The pre-Covid reality
The global health care supply chain is designed to maximize efficiency. At every step of the supply chain, from sourcing raw materials and manufacturing of final products to purchasing, distribution, and ultimate use of those products at medical facilities nationwide, stakeholders aim to eliminate redundancies. In practice, this takes the form of common strategies such as geographic concentration of production, sole-sourced contracts, and “just-in-time” inventory management, all of which aim to cut costs.
To date, these efforts to build efficiency and eliminate costs have been quite successful, but this financial success comes at the expense of supply chain resilience. In pursuit of maximum efficiency, the health care industry created a fragile, inflexible system that was uniquely susceptible to market shocks, be they natural disasters or global pandemics.
The irony here is, of course, that the products with the most volatile demand in a medical crisis are precisely those products health care leaders normally think of as commodities, such as PPE, painkillers, sedatives, and diagnostic testing supplies. For years, stakeholders across the value chain have found more and better ways to squeeze upstream costs in order to produce high quantities of low priced goods for global clinical consumption. In a typical year, provider executives pay little attention to those items, instead focusing on high priced clinical innovations that drive up medical supply budgets, such as specialty pharmaceuticals and implantable devices. Covid-19 exposed the flaw in those priorities: the supply chain for commodity supplies most critical to everyday care lacked the flexibility necessary to adapt to the emerging surge in demand.
However, if manufacturers, distributors, GPOs, and providers had greater supply chain visibility -- with more transparency upstream, downstream, and within their own organizations – disaster may have been avoided. Such visibility could enable stakeholders to identify overreliance on individual sources of raw materials or component parts, design high-impact contingency plans, anticipate potential shortages, and proactively shift operations in order to prevent widespread scarcity of critical supplies.