Next-generation distribution models must embrace that syncing feeling

Almost two years into the COVID-19 pandemic (and its variant offspring) and people seem even more fed-up and irritated with the supply chain around the most fundamental of issues – primarily not having stuff accessible when they want it and secondarily, paying way more for what is available.

If the supply chain were a pickup truck the public would want to see a gleaming, fresh-off-the-lot, bells-and-whistles-laden luxury model. Instead, they rely on a beat-up old rust bucket, well-worn with six-digit mileage after toiling for years on the farm or work site. Further, these days, more people envision that patinaed work truck on cement blocks minus the tires.

During his keynote address at the Association of Healthcare Resource and Materials Management (AHRMM) conference last August in Nashville, award-winning professor and consultant Randy Bradley, Ph.D., tried to set the record straight with a more realistic and reasonable portrait of the supply chain in peril. He countered those who continued to lament that it was broken.

“We found out it wasn’t broken, but fragile,” Bradley, CPHIMS, FHIMSS, Associate Professor of Supply Chain Management and Information Systems, University of Tennessee Knoxville, Haslam College of Business, Department of Supply Chain Management, told several hundred attendees in a scaled-down convention center hall at one of the few in-person industry events slowly re-emerging from a sea of online virtual conferences. “It did what it was supposed to do. It did what it did but nothing more. It’s performing as designed and not designed to perform. It wasn’t ready for the mess we were thrust into.

“The global supply network is like a basket of eggs,” he observed. “We need to handle it with care. Irrational buying creates waves. We were never out of toilet paper. We just bought more than we needed for two years. The supply chain was not broken. We are.”

Catching the wave

As the supply chain has weathered a host of challenges and disruptions that span access to raw materials; labor shortages at docks, ports and warehouses; fuel cost increases for airplanes, cargo ships and trucks; government intervention; questionable demand planning and data reliability; and the human reactionary behavior of panic buying, supply chain executives and professionals have faced a brunt of criticism, whipsawing between the widening gap that separates realistic accomplishments from reasonable expectations.

Might a single linchpin be driving this? What might it be? Or is each merely chipping away and poking holes in an otherwise solid structure?

The global supply chain (of which healthcare represents a component) has been something of a powder keg and perceived by the public as the poster child for inefficiency. Deserved? Earned? Debatable, sources told Healthcare Purchasing News.

“The human behavior of panic buying, which we have seen in retail during the pandemic, is not new to healthcare,” observed Cory Turner, CMRP, Senior Director, Healthcare Strategy, Tecsys Inc. “It is something supply chain leaders have struggled with for a long time.”

Turner knows quite a bit about that struggle as a former supply chain executive within Greenville (SC) Healthcare System, HPN’s 2013 Supply Chain Department of the Year.

“Clinicians who have come up against supply shortages in the past tend to be distrustful of supply chain’s ability to get what they need when they need it,” he continued. “They also don’t trust the old, disjointed inventory management systems used in procedural areas for supply replenishment.

“All of this drives a hoarding mentality among clinicians with the idea that ‘I’ve run out of products before [and] I’m not going to let it happen again.’ Throw a pandemic on top of these long-held beliefs and behaviors, where clinicians are experiencing real supply shortages and problems that impact patient care, and the panic buying has only become worse,” he added.

Tom Redding, Senior Managing Director, Healthcare Services, St. Onge Co., echoes the irrationality of decisions under duress.

“We all know that humans are predictably unpredictable, yet we continue to think of ways to change human behavior to allow for better control of supply chains,” he said. “Successful supply chains have a clear understanding of their customer’s needs, wants and demands, and organize activities to create end-to-end alignment. The issues around raw material sourcing, to shipping, to labor shortages is becoming the norm. The only way to manage through the various constraints is to better understand the demand side of the equation, including variability and customer lead time sensitivities. If we have a clearer picture on the expected demand, then supply chain leaders will be able to assess where changes are needed to substitute products, consolidate products to meet the needs of their customer.”

The pandemic not only has challenged supply chain among hospitals but also the companies that provide products and technology services to those hospitals, according to Michael DeLuca, Executive Vice President, Operations, Prodigo Solutions Inc.

“The past 18 months have put Prodigo’s technology to the test,” DeLuca noted. “As we faced COVID-19 head on, our main priority was supporting our clients’ hospitals behind the scenes while they were unusually strained, just trying to execute on their day-to-day tasks. Our strategic partnership with our healthcare clients shed light on the hurdles that clinical staff, physicians and administration face every day when making the best decision, in that moment, for their specific organization.”

DeLuca sees supply chain’s reliability as integral to healthcare service delivery and essential patient care.

“Healthcare supply chain has grown by leaps and bounds and now has an increasingly crucial role in enhancing patient care and supply preparedness as the industry charges forward,” he said. “[It’s] what Prodigo sees as the linchpin in creating a long-term solution is resilience. It’s a resilient – flexible, adaptable, reactive – supply chain that will in turn resolve this host of challenges and disruptions. Forming resilience into the healthcare supply chain is critical in predicting disruptions, not reacting to them. A resilient supply chain will lessen the burden of external challenges and sort out those existing. Healthcare supply chain isn’t an easy egg to crack, so the first step towards resiliency is to surround yourself with technology leaders and industry experts. We need to act right, and act now.”

Balancing risk for reward

Whether anyone agrees or likes it, supply chain represents a risky business due in part to a global reach motivated by economic advantage and should be managed as such, according to Steve Kiewiet, FAHRMM, FACHE, Chief Operations Officer (COO), CCS Medical, and Immediate Past Chair, AHRMM.

“The linchpin here is the need to re-think how we evaluate supply chain risk and how the C-Suite evaluated the success of the supply chain organization,” Kiewiet said. “We are in our current situation because supply chains and organizations became obsessed with lowering invoice cost of goods and services. Every contract renewal came with pressure to reduce the price and still maintain service and quality. This unrelenting pressure forced manufacturers to find lower and lower costs for production and raw materials. The result being that the supply became more and more extended to China and other remote countries with the elimination of redundant sources for goods.”

Kiewiet is familiar with the push and pull of supply and demand with a decade-long service record as a Navy Hospital Corpsman who then served as a paramedic, then spent a number of a years in sales and operations for a variety of companies that included PSS World Medical Inc. and Cardinal Health before leading Supply Chain operations at BJC HealthCare and then Chief Commercial Officer at Intalere, which was acquired by Vizient last year.

“It is time to re-educate and re-orient ourselves and our C-Suites around the virtues of balancing cost and risk,” he continued. “We need to find other ways to make healthcare more affordable without simply asking suppliers to charge less. Focus on the total cost of care and the total cost of supplies and services. For example, in a total cost, balanced scorecard equation, it is better to pay more for some goods and services that are produced in your community? Maybe. The point being that supply chain need to be measured by more than one metric and not every metric should be cost-focused.”

Peter Saviola, Vice President, Logistics and Supply Chain Optimization, Medline Industries, hesitates to attribute current supply chain woes to a single cause.

“There isn’t necessarily one linchpin that needs to be solved first, but rather multiple weak links that should be addressed simultaneously,” Saviola insisted. “Things like fuel cost fluctuation, government intervention and panic buying are common reoccurring challenges in the supply chain, and the supply chain typically can account for these issues. However, what the industry is experiencing now is a supply chain that is completely out of balance, components of the supply chain are out of sync – for example not enough empty shipping containers to load goods to, and once goods are loaded there’s not enough empty trailer chassis to place the full containers on, and so on. On top of all of this is an overall industry labor shortage that expands across all components of the supply chain. This may be the most pressing issue when it comes to course correcting the overall supply chain.”

Jim Mullins, Senior Vice President, Global Supply Chain, Henry Schein Inc., homes in on the labor shortage as having the greatest impact to the supply chain.

“Labor impacts every part of the supply chain from manufacturing, warehouse workers, truck drivers and port employees,” he said. “The labor participation rate has declined since the beginning of the pandemic, and this has worsened the supply chain shortages. Contributing factors to the labor shortage include, mismatch in skills and openings, wages, COVID-19 health concerns, general healthcare needs, early retirement and other sources of friction in the market.”

And where that labor crunch is most acute should be the target to tackle, according to James Sembrot, Senior Vice President, U.S. Supply Chain, Cardinal Health Inc.

“Our priority should be on the ports and related issues with trucking,” Sembrot urged. “We must improve the scheduling software, and we need support via the National Guard, or other entities, to help fill labor holes. The ports require more attention and oversight and should not be managed independently. The current backlog is so significant that without cleaning it up, the other initiatives really don’t make sense.”

Margaret Steele, Senior Vice President, Med/Surg, Vizient Inc., labels the supply chain’s panoramic view as “all problematic” and connects the dots from one hiccup to the next in a butterfly effect that starts with raw materials.

“Raw materials are stressed due to global demand,” she observed. “The cost has increased significantly. By way of example, resin has increased considerably and that impacts a number of products. The suction canisters category is really struggling — the two main suppliers of these products both are experiencing production constraints leading to backorders. Additionally, the cost of the resin is such that they must focus on how to continue production without operating at a loss.”

Transportation challenges quickly follow, exacerbating costs, according to Steele.

“The increase in raw materials is exacerbated by the cost of getting the product to the U.S.,” she continued. “With so many ships sitting idle for weeks, the strain on these materials continues to increase. Once they are offloaded, the transportation container costs have increased from $2,500 per container to reports of $30,000 per container and higher. In turn, transportation from the ports has increased in cost as well. Wages and labor shortages continue to add to that strain on the supply chain. The challenges are real. Yes, there are instances of some panic buying, which adds to the strain, but the raw materials, transportation and labor issues are the problems to be addressed. Economic indicators project the raw materials issue will see some relief in the coming months. However, transportation, labor shortages and increased wages will last much longer. The possibility of expired tariff relief on many healthcare products will only add to the increased costs.”

At press time during seasonal shopping in December, Steele expresses concern about compounding problems.

“With providers stockpiling key products to protect from future constraints, you have a real bottleneck,” she added. “We believe proven redundancies in production, e.g., in the form of manufacturers setting up a secondary plant or buying from secondary sources, combined with sourcing alternatives will help ease the impact of these challenges.”

Managing the bullwhip

Other supply chain experts point to demand planning and data reliability as key issues where providers and supply chain professionals need to improve as these are within their control. Mike Henry, Managing Partner, Ron Denton & Associates LLC, is one of those proponents.

“Providers did a good job with things like burn-rate calculators for PPE during the height of the pandemic, but now we’re seeing shortages that cut across all product categories,” Henry told HPN. “Improved coordination and data sharing across the supply chain from raw materials to supplier to provider is critical to improve demand planning and to reduce the bullwhip effect.

Better demand planning between the provider and supplier would be a good start,” he continued. “At the provider site there continues to be limited visibility into what supplies/devices are on hand, let alone have the ability to monitor usage and consumption in real time. Systems and processes need to be put in place to more dynamically track and forecast demand. and to respond to fluctuations. Descriptive analytics are helpful, but they are a rear-view mirror. There needs to more focus on prescriptive analytics – what do we need to do moving forward – and predictive analytics – understanding the impact of taking various actions.”

James Ludwig, Vice President, Partnerships, Premier Inc., advocates strongly for demand planning and data reliability improvements.

“COVID-19 forced more of an emphasis on end-to-end supply chain visibility and reinforced the urgent need to better understand demand surge and product availability,” Ludwig indicated. “With most product disruptions occurring as a result of poor demand signaling, effective demand management and supply network mapping are foundational components of supply chain preparedness.”

Expanded supplier mapping, risk scoring and AI-enabled data intelligence enables organizations to accurately identify the intersection of demand and supply, more effectively secure product and better ascertain potential risks, according to Ludwig. He cites Premier’s October decision to expand its partnership with Resilinc for a supply chain mapping footprint to encompass more than 1,300 suppliers and 15,000 sites with visibility down to the site, product and ingredient/part levels for the leading contracted suppliers.

“Today, more providers are also leveraging innovative models and partnerships that aggregate demand via committed ‘buyers’ club’ purchasing strategies – giving manufacturers proper demand signaling, predictable revenue and the surety needed to ramp up production or enter new markets,” he noted. “Suppliers get more accurate demand forecasting and committed purchases. Health systems get a guaranteed supply of critical products at a fair price.”

Alex Wakefield, CEO, Longbow Advantage, however, cautions against concentrating on demand planning and forecasting at the expense of overall fulfillment and nimble operations.

“The real challenge with supply chains today is that there is an over-reliance on the accuracy of planning and forecasting during a time that’s proven on multiple different occasions that we need to be able to be more agile in our operations and fulfillment,” Wakefield said. “Planning is important, but it’s only half of the equation. What happens when trucks are jammed or warehouses are – quite literally – frozen? Logistics teams have to be constantly looking at their operations within the day, really within the hour, and have the kind of constant real-time visibility into intra-shift data that will allow them to pivot and communicate quickly and easily.”

Amazon Business envisions a more holistic approach fueled by creative applications of automation, data and demand planning capabilities.

“Since supply chains are inherently interconnected, and each link has breaking points that can cause disruption, prioritizing one over the other is not the best approach,” insisted Sandhya Dhir, Head of Healthcare Strategy and Development, Amazon Business. “Rather, to mitigate the impact of disruption, each link of the chain needs improved technology for real-time access to data, so organizations can make quicker decisions. For example, by adding AI and machine learning models to enhance data reliability and demand planning, leaders can gain insights and make quick decisions to pivot purchasing decisions. Accessing real time analytics into buying patterns allows organizations to turn insights into actions including modifying forecasts to accommodate seasonality and building contingency plans to ensure access to critical supplies when need is unpredictable.”

Rosy, but thorny, outlook

Other supply chain experts fully see the current performance uncertainties being addressed somewhat organically and slowly.

“From a category management perspective, the medical/surgical supply chain challenges continue to be a dynamic and evolving situation,” said Jack Slagle, Vice President, Category Management, McKesson Medical-Surgical. “Many industries are experiencing domestic and global transportation disruptions. These disruptions are largely due to congestion at ports of discharge and labor shortages resulting in product backorders, delays in transportation and increased freight and materials costs. I would expect to see these challenges remain steady over the next few months but hope to see improvement in early 2022 as we all learn how to better navigate.”

Slagle maintains optimism.

“The good news is that many of the manufacturers are producing and making product. Manufacturing lines are up and running, and production is overall healthy,” he noted. “It’s just a slow and murky supply chain right now and it will take time to dig out of those transportation challenges. The transparency, collaboration and frequent communications between distributors and suppliers is at an all-time-high, and we are continuing to see a lot of organizations, across the supply chain, working together to expedite production and improve the supply chain experience for our customers and their patients.”

Jake Crampton, Founder and CEO, MedSpeed, acknowledges that providers and suppliers alike have “lived in a near-constant state of crisis mode for the past two years” that is and must be manageable.

“While the pandemic shined a spotlight on the very important role that the healthcare supply chain has on patient care delivery, cyber security challenges and, most recently, labor shortages have created new obstacles hindering the return to normal. Harnessing and advancing technology has the opportunity to elevate the supply chain and accelerate progress. But the truth is, this industry will always be reliant on dedicated people who work hard to support care delivery. For that reason, labor shortages and the associated downstream impacts to the supply chain, such as the inability to manufacture and receive shipments, is the greatest challenge we face today.

“In MedSpeed’s world of same-day healthcare logistics, we have seen the impact of the current environment on healthcare operations,” Crampton continued. “While we do not have a silver bullet to address this complex issue, our employee-based model and our emphasis on company culture have played a significant part in helping us weather the storm so far.”