Stay Prepared With a More Resilient Supply Chain: What COVID-19 has Taught Us
Stay Prepared With a More Resilient Supply Chain: What COVID-19 has Taught Us
With new COVID-19 variants emerging and uncertainty as to how long they will linger, healthcare providers and supply chain partners do not have the luxury of waiting. So, what can we learn from last year that may better prepare us for whatever is next? A few things stand out.
Lack of PPE Cited as a Major Issue from the Beginning
As early as the beginning of March 2020, the World Health Organization began warning governments and hospitals of a critical global shortage in PPE.i The American healthcare system wasn’t far behind. On March 27, 2020, the online news source, Vox, quoted a senior policy fellow at the Center for Global Development who said, “Every serious look at US pandemic readiness and global pandemic readiness has identified PPE shortages as a major issue.”ii
Let’s pause here to clarify. Hospitals did nothing wrong; the CDC’s guidelines state to maintain an eight-week stockpile of N95 respirators, gloves, gowns, etc. But in the face of a pandemic, demand surged to 17X the typical burn rate for N95 respirators, 8.6X for face shields, 5X for isolation gowns and 3.3X for surgical masks – and supply did not keep upiii. So, what happened?
In many ways, the PPE supply issues were the result of a perfect storm that had been brewing over many years. In an effort to reduce costs, hospitals have been incentivized to keep inventories low and drive sourcing to low-cost producers. The net result was a heavy reliance on overseas manufacturers, where labor costs and regulatory controls are low. China's low production costs have made it the global leader in producing a vast range of manufactured goods, including protective face masks, gloves, and gowns. Meanwhile, the US is the world's largest importer of PPEiv.
When COVID-19 hit, China was one of the first countries to shut down. Not only were Chinese suppliers prevented from shipping PPE to the U.S., they diverted that inventory in an effort to stem the tide of the outbreak in their own country.
The result for U.S. healthcare providers was a critical shortage of supplies. Regional and local flare ups made the problem even harder to manage, as there was no way of knowing what state or city would become the next hotspot. This also reflected another major cause of the PPE shortage: a lack of formalized national coordination, not only within the Federal government but also among hospitals. While there were instances of hospitals sharing respirators and ventilators, it was typically on an ad hoc basis.
On the manufacturing and distribution side of the equation, the entire supply chain has relied on a just-in-time model, where inventories are lean to reduce cost and supplies are delivered on a daily basis. While this has enabled cost reductions year over year for the past decade, it’s obvious this was not a model designed to handle pandemic demand surges.
PPE manufacturers and distributors were ill-prepared as well. Again, the key reason being cost. In order to hold costs down, distributors tend to partner with two or three large manufacturers who can guarantee volume pricing. Manufacturers, in turn use the same cost-driven approach when contracting providers of raw materials and converters. As noted in an article posted on the online JAMA Health Forum: “The frightening reality is that the routine US PPE supply chain was not designed with the primary objective of protecting health care professionals. Rather, it was designed to fulfill demand while focusing on efficiency and price.”v
What can we do better?
Now that we know all the contributing factors, the real question going forward is what can we do to better prepare for the future?
#1 Rethinking sourcing strategy. Diversify and localize suppliers in a reimagined sourcing approach that balances near-shore supply security with need for cost control. Contracting with multiple suppliers and ensuring a portion use domestic or near-shore manufacturing can go a long way toward mitigating supply chain risk. Standardization will always have a place but considering multi-supplier agreements for essential items is a smart approach.
#2 Redefining the value in Value Analysis. Healthcare organizations need to gain greater visibility to suppliers’ own supply chain strategy, security and contingency plans. The value analysis process should include additional criteria when selecting a supplier for certain product categories:
· Visibility to the supply chain. Require more transparency and line of sight all the way up the supply chain to raw materials, not just focusing on finished goods converting operations. Safety stocks are important for the first few weeks of an outbreak, but for a months-long event, understanding resiliency and control of the raw material supply is necessary.
· Manufacturing location. Country of manufacture is important to mitigate the impact of potential protectionist measures. Also, understanding who controls the manufacturing is important. Is the supplier merely a distributor of a contract manufacturer’s finished goods or is the supplier vertically-integrated, and to what degree?
· Redundancy in production lines. How many different manufacturing sites does the supplier have for the assurance of alternate sources in the event of an outbreak in the plant or other disruption that could shut down a site temporarily?
· Consider criticality. Weigh how critical the product is to continuity of operations. Evaluate whether it is easily substituted. Is it a high-performance item, with strict performance criteria and regulatory clearance required (like Surgical N95s), or a low-performance, more commoditized item with few barriers to entry (like face shields). The reality is that few PPE solutions are commodities. Styles, sizes, fit and fit-testing are important features that affect usability and clinical compliance.
· Consider versatility. Can the item be used in more than one type of clinical situation? For example, a Level 2 face mask that can be used in more clinical situations may be more versatile than a Level 1 mask.
#3 Supporting innovation in the national strategic stockpile strategy. Diversifying suppliers is not going to completely solve the problem of a rapid and sustained surge in utilization during a pandemic event. We have to consider other non-traditional solutions that can complement a more resilient, diversified supply chain. Some of the ideas industry stakeholders have proposed include a program to rotate centralized stockpile inventory to keep it evergreen using a “flow-through” model. Another idea is using a “virtual stockpile” which reserves manufacturing capacity for unexpected demand surges.
For a more resilient, agile and efficient supply chain, rely on Honeywell
Honeywell is excited to be able to play a role in the future of healthcare supply chain. Working hand-in-hand with healthcare organizations, distributors, GPOs and the government, we’re developing the strategies and product solutions needed to help keep frontline healthcare organizations safe and agile. Our experience in PPE design and distribution enables hospitals to diversify, localize and strengthen their supply chain. Our goal is to help create greater resiliency for those times when demand spikes, and greater efficiency when it’s business-as-usual.
For more information on Honeywell’s Healthcare PPE solutions, visit https://sps.honeywell.com/us/en/campaigns/safety/personal-protective-equipment-for-healthcare-workers
iiiPremier Inc. Survey: As COVID-19 Spreads to New Hotspots Hospitals Should Prepare for up to a 17x Surge in Supply Demand, Premier Inc.; https://www.premierinc.com/newsroom/press-releases/premier-inc-survey-as-covid-19-spreads-to-new-hotspots-hospitals-should-prepare-for-up-to-a-17x-surge-in-supply-demand; April 1, 2020
ivU.S. National Library of Medicine – National Institutes of Health; Contributing factors to personal protective equipment shortages during the COVID-19 pandemic; https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7531934/#:~:text=We%20now%20turn%20to%20our,2%20); October 2, 2020
vJAMA Health Forum; Personal Protective Equipment Shortages During COVID-19—Supply Chain–Related Causes and Mitigation Strategies; https://jamanetwork.com/channels/health-forum/fullarticle/2766118; May 12, 2020