One Way to Build More Resilient Medical Supply Chains in the U.S.

By Douglas Hannah
March 19, 2021

When shortages of PPE and other medical supplies hit in the early months of the pandemic, tens of thousands of domestic producers — from individual to large companies in other industries — sprang into action and made a huge difference. 

They should not be forgotten after the pandemic is over. Health care organizations should factor them into their emergency preparation plans so they can be ready to tap them when another disaster strikes. This article offers a blueprint for doing so.


The search for supply chain efficiencies has made our health care system leaner and more global. But this efficiency has come at the cost of resilience, with hospitals and health care providers now dependent on fragile global supply chains vulnerable to disruptions from “black swan” events like Covid-19. The pandemic demonstrated the devastating human and economic costs of this fragility: soaring prices and widespread shortages of critical medical supplies and personal protective equipment (PPE), and health care facilities struggling to protect staff and patients. The shortages also unleashed a homegrown resource that helped us cope: the tens of thousands of domestic manufacturers and community groups who stepped up to produce PPE and other critical supplies when existing supply chains failed.


These distributed producers — linked by digital platforms and operating in their own communities — represent a fundamentally different model than the traditional, centralized manufacturing paradigm on which the U.S. health care system has depended. They may never achieve the low costs of large overseas factories, but they do offer much needed strengths, including rapid response times and accessibility in times of crisis. If we put to work what we learned about distributed domestic production during the pandemic, we can create stronger and more resilient health care supply chains before the next inevitable black swan event occurs.


Under normal circumstances, a hospital system or smaller care facilities working with one another through a group purchasing organization, contract with two or three large distributors. These large distributors, in turn, purchase from wholesalers or may contract directly with manufacturers to produce what is needed. Supplies, most of which are manufactured overseas, are then shipped to distributors’ regional hubs and delivered periodically to individual health care facilities. The facilities maintain supply levels sufficient for several days to a week of continuous operation. When a disaster or accident stresses local hospitals, supplies usually can be shifted between hospitals or regions to make up for local shortfalls.


Covid-19, however, sent caseloads and PPE needs soaring across the globe. Without any slack to adjust, the system stretched and then snapped. By April, prices for isolation gowns had spiked by 2,000%, and 3M N95 masks were up 6,136%. Stories of health care workers improvising face shields and hospital gowns filled the news, and hospital and governments launched a mad scramble to secure PPE. Six months later, in October, a survey by nonprofit Get Us PPE found almost 70% of facilities were still unable to access one or more types of PPE.


This disaster would have been worse had it not been for the thousands of new suppliers that rose to meet the moment. These suppliers included distillers like Austin-based Tito’s, which pivoted from producing vodka to hand sanitizer, and small shops like Los Angeles-based based Hedley & Bennett, which transitioned from aprons to masks. The maker community, a global movement of hands-on DIY enthusiasts and hobbyists, also jumped into action, designing and fabricating PPE and medical supplies.


This distributed network produced hundreds of thousands of units of PPE within weeks of lockdown orders going into effect last March. As of December, total production had climbed to over 47 million units of PPE, plus tens of thousands of complex medical devices such as ventilators, respirator helmets, and pulse oximeters.


Local suppliers were often able to respond more rapidly and flexibly to changes in need than centralized supply sources. Here’s one example from my research: When ear, nose, and throat (ENT) specialists at a California hospital requested a face shield customized for intubation work, a local maker group designed and produced a product by the end of the day. The same group resupplied a local hospital within hours of being alerted to a shortage of isolation gowns.


Despite these successes, many health care facilities struggled to take advantage of these potential suppliers. Distant corporate offices, cumbersome vendor-approval processes, and inflexible funding rules conspired to prevent supply from meeting demand.


It doesn’t have to be that way next time. I’ve been studying how supply chains broke down during the early days of the pandemic, and how communities across the country stepped up to keep health care facilities operational in the face of unprecedented supply shortages. Based on months of archival research and dozens of interviews with engineers, doctors, and health care executives, I’ve come up with some steps we can take now to put in place a more resilient health care supply infrastructure and avoid a repeat of what happened in 2020:


Respond to offers of help in a coordinated way.


As the scope of the PPE shortage became clear, calls began to pour into hospitals with offers of help or inquiries about need. Sometimes these messages landed in the hands of the supply team; more often they did not. Inundated with calls, overwhelmed staff responded by setting up electronic mailboxes or just posting needs on their websites, which ended up hamstringing both health care facilities and the suppliers trying to provide PPE.


Needs shifted so fast that items in critically short supply one week were overflowing from supply closets the next. Separately, many items like intubation boxes needed a substantial degree of customization, which meant that suppliers needed real-time access to doctors and supply personnel. As the hospital outreach coordinator for one maker group told me, communication in a crisis needs to be a two-way street, which hospitals often struggled with.


This experience shows that hospitals and health care facilities need a single point of contact for coordinating with alternative suppliers, from retooled manufacturers to PPE donors.


Document and vet equipment designs to ensure quality.


Medical supplies are normally subject to the U.S. Food and Drug Administration’s (FDA’s) approval processes, which certify the designs as well as their production process. While Emergency Use Authorizations (EUAs) open the door for alternative supplies of low-risk PPE, quality control is an issue. Novel designs by inexperienced suppliers are more likely to be ineffective, uncomfortable, or even unsafe.


The solution lies in digital platforms for aggregating, documenting, and vetting medical supply designs. For example, Open Source Medical Supplies (OSMS), founded as a collaborative between makers and doctors in March 2020, quickly created a library that now lists 195 open-source designs for PPE and medical devices, from mask pleaters to ventilation helmets. These designs are curated and vetted by medical advisors, and an associated volunteer community offers feedback on improving designs for safety and manufacturability. In addition to improving the quality of their output, eliminating the need for suppliers to create customized designs will allow them to begin producing the items faster.


Identify alternative suppliers before they’re needed.


Early in the pandemic, maker groups stepped in to fill the void. Over time, makers often handed off production to established manufacturers who had retooled lines or devoted spare capacity to producing critical supplies. Neither group, however, was typically on the radar for hospitals, which generally rely on vendors to coordinate supply or distributors that typically relied on existing relationships with established medical suppliers.


By identifying and forming relationships now and adding firms to approved vendor lists, hospitals and health care facilities can pivot quickly during emergencies. For example, Maryland Made to Save Lives is a database that lists manufacturers in the state by area of expertise, allowing health care facilities to find alternate suppliers. Manufacturing Extension Partnership Programs, which run in every state, can similarly help match supply and potential demand.


Hold disaster-preparation drills that test supply availability.


Preparation for a large-scale supplier disruption should be incorporated into disaster drills. While it’s common for hospitals to hold emergency-preparedness drills, they often don’t involve existing, let alone alternative, suppliers. And many smaller health care facilities such as nursing homes and community clinics don’t hold such drills but should.


Cut the red tape that prevents facilities from paying for supplies.


In a stable world, rigorous invoicing and standardized payment practices ensure smooth functioning. In a crisis, however, these systems can become liabilities. Many of the procurement managers I interviewed shared stories of being unable to pay potential suppliers due to inflexible billing requirements. In other cases, small businesses or volunteer producers carried the cost of their materials and had their working capital tied up while awaiting payment from hospitals, which were used to paying invoices on “net 30” payment terms that give buyers up to 30 days from the invoice date to pay.


Allowing local facilities and frontline procurement managers greater discretion in billing and payments can enable faster response and easier access to local resources. One potential approach is modeled after the hospital department discretionary fund, which typically allows supply coordinators a degree of discretion for making small purchases. Another model is the public rapid-response fund, which avoids onerous application requirements and allows faster turnaround times. For example, the Greater Cleveland Covid-19 Rapid Response Fund has allocated over $10 million to local groups working to address the pandemic in the Cleveland community. A third possible approach is funding the addition of the production capacity needed meet an emergency upfront much like Operation Warp Speed, which pre-emptively funded multiple vaccine developers, preordering doses and investing in manufacturing facilities in order to accelerate production.


The Covid-19 pandemic has laid bare the dangers of a supply chain optimized for efficiency. In a world in which large-scale disasters and disruptions are likely to become more common, finding ways to build resilience into the system is critical. Distributed domestic production offers one resource. In the worst case, it is an insurance policy that is developed and never deployed. In the best case, it offers the groundwork for a powerful, flexible, new production model. Best of all, it is within reach today.

 


Douglas Hannah is an assistant professor at the Boston University Questrom School of Business.



Copyright 2021 Harvard Business School Publishing Corporation. Distributed by The New York Times Syndicate.


 

 

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