By E.V. Clarke, CEO and Founding Partner of Health Products Xchange
January 7, 2022 – While the global supply chain crisis has created severe shortages in every sector of business, medical supply commodities have been hit particularly hard. Crutches, suction canisters and blood collection tubes have seen serious scarcities, and some major health systems desperate for crutches have appealed to their local communities for donations.
The impacts are spreading to new product areas, but this crisis is much different than the PPE crisis faced early in the pandemic. There isn’t a sudden increase in demand for crutches or suction canisters. These are simply high-use, low-cost bulky medical commodities that have seen increases to their cost of production through growing expenditures for raw materials, particularly aluminum, and they are expensive to ship.
The escalating costs for raw materials is shifting production away from these products, and rolling blackouts across China has also limited manufacturing.
A recent Wall Street Journal article indicated appliance manufacturers have shifted their production to higher profitability products, creating shortages in economy brands. Production shifts in consumer products are inconvenient, but production shifts in medical supply commodities can increase risk in the quality of care patients receive at hospitals.
When medical products fail to arrive, it’s assumed they are stuck on ships in the morass of a broken global supply chain. However more commonly, as we’ve seen with crutches, they aren’t on ships at all. A national supplier has explained how resistance to price changes influences product availability:
“Industry pricing agreements make it very difficult to pass on price increases in the U.S. If I’m back ordered on a product, my customer is upset. If I pass along a price increase, I can lose all my business.”
Contractual barriers to increasing price are essential to managing cost, but the supply chain crisis has created unintended consequences. Without forewarning about economic decisions to lower production, severe shortages happened quickly.
Landed price for medical products is at an all-time high and there is considerable risk in buying inventory that will arrive in three months when the cost is likely to go down. Therefore, suppliers are compelled to be conservative with their inventory exposure. This likely translates to even more shortages for providers on lower-margin, bulky commodities.
As with the PPE crisis, opportunistic brokers and non-contracted suppliers fill the supply gap without barriers to pricing products. Manufacturers overseas value the onslaught of new market entrants competing for manufacturing capacity, driving up the cost and diverting available supply away from the established supply channel.
For example, crutches that sold for $15 per pair before the supply shortages are selling as high as $50 per pair, if you can get them, and much of the volume is coming from sources that didn’t sell crutches before the supply shortages.
More shortages on low-margin medical supplies seem inevitable before the supply chain normalizes. During that time, available supply is likely to come from an alternative source rather than an incumbent supplier. So, providers must expand their medical supply sources in order to maximize their visibility to available supply on the market.
A powerful way for providers to augment visibility to available supply is through a B2B digital marketplace, which accesses multiple supply sources from a single platform. A B2B healthcare digital marketplace like Health Products Xchange (HPXConnect.com) allows providers to easily source backorders by connecting the demand to available supply across a national network of available supply.
To learn more, visit HPXConnect.com.
E.V. Clarke is a 30-year veteran of the healthcare products industry. He has built market-leading positions for Fortune 300 companies as a highly successful senior executive drawing on a wealth of diverse career experiences, including leadership roles at McKesson Medical-Surgical, Henry Schein Medical and Owens & Minor. E.V. founded HPX to maximize visibility and create access to credible sources of medical supplies.