Report: McKinsey & Company suggests strengthening health system supply chain resilience

On July 11 McKinsey & Company published a report entitled, “Bolstering health system supply chain resilience to reduce risk.” The report focuses on how health systems can potentially withstand supply shocks and delivery quality care in normal times and during crises.

The report states that “The COVID-19 pandemic exposed vulnerabilities in U.S. health system supply chains. Persistent and elevated supply shortages (compared with before the pandemic), coupled with economic uncertainty and growing inflation, have highlighted that this may be an opportune time for health systems to improve their supply chain resilience.”

Further, “Although health systems are accustomed to dealing with supply shortages, many were ill-equipped to respond to the magnitude of supply shocks when the pandemic struck. For example, almost overnight, personal protective equipment (PPE)—including N95 masks, latex gloves, face shields, eye masks, and gowns—was depleted. To quickly restock essential PPE, many health systems bypassed their standard procurement practices. They purchased from suppliers or resellers without their typical level of vetting, guaranteed future purchase volumes, or paid significantly higher prices. These actions sometimes resulted in overstocking, receiving supplies that did not meet quality standards, or not receiving a product at all.”

The report adds that supply chain associated disruptions are decreasing, and it appears health systems are focusing on long-term procurement.

Managing healthcare supply chain is complicated, according to the authors of the report, and certain dynamics are adding to the complexity, including:

• Macroeconomic issues (e.g., inflation, threat of recession)
• A streamlined supply based that is optimized for cost (potentially causing downstream challenges if disruptions occur)
• Logistical disruptions to supply
• Geopolitical factors
• An increase in disruptive weather events

Additionally, health systems must be prepared for future supply shocks.

“Health systems have worked to confront the challenges of the COVID-19 pandemic; now, they have an opportunity to not only refine their pandemic response but also prepare for a broader set of potential shocks,” the report adds. “Based on our experience working with health systems and their suppliers, health system leaders can consider four initiatives to help their supply chains better withstand future shocks. These are extending visibility into the supply chain; exploring product-specific strategies; developing relevant protocols, capabilities, and governance; and optimizing costs.”

As for extending visibility into the supply chain, the report suggests doing this both internally an externally with the ultimate goal of identifying upcoming supply chain shocks and having an accurate understanding of the organization’s inventory of affected items.

Regarding product-specific shortages, the report says that health systems can explore this through identifying the most critical items, devising mitigation actions for critical items, and working proactively to avoid shocks.

The report also suggests developing protocols, capabilities, and governance through assembling a resilience team, using scenario planning to develop response plans, and developing a communications strategy.

Lastly, regarding optimizing costs, the report says that “Organizations could consider addressing costs to help increase financial resilience. Crises often strain organizations financially and can be followed by economic uncertainty; ensuring that the health system is financially healthy can help guarantee that there is a sufficient financial cushion to withstand future shocks. Organizations can look at approaches to ensure the cost base is optimized and prepared to weather a potential downturn.”

The full report can be found here.