The implication of buyers reacting to false/panic driven demand and how it exacerbates supply disruption

When the U.S. healthcare supply chain experiences panic buying, within the first four or five days, supply is wiped out faster than anyone can imagine. The moment the market signals a shortage, purchases increase tenfold the number of products relative to real demand.

The only thing that stops the panic buy is how quickly a manufacturer recognizes the run on the supply chain and moves into allocation mode. However, even under allocation, there’s still no mechanism to understand real demand. You don’t necessarily have a shortage – you have a shift to where available product sits and no visibility or access to it. Said another way, the supply chain, by design, ensures some have supply access and many with critical need don’t have the supplies to protect and provide care.  

The genesis of HPX came from this scenario. While working at an IDN, two supply chain leaders opened up a tractor trailer that had been sitting in the parking lot for years to discover it was filled with n95 masks. The masks had been bought in 2009 during the H1N1 scare. When the need didn’t arise, the product sat in the parking lot for years before it was rediscovered, and by that point, expired. HPX was created to provide supply chain visibility, product access where ever product may sit in the supply chain to maximize consumption.

The toilet paper effect

Panic buys happen across all industries. Consider the consumer sector and the panic buying that occurred with household items like toilet paper.

Let’s look at it from a supply chain perspective. Say you’re living in and half of the people in the neighborhood go out and load up on toilet paper – 10 times what they would normally use. Other neighbors didn’t panic buy and there’s nothing on the shelf for them to buy.  Adequate supply exist in the market, but access to supply is eliminated.

That’s very similar to what happened with many products in the early days of the pandemic. Hospitals and health systems panic bought and held their inventory close to the vest. They didn’t want to give it up at first in fear of COVID-19 popping up in their area. The government   visibility requested visibility to equipment and supplies for ventilators.  This visibltity shifted from a market shortage of venilators to a deployment model to get them in the hands with the greatest need

While we all might agree having toilet paper is a critical need, the consequences of panic-driven demand in healthcare are much greater due to the critical nature of the products. In the absence of visibility, in what is predicted to be a highly de-stabalized  supply chain over the next two year, our supply risk is amplified twith every shortage without change.  A critical piece to preparedness is the visbility and access provided by HPX.

Extraordinary financial waste

When a hospital or health system purchases face shortages, this is eneviteibly followed by excessive stockpiling, which make sense with no tother alternative. We saw several examples of this in 2020, and not just with PPE. In the early months, it was surgical gowns and IV products. Now we are seeing waves of stockpiling including needles and syringes.

When IDNs stockpile, there are millions of dollars in working capital tied up in  “just-in-case inventory.” What is unique about healthcare is the risk of not having supply for a patient of caregiver far outweighs having too much. But without internal demand to turn the inventory or no mechanism to move inventory to others with demend product often expires on the shelf . The n95 mask supplies from H1N1 panic buying that sat forgotten in a tractor trailer in the parking lot are one example of this.

A good example of a mechanism in action is a program with the Department of Defense for war readiness material. The DOD requests that distributors hold X number of items in case of war so that they would always be in inventory and always fresh. Within 48 hours if the DOD placed an order, the distributor could deliver that product to whatever base the DOD wanted those supplies sent to. That is a perfect example of just-in-case inventory that doesn’t go bad on the shelf.

So to ensure product is not compromised when it is truly needed and to relieve the incredible financial burden, it is critical that we create the visibility and access to supply across the stakeholders in healthcare through a safe suppy chain effectively a supply chain “safety net.