Demand planning and forecasting: Healthcare’s time has come

Aug. 21, 2020

They say, “Timing is everything,” and perhaps the time has finally come for healthcare to embrace collaborative [demand] planning, forecasting, and replenishment that has proven valuable in other industries. The critical shortages of personal protective equipment and other supplies needed in the fight against COVID-19 have exposed the weaknesses of a supply chain where information on existing inventory levels and consumption is not routinely shared between suppliers and providers, and forecasts are more art than science.

The concept is not new to healthcare. In 1996, the Efficient Healthcare Consumer Response (EHCR) report cast light on the value of standardized data and automation to support demand planning, among other things. The EHCR effort was based upon an earlier Efficient Consumer Response (ECR) study conducted in the grocery and consumer packaged goods industries.

The primary objectives of ECR initiatives, regardless of industry, are better customer response AND a more efficient supply chain. Given the opinion that too much reliance on Lean manufacturing and Just-in-Time distribution exacerbated the supply shortages with COVID-19, some may question if efficiency and effective response are mutually compatible. But others, like Ruben Taborda, who experienced the benefits of ECR firsthand, beg to differ. Taborda currently serves as senior director for Hospital and Distributor Supply Chain Solutions with Johnson & Johnson, but he previously worked on ECR initiatives when he was with the retail side of the company. He says both objectives can be achieved but only with investments in data standardization and digitization, automation and system integration. The return on those investments, he says, is the ability for manufacturers to better meet changing customer demand, whether for PPE or a sophisticated medical device.

Currently both hospital and manufacturer supply chains struggle with knowing what products are where and in what quantity, where they are moving and most importantly when they are used. As a result, it is very hard for manufacturers to accurately predict demand and deliver product when and where it will be needed, at least not without a lot of workarounds.

That was the case in the retail world, Taborda says, until trading partners began collaborating on inventory management and demand sensing. Walmart led the change by making investments in bar-code scanning and linking those systems with its enterprise resource planning (ERP) system. As a result, Walmart is able to provide suppliers with visibility into not only how much inventory it has on hand but also point-of-sale consumption information. As other retailers followed suit, manufacturers have been able to generate more accurate demand forecasts based on actual sales versus estimates from purchase orders and shipping information.

Taborda would like to see similar capabilities in healthcare, which he says can deliver benefits across the supply chain. Manufacturers can improve fulfillment rates and minimize the amount of expensive inventory that is held in the field or delivered to hospitals just in case it will be needed. Providers, on the other hand, can be more confident they will get supplies when and where they need them and minimize the amount of product that expires before use.

To achieve this vision, Taborda says trading partners need to automate supply chain processes and collaborate to achieve data standardization and digitization, so everyone is calling the same thing, the same thing and is able to share standardized data in transactions. These capabilities are foundational to data sharing between trading partners and the ability to replenish supplies based on actual demand.

Taborda says more collaborative relationships are also critical; just because the data exists does not mean trading partners will be willing to share, unless they see the benefits for their own organizations. Once again, the timing is right. While collaboration has been elusive in healthcare, that appears to be changing. As we discussed in the June issue of Standard Practices, COVID-19 has led to increased collaboration, across functions within organizations and across the various stakeholder organizations, even those who typically compete with one another.

COVID-19 has also increased appreciation for the need to invest in supply chain, with early evidence that providers with more digitized and automated supply chains fared better when managing supply shortages. The question now is whether providers and suppliers – both of which have suffered financially during the crisis – will think beyond immediate financial constraints to consider how to make investments similar to those made by their retail peers. Even if those investments need to be delayed until non-COVID care volume and revenue return to some semblance of normal, this is a perfect time for supply chain stakeholders to build the business case for industry-level, collaborative planning, forecasting, and replenishment. In recent years, we have seen individual organizations, like Mercy in St. Louis, invest in capabilities to capture and share standardized consumption data with manufacturers. Unfortunately, when it is just one organization, there is not enough information for suppliers to change their approach to demand management. They need data from enough providers to forecast demand at scale and make necessary adjustments to production levels.

In the midst of significant hardship, COVID-19 has also served to align healthcare stakeholders around a common purpose. We are indeed all in this together, and together, we have the capacity to more efficiently and effectively deliver value to patients, healthcare workers and the organizations upon which a high functioning healthcare system depends.