Future of supply chain: The Role of Demand Forecasting in the Resilient Supply Chain

The industry must use this moment to invest in automation and digitization of the supply chain to improve efficiency, visibility and response.

By Bruce Johnson, CEO, Global Healthcare Exchange (GHX)

The ongoing shortage of personal protective equipment (PPE) and other critical supplies has laid bare the shortcomings of a Just-in-Time (JIT) distribution model for healthcare. For more than a decade, healthcare has increasingly relied on JIT because it advanced the industry’s mission to better control costs and reduce waste. And without question, it contributed to reducing healthcare’s operational costs.

But the reality is that JIT proved to be no match for a global pandemic. During the early stages of the crisis, the exponential rise in demand for PPE and ventilators proved too much for manufacturers that faced workforce slowdowns due to the virus.

As we look to build resiliency in the healthcare supply chain, we need to finally address a long-standing weakness: demand planning and forecasting. The industry must use this moment to invest in automation and digitization of the supply chain to improve efficiency, visibility and response.

A door opens: Modern demand forecasting

In 1996, the Efficient Consumer Healthcare Response (ECHR) report outlined the need for standardized data and automation to support demand planning. Two decades later, many hospitals still struggle to capture and share data on existing inventory levels and consumption rates, as well as understand their suppliers’ ability to meet demand.  Manufacturers also had trouble assessing true demand in the wake of allocation. As hospitals were unable to get the full amount requested from their suppliers, they would place multiple orders for higher quantities from several vendors in hopes of amassing the total quantity needed. COVID-19 has taught us many lessons – the most essential of which is that we must continue to invest in automation, data standardization and system integration so trading partners across the healthcare supply chain can collaborate on demand forecasting and inventory management. Underlying all of this is the need for trust among trading partners and a belief that demand planning can benefit all involved.   

The retail and grocery industries illustrate these kinds of investments. In the retail industry, for instance, Walmart has been a longtime leader. The company’s investment in linking barcode systems with enterprise resources planning (ERP) systems enabled Walmart to share information about inventory on hand and point of sale consumption with its suppliers. As more retailers followed Walmart’s lead, manufacturers had the critical mass of data needed to develop more accurate forecasts and better manage inventory. Retail’s supply chain success is predicated on sharing data at scale to reduce costs and improve product availability. Healthcare needs to move in this same direction.

We have already seen that providers with more automated and digitized supply chains, including Spectrum Health Systems, Mayo Clinic and Alberta Health Services, have been able to better manage supply shortages during the pandemic. With this in mind, the industry must continue not only to automate supply change processes to improve the efficiency of transactions, but also work collaboratively to standardize data across all healthcare stakeholders.

Standardized data is foundational to bi-directional visibility. If providers and suppliers identify products and locations with global standards, e.g., GS1 Global Trade Item Numbers (GTINs) and Global Location Numbers (GLNs), they can share data on existing inventory, utilization and production capacity. Suppliers can then better respond to demand spikes while providers can make contingency plans in the event of shortages. 

The intensity and level of collaboration required to improve supply chain visibility cannot be overstated. One of the few bright spots of COVID-19 is how quickly multiple stakeholders came together to collaborate to solve a common problem: shortages. This united effort has been the key to resolving critical supply issues. As we look ahead, we must continue to push for even greater levels of collaboration.

The future of Just-in-Time

Does this mean that JIT is a relic of the past? Certainly not. It’s a proven, efficient distribution strategy that has enabled the healthcare industry to reduce the cost and waste associated with excess inventory. In the future, we can expect to see more blended models for managing inventory. We will likely see hospitals amassing more ‘safety stock’ of critical supplies, particularly PPE. Other organizations, such as Froedtert Health, have become their own distributors, managing inventory and logistics as another business line. We also anticipate regional organizations to invest in shared safety stock with each other and/or through their distributors. 

Again, healthcare’s success – whether it’s managing shared inventory, navigating a pandemic, or achieving the goals of value-based healthcare – will rely on accurate, up-to-date data. To do this at scale, the industry must finally rally around standards, including their use in transactions. Global standards exist; we simply must use them. While a single organization may lead the way, of course, we must have a trading partner community built at scale using normalized, standardized data to effectively collaborate.

Inventory management and demand forecasting are shared problems in healthcare, and we must address these problems collectively as a community. Many in the healthcare industry may limit technology investments to mitigate the financial impact of COVID-19, but that will only serve to kick the can down the road. Our industry needs to address its data issues now. COVID-19 has shown us that the industry has the power to collaborate effectively at unprecedented levels, but we need accurate, up-to-date and standardized data as a trusted foundation to match supply with demand, during both normal times and public health emergencies.

About Bruce Johnson

As the president and chief executive officer (CEO) of GHX, Bruce Johnson leads the world’s largest digital trading network for healthcare, which brings together provider, manufacturer, distributor and group purchasing organizations as part of a collaborative and connected community aligned to drive higher levels of supply chain efficiency, resiliency and clinical integration.

A key member of the GHX executive leadership team since the company was founded in March 2000, Johnson has played a critical role in the creation of a global platform that connects the vast majority of hospitals and suppliers in North America and Europe. Under his leadership, GHX has built the industry’s largest, unified data core of transaction, vendor, clinical and supply data, which drives evidence-based decisions about the products used in the delivery of care. 

Prior to being named CEO in 2007, Johnson served as the company’s chief operating officer and previously led business development, professional services, sales, marketing and corporate communications. Before joining GHX, Johnson spent 12 years at GE Healthcare in a variety of management roles in sales and marketing.

Johnson is also an active member of the local Denver philanthropic community, serving as the Chairman of A Precious Child’s Board of Trustees and as an active board member for Colorado UpLift and the Broomfield Community Foundation. Johnson has been named a “Corporate Citizen of the Year” by the Denver Business Journal and an Ernst & Young “Entrepreneur Of The Year.” Johnson earned a bachelor’s degree in Electrical Engineering from the University of Nebraska at Lincoln and his master’s in Business Administration from the Kellogg School of Management at Northwestern Uni