March 18, 2022
Rethinking the Post-COVID Supply Chain
by Teresa Breen
Today’s supply chain issues are more complex than the personal protective equipment (PPE) shortages earlier in the COVID-19 pandemic. PPE supplies are relatively easy to produce—they have few component parts and are easier to source domestically. Current supply chain concerns involve products that require many different components to manufacture, parts that often come from multiple manufacturers that are located in different countries. Access to these supplies is therefore much more impacted by today’s myriad of production and transportation backlogs, including shortages of raw materials (like plastics, metals, glass), lack of global microchips, and significant shipping delays.
Below, we’ve outlined some of the key problems we’re hearing about today’s supply chain disruptions.
- Most hospital and health systems have faced, and will continue to face, supply shortages. According to an October 2021 Kaufman Hall report, 99 percent of US hospitals and health systems surveyed reported challenges in supply procurement in 2021, including shortages of key items and significant price increases. Most hospital supply chain leaders estimate they will be facing these challenges for up to two more years.
- COVID has exposed the dangers of single-source dependencies and poor volume flexibility. Health systems will need to move away from a supply chain predominantly focused on cost control and just-in-time supplies for a defined set of products. Current supply shortages necessitate planning farther into the future, addressing anticipated issues in advance in order to get ahead of challenges and minimize disruptions in care.
- Don’t expect your Group Purchasing Organization (GPO) to save the day. While GPOs may be somewhat effective in helping hospital clients procure critical supplies, many health systems report dissatisfaction with their GPOs. Yet few have changed GPOs or key vendor relationships based on performance because these contractual arrangements can be hard to alter.
Proactive Steps Health Systems Can Take
1. Planning for contingencies
- Identify, and increase focus on, critical supplies. Earlier in the pandemic it was more easily apparent which supplies were critical. Health systems today should identify which other supplies are essential to the provision of quality care beyond COVID, and prioritize improved supply chain management of those product categories. This should involve developing acceptable substitutes as well as investigating domestic sourcing options.
- Develop supply contingency scenarios. Any number of other events aside from COVID, ranging from natural disasters to political, economic, or military turmoil in countries where supplies are produced, could interrupt the delivery of medical supplies. Health systems are increasingly being forced to develop internal methods for monitoring global events that may impact supply continuity.
- Look deeper into the supply chain to anticipate future shortages. Today’s aluminum product shortage is actually due to a shortage of magnesium, which is used as a hardener in the production of aluminum. Knowing this root cause of a supply chain disruption allows leaders to stay ahead on other related product shortages.
2. (Re)evaluating contractual partners
- Diversify suppliers and distribution partners. Health systems must take steps to diversify existing supplier relationships and establish partnerships with alternative suppliers. Some distribution partners offer third party logistics arrangements where health systems can leverage distributor warehouse space to store goods that are bought in bulk and can be delivered to the system on a regular schedule.
- Evaluate direct sourcing opportunities. Direct sourcing enables a relationship between health system buyers and suppliers, and can help increase efficiency, decrease lead time of hard-to-source products, and enable health systems to realize cost savings. Health systems must, however, ensure that all products come from validated and inspected suppliers according to clinical standards and specification. Some GPOs are now facilitating these types of opportunities and relationships for health system partners.
- Increase end-to-end supply chain visibility. Health systems require a greater understanding of their entire supply chain, including individual manufacturers and where they are located. Some are now trying to work with their GPO and supplier network to produce real-time dashboards that show supply chain data from production through shipment to enable better data-driven decision-making. This is, however, an extremely large undertaking that will require participation from a variety of supplier and distributor networks.
3. Considering internal, operational changes
- Standardize purchasing across the organization. In health systems, different hospitals, departments, and clinics typically have independent supply purchasing power. This can lead to inefficient logistics and a limited view of product availability. Organizations should work towards managing all aspects of their vendor-related spend centrally to enable better insight into and control over the supply chain function.
- Increase collaboration between supply chain teams and clinical teams. Involve nursing leaders and key physicians in supply chain strategy by establishing clear communication lines and sharing data regularly. Clinicians may need to rank order their supply preferences based on clinical specifications and requirements, not preferences. Some delayed or out-of-stock items may require a change in clinical practice.
- Consider using extra space to stockpile critical supplies. Some health systems are setting up supply warehouses, which may include leasing additional space. For smaller systems, this may be an opportunity to pool resources and share warehouse space with other systems in order to diffuse the costs of the space and rotate the stock before it expires. While these warehouses stocked mainly PPE earlier in the pandemic, some systems are now using them to store other supplies predicted to be in short supply, like lab testing equipment and pharmaceuticals.
- Develop collaborative supply chain partnerships with other hospitals. During the pandemic, we saw a number of larger health systems reach out to smaller hospitals to help them obtain critical supplies or share alternative suppliers. Continuing this spirit of information sharing across regional and industry peers will help improve supply chain visibility as well as community access.