best in this free-for-all. The United Kingdom, which has a state-run National Health Service, struggled to cope when stocks ran out very quickly and new sources of supply were hard to identify. When supplies were finally forthcoming, they sometimes did not meet the requisite safety standards. The United States, with its more decentralized and privately run healthcare sector fared no better, despite having more time to adapt. States and cities such as New York suffered grave shortages, with various state governors urging more action at Federal level.

India likewise decided to stop exporting 26 active pharmaceutical ingredients (APIs) amid fears of shortages within the country, impacting the security of supply for antibiotics such as tinidazole and erythromycin and progesterone as well as paracetamol.

Early in the pandemic there was an especially acute shortage of ventilators, which are essential to support lung function during any respiratory illness, and which offered the best chance of survival for patients with the most severe cases of Covid-19. With limited stocks and supplies drying up, governments and health systems enlisted the help of various companies to switch to the manufacture of medical ventilators. For example, the  UK government set up a consortium of 14 firms including Airbus, Rolls-Royce and even Formula 1 motor racing teams to support the NHS.

What needs to change?

The medical device and equipment supply chain is a series of stages from the various tiers of manufacturing through vendors, purchasers, storage, distribution and finally frontline care providers. To minimize costs, buyers such as healthcare Group Purchasing Organizations (GPOs) in the United States, comprised of large hospital systems and individual hospitals, had been operating on “just in time” principles. This worked fine during normal times and many hospitals were happy to let their supply management run on autopilot just so long as costs were held down. But the pandemic highlighted that here is huge potential for disruption at every stage in the supply chain. For example, many manufacturing facilities were closed with factory workers made redundant or furloughed, while air and sea freight transport systems often ground to a halt and countries imposed border closures with travel restrictions, often delaying the delivery of personal protective equipment and other essential medical supplies.

Nursing and retirement homes and other non-acute care facilities found themselves even more exposed, being outside the large supply chain organizations and handling supply on a manual and ad hoc basis.

We have thus seen a switch in emphasis from a “just in time” to a “just in case” approach in supply management and procurement. This is not a wholesale change because healthcare will still rely on GPOs and similar purchasing consortia to keep costs down, whether to relieve the costs to the taxpayer in systems such as the NHS or to maintain competitiveness in commercial healthcare, as in the USA, or hybrid systems such as Germany. In order to reconcile the competing demands of minimizing the risk posed by all potential disruptions to supply, I believe that buying organizations will need to do a few things better, and other things differently.

  • First, they need to build greater visibility into supply. Not just immediate sources such as distributors but visibility into upstream suppliers of materials and components. That doesn’t necessarily translate into less use of distributors, especially for non-acute care. Distributors in turn need to better understand demand from their customers and share this knowledge with manufacturers.
  • However, there are limits to how far this can be achieved on an individual basis, because each buyer and distributor only has visibility into part or parts of the overall demand picture. The crisis has illustrated the need for broad visibility into both demand and supply across the entire system.
  • This leads to a further requirement, which is for organizations to deploy digital supply networks rather than relying on the conventional linear supply chain model. Digital supply networks are dynamic and integrated in nature, and will increasingly rely on artificial intelligence technology to provide fast and continuous flows of information and analytics. This can empower organizations to stay connected with their entire supply network and to deal with major disruptions such as those caused by Covid-19.
  • There also needs to be greater cooperation at provincial, regional, state and Federal levels, and even at international level, in particular to develop contingency plans to prepare for the next crisis. What at first appeared to be localized outbreaks soon revealed itself to be a global challenge and the world was anything but ready for it. Healthcare organizations need to work together to develop models that match worst-case demand to potential sources of supply, not just to meet immediate requirements but to allow providers to deal with the buildup of waiting lists for non-acute and elective procedures, which is our next big challenge.
  • Finally, in various countries around the world, we have seen the emergence of “hastily generated public-private partnerships” to ensure resilience in outbreaks. It is to be hoped that the lessons learned will not be lost when the immediate crisis is over, but will also be applied to develop longer-term partnerships on a larger scale.
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