It is Time to Get Serious About Healthcare Supply Chain Resiliency

By Eric O'Daffer | October 27, 2020 | 0 Comments

Supply ChainPower of the Profession

“Low probability, high impact” is where we have always placed pandemics in our risk management models for the healthcare supply chain. This year showed what high impact means. Healthcare providers across the globe launched innovative projects to solve the challenges the pandemic caused around personal protective equipment (PPE). (Figure 1)

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PPE shortages during the pandemic are a wakeup call for healthcare supply chain resiliency. Many of these PPE products were considered commodities. Many were sourced at the lowest priced products available globally that met specifications. In the end, the challenges of protecting staff caused many healthcare providers to hold all non-essential procedures impacting the availability and economics of providing care. Not all manufactured products were impacted, but this high-impact event provides the catalyst for the end-to-end supply chain for all products to get serious about resiliency.

Gartner has modeled six strategies for supply chain resilience across all industries. (Figure 2) Some of these actions are reflected in the rapidly implemented innovations healthcare providers around the world brought to life. In the 40-plus interviews I did this year with supply chain leaders at providers, almost all implemented some form of these new approaches to conserve, reprocess, manage and source these products.

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Healthcare providers’ business continuity efforts catalyzed by Hurricane Maria in 2017 were already underway at some organizations. The challenges of getting manufactured products from Puerto Rico after the hurricane already had some healthcare providers on track to think about risks associated with concentrated manufacturing locations in weather-related or politically risky areas. The pandemic exposed that this effort did not go far enough and that a deeper look across all areas of sourcing, inventory and logistics need a deeper look. Looking at the model of managing supply chain resiliency, I have three thoughts for the primary stakeholders in the healthcare supply chain.

  1. Demand forecasting’s time is now across the interconnected, interdependent healthcare supply chain. Data shows that 70% of healthcare providers indicate they have full responsibility for demand forecasting (Gartner Org Design Survey 2020). The maturity of that capability, however, is still woefully low from the interviews that we are doing now. Getting visibility to demand through point of use inventory management tools requires systemwide investment on behalf of the providers along with the ability for distributors and manufacturers to use that data to support improved service.
  2. Multi-sourcing, nearshoring and manufacturing network diversification all work together in segmented mission-critical product categories. This will involve trade-offs with the contractual, low cost globally sourced models that incent line item savings at the expense of supply chain agility.
  3. Inventory and capacity buffers are changing the way integrated delivery networks (IDNs) look at their distributor partners. Many healthcare providers are being asked by senior leadership for additional pandemic/risk management warehouse space to ensure supply. One new warehouse each for the 300 IDNs in the U.S. does not seem to be the right solution for most. Therefore, relying on a combination distribution and 3PL model may be the best path to explore until there is another viable, healthcare-friendly solution in the market.

Many healthcare providers are adding supply chain resiliency positions to their supply chain leadership teams. The purpose is to get better upstream availability from knowing your suppliers’ inventory strategies, business continuity plans, distribution and production networks. In some cases, educating your organization on Tier 2 suppliers makes sense in the longer term.

These roles are not just in sourcing or logistics or clinical alignment, but coordinate the resiliency efforts of all three with responsibility for providing continuity. Manufacturers and distributors would be well served to have a similar role to speak the same language across the end-to-end supply chain.

Eric O’Daffer
VP Analyst
Gartner Supply Chain


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