McKesson’s Response to Supply Chain Disruptions

January 2022 – The Journal of Healthcare Contracting

Scott Adams, publisher of The Journal of Healthcare Contracting and Repertoire Magazine, recently hosted a roundtable podcast to discuss Global Supply Chain Disruptions in Healthcare with four supply chain team members from McKesson, including:

  • Jon Archer, Senior Manager of Transportation
  • Terry Henderson, Senior Director of Global Procurement
  • Jack Slagle, Vice President of Category Management
  • Krista Durst, Field Service Representative

Their conversation centered around supply chain and managing it every day to support health systems and alternate sites across the U.S. They discussed what’s been going on, what’s currently going on and a vision of the next three to six months.

Scott Adams: COVID-19 exposed the fragile nature of the supply chain over the last 18-20 months. Jon – what impact has McKesson seen, as a whole, on the healthcare supply chain?

Jon Archer, McKesson: We’ve seen longer lead times and inconsistencies at multiple points within the supply chain with all carriers. We’ve seen big increases in costs associated with all different modes and equipment shortages both domestically and at origin. All of that is driving inconsistency, longer lead times and additional costs. And finally, the one that flies under the radar is the data ambiguity around it all. There’s a gray area around when things are arriving because there’s so much congestion at so many points in the supply chain.

We work with government partners to create solutions. We have a good partnership with HIDA and the ports of Los Angeles and Long Beach to prioritize medical containers. We’re also working with about 400 other medical distributors to create a template to prioritize medical containers. We hope that can be an “easy button” to identify PPE and critical medical items to expedite through the ports.

Adams: Terry – what are some logistical actions and operational changes that McKesson has done to help with the disruption for providers?

Terry Henderson, McKesson: We break it down into two different parts. We think about the inbound shipments coming into our warehouses and network, and the outbound going to our customers. What we’ve learned during the past 18-20 months is there needs to be flexibility. We have Plan A, which is how we want things to work. We have Plan B, which is our next best option. And we have Plan C. We’re changing many of our normal distribution lanes for inbound products.

For example, we would typically ship containers directly to Chicago. But that’s become a chokepoint. So, Plan B is to get a container dropped on the West Coast, unload it and have it shipped across the country for redistribution. We’re coming up with a flexible distribution model with a series of those planned. We’re starting to see a lot of those things come together. We’re shipping things around to make sure we can get the products through.

We’re scaling up on the outbound side, knowing we’re having challenges in getting products to the right place. Our first priority is always to ship to our customers from the closest warehouse. But we can end up with misbalances sometimes, so we utilize our entire network. If we’re out of product in Warehouse A, we’ll ship it from Warehouse B. It may not be an ideal shipment, but they’re still getting what they need.

Adams: Jack – let’s look ahead to the next three to six months for just-in-time inventory and lean inventory systems. Talk about some of your relationships with suppliers.

Jack Slagle, McKesson: My team manages all of our supplier relationships. We work with a lot of the branded manufacturers. We’ve been talking to their supply chain teams weekly, if not more often. We see improvement, but it’s gradual and varies from supplier to supplier.

There are many challenges with any supplier that has full truckload shipments. Large, bulky products are more difficult to manage than for a supplier who’s in sutures, for example. Also, raw materials and labor intensive needs will directly impact a supplier’s challenges.

Transparency and collaboration between distributors and suppliers is very high. It’s all focused on improving the experiences for our end user customers. Organizations are doing anything they can to expedite the process. We’re changing our lead times for ordering and we’re trying to provide better forecasting, and suppliers are cutting products for more capacity and to streamline production. The industry, as a whole, is working hard.

But the hole is so deep, it’s going to take some time to dig out. As we get into January, February and March of next year, we should start to see some gradual improvement. But I don’t think the supply chain will fully bounce back to what it was two years ago for quite some time.

Adams: Terry – can you expand on the relationships and partnerships with suppliers, manufacturers, GPOs and providers? What are some of the best practices seen to manage the day-to-day?

Henderson: On my end, most the new partnerships that have stepped up are related to carriers, some third-party logistics and transload operations – things like that that have been able to help and provide alternate source for where we can stock product or move it inland. Some of those partners have helped us as we’ve dealt with the challenges. Today, we have strong partners and carriers that help us in a pinch.

Twenty months ago, we didn’t have a need for that. Things just happened on clockwork. Today, that’s not the situation. We find ourselves needing additional support, maybe in a city where we don’t have a big presence. Those have been instrumental in getting things back on track.

Slagle: Some of the best practices have been from our supplier partners who are as transparent as possible. As an example, we received a couple of requests recently from suppliers saying they’re anticipating labor issues within their organizations from drivers to warehouse workers. They asked f McKesson could increase the lead time from the time we cut our order to the time they ship it. Traditionally, if it was a week then push it out to two to three weeks.

That allows us to be savvy and carry more inventory. If it allows the supply chain to work more effectively, then that works best for both parties. That’s an example of two organizations working together to improve the supply chain challenges.

From McKesson’s perspective, it’s taken a while to get suppliers and the government aware of the alternate site. Distributors like us that service nursing homes, for example, will advocate to make sure that we’re getting product to smaller or more remote sites of care. A lot of our suppliers have started to become advocates for that in partnership with HIDA.

Adams: What about PPE availability today versus last year?

Slagle: We have stoplight view we review with our sales teams on a weekly basis. PPE is considered to be green across the board. It’s readily available and demand for it has dropped off considerably. There’s excess supply. The diversification efforts of many distributors to add on new suppliers – more suppliers and different locations around the globe – has helped strengthen that category.

We’re all leery of just-in-time inventory right now, but exploring sources closer to the U.S. or in the U.S. allows our supply chain to be quicker with more options to purchase from. Most categories with supply chain challenges are not PPE related, but it’s a lot of our other core business.

Adams: Krista – talk about how McKesson has helped providers with inventory product delays and different allocations. Share some best practices in place to help your customers.

Krista Durst, McKesson: It’s been challenging, but we work with our other health systems behind the scenes and on the frontlines. If the product’s not exactly what they want, then what’s a close enough alternative? We use our technology to show the customer what we have, what they can get now and what will go on back order. Also, we show them what we can find to use in the meantime.

For example, during the pandemic, we couldn’t get the sanitizer dispensers on the walls, and I worked with one of our manufacturer partners and three different reps shipped me what they had in the trunks of their cars and garages so that we could get something on the walls.

Adams: And finally, Jack – give me some things you’d recommend to providers in the next three to six months for working through supply chain issues.

Slagle: The good news is most manufacturers are producing and making product. The manufacturing lines are up and running. Things are cooking out there. It’s just a slow and murky supply chain right now. That will take time to dig out from.

When thinking about your product needs, just be flexible. For example, if your distributor can’t get you crutches, for example, you might have to use a different brand. Or when some come in, you might want to get them while you can. And work with your distributor’s sales teams because they need to know your product needs.

Lastly, plan ahead and be proactive. If you have significant product needs with a new buildout, renovation or large order, it will take longer than it has in the past to get product. But things will improve. A lot of folks are working hard to make it a better supply chain overall.

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