How to heal the healthcare supply chain. Now.
July 15, 2020
Doctors wearing swimming goggles. Nurses dressed in garbage bags. EMTs wrapped in rain ponchos. I’ve worked in healthcare supply chain services for 30 years, and I never could have imagined frontline healthcare workers having to improvise like this to protect themselves and treat patients.
COVID-19 exposed weaknesses in many healthcare supply chains, depleting PPE supplies, shutting down traditional suppliers, and exposing the need for more resilience. Now everyone is asking a fundamental question: How can we heal the healthcare supply chain?
<<< Start >>>
I’ve worked in healthcare supply chain services for 30 years, and I never could have imagined frontline healthcare workers having to improvise like this to protect themselves and treat patients.
<<< End >>>
In the early weeks of the pandemic, I saw two very different scenarios for how healthcare supply chains responded. It’s an interesting study in contrasts that can help answer this burning question.
The first scenario is about struggle. That’s the story of Health System A. This major health system located in an early hot spot was dramatically unprepared for the increased demand. Decision makers had zero visibility into current stock levels and no reliable way to appropriately allocate the right supplies to the right care areas. The system lacked operational and financial agility. This was not uncommon—a troubling 71% of systems had limited business continuity plans before the pandemic.1
On the other hand, the second scenario is about success. That’s the story of Health System B. Several years before the pandemic, this large health system worked with us to make significant changes to how it managed the supply chain. When COVID-19 occurred, the organization had a strong foundation for unprecedented circumstances. Decision makers could move critical supplies to hot spots across the country, conduct proactive demand planning, and make bulk purchases in advance.
This leads us to another critical question: Why did Health System A struggle and Health System B succeed? Put simply, the latter had a resilient supply chain, grounded in three critical capabilities.
1. Complete visibility
Health systems need end-to-end visibility into their supply chains. This takes the right software backed by a strong technology backbone and reliable data. As part of its earlier transformation, Health System B made just this kind of investment. We helped standardize fundamentals including inventory and operating room management as well as ERP data management across more than 100 hospitals.
Such standardization is the exception, not the rule. A supply chain executive told me recently that the organization had distributed over one million surgical masks within their health system. Just weeks later, they did not know where the masks had gone. There wasn’t a mechanism for reliably tracking inventory. In fact, some masks were being “held” for future use, and essentially hidden. Our research aligns with this experience. The hard truth is that health systems have traditionally underinvested in critical technology tools for managing inventory.2 It’s a gap that must be addressed.
2. Flexible supply network
Health systems also need to rethink their supply networks. The fact that 75% of PPE manufacturers are located outside of the United States3 added risk as the virus spread. Closures of overseas factories stopped the flow of supplies. Many health systems couldn’t replenish stock from certified suppliers. One desperate physician resorted to buying N95 masks out of the trunk of some guy’s Maserati.
Health System B largely avoided these supplier issues. It had determined its supplier risk impact and devoted resources to identifying and vetting alternative suppliers. The many manufacturers outside of healthcare that retooled to produce PPE are an excellent source. Yet health systems have struggled to find and vet these suppliers. That’s why I was so proud to be a part of the team that developed Critical Supply Connect, a procurement platform that quickly connects PPE buyers and sellers.
3. Strategic cost management
A full 81% of executives responsible for healthcare supply chains say that supply chain management is a cost management function.4 So it’s no surprise that health systems need to use the supply chain to bend the cost curve. This is key considering the material financial pressures that they face. It comes from the one-two punch of eroding revenues from cancelled elective procedures and unexpected pandemic-related costs.
Health systems like Health System B have taken a strategic approach to managing expenses. They are actively managing third-party spend to address immediate financial challenges and “re-basing” or “zero basing” costs for today’s reality. This means analyzing procurement spend data and determining if there are areas of spend on services and supplies that simply aren’t needed at pre-pandemic levels. We’ve found that approaches like this can improve the bottom line by 3% or more.5
There is an urgency to evolve the healthcare supply chain. The good news is that I’ve seen firsthand what the “art of the possible” is here. But I’ll leave you with a parting thought. Remember: The more resilient your supply chain is, the more ready your organization is to outmaneuver uncertainty and create a more resilient healthcare ecosystem.
1Supply Chain Insights 2018,Harvard Business Review: How Coronavirus Could Impact the Global Supply Chain by Mid-March, Webinar: The Economist: Coronavirus Outbreak: Economic and Business Implications, February 3, 2020
2 Accenture 2020 Healthcare Supply Chain Survey
4 Accenture 2020 Healthcare Supply Chain Survey
5 Accenture client experience