Creating an interruption-resistant supply chain won’t be easy. But it will be necessary.
No secret here: The COVID–19 pandemic created significant pressures on the global medical supply chain. The Health Industry Distributors Association (HIDA) estimates that in 2021 and 2022, approximately 31,000 to 46,000 containers of critical medical supplies were delayed an average of 29 days throughout the transportation system, says Kathryn DiBitetto, vice president of congressional relations for HIDA.
The problem was complicated by the fact that more than half of U.S. imports of COVID-19-critical goods came from only three partners – the People’s Republic of China (30.6%), Mexico (15.3%), and Malaysia (9%), she says. While some countries in which medical supply manufacturing occurs are reliable suppliers and allies, others have adopted or maintained policies that make United States supply less secure.
Major supply chain players are working to build an “interruption-resistant” supply chain. How are they doing?
Some progress since March 2020
“Key stakeholders across the supply chain continuum have built redundancy into their procurement and inventory processes, increasing on-hand inventory levels, identifying clinically acceptable alternative products, adjusting utilization and diversifying manufacturing locations,” says Mike Schiller, senior director of supply chain for the Association for Health Care Resource & Materials Management (AHRMM). These collective strategies have transformed the healthcare supply chain from lean and mean to nimble and adaptable.”
David Hargraves, senior vice president of supply chain, Premier Inc., says, “Our industry has learned valuable lessons since 2020, and while more work remains, the healthcare supply chain is evolving to be stronger emerging from the pandemic than it was entering it.”
Greater communication and collaboration among providers, suppliers and other supply chain stakeholders has already woven risk mitigation efforts and contingency plans into the fabric of everyday supply chain operations, says Hargraves. Provider respondents to Premier’s 2023 Resiliency survey ranked “assessing a supplier’s vulnerability to disruptions” as the most important factor when analyzing supplier risk. “There has definitely been movement on supplier KPIs [key performance indicators], formalized disaster preparedness and response playbooks, enhanced supplier contract terms and conditions, and increasing inventories for critical products.”
Geographic diversification in production and sourcing is another area of progress, adds Hargraves. “One of the most critical lessons we learned is that when we outsource too much of our manufacturing and sourcing capabilities overseas, we create vulnerabilities for providers and patients here at home. We’re seeing a growing number of supply chain professionals committing some portion of their annual purchasing volume (20% to 30%) to onshore or nearshore sources to help create an appropriate backstop.”
David Mintz, chief supply officer for NDC, believes the U.S. medical supply chain is better equipped today to face a major supply chain disruption due in part to increased inventory in the Strategic National Stockpile (SNS), pandemic-derived capability building, and expanded manufacturing capacities. Before COVID-19, the annual appropriation for SNS was $610 million, he says. Appropriations have grown to $965 million, an increase of 58%.
Providers, distributors and manufacturers have adapted to meet the supply chain challenges such as those associated with the pandemic, adds Mintz. “With COVID-19, demand spiked for certain raw materials, components and finished goods ranging from pharmaceuticals to PPE to respiratory to cleaning supplies. This sustained increase was significantly higher than many manufacturers had capacity to support. Over the last few years, many of these manufacturers have made investments to increase capacity, resulting in more manufacturers better positioned to support a surge in demand.”
All that said, more work needs to be done, according to those with whom Repertoire spoke.
Better communication needed
Linda Rouse O’Neill, senior vice president for supply chain policy, HIDA, believes private industry and federal agencies need to establish strong communication protocols and formalize channels established during the pandemic. “At HIDA’s recent Preparedness Summit, one of our members posed a very astute analogy,” she says. “‘If a burglar breaks into my house, I know to call 911. Who do I call to report a medical supply chain emergency?’
“Private industry receives information every day from around the world about the state of the medical supply chain,” she adds. “If this information were properly channeled and analyzed, it would be valuable to spot trends ahead of a future pandemic. This information would then need to be disseminated to public and private stakeholders in a manner that allows them to make informed decisions.”
The most important action item for the industry is to stay engaged with federal, state and local partners, says O’Neill. “Since last year’s Preparedness Summit, HIDA has been working with federal agencies to stand up a Supply Chain Monitoring Partnership that would serve as an early warning system for the medical supply chain.” Private industry and federal partners would develop criteria to monitor whether the medical supply chain was in a steady state (green), whether potential disruptions and resolutions had been identified (yellow), or if mitigation efforts were overwhelmed (red). “We will be pushing this out as a resource for all stakeholders this summer.”
“We have a great opportunity as supply chain leaders to keep preparedness top of mind for policymakers,” says DiBitetto. “We are pleased that Congress is working in a bipartisan manner to reauthorize the Pandemic and All Hazards Preparedness Act. Not every public health crisis is a pandemic, and we need to reauthorize this all-hazards preparedness bill without delay.” HIDA executives carried this message to over 80 offices on Capitol Hill during a Washington fly-in this summer.
HIDA supports the creation of a “fast pass” process to expedite medical supplies throughout the nation’s transportation system, she adds. “Such a system would identify containers of medical supplies, prioritize those supplies for container access and sea freight space, and use ‘peel off’ capability for priority handling by ports, rail, and trucking.”
Visibility still lacking
One of the medical industry’s biggest challenges remains a lack of data and transparency around supply availability across the global supply chain, says Hargraves. “We’ve got to get better at understanding product availability and risk – from raw materials to production and distribution locations, to state and national stockpiles, to hospital inventory.
“Think of it this way: Retail hardware stores have apps that tell you the quantity of inventory on hand and exactly what aisle to find it in, but we don’t know how many critical medical supplies or drugs are on U.S. soil at any given time. For providers and suppliers, longitudinal visibility across the supply chain, where entities can see point-of-use information and resiliency metrics is critical to accurately manage forecasting and supply,” he says. Premier’s PINC AI™ Supply Disruption Manager uses machine-learning models and predictive analytics to predict demand surges and product shortages far in advance with over 90% accuracy, he adds.
Says David Mintz, “From providers to distributors to manufacturers, there is no comprehensive understanding of what inventory resides where. Even during ‘normal’ times, this leads to inefficiencies and product availability issues. During a pandemic or disruption, this is exacerbated along with higher costs to serve.
“If we face another pandemic, we must evaluate its impact on human life and how relevant the vaccines and medical supplies used during COVID-19 will be,” he adds. “Is it a ‘geopolitical’ interruption, impacting the ability to source goods from Asia? Is it a natural event impacting ports or trade lanes for ocean freight, such as the Panama Canal? Is it a cybersecurity event, where the electric power grid is offline for a significant part of the U.S.? In short, multiple scenarios could create supply issues for the medical supply chain. The suddenness, magnitude and duration of the issue will ultimately determine the impact and how quickly continuity of supply can be provided.”
To help mitigate future interruptions, key participants in the industry should consider creating a Control Tower, suggests Mintz. “The first use case could be aligned with a pandemic and the medical products associated with the Strategic National Stockpile. By having improved visibility across the industry, each participant could make better decisions about when to increase/decrease capacity, expedite freight, and expand sourcing and business partnerships.”
NDC supports HIDA in its efforts to strengthen the healthcare supply chain through legislation, he adds. Those efforts include creating a “fast pass” to expedite the transportation of medical supplies, preserving and expanding the PREVENT Pandemics Act to help prepare and respond to existing and new viruses and threats, and establishing a Medical Product Distributor Supply Chain Advisory Group comprising industry and federal partners to identify potential disruptions and solutions.
“With relatively low investment, these initiatives offer the opportunity to increase the availability of medical supplies during pandemics and disruptions. The broader the support among providers, distributors, and manufacturers, the greater the likelihood these important initiatives will be realized.”
Path ahead
Says Hargraves, “It’s important to note that the healthcare supply chain is not immune to current workforce issues and inflationary pressures facing the broader industry. Add to this: We’ve consistently heard from supply chain leaders that ‘unknown supply disruptions with little time to react’ is a core challenge that continues to keep them up at night.”
He urges providers to consider focusing on disaster preparedness and response, and to develop (or update) operational playbooks and best practices on supply chain stability. “Whether it’s 50 pages or five, the most important thing is to document top learnings, critical processes, and opportunities for future success. The delivery of high-quality patient care that comes with effectively managing shortages and supply chain challenges make it worth spending some time to codify what went well over the past year or two, where gaps and challenges remain, and where opportunities for continuous improvement exist.” That could include focusing on the most critical products and categories and identifying clinically appropriate and cost-effective alternatives.
“Overall, innovative solutions to address resiliency, product availability and cost reduction via greater diversity of manufacturing and suppliers, actionable data and technology enablement, and preparedness efforts for disasters and disruptions will be vital to managing supply chain stability in 2023 and beyond,” he says.
Says O’Neill, “The pandemic brought together the healthcare distribution industry and the federal government during a critical time to get life-saving products the last mile to patients. Similarly, the transportation backlog in late 2021 was another opportunity for collaboration. HIDA worked closely with ports to get medical supplies moving again.
“These relationships must be continually nurtured and renewed for the next public health response. Otherwise, stakeholders will be back where we were in the spring of 2020 – exchanging business cards in the middle of a crisis.”
Sidebar:
What providers can do
Supply chain executives in hospitals and health systems are doing what they can to help prevent future supply chain disruptions, says Mike Schiller, senior director of supply chain for the Association for Health Care Resource & Materials Management (AHRMM).
“Healthcare providers have done a tremendous job adapting to the challenges of the last three years,” he says. “While backorders remain an issue, they are … not near the extreme levels we saw during the height of the pandemic nor are they at pre-pandemic levels. ’Stay the course’ is my recommendation.”
Providers should continue evaluating utilization practices, risk-stratify inventory to identify “mission critical” supplies, and work with their clinical teams to determine clinically acceptable alternative products, advises Schiller. In addition, they should explore the development of in-house data analytics tools or third-party solutions and the adoption of data standards, including the Unique Device Identifier (UDI) to bring about more accuracy and transparency to procurement transactions, inventory levels and locations. “Lastly, consider how to best incorporate point-of-consumption (utilization) data into your procurement and replenishment activities with the goal of moving toward a demand planning vs. par level environment.”
He suggests that supply chain executives continue to develop strategic relationships with trusted trading partners. ”Providers should work with their supply chain partners to gain upstream visibility into their supply chains, and they should view their individual supply chains as single ‘virtually integrated’ supply chains, and look to expand the scope of that integration to include others.
“Acquire a global acumen and bring that perspective to your supply chain,” he advises supply chain executives.
Sidebar 2:
Action items for industry
The pandemic may be over, but work to prevent future supply chain interruptions is not. Here are some developments brewing in the private and public sectors.
Premier Inc.
In January, Premier released its Advocacy Roadmap for the 118th Congress, which included a call to improve supply chain operations:
- Development of an automated supply chain tracking application, which would provide near real-time insight into critical supplies available in the Strategic National Stockpile (SNS) and medical and health supply inventories in communities across the country.
- Policies to combat the gray market and ensure supply chain integrity.
- Efforts to encourage domestic manufacturing, such as tax incentives, expedited FDA approvals, and favorable Medicare reimbursement for domestically manufactured medical products.
FDA and Veterans Health
In May 2023, the Food and Drug Administration and Veterans Health Administration announced a joint effort to curb medical device shortages. A pilot project will focus on maintaining supplies of medical devices and accessories that use advanced and distributed manufacturing, such as 3D printing, artificial intelligence, machine learning, and virtual modeling and simulation. In addition, a digital stockpile would store electronic plans, instructions, and methods to make and test innovative medical products.
AdvaMed
In June 2023 the Advanced Medical Technology Association (AdvaMed) released its Building Medtech Supply Chain Resilience white paper recommending six priority areas, including:
- The immediate and long-term prioritization of medical technology needs for critical components such as semiconductor chips and medical grade packaging.
- Greater diversification of supply chains to reduce barriers to the flow of goods and strengthen public-private partnerships.
- A “fast pass” or “green line” at the national and international levels to expedite the handling of critical medical products and inputs at ports of entry.
- Creation of a supply chain coordination office within the U.S. Department of Commerce to work with stakeholders to identify the upstream needs of critical sectors.
HIDA
In June 2023, the Health Industry Distributors Association held its second Pandemic Preparedness Summit for supply chain executives and federal preparedness officials. Among many topics of discussion, participants agreed that public and private stakeholders should work together to identify producers of critical medical products that have the capacity to meet demand at the start of an emergency. Such a database would be kept up to date to reflect mergers and acquisitions in the industry.
Stockpile Accountability Act
Introduced in May 2023, the Medical and Health Stockpile Accountability Act would require the Administration for Strategic Preparedness and Response (ASPR) to establish an automated supply chain tracking application that provides insight into critical medical supplies across the country.
Supply Chain Resiliency Act
The Medical Supply Chain Resiliency Act, introduced in June 2023, would allow the president to negotiate with a group of “trusted trading partners” – that is, countries with a “demonstrated commitment to global health security, rule of law and transparency” – to ensure that critical medical goods and services are delivered safely, swiftly and efficiently to patients in the United States and around the world.