Preparing for the next pandemic requires the right balance and right solutions.
June 2022 – The Journal of Healthcare Contracting
By Elizabeth Hilla; Senior Vice President, Health Industry Distributors Association
As healthcare organizations across the country work to become better prepared for the next crisis, supply chain resilience is often defined as “more inventory.” That is a good first step, but the issue is a lot more complex than that. Stockpiling enough supplies to be ready for every possible contingency would be incredibly wasteful and require significant management. As healthcare supply chain professor David Dobrzykowski of the University of Arkansas said at a recent meeting, “If for the last century you had carried enough product to be fully prepared for a pandemic, you would have been irresponsible for 99 years.”
Medical supply spend is going up. Providers’ supply chain expenses are already rising fast. The American Hospital Association reports increases of 15.9% since 2019. Medical supply expenses in ICUs and respiratory care departments are growing even faster, at 31.5% and 22.3% respectively. Large public sector stockpiles have left governments with millions of dollars’ worth of PPE sitting unused in warehouses. And with so much product already sitting unused, orders for PPE and other critical supplies are dropping, causing many of the new companies that ramped up production at the beginning of the pandemic to scale back or shut down.
We absolutely need to increase the level of “buffer inventory” in the supply chain. The pandemic proved that the supply chain was too lean. But that doesn’t mean we need to have stockpiles at every point in the supply chain. Many healthcare providers are working closely with their prime vendor distributor to identify the most critical products to have in a pandemic stockpile, determine optimal inventory levels that increase preparedness without leading to massive waste, and to establish efficient ways to store and turn this inventory.
It’s also important to recognize that the next pandemic may look nothing like COVID-19, and could require a very different set of products. As a result, we need to find ways to:
- Increase agility: Organizations are working to increase flexibility in various ways. For example, by identifying back-up vendors, partnering with manufacturers that can pivot their production during demand spikes, and having pre-approved product substitution lists.
- Improve demand management and forecasting: Both suppliers and providers are working to increase their demand planning expertise, and importantly, to understand how to best share demand forecasts with their trading partners. They’ve learned that simply relying on history is insufficient and that short-term demand sensing is essential.
- Reduce areas of over-dependence: Despite the concern about shortages, medical supply production is still heavily concentrated in certain countries for specific product categories. Industry leaders are working to diversify their sourcing and to support domestic and near-shore production with ongoing purchasing commitments.
We cannot just stockpile our way to success. But we can work together to develop solutions that strike a balance and find the proper level of preparedness for providers.