It’s probably too late to already be thinking about how to fix the bungled response to the current pandemic. We can’t really fix it now that it’s set in motion, as much of the damage has already occurred. However we can start to think about what we might want to do to prepare for the next major pandemic, cyberterrorist attack, or disaster that may lie ahead for this country. Here are five things that I believe can be done differently.
First, develop contracts with manufacturers of healthcare supplies. These have to be firm contracts – asking Manufacturers to “reserve” capacity/quantities of material to supplement the SNS is not going to happen. We now know we cannot rely on this strategy – foreign manufacturers will voluntarily or be forced to serve their country’s needs first. The data shown below from a webinar I worked on with S&P Market Intelligence shows how exports into the US were restricted during this period. Our manufacturers most often rely upon foreign supply chains. Companies like 3M could not get masks delivered from China. Reserving manufacturing capacity is simply not possible, as most of the time this requires significant advance notice to scale up, and manufacturers do not have control over the capacity of their tier two suppliers in foreign countries. We are not going to be able to control manufacturing capacity which, even if contractually reserved, were unavailable to tap into during the COVID crisis (and remain so today) During any major global crisis, this will similarly be the case.
Second, there are problems with the idea of re-shoring manufacturing to the United States. My discussions with manufacturing executives suggest that once an organization commits to outsourcing to third parties in low-cost countries, there is a minimum planning horizon of five years involved, as this requires supplier qualification, audits, start-up, quality certification, and on-going ramp-up. In many industries, sourcing executives have embedded their supply chains in Asian regions, noting that “…these jobs will never return to Western countries.” As an example, 80% of the world’s production of certain medical products are produced by four manufacturers in one province in China. To establish alternative sources that are competitive, qualified, and at-scale would cost much more than the 25% in tariffs companies are paying today in the U.S. to import from China. We need to continue to rely on overseas suppliers, but find alternative contractual mechanisms to assure supply. While we are on the subject, let’s re-think why we need to maintain tariffs on a country that is a sole source provider of many healthcare products we need to access during a crisis! The idea is to increase the flow of goods from the country in this case, not to hinder them.
Third, we need to move away from the idea of simply increasing the Strategic National Stockpile, and think more in terms of the “Strategic National Sourcing” framework. What is needed is a sophisticated approach for development of category strategies, combined with deep supply market intelligence around how to construct strategies to mitigate risk. “Supply market intelligence can be defined as a process for creating competitive advantage and reducing risk through increased knowledge of supply market dynamics and supply base composition.” (Handfield, 2010, p. 43). I use the term “supply” in this definition and construct label, but this idea applies directly to services as well (i.e., you can gain knowledge about the dynamics and composition of available service providers.). Market research, in a public context, is the collecting and analyzing of information about capabilities within the market to satisfy agency needs (Federal Acquisition Regulation, Subpart 2). This can consist of surveillance and investigation techniques. Surveillance is a continuous awareness process whereas investigation consists of targeted, comprehensive analysis for a direct need. We note that supply chains and markets can be viewed as having informational attributes that can be viewed in the aggregate or at discrete, finite levels. We can ‘zoom in’ or ‘zoom out’. It can also be viewed along a temporal dimensional attribute. Any future governance framework should consider these attributes and look for useful, analogous frameworks from which to learn.
Fourth, asking Distributors to warehouse goods and then be responsible for distribution is not feasible. I have written two books on pharmaceutical and healthcare distribution (Handfield, 2012; 2013), and have highlighted a number of structural issues with healthcare distribution that make it problematic for distributors to house finished goods inventory buffers or at point of care. One of the biggest challenges is the allocation of goods, which historically has been not equitable. During the COVID crisis, the SNS failed to serve a large number of healthcare institutions, namely smaller hospitals in less populated states. This was clear during many of the conversations I had with the National Association of State Procurement Officers as well as with the National Governors Association. Further, private distributors and GPO’s will always first serve their primary customers based on who has the greatest buying power and based on prior existing relationships, and there is thus a need for increased visibility and fair allocation mechanisms that are transparent to all. (Note that the CDC NHSN has the data to demonstrate that major shortages of PPE and masks were not equitably distributed.).
Fifth, an equitable system for distribution is sorely needed during an emergency, and this is not identified. During a pandemic the demand for materials can come from many different kinds of organizations. We have seen large integrated delivery systems, individual hospitals (in and outside of these systems), government delivery systems including military and VA, prisons, nursing and senior residential facilities and rural hospitals and clinics all seeking products. Importantly, all have had access or lack of access to different sources. The “alternative market” that has emerged during COVID-19, consisting principally of suppliers with personal contacts in Asia that were not part of the every-day PPE production system, targeted many of these provider organizations. An equitable system will be responsive to need as opposed to demand and be guided by a set of ethical principles that facilitate triage and distribution. To have an equitable system requires input from the various provider organizations regarding demand on their systems – but also focuses on preparedness (just in case) – which, if credible, may well prevent hoarding.
If we can see where things are going, we can alleviate the need to rely on distributors and vendors to allocate material to the right places, whereas a demand sensing capability at the SNS level can drive allocation to the right states and counties most in need. Resource availability is key, but we note that information availability may be just as important, if not more so. We note that current COVID19 supply strategies have become a zero-sum game given asymmetric information, and new forms of governance are required to address these shortfalls.
 Handfield, R. (2010). SUPPLY MARKET INTELLIGENCE: Think Differently, Gain an Edge. Supply Chain Management Review, 14(6), pp. 42-44, 46-49.