Surveying post-pandemic landscape for Supply Chain leaders

Jan. 22, 2021

Sometime in the spring or early summer of 2021, the dust will begin to clear as the mass vaccination of Americans starts to take effect and the number of new cases and deaths ebb and wane. As with the conclusion of every other war, there will be a momentary pause where the participants celebrate the end of hostilities and mourn their losses before taking a long, hard look at the landscape with which they have been left.

That’s what will be happening to all American businesses, and most especially to healthcare organizations (HCOs). While many small businesses, such as restaurants and bars, may have faced, survived or succumbed to the ravages of the pandemic, HCOs will find themselves having to deal with the realities that were uncovered during the crisis.

And what were those realities? Here are some thoughts:

HCOs will face daunting financial challenges. By the time it finally abates, the pandemic will have gutted the finances of most HCOs. COVID-19 caused most HCOs to suspend their bread-and-butter money-makers – the 10 percent of the procedures that often produce 60 to 70 percent of revenues. Add to that the increased demand for personal protective equipment (PPE) – often 20 times the normal demand, and the accompanying rapacious prices paid for these items (also as much as 10 to 20 times) – and you have a situation where your costs on key items have gone up as much as 400 percent. Finally, the reimbursement rate for COVID-related cases is not as lucrative as those of the elective procedures the crisis caused to be cancelled. Once the dust settles, HCOs will have to rebuild their financial base. Some won’t make it.

The “old ways” of doing business will have to be reviewed. Inevitably, wars bring with them operational and social change. Nothing is ever the same after a war. So too will it be with healthcare. The old ways of doing business will give way to new ones. The old challenges will be magnified. The organizations that act quickly and thoughtfully will seize the day. Strategies such as just-in-time (JIT) and low unit of measure (LUM) have proven incapable of answering the challenges associated with a pandemic. New ways of doing business will necessarily be instituted in order to survive.

There will be a continuing transition away from real estate-based healthcare delivery. Just as WWII introduced penicillin and sulfa drugs to the caregiving toolkit, the pandemic has introduced the rise of telemedicine. The pandemic has accelerated a trend that was already in motion – the trend away from the monolithic “hospital” as the central point of a healthcare system. Decentralization will place additional strain on inter- and intramural logistics – creating challenges the Supply Chain leaders will have to solve.

HCO closings, mergers and acquisitions will continue. The pandemic already has caused several hospitals to close. The move toward more and more acquisitions of small change to integrated delivery networks (IDNs) by giant ones will not only continue; it will accelerate. Just as the number of major group purchasing organizations (GPOs), which at one time numbered seven, by and large, has shrunk to three, the number of IDNs will continue to shrink. The mega-IDNs will destroy the smaller ones.

Every HCO will have to bear responsibility for the operation of its supply chain. Traditionally, HCOs have outsourced two of the major functions of the supply chain – contracting (at least for commodities) to the GPOs and distribution and logistics (as well as inventory management via LUM) to the distributors. If the pandemic has revealed nothing else, it is that every HCO must take responsibility for the entirety of the supply chain operation. That means that each IDN will have to up its game in areas where it has traditionally forfeited responsibility. It will have to put better players on the field.

There only will be a brief moment of opportunity for Supply Chain leaders. It goes without saying that the conflation of the number of IDNs will mean fewer and fewer top-end jobs for Supply Chain leaders. As soon as the dust clears, those same leaders who so recently were praised for their ingenuity and hard work will be on the clock. Their C-suites will immediately shift focus from trying to secure supplies and treat the victims of the pandemic to keeping their own heads above water. The world of activity above the pay grades of the Supply Chain will push the supply chain’s influence back to where it was before the war (the pandemic). I write this (in December 2020) not to frighten Supply Chain leaders, but to give them a heads-up. For the moment, you have influence. How well you use it could well determine your future career.

If I were a current Supply Chain leader, I would pay attention to the following things, because by doing so, I might be able to salvage my job and build a successful future:

• Learn everything I can about how successful supply chains work, both within and outside of healthcare.

• Explore the possibilities of regional collaborations with like-sized IDNs.

• Give deep thought to the role of the GPOs and how I need to interact with them.

• Explore alternative approaches to distribution and inventory management.

• Become well-versed in the demands associated with telemedicine.

• Encourage the hiring of an objective cross-industry-versed third party to analyze my supply chain operation and advise me on developing an action plan.

Finally, update my CV/résumé. 

About the Author

Fred Crans

Fred W. Crans currently serves as Healthcare Business Development Executive for St. Onge Co. He is a veteran industry observer and frequent HPN contributor with decades of experience as a hospital supply chain leader within hospitals, IDNs and GPOs. Crans can be reached at [email protected] and at [email protected].