March 30, 2021 – The bullwhip effect is a supply chain phenomenon that refers to increasing swings in inventory in response to panic buying on the customer demand side. The COVID-19 pandemic has created the largest bullwhip effect the healthcare supply chain has ever seen, especially for PPE like masks, gloves and gowns.
Last March, hospitals and distributors dramatically increased orders. Manufacturers responded by increasing production to meet the perceived need without understanding what the true demand was and therefore in the end will likely have over produced supply.
The bullwhip effect flows up the supply chain from the IDN to the distributor to the manufacturer and to the raw materials supplier with the amplitude of the whip effect increasing as you move back along the supply chain. Long lead times in manufacturing and securing raw materials for these products lead to ramped up production three to four months ahead of time for what is seen as a big demand increase.
Long lead time components are procured, and manufacturers bulk up to produce more than normal supply. But once demand dissipates, the bullwhip results in a glut of product.
Twelve months after the initial panic buying associated with COVID-19 true demand has begun to expose itself, and a glut of product has resulted. During the next three to six months, there will be a tremendous amount of excess supply of products in the marketplace.
Requests to sell excess of Level 1 gowns, finger-pulse oximeters and masks via alternate sources or on electronic exchanges are just a few examples of items that were over produced and are now filling warehouses with years’ worth of inventory.
The question becomes how will the marketplace rationalize and connect those who have a need for these products with those who have too much of these products to avoid obsolescence and maximize consumption? The answer may include . . .