Inside Supply Management Magazine

September / October 2020

Markets

September 15, 2020

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.

United States

The coronavirus (COVID-19) pandemic wreaked havoc on U.S. commercial and multifamily construction during the first half of the year, with starts falling 22 percent compared to the same period in 2019, according to Hamilton, New Jersey-based Dodge Data & Analytics. The commercial and multifamily category includes office buildings, stores, hotels, warehouses, commercial garages and multifamily housing; among this group, only warehouses posted a small gain in starts. New York, Washington, D.C. and Dallas were the top three metropolitan areas for starts, though all had year-over-year decreases. “The COVID-19 pandemic and recession have devastated most local construction markets,” Richard Branch, chief economist at Dodge Data & Analytics, said in a press release. “Across the board, building projects have been halted or delayed, with virtually no sector immune from damage. Construction starts have begun to increase from their April lows, and there is cautious optimism that as the year progresses, construction markets around the country will begin a modest recovery.”

Canada

The 10-percent tariff on Canadian aluminum products announced by U.S. President Donald Trump in August is illogical, the president of a Quebec union said. Donat Pearson, president of the Arvida National Aluminum Employees Union told the Canadian Broadcasting Corporation, “The Americans produce about a third of what they need, and they impose taxes on certain products that we send because they need them. It’s a bit flipped, but we don’t have much control over it.” Canada responded with a $3.6 billion (US$2.7 billion) counter-tariff on U.S. aluminum products, to go into effect this month. Deputy prime minister Chrystia Freeland, who promised a “dollar-for-dollar” fight, said in a news conference, “At a time when we are fighting a global pandemic … a trade dispute is the last thing anyone needs — it will only hurt the economic recovery on both sides of the border.”

Turkey

Even though it spent much of the previous year spending billions in stimulus, Turkey’s Central Bank indicated it was ready to use “all available instruments” to reduce market volatility as the lira slid to record lows against the dollar and the euro in early August. “Targeted additional liquidity facilities will be phased out amid normalizing economic activity,” the bank said in a statement. Economists have recommended an interest-rate hike to help prevent a further slide by the lira, but Turkish President Recep Tayyip Erdogan has been opposed to such a move, believing that high interest rates cause inflation. However, annual inflation was near 12 percent, leading to an exodus of foreign investment. According to the Central Bank, foreign investors withdrew US$7 billion out of the Turkish lira bond market and $4.3 billion in Turkish equities in the first six months of the year.

Taiwan

Amid political turmoil in Hong Kong, Taiwan is trying to attract foreign investment by touting its democracy and free-market economy, according to a Reuters news agency report. “This has been ongoing. It’s not only aimed at Hong Kong,” Huang Tien-mu, Taiwan’s financial supervisory commission chairman, told Reuters, adding that the country has been in talks with financial institutions based in Hong Kong, the U.S. and other countries. He added, “We hope to attract not only people or funds from one place. We hope to make Taiwan’s market even more competitive, so it becomes a financial market that gets more attention in Asia.” A key endeavor is bringing Taiwan’s financial system in line with international standards, Huang said. Chinese-claimed Taiwan has condemned Beijing’s security law for Hong Kong and has offered to help those fleeing the city and former British colony. 

South Korea

Fresh off the triumph of its Hope probe that blasted off for Mars in July, United Arab Emirates might have an eager collaborator on future space exploration: South Korea. Lim Cheol-ho, president of the Korea Aerospace Research Institute, South Korea’s space agency, told Emirates News Agency (WAM), “I believe Korea can greatly benefit from the UAE’s experience and accumulated knowledge in Mars.” South Korea plans to launch a lunar orbiter in 2022. The countries have previously worked together on Earth observation satellites. “I hope that we share the experience (of Hope) and (its) scientific data, so we can open up a new chapter of our cooperation in space exploration.” Lim said.