Building a common pool resource organization

Gene Schneller: This report helps providers and other players in the complex healthcare supply chain better understand the different local and global events that have the potential to disrupt their supply chains as well as the current state of vulnerabilities in the supply chain of different medical products.

Jim Eckler: We hope that policymakers and leaders in the healthcare industry and government scrutinize the mitigation strategies we proposed and identify the gaps in what they are currently doing. We hope they will have task force teams developing strategies to close those gaps.  

Mikaella Polyviou: We hope that resilience becomes and stays top of mind for leaders in the industry and government. To achieve this, resilience key performance indicators (KPIs) need to be measured and tracked regularly and become part of the incentive system.

On the flip side, realistically, and based on your knowledge and experience on the pace of change in healthcare, what do you think will happen from and with the release of this report?

Jim Eckler: In our research, we observed that various providers, particularly the large IDNs, have already begun learning about their upstream supply chains, demanding more transparency, and even talking directly to their suppliers. Surprisingly, before the pandemic, even large IDNs may not have talked directly to their suppliers but only through intermediaries, such as GPOs.

Mikaella Polyviou: Some leaders do think long-term and have already started embedding resilience thinking into their operations. For example, some have a diversified sourcing model, with some domestic, some nearshored, and some offshored sourcing. Others have started rethinking their product mix to incorporate reusable products into their supply chain, which improves their flexibility during emergencies. The issue of “stickiness” (i.e., whether the interest and investments in making our supply chains more resilient stick for the long term), however, is real. Short-termism makes leaders revert to old practices, reducing costs in the short term but often increasing risk in the long term.

Gene Schneller: Unless we make resilience part of the incentive and reward system for organizations and their leaders, and we look at performance from a balanced perspective (i.e., cost, resiliency and continuity of operations, workforce and patient satisfaction, and continuous improvement), I do not see sustainable change. The test will be whether healthcare organizations can build a positive business case for resilience. It’s business cases that ultimately drive them.

The crux of this report involves showing and teaching healthcare organizations how to prepare a flexible and relatively redundant supply chain that bends during crises but doesn’t break as we’ve seen happen during the global pandemic. Will you compare the challenges and difficulties of different types of healthcare organizations to recognize and implement the recommended measures – from a small, rural hospital with extremely limited resources to a mid-sized suburban hospital with access to a fair amount of resources to a large urban hospital with similar access to resources? Which type may struggle the most versus the least and why? Which one may experience favorable results more quickly than the others and why?

Jim Eckler: This is likely the most important finding of the research. Larger providers naturally have more resources, more access to resources, more power to initiate changes, and are more mature in terms of their supply chain management. Hence, we expect them to face fewer challenges when compared to smaller, rural hospitals. In our research, we observed this when the issue of allocation came up. Allocation models were largely based on historical volumes rather than need; therefore, a small, rural hospital in Arizona or somewhere else, regardless of need, was unlikely first (or even second) in line when distributors allocated products.

Mikaella Polyviou: GPOs play an important role in assisting these smaller players with better pricing and improved supply continuity. Most large and “traditional” distributors used historical allocation to allocate scarce goods. So, if you were a major customer with high volumes, you probably fared quite well. However, if you were not in sights of those who had needed products, accessing products was more difficult. This was the case for many long-term care organizations. 

Gene Schneller: Needed are allocation models that are based on need rather than demand signals. And this is important for system-wide illness control. If patients in nursing homes contract a disease, they may well require hospitalization. So, allocation models that are epidemiologically based make sense.

You say that “experts have predicted that medical supply chain disruptions will increase in frequency and severity in the coming years.” Do you foresee them being at least as clinically, financially and operationally as dramatic and severe as the prior two+ years during the global pandemic? Do you think healthcare organizations will believe you and will prepare accordingly or dismiss and postpone efforts to settle into some kind of post-pandemic traffic jam? Why?

Jim Eckler: The recent pandemic was the worst type of disruptive event for providers. There was no place in the world to avoid the problems, no place to seek support. Most disruptions are typically far more local enabling neighboring jurisdictions to lend a hand. As long as someplace in the world has products to share, providers can access them. But it is the prepared, resilient organizations that can pivot quickly to regain stability. That is what we are seeking.

Mikaella Polyviou: Notwithstanding, we are acutely aware of human behavior where once past the crisis, memory quickly fades, and the stickiness of commitments to changed behavior becomes unglued. The trends across industries are clear: disruptions have increased in frequency and severity. We should not expect the healthcare industry to be an exception to this trend.

Gene Schneller: Our report is very much focused on the “long game” – disruptions where there is great uncertainty regarding the depth of the impact within a population, the breadth of the impact across populations and the uncertainty regarding recovery. At the same time, there are always the unknown unknowns—the types of events we cannot fathom and which we do not know when they will happen. That is why we need not focus on building supply chains that can withstand specific risks but build supply chains that can be resilient to any shock.

For decades prior to the global pandemic and the ensuing supply chain crisis, innovative influencers, leaders and thinkers in the healthcare supply chain strove to drive the industry toward just-in-time, modified stockless and stockless distribution plans with low units of measure delivered daily. They tried to do this through slick presentations and media messages, somewhat subconsciously “supply-shaming” those who may not have been willing to handle the risk of hip and trendy advanced programs, preferring the relative comfort of the status quo of traditional bulk deliveries, safety stock caches and clandestine hoarding. Did the global pandemic and the resulting supply chain disruptions effectively kill the momentum of the former and lead to tacit acceptance and embracing of the latter? Why?

Mikaella Polyviou: I do not think that lean management and JIT were the major culprits of what we have observed during the pandemic. After all, Toyota, whose Toyota Production System is based on lean and JIT principles, is consistently the number one automaker in the world in terms of market share, producing high-quality vehicles at good prices. Toyota is also consistently rated as the number one customer of choice by automotive suppliers.

Some of the problems we have observed are due to implementations of lean and JIT without some of the foundational principles being in place. For example, deep understanding of the supply chain, strong collaboration with first-tier, second-tier and third-tier suppliers when necessary, extensive sharing of necessary information across tiers, suppliers co-locating with the OEM, long-term contracts, etc. Additionally, a lean inventory approach needs to match the characteristics of the product being sourced. For example, Toyota learned from the 2011 earthquake and tsunami and developed a continuity plan for semiconductor chips. The lead time to acquire these chips is so long that Toyota made arrangements with suppliers to stockpile chips. This strategy helped Toyota fare well through 2021. I do not think we have observed many of these practices in healthcare or other industries.

Jim Eckler: Once again, large healthcare organizations with high-functioning SCM programs that had adopted JIT models were able to effectively pivot and quickly recover from the disruption. The key to an effective JIT program is robust contingency planning for response to unexpected situations such as a supply disruption.

Gene Schneller: I concur! The death of JIT is premature. JIT did not fail the system. It performed just as it was designed to. But there was a domino effect – low inventories, not just by provider organizations but by suppliers. And with preparedness not part of the mission, no need to give inordinate attention to how they could serve in an event with the unprecedented uncertainties we have already described.

There was a belief that the system had adequate backups. A belief that the Strategic National Stockpile could do more and that it was well-managed and stocked. That was not the case. GPOs and distributors are taking the initiative to work with the SNS, but it is not yet clear how this will lead to greater preparedness – especially for the long game. It is important that we renew and sustain a belief in system resiliency. 

Based on the content of the report, what do you feel are the most difficult recommendations likely for providers to implement and why?

Mikaella Polyviou: Collaboration and coordination across providers are among the more difficult recommendations to implement, although they are not unattainable. We have already seen formal and informal collaboration efforts across different players in the healthcare supply chain but not so much across competing providers. Such collaboration may be necessary during emergencies where market share may not be the priority, but the community’s health is the priority. Collaboration can take many different forms, some formal and others less formal. For example, in our research, we observed competing medical gas providers working with each other to help get product into their communities. In our research also, suppliers were asking providers to be more collaborative, for example, by being transparent about the demand they are observing or their critical procedures and sharing that information upstream; suppliers and providers sharing knowledge and expertise on business continuity plans and resiliency programs; working together to identify substitute products.

Jim Eckler: Among competing healthcare organizations, collaboration is not often undertaken. Culturally, providers will need to modify their style to adapt to this new approach. It will require a view of the long game. They must realize that sharing information will benefit themselves in the long run and ultimately will not diminish their competitive position in the market. Aside from competitive priorities, the lack of product standardization and workforce training, and workload issues may also hinder collaboration.

Gene Schneller: Providers are at the end of a very complex and fragmented supply chain.  Large providers have outsourced much contracting and sourcing responsibility for the supplies they use to upstream intermediaries.  This makes a great deal of sense.   Other large systems have developed consolidated service centers might take on some of this themselves. Smaller providers are at a disadvantage.  To support those who have challenges, we have advocated for the establishment of a commons entity to support preparedness for all providers. This will require collaboration with upstream suppliers, which will necessitate their providing terms and conditions and metrics that will support the preparedness of these entities.  We believe that state federally funded health care coalitions are a major candidate to develop such entities.  But it will take a great deal of work and collaboration. 

Conversely, what do you feel are the easiest to implement and why?

Mikaella Polyviou: Increasing inventory levels – with the goal of personal protection of healthcare workers and patients – does not require a high level of collaboration. It is, however, expensive and does not achieve community benefit. Other strategies that are easier to implement are part of what we call “good supply chain management practices.” These are practices we have observed in other industries but less so in healthcare. A few examples: making sourcing decisions not based on price but based on the total cost of ownership, evaluating suppliers not only based on price and quality but also flexibility, continuity, and the risk they pose to the organization, incorporating risk mitigation into contracts, and product standardization (a major problem in healthcare).

Importantly, focusing on understanding the upstream supply chain is critical. Most providers do not talk directly to their suppliers, do not know where their suppliers manufacture products, and do not know their suppliers’ suppliers. To develop an informed supply chain and resiliency strategy, this knowledge is critical and starts with supply chain mapping. Some providers have begun such efforts, either working directly with their suppliers or through third parties to map their network.  

Jim Eckler: The report calls for two initiatives that should be obvious and easy to implement. First is the development of flexible and redundant supply chain practices to build robustness into their processes. This will enable responsiveness to unexpected situations. Second is the upgrading of all business processes to adopt industry leading supply chain practices. Unlike medical practices where there are multiple diagnoses and treatments for illness, with supply chain there is a set of non-controversial business processes and structures to deliver high-performing supply chain management services. We are encouraging all provider organizations, both large and small to adopt these.

Gene Schneller: During the early days of COVID, providers and suppliers were able to come together to solve problems collectively, share data and help where products were needed. When there is a need for the common good, seemingly difficult barriers became, if not easy, at least achievable. Two areas of note are transparency of information and allocation of scarce inventory to where it is needed. There is a need to document the best practices that evolved and put into place a governance structure that does not make what became easy – difficult.

Honestly, if you find that this comprehensive report doesn’t motivate at least half of the healthcare organizations in the U.S. to make significant demonstrative process changes/improvements within the next five years, what will this tell you about the healthcare industry?

Gene Schneller: Wow – our team would be just thrilled if only half of the organizations made a commitment to preparedness. Experience tells me that unless preparedness is inserted into mission statements and reviewed consistently at the board level within our highly fragmented and competitive system, little will change. I do not think that this can be a provider-by-provider initiative. It will take a community and regional effort. An effort that cannot be achieved by mandates such as states, as we have seen dictating inventory levels.

Jim Eckler: Change in the healthcare industry takes time – often longer than change in other industries. Yes, it will take several years to bring about these changes and it will take multiple messages to convince leaders to commit to the changes and to invest in them. But it will be worth it.

Mikaella Polyviou: But we are confident that change will happen and that the industry will be more stable as a result of it. These changes are not revolutionary, nor will they require large financial investments. They require a will and an open mind to change.

Any change is slow to happen. But we are optimistic that this report will be an important step in advancing healthcare practices, especially when it comes to resilience practices. At the same time, most of these recommendations are not new – they have been implemented by leaders across other industries. Therefore, healthcare can learn from best practice organizations in other industries. hpn

Editor’s Note: To access the full report, click here: https://azcher.org/coalition-plans-and-documents-2/medical-supply-chain- integrity-assessment/