Diversifying the Supply Base to Prepare for Disruption in COVID: Now is the Time!

Diversifying your supply base prior to a major crisis like COVID is more important than ever as we go into the winter season.  The likelihood of another surge is now becoming apparent, as the cases in Europe and the US spike to new highs.  Supply chain executives need to begin to plan ahead, and specifically, need to think about how to diversify their supply base to be able to weather the challenges posed by shortages and supply disruptions, particularly in tier 2, 3, and 4 suppliers.

Healthcare preparedness means developing clear, efficient, standardized protocols for managing PPE and other critical materials sourced from third parties in health emergencies – acquiring and strategically sourcing such items as masks and cleaning equipment; managing strategic stocks of those materials indefinitely; and with other organizations in both horizontal and vertical networks to develop mutual aid agreements. Our research has found that the most-proactive organizations are thinking about critical supplies not just for themselves but for their suppliers and distributors, as it takes just a single supplier shutdown to disrupt an entire supply chain.

A good example here is the supply of diagnostic testing capacity for COVID testing.  Two main challenges have led to a limited capacity to execute tests: a shortage of the laboratory equipment and trained personnel needed to run tests and a shortage of the necessary reagents, which are often packaged as kits (testing kits and RNA-extraction kits, for example).  David Grenache, the American Association of Clinical Chemistry’s president, also noted the supply chain issues. A survey conducted in August by the organization found 67 percent of labs are having issues getting reagents and test kits for COVID-19 assays, the highest number since monthly surveying began in May. Meanwhile, 32 percent of labs are also having trouble getting supplies for non-COVID-19 tests. Grenache called the results “very concerning,” saying “many labs are already struggling to meet testing demands and increasing the number of tests due to nursing home testing could be a challenge.” The survey results show that there is a “revolving door” of shortages, depending on the type of platform used, as well as a shortage on the commercial platform equipment as well.  These shortages are delaying testing (38% of sample) and decreasing testing (55%) in 93% of the diagnostic labs in the country.

Building and installing new equipment takes time—between 20 and 30 days for an order of high-throughput equipment to be delivered, for instance, and at least three to five days for it to be installed, calibrated, and validated for diagnostic testing. Newly installed equipment also requires more trained personnel to operate it. Moreover, financial constraints in many countries—government funding for public health laboratories, for example—can make it hard to build additional capacity.

“We are seeing the number of tests going up.  Our capacity is north of 50,000 a week, but we hope to bring on more by the end of the month.  But we are constrained by machine suppliers who can deliver equipment on time.  We are working towards 100,000 a week by next year.” – Midsized Diagnostics Lab

If demand continues to accelerate and shortages are not resolved, then turnaround times for test results will rise, tests will effectively be rationed, and the number of infections that are never counted in official statistics will grow. Any plan to contain the virus will depend on fast and accurate testing, which can identify newly infectious people before they set off new outbreaks. Without it, the U.S. is in the dark. Laboratories reported that turnaround time for PCR  testing is accomplished predominantly between 12-24 hours (41%) or 24-48 hours (38%). 83% of academic medical centers and 73% of community hospital and health system laboratories reporting a turnaround time of less than 24 hours.[1]

One of the problems related to equipment constraints is that most small labs commit to a specific test that is associated with a specific line of equipment.  Some of the lines of equipment used in PCR testing include Roche, Hologics, Simens, Diasporin, Hamilton, and Abbott.  Each one of these systems has tremendous bottlenecks in their supply chain, including pipettes and plastic trays (see below), transport devices for samples, and other elements.  For example, some manufacturers such as Hologics chose not to use universally acceptable specimen transport solutions, instead adopting a specialty tube with a reagent and a piercable cap, which must be used.  Any lab using a Hologic solution must must that transport device, which is now severely bottlenecked for collection supply.  There appears to be no shortages of reagents, but machine-specific components such as trays and transport devices are proving to be problematic.

A best practice for developing a testing strategy was provided in an interview with a senior executive at a large diagnostic laboratory, who described how planning ahead through a diversification strategy enabled the elimination of bottlenecks in his testing supply chain.

We have a fantastic scientific team who is responsible for assay development, and once one of our scientists puts a check mark on how the test is processed, but they stop short of specifying and picking which instrument is used in the lab.  Rather, the operations team takes over and decides what equipment will be used in the lab.  Early on with COVID, this was a major discussion part.  Most of our testing volume is NOT unique to commercial platforms like Roche or Hologic, but is run using our laboratory developed test that has a number of different of components and instrumentation that it can run on.  The science team developed the assay and specified how to perform the amplification, detection, etc., and our operations team scaled the hardware to the local lab environment that made the most sense.  For instance, our YYYY lab has a different scale than our XXXX lab, and other settings may be a local hospital or small lab.  My operations team goes in and aligns the testing process with the lab layout and the expected product.  It is not a “one size fits all” environment, and we don’t depend on a single equipment supplier.

If we hadn’t taken this diversification strategy, we would have had major capacity constraints.  Every one of our commercial equipment suppliers has experienced challenges that caused them to contract.   But all of the equipment solutions we leveraged didn’t all contract at the same time!  This is great new for us, as I don’t have to wake up every day and worry when there is a problem somewhere with a plastic manufacturing shortage, a sterilizer problem, or a reagent shortage.  And during COVID there has been some kind of supply chain shortage almost every day, and our diversification strategy has served us well.” 

Executives in every industry need to think more about a supply chain diversification strategy – almost like a portfolio of suppliers to minimize risk in the supply chain.  Such approaches, while perhaps more costly initially, can pay off by a multiplier of 10 when shortages start to pop up again this winter.

[1] https://www.amp.org/AMP/assets/File/advocacy/Survey_Report_August_2020_AMP_SARSCoV2_FINAL.pdf?pass=22