Is Supply Chain Mismanagement Really the Cause of Critical Shortages?

“How in the world did this happen?”

That’s the question supply chain professionals around the globe are hearing as the coronavirus pandemic continues to wreak havoc on our ability to procure essential life-saving supplies.

While many healthcare leaders, government officials and pundits are quick to challenge supply chains, alleging everything from a lack of preparedness to an inability to satisfy demand, poor supply management isn’t the only problem. It’s true that the fragility of the supply chain has been exposed and it’s certainly showing signs of strain. However, the real issue lies with the way private healthcare providers have chosen to offload their risk. Simply put, our hospitals are run like businesses and the scales have tipped too far toward maximizing profits, sometimes at the expense of providing comprehensive and immediate care.

Supply Chain as Scapegoat

The chief goal of effective supply chain management is to meet customer needs while keeping costs at a minimum. Both priorities—customer experience and cost containment—will forever be at odds, which means they need to be properly balanced. Without a healthy balance, the scales will inevitably tip to the urgent, not the important.

Is this earth-shattering news? Not particularly—everything usually “tips” in favor of costs or profits. But if we find ourselves here again, without some type of balance to ensure continuity of supply, we will face deep shortfalls.

Another challenge of medical supply chains is their inherent complexity. With hundreds, often thousands, of individual vendors supplying health systems with equipment, devices and drugs, a break in the chain or defective link can cause chaos. In the case of the coronavirus outbreak, several supply-related problems surfaced at once.

Take masks, for instance. Roughly fifteen years ago in an effort to curb costs, U.S.-based mask producers decided to move their operations offshore where labor was cheaper. This shift made good business sense at the time, but it put us at risk for the disruptions we’re seeing now. As the coronavirus progressed from a regional disaster to a global pandemic, transportation between foreign countries was at first restricted then eventually banned, a move that halted the export of masks from China to the U.S.

Hospital beds, or the lack thereof, illustrate a different situation with a similar outcome. While demand for beds has indeed skyrocketed as a result of COVID-19, the reason we don’t have enough is because we’ve been removing them from the national supply for years. Why? Because hospitals viewed as financial underperformers continue to close across the country, resulting in a loss of half a million hospital beds since the passage of 1974’s National Health Planning and Resources Development Act.

These examples may appear unrelated, but they call into question our fundamentals: How do we balance risk and the continuity of the supply chain with profits? Every firm should strive to answer this question when proposing and implementing changes to the supply chain.

Shifting Priorities, Empowering Change 

Make no mistake, supply chain professionals are doing battle right now—as they should. Suppliers and manufacturers are in triage mode, making strategic adjustments on the fly and exploring workarounds to reduce current and near-term shortages. Hospitals and health systems are innovating as quickly as they can by experimenting with ways to expand the use of the medical equipment they already have.

But to put the onus squarely on supply chain (mis)management is inaccurate and short-sighted. There isn’t a supply chain under the sun that could have seen a global pandemic and the subsequent government-mandated shutdown coming. However, with private sector players, health systems and payors focused so narrowly on cutting costs, they didn’t seem to plan for any type of real risk.

In order to prevent a Groundhog Day nightmare, measures must be enacted now to ensure these flaws in our system don’t go unrepaired. The urgency of what we face today will wane by tomorrow, but it will be critical for public and private partners to come together and commit to prioritizing and funding preparedness measures, now and in the future.

What Happens Next?

Of course, none of this will happen overnight. Large-scale, sweeping change takes time, resources and importantly—funding—to sustain, and it all begins with a mindset shift. Hospitals will always rely on money to keep their doors open, but we need to fundamentally change the way we think about risk versus reward, short-term gain versus long-term pain.

When the dust settles, leaders and health officials will need to re-evaluate and balance profit decisions, risk and continuity of supply. They will need to establish more controls to ensure we safeguard critical care, whether it’s hospital beds or pharma supply or our everyday drugs, to protect us from a repeat of the current COVID-19 crisis. To ensure we are less dependent on a single source.

It will also be important to involve supply chain leaders in the decision-making process. With a seat at the table, these leaders will be able to help organizations plan for continuity of supply while driving optimization between profits and customer service. Striking this balance, and holding private players accountable, will be crucial as we move forward.

This is the big strategic work that needs to be done, because we can’t afford to end up back here again.

Lou Arace, Principal



Change Management Done Right
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