Virus Reshapes Health-Care Procurement
Shortages of personal protective equipment (PPE) and other products critical to treat and prevent the spread of the novel coronavirus (COVID-19) have placed attention on the health-care supply chain. This has increased awareness of the complexity and interdependencies of a global system that extends from raw materials to supply utilization.
The shortages are largely blamed on the increased adoption of lean manufacturing, reliance on overseas production (especially in China and India) and dependence on just-in-time distribution. These prevalent practices are the result of decades of cost-cutting measures, including hospital supply managers evaluated on their ability to reduce unit supply costs.
Limited investment in supply chain technology as well as practices proven effective in other industries — including collaborative planning, forecasting and replenishment in grocery and consumer-packaged goods — have limited the health-care industry’s ability to respond to shortages. Health systems have had difficulty reporting on inventory across facilities, anticipated replenishment quantities, and PPE consumption rates.
COVID-19 Coaxes Better Collaboration
Suppliers were unable to determine demand levels. This was because hospitals were receiving only fractions of shipments from primary suppliers and so were placing similar-sized orders to multiple suppliers in hopes of accruing enough stock. On a positive note, COVID-19 has prompted unprecedented collaboration — even among competitors, as hospitals, distributors and manufacturers have worked together to generate and source PPE and other supplies.
Building on these improved relationships and supply chain insights, stakeholders are exploring how to:
- Jointly create bi-directional inventory visibility
- Assess and minimize upstream supply chain risks
- Increase domestic production of critical supplies
- Maintain more safety stock
- Improve commercial and government emergency response supply chain coordination
- Better engage with virtual trading partners.
Prescriptions for Industry Change
There has been heightened interest in data quality and standardization, automation and digitization of the supply chain, use of cloud-based systems, and predictive demand modeling. Expanding domestic production should attract new manufacturers to the health-care market and more investment in advanced manufacturing capabilities.
Commercial supply chain leaders are also demanding a better understanding of government stockpiles to improve readiness and coordination in times of crisis. COVID-19 has accelerated the movement of care outside of the acute hospital setting — for example, expanded use of telemedicine, hospitalization at home, and outpatient and ambulatory surgery, which will require improved logistical capabilities. Also, supply chain sustainability could benefit from renewed interest in reusable supplies, which had been largely replaced in recent years with disposables.
The coronavirus pandemic has raised the stature of the health-care supply chain, as well as exposed the system’s frailties. While health-care providers and suppliers have suffered financially from COVID-19, their interdependencies offer the potential of more collaborative problem solving — and less focus on cutting costs, at any cost.
Karen Conway is vice president, health-care value, for Global Healthcare Exchange, a health-care software and services company in Louisville, Colorado. She is also a member of the health-care advisory board for CAPS Research in Tempe, Arizona.
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