2020 and the Test of the Supply Chain

Most people know the story of Job- the righteous man whose faith was tested by God. He lost his children, his wealth, his possessions and was beset with boils, but his faith prevailed.


Because he was righteous and resilient.

So far, 2020 has been the healthcare supply chain’s test of faith and righteousness.

Continuing from where the last blog left off, 2020 dawned with healthcare and its supply chain looking like this:

  • Continued growth of mergers and acquisitions among the largest IDNs, with the number of stand-alone community hospitals continuing to dwindle.
  • Horizontal growth among those large IDNs to include more and more non-acute services.
  • Competitors such as Amazon entering the healthcare market in conjunction with the growth of Telemedicine.
  • While healthcare remained largely “Sick Care” in nature, increased awareness of the concepts of “Wellness” and “Population Health” continued to emerge. These terms place more emphasis on prevention and avoiding illness as opposed to treating symptoms as they arise.
  • More and more very large IDNs were either building or thinking of building Consolidated Service Centers, while many mid to small IDNs had entrusted their inventories to the large distributors via Low Unit of Measure (LUM) programs in which central inventories were eliminated in favor of small safety stock caches, with the distributors delivering daily in low unit of measure individual totes to the dock, thereby eliminating the need for a large central storeroom and the picking and pulling of orders for the nursing units.
  • The key concern of most supply chains continued to be low prices and keeping operating costs down, as even the best organizations struggled to maintain profitability.
  • Most organizations had gotten good at maintaining the status quo, but little thought or planning had been given to the possibility of an outside catastrophe that would affect the entire planet.

Then in mid-January, life as we knew it began to change forever when a novel new Coronavirus presented itself in Wuhan Province, China and was given the appellation “Covid-19”.

A very, very few IDNs were watching the scene closely. One of those that were was Charlie Miceli at the University of Vermont Health System. Miceli’s system was a subscriber to Resilinc, a Software as a Service provider whose focus was on monitoring activities across the world that could impact the supply chain. Very early in January, Resilinc reported on the outbreak. Miceli was watching and swung into action immediately. He and his team quickly identified the SKUs associated with pandemic- Personal Protective Equipment (PPE) such as masks, gloves, gowns, hand sanitizer, cleaning solutions, etc. and immediately bumped up the inventory levels of all those products and strengthened his agreement with his main suppliers to guarantee stocking. Not stopping at that, he instructed his staff to immediately start looking for alternative suppliers and put additional agreements in place as a contingency. He established a key operational Command and Control Unit and began to manage the situation as of a major pandemic had already arrived. He reached out in the region and formed a collaborative with Dartmouth Hitchcock and others in the region. In short, he implemented a collaborative contingency plan way before the danger was clearly identified. What he did was akin to boarding up the house and building supplies of essentials and filling the SUV up with gas and stuff for a quick exit on the first day that someone identified that a storm was developing in the Atlantic. To the neighbors it looked stupid, but when the stuff hit the fan it was revealed to be pure genius.

While Charlie Miceli used his advanced warning system to get ahead of the curve, the preponderance of the healthcare systems and the country as a whole did little to prepare. There had been no pandemic in the U. S. since the West African Ebola outbreak of 2014 in which 11 Americans contacted the disease and two died. Prior to that, the largest pandemic was the H1N1 (Swine Flu) outbreak in 2009 in which 12,469 Americans died- a number far smaller than the number of deaths annually attributed to the common flu. In both cases, the country was well-prepared, responded quickly and life went on without interruption.

Eleven years passed without further incident. Then came 2020.

2020 would prove different.

The righteousness of the healthcare system and its supply chain was soon to be tested.

From the time of the first recorded case to the recording of the one millionth case, 98 days passed. It took 44 days to reach two million, 26 days to reach three million and another 15 days to hit four million. Today- August 6, 2020, the number of cases approaches 4.9 million and the number of deaths is about to surpass 160,000. Throughout that span of time, the country has been in unending uproar. Fear and finger-pointing have been the rules of the day. Product scarcity has led to panic purchases of unproven products, with pricing for those item exceeding the normal rates by factors of 2,3,10,20 times normal.

Throughout it all, Supply Chain leaders have soldiered on= making on-the-fly adjustments and heroic interventions along the way.

And along the way, they have learned that the system and the country cannot withstand another Covid-19 pandemic.

As I write this article, the First Wave has yet to abate. Several states are seeing record highs in both the number of cases and the number of deaths. Everyday life is non-existent as many people choose to remain inside and important aspect of life such as the start of the school year are still in doubt.

Most supply chain leaders are still engaged in the fight for their systems’ survival. It is too soon for then to conduct a post mortem. As the old saw goes: When you’re hip-deep in alligators, it’s hard to remember that your goal was to drain the swamp.

But as someone who has been a distant witness, I have some opinions of the issues that will have to be dealt with after the dust settles. Here are some thoughts:

  • Single source solutions don’t work. The immediate supply outage of key PPE items caused chaos. Disposable masks were forced to be reused until they literally fell apart. Some places cut holes in garbage bags and used them as gowns. The normal sources for those supplies were overwhelmed and unable to fulfill orders even to those customers who had “favored nations” agreements. Very quickly, hospitals learned the need to develop alternative sourcing approaches. Unfortunately, they learned that lesson via stock outs and pricing that was often 10x normal pricing.
  • Lack of Flexibility. Over the years, the pressure on healthcare supply chains to reduce costs has led to decisions that have limited their flexibility. One such decision was one made by many small to medium-sized operations to “go stockless” through their medical/surgical distributors. Many places gave up their formal storerooms and warehouses, built a small safety-stock cache and virtually eliminated their inventory of commodity items- depending on the distributor to maintain inventories and fulfill orders as needed. These organizations found themselves in immediate jeopardy when the pandemic struck- their flexibility having been compromised by the decision they made. The pandemic showed that painting yourself into a corner by making limiting choices is something that must be addressed if you want to succeed in a tumultuous world.
  • Failure to Partner. Historically, healthcare organizations in a given geography have behaved as pure competitors. Covid changed all that. Service areas expanded to include an entire geography. Former competitors began to share-resources, personnel and strategies for addressing the issues caused by the sheer immenseness of the situation. As mentioned earlier, collaborations such as the one formed by Charlie Miceli and the folks at Dartmouth Hitchcock created a template in which- through collaboration- when one IDN benefits, others in the collaboration benefit as well. Hopefully, the collaborations will continue after the pandemic ends.
  • Lack of Preparedness. Unlike hurricanes in Florida, Wildfires and mudslides in California and tornadoes in the Midwest, pandemics don’t happen every year. Prior to the Covid-19 pandemic, the last event of a similar magnitude had been the H1N1 (Swine Flu) pandemic in 2009. True, Ebola stuck the world in 2014, but the United States only saw 11 people diagnosed with it, with 2 deaths. So in effect, there had been eleven years between pandemics. When something doesn’t happen often enough, the fear associated with the event wanes, and planning slows or ceases altogether. It was not unlike villagers living at the base of a long dormant volcano. They knew it had erupted before, but had no fear that it would happen again. Consequently, when the top blew off the mountain, the industry was caught unprepared. By far, the greatest lesson to be learned in this crisis is to never lose focus on planning and refining the plans for the next pandemic.
  • Cash Flow is King. Very shortly after the pandemic struck, people became painfully aware of “where the money comes from.” It would be naïve but understandable to think that a disease that filled up all the beds in the hospital would be rolling in dough, but such was not the case. What we learned is that revenue works much like inventory: 80% of the money is produced by 20% of the procedures. And those procedures were shut down by (1) the need for beds and (2) the fear of infecting people coming to the hospital for treatment or surgery. Many healthcare organizations have either furloughed or released employees to reduce costs. Like the lesson learned from failure to have a vibrant and frequently refreshed pandemic plan, the fiscal crisis caused by the interruption of normal cash flow will receive immediate and focused attention.
  • The Basic Focus of Healthcare Needs to Change. By far the best advice that could be given to anyone during this crisis is, “Don’t get sick.” It may sound cavalier, but the gist of the recommendation strikes at the very weakness of the United States’ historical approach to health care. In the U. S. people wait until they have symptoms, then present themselves for care. For certain, many people have annual physical exams, but equally or more often they wait until something happens, then go to the doctor. A preventive, proactive public health approach has never gained favor in the country. For at least a couple of decades, the term “Population Health” has been heard and has gained in popularity. The essence of the concept is that living a lifestyle of prevention and healthy habits will greatly reduce the number of times people get sick. Studies have shown that such an approach would greatly financial burden healthcare places on the country and lead to a better quality of life for all. Needless to say, such an approach will also require a complete re-wiring of the healthcare supply chain. An impact can already be seen with the entry of Amazon into the healthcare logistics scene. Clearly, the country is on the verge of a changed approach and the traditional tools and approaches are in need of attention.

In the course of a few short months, Covid-19 has not only broken open the box that is healthcare in America. It may well have shredded it. The supply chain has, at times been held together by bailing wire and bubble gum. The pandemic has become an accelerator for needed attention to the supply chain. Most organizations lack the resources and formal skill sets necessary to look at the supply chain from the macro to micro level. Consequently, most operations are sub-optimized and unable to successfully marshal the tools to conduct the planning and “what if” scenario analyses necessary to review multiple alternatives and select the appropriate courses of action. The next ten years will doubtless witness many changes in the way healthcare is viewed in the United States and the way care is delivered.

At the center of those changes will be the supply chain.

Since 1983 St. Onge Company has grown steadily and developed a client list that includes many Fortune 500 companies and several world-renowned institutions. We have completed approximately 5,000 assignments for over 1,000 clients located through- out the United States, Canada, Mexico, the United Kingdom, Europe, the Middle East, the Far East, China and South America.

For our healthcare clients, we have developed a strong familiarity with the challenging logistics and related real-time issues associated with hospital operations, including campus supply chain strategies, materials management master plans, departmental optimization, facility designs and information systems to plan, direct and coordinate the movement of materials. Some of these solutions are highly automated; all are highly effective.

We possess the resources and skill sets to help healthcare face the challenges of the next decade and are eager to get started.

Next week: The Next Ten Years in the Healthcare Supply Chain

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