Crises, disasters should disrupt supply chain’s status quo

Dealing with a crisis or disaster as it affects the supply chain usually involves some kind of emergency response plan — a reaction to the natural or man-made event or infectious outbreak.

Generally, supply chain leaders contract their primary distributor or key suppliers to alert them of what’s going on if they don’t know already. They ask the suppliers to tap into the emergency stock they have sequestered in their warehouses to compensate for irregular spikes in demand. While shipping the additional product stream, the suppliers also must huddle with their customers to forecast demand and communicate those developments to their own raw materials suppliers up the chain.

But what if this response didn’t have to occur in such a reasonably panicked manner — no matter how well-planned or rehearsed ahead of time?

Outside of the healthcare industry, suppliers are buzzing about real-time “hyper-connected” supply chains that virtually eliminate communication and data disconnections and may include supply chain experts embedded in selected areas of customer operations with on-demand connectivity. The motivation and strategy behind this concept is that the closer you get to your customer, and the closer you are to eliminating the series of disconnected links in the process, the better you can scale end-to-end supply chain fulfillment.

With the rise of smart phones and tablet computing for digital service as well as an emphasis on process transparency and collaboration in non-healthcare supply chain circles, how long might the healthcare industry have to wait before this migrates over? How can and should this concept become standard in healthcare to blunt the impact of near-immediate product and service demand spikes when you least expect and are prepared for them?

Healthcare Purchasing News reached out to a handful of experts for their insights on ways to keep the supply chain resilient.

It is important to know when to trigger business continuity plans, while there is still time to act. The only way to do that is to have near real-time knowledge of where the item is — its disposition and status. Critically important, the supply chain should have the demonstrated ability and resources to intervene and redirect the shipment according to the contingency plan.

One way UPS addresses this is through innovative technology and a staff of in-house meteorologists to monitor weather patterns globally and redirect shipments when an actual or potential adverse weather event is detected. Examples of UPS’ innovative technology solutions include UPS Proactive Response and UPS Proactive Response Secure. These solutions include 24/7 monitoring of high-value, temperature-sensitive packages that can predict a delay and intervene to protect products at risk (e.g., re-icing, refrigeration or expediting the shipment). UPS Proactive Response Secure includes the same features as UPS Proactive Response, but also protects against financial loss of the shipment by providing insurance that includes both the cost of shipping and the cost of the goods being shipped. While providing this level of service may appear more costly at the outset, the total unit cost of product spoilage can be as much as 40 percent higher than what companies originally estimate.

A focus on improving the customer or patient experience translates to the right life-enhancing products being delivered to patients at the right time, in the right condition. If the supply chain has the people and processes in place to react in a time of crisis or disaster, the entire supply chain becomes more resilient and patient outcomes will ultimately improve.

Tom Griffin, Vice President of Consulting, SolutionsTrust, the supply chain optimization arm of HealthTrust Purchasing Group

Providers that can seamlessly continue to function during times of crisis, rather than shut down, are certainly able to deliver greater continuity of care to all patients. In the aftermath of Hurricane Katrina, for example, our client was able to not only relocate patients to other facilities but also resume normal operations from one of Parallon’s Consolidated Service Centers in Richmond, VA, equipped for disasters with the requisite infrastructure and standardized item master and product list. (Parallon is the parent company of HealthTrust/SolutionsTrust.) Our Oklahoma Distribution Center was also able to re-route orders to the Dallas Consolidated Service Center with a simple switch to underlying information systems after a tornado pummeled Oklahoma City.

Stand-alone hospitals and many integrated delivery networks don’t have sufficient scale to relocate patients and move operations if their current location is hit with a disaster. So it’s in their vested interest to forge partnerships with their competitors to build a mutually beneficial “hyper-connected” supply chain, with a cache of current supplies, if they don’t have a supply chain partner that can provide that capability.

How do they forge these partnerships with competitors as well as their suppliers?

Griffin: Forging partnerships with competing or neighboring hospitals to create a larger support network in the event of a crisis or to simply cut costs is not uncommon. Many hospital executives sit on various healthcare boards or committees together, so an open conversation among peers could be a great opportunity to forge these relationships and discover any situations that may benefit from collaboration. Single facilities need to build and leverage supplier relationships as part of their crisis mitigation approach.

Outside of healthcare, logistics costs are supplanting product manufacturing costs because customer expectations and demands for supplier responsiveness are increasing. If this philosophy migrates to healthcare, how will such a “crisis” affect performance and resiliency, particularly during times of crisis or disaster?

Loomis: Healthcare transportation costs have been historically high. Suppliers have bundled the cost of freight in with the product cost or have charged freight at rates that are higher than current market prices. Over the last 15 years, healthcare systems have been working with third-party logistics companies or have set up internal departments to gain visibility into their freight spend and negotiate better rates. The next step in bringing efficiencies to healthcare transportation is to identify consolidation opportunities with suppliers, as well as shipment mode optimization opportunities.

If healthcare migrates to higher supplier responsiveness based on customer expectations, hospitals would need to re-evaluate their emergency preparedness supply plan for times of crises. During normal operations, increased supplier responsiveness could mean more frequent shipments, but during a crisis, the demand for products and the cycle time to fill orders would be compressed. The supplier would ship their orders at a premium to meet the extraordinary needs of the hospital during this time. Inventory levels at the hospital before the crisis would have been decreased and the reduction in inventory carrying costs and storage space could help in off-setting the premium transportation expenses.  To ensure supply needs are met, the hospital — working with their third-party logistics partner — would need to identify additional locations that carry the supplies and develop a strategy to distribute the supplies from these locations.

Menna: Consumer and patient demands are increasing around the globe. Trends like a growing global middle class, longer supply chains and new, innovative life science products are driving healthcare demand, while also straining global supply chains and healthcare systems. A number of factors — from an increase in the manufacturing of large-molecule drugs to more regulations and additional risk to growing cost pressures — are requiring that healthcare logistics decision makers make major shifts in how they configure their supply chains.

The “retailization” of the healthcare supply chain is increasingly visible. More patients are seeking convenient care. This push toward immediacy and convenience is causing healthcare logisticians to improve visibility of the products in their supply chain by positioning them closer to customers and patients. Strategies such as partnering with third-party logistics providers to re-visit current inventory location versus patient demand location will ultimately provide cost efficiencies and more timely delivery of clinical products. Having inventory closer to point-of- care locations and/or redundant inventory stored in a secondary location enables more supply chain resiliency in a time of “crisis” or disaster.

In the end, complacency can be the worse “crisis” a company can encounter.

Jim Tavenner, Vice President, SolutionsTrust

Rapid fulfillment of orders can be a bigger issue during times of crisis because inventory levels are generally already low and replenishment options are limited. In healthcare, we have both primary and secondary vendors to lower the risk of supply disruption, but we can only forecast demand (patient volume) to a limited degree. Organizations that aren’t engaged with their first- and second-tier vendors may not be able to prevent potential stock-outs or have the needed infrastructure to push out information to the larger supplier community. [Editor’s Note: Tavenner has more than 25 years of experience in retail and healthcare supply chain operations and has led major projects that include companywide records management, active warehouse relocations and warehouse management system development projects, as well as serving as COO for HCA Supply Chain, responsible for operational oversight of the Richmond, VA, Consolidated Service Center.]

Griffin: In the case of Ebola, when suitable products were in short supply, SolutionsTrust used its strong relationships with suppliers and good inventory practices to ensure we secured the core inventory needed to meet client demand.

What did these “good inventory practices” and “strong relationships” involve?

Griffin: Best practices require accurate and frequent inventory counts, as well as a well-rehearsed disaster plan. Waiting until a crisis hits to develop a plan or gather accurate inventory counts across a large facility or multiple-hospital IDN can not only be a huge setback; it can also leave a facility unable to provide patient care altogether. SolutionsTrust was able to leverage its existing GPO supplier relationships to secure orders for additional supplies needed. Having access to one master inventory rollup allowed it to pinpoint which facilities had surplus inventory and which ones were in need, so it could immediately redistribute with as little disruption as possible. Simultaneously, its clinical team worked around the clock to develop alternate protective gear options, using combinations of supplies already in-stock, which provided backup coverage for those facilities hit hardest.

How do you achieve a “real-time, interconnected” supply chain in healthcare?

Loomis: A real-time, interconnected supply chain in healthcare can only be achieved with a strategic vision from the leadership in the organization. This will need to be supported by strong technology solutions. Healthcare systems need to work with their technology partners early in the process, sharing the vision and goals of the plan.

Menna: World-class supply chain management is fundamentally about the uninterrupted, seamless flow of products and information. Integration of these elements is the foundation for an agile supply chain, but achieving this cohesion can be a challenge for companies.

First, “real-time” is still considered nirvana in the supply chain world, and while some very high-value and extremely temperature-sensitive goods in the healthcare supply chain do travel with GPS systems that can provide “real-time” position and location tracking, “near real-time” visibility based on scans performed at various milestones in the supply chain are certainly more the norm. Combining “near real-time” technology with predictive analytics can enable effective intervention strategies and help healthcare customers achieve the interconnected, responsive supply chain they seek.

A number of leading global healthcare corporations and providers have found that the most effective, timely and efficient means of achieving supply chain integration is to work with a global logistics provider that has such risk mitigation strategies in place coupled with a robust single IT platform and global transportation network. Strategic logistics providers like UPS have turnkey, scalable solutions and consultative expertise for end-to-end supply chain management, from upstream supplier to ultimate customer.

Tavenner: The healthcare industry has already adopted some of the enabling technologies, including wearable radio frequency units to manage orders and confirm accuracy in the warehouse. Web applications accessed on smart devices are also becoming more prevalent. SolutionsTrust has internally developed a mobile app for iPhones to manage patient charges at the point of use.

How does this help prevent running out of supplies or even deal with transportation problems that can prevent normal deliveries?

Tavenner: These technologies allow facilities to locate, track and redistribute inventory among multiple storerooms or various locations using a point-of-use scanning capability that rolls up to one master inventory. On-demand reporting provides the ability to order or redistribute supplies as needed, with as little disruption as possible.

These innovative technologies allow staff to be more responsive in a crisis environment and communicate with suppliers outside of their traditional work space. They can log in using iPads to access the same information systems used on their desktops or work stations.

Crisis-/Disaster-Planning Do’s and Don’ts

Do:

• Form disaster relief alliances in your market between healthcare systems, the county and other relief agencies.
• Map out the supply chain network required to provide supplies and services, and create a command center.
• Test the supply networks to ensure delivery performance can meet the needs of the affected disaster areas.

– Mike Loomis, Director of Business Development, TRIOSE Inc.

Do:

• Recognize that disasters/crises can and will impact your supply chain. You will need to develop plans to mitigate their impact on your business. “Crises” don’t have to mean a natural disaster; they could also come in more common forms, such as a power outage.
• Make contingency planning an integral part of your network optimization evaluations — healthcare supply chains must be evaluated both for efficiency and resiliency.
• Test your contingency plans periodically to ensure they can be effectively executed and improved.

Don’t:

• Build your contingency plan within the four walls of your quality department — invite others to participate. Partners such as packaging engineers, key suppliers, as well as your logistics/transportation provider, are also important stakeholders.
• Build your contingency plan only considering your own risk — take into account your customers’ risk as well. Understand customers’ sole dependence on your product to keep their business running and whether or not substitute products are available for them during a crisis.
• Think your contingency plan will reduce your risk if you haven’t trained your employees and supply chain partners on what successful execution looks like.

– John Menna, Vice President of Global Strategy, Healthcare Logistics, UPS

Do:

• Have direct, live conversations with the supplier community and internal stakeholders rather than rely on electronic communications or an e-commerce signal to help prioritize inventory needs and distribute products to targeted facilities as quickly as possible.
• Each facility should have a clear and up-to-date disaster recovery plan that it practices at minimum once a year — and it should cover all disasters that could potentially happen. SolutionsTrust has designated four of its consolidated warehouses as pandemic centers that carry additional inventory for the entire organization. Any IDN could take the same labor-intensive approach by collaboratively building an off-site storage area for surplus inventory partnering with neighboring hospitals. The biggest challenge will be keeping the inventory current. At our Richmond Consolidated Service Center, any supplies that could potentially become outdated, such as employee fit-tested N95 masks, are regularly rotated into general inventory and replaced within a year.
• Have backup relationships in the event primary suppliers are impacted by the same crisis or disaster. SolutionsTrust has secondary vendors for power, water and transportation, in addition to tapping the list of alternate suppliers for our Consolidated Service Center or Consolidated Distribution Center nearest the disaster event. We have 21 such centers in the country. Following the Oklahoma City tornado, we utilized a secondary supplier to ship six refrigerated trailers from Kansas City because our primary transportation suppliers were either busy or had also sustained damages.

Don’t:

• Try to develop a plan during a crisis.
• Limit yourself to local resources.
• Assume your disaster recovery plan can manage every event. You need to be flexible and build partnerships with other facilities or competitors to avoid possible shutdowns.

– Tom Griffin, Vice President of Consulting, SolutionsTrust, the supply chain optimization arm of HealthTrust Purchasing Group