How medical supply chains
can diversify beyond COVID-
19
Deborah Abrams Kaplan
Antibiotics. Sedation drugs. Masks. Isolation gowns.
Ventilators. With items like these needed to treat or care for
those with COVID-19, shortages are inevitable.
Yet mitigating shortages should be part of the healthcare
system’s emergency plans — especially with procurement
heavily weighted toward global sources, said Nada Sanders,
a supply chain management professor at Northeastern
University.
"This is something companies should have learned," she
told Supply Chain Dive. With 9/11, SARS and the 2011
tsunami in Japan, "we’ve had massive disruption that comes
on a regular basis."
The pharmaceutical industry’s motivation is lowering cost in
the short-term, she said, and this results in supply problems
during emergency events like COVID-19.
An estimated 80% of active pharmaceutical ingredients
(API) come from abroad, typically China and India. With
India sourcing about 70% of APIs from China, a kink in either
country presents problems for the U.S.
"As a society, we rely heavily on medication," Sanders said,
making it risky to depend so heavily on one region.
The pitfalls of low-cost, single source
commodity supply chains
Paying low prices for products allows for strong cash flow
and ledger numbers, said Sanders, and the company will
have a predictable supply source when it runs smoothly.
The flip side is with commodity goods like generic drugs,
supply chains are narrow, because low price is the top
priority. When drugs are produced for pennies instead of
dollars, "you have to create these unbelievably efficient and
narrow supply chains that have no redundancy and no
resiliency," Michael J. Alkire, president of group purchasing
organization Premier, told Supply Chain Dive.
Certain countries and regions are the prime sourcing and
manufacturing locations not only for drugs, but for personal
protective equipment (PPE) and testing supplies.
The test kit swabs are produced in Northern Italy, an area hit
hard by COVID-19, though swabs are still being exported.
Premier sources exam gloves from Malaysia, PPE from
Cambodia and face masks from China and Taiwan.
"You have to create these
unbelievably efficient and narrow
supply chains that have no
redundancy and no resiliency."
Michael J. Alkire
President, Premier
Before the pandemic, half the surgical masks made globally
came from China. Mask manufacturers, including U.S. and
Canadian companies producing in China, were forced for a
time period to sell their products exclusively to the Chinese
government.
When industries attempt to drive down cost for commodity
items, they may create a single source of raw goods along
the entire supply chain, so any break in that leads to
resiliency issues, Alkire said. Some procurement managers
thought they were diversifying risk by using companies in
the same region. "We thought that by moving into Taiwan
and out of China, we were reducing our risks. When the
virus hit, we couldn’t ship," Alkire said. "As an industry ...
we’re going to have to look for partnerships to produce
domestically as well as using the global supply chain."
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Producing domestically isn’t the only answer, as ramping up
supply still takes time. The nonwoven polypropylene used in
N95 respirators is in short supply globally. A company in
Pennsylvania that typically makes 1.5 tons of nonwoven
material a day for air conditioning filters, increased
production for masks, according to The Wall Street Journal.
Skyrocketing demand, plummeting supply
Vizient released data showing dramatic spikes in U.S.
demand for sedatives, pain medications and anesthetic
paralytics as a result of COVID-19 hospitalizations and
increased ventilator usage. A three-month supply could be
used in a week as a result, according to one expert.
The U.S. experienced a shortage of 63 drugs even before
COVID-19 hit, due to the lack of manufacturers, as well as
lack of control over manufacturing and shipping from
abroad. The FDA now lists more than 100 drugs currently in
shortage, including chloroquine phosphate tablets. Demand
for the drug is skyrocketing, partly due to President Trump’s
recommendation for those with COVID-19 to take it.
Alkire said Premier is working with several domestic
manufacturers through its subsidiary ProvideGX to produce
generic drugs like chloroquine. D
emand from Premier
members for chloroquine was up 3,000% from March 1 to 17
compared to typical orders.
"Globally means more than just
location. It should look like a stock
portfolio."
Nada Sanders
Supply Chain Management Professor,
Northeastern University
Alkire said having only two suppliers creates an issue when
there’s a quality or other issue with one supplier. The stress
on the remaining manufacturer results in supply problems
plus significant price increases.
The FDA has not reported any medical device shortages,
though the last announcement on the topic was Feb. 27.
Most of the 10 largest medical device companies have
Chinese manufacturing centers, according to GEP, and the
country plans to make Wuhan an industrial cluster for health
device, drug and biopharma manufacturing. Domestic
ventilator manufacturers exist, and other factories can
convert to producing ventilators, even though there still may
be a gap between availability and need.
Tackling supply chain diversification
Healthcare organizations and distributors should not use
cost as the exclusive metric, said Sanders. "It’s a real
mistake for boards and senior leadership not to understand
the numbers. Risk exposure is really high," she said.
Alkire recommends several key actions to diversify
production.
1. Enhance transparency
The lack of transparency in tier two and beyond is coming
to light as healthcare supply chains often don’t know where
the raw materials come from to make the imported
pharmaceuticals, making it difficult to diversify. While
manufacturers are required to report potential shortages to
the FDA, healthcare organizations may not realize how
tenuous supply can be in a perfect storm like this.
"The FDA did a great job from a drug standpoint for
identifying the country of origin for API," said Alkire. Where
the agency didn’t do a great job, he said, is understanding
where other drug raw materials come from, including
binding agents, stabilizing products, antimicrobials and
other ingredients. "We’re very concerned because we don’t
have total transparency for where they’re manufactured," he
said. China is likely one of the main sourcing countries.
2. Increase U.S. and near-shore manufacturing
Bringing more manufacturing to the U.S., and to different
regions to diversify domestic location, can help with
production and distribution, Alkire said.
During a 2012 shortage of blood factor products like
albumin, Premier worked with a distributor to get supplies
from multiple manufacturers, bringing in redundant
suppliers to stabilize the market. Those products would
then be distributed on an allocation model.
After Hurricane Maria in 2017, saline and saline bags were in
short supply, as Puerto Rico produced so much of the
supply. Its electrical grid was hit hard by the storm, causing
severe supply problems in the states, and the manufacturer,
Baxter, had a hard time regaining market share. Healthcare
company B. Braun invested heavily in mainland U.S.
manufacturing capabilities in the wake of this.
Increasing manufacturing requires more infrastructure and
short-term costs to pay for that redundancy, according to
Alkire.
3. Leverage AI capability
If organizations place unusual orders, data and technology
may be able to help identify shortages or other reasons for
the change, Alkire said. Premier is making significant
investments in these capabilities, to create one point of
understanding of how orders occur across its system.
Cost and risk: A balancing act
A diversified supply chain means sourcing domestically and
globally. "Globally means more than just location. It should
look like a stock portfolio," said Sanders. It may be more
expensive, but it balances out the risk of losing supplies,
and also adds potentially shorter delivery times.
Will companies actually change their sourcing? A survey by
PwC found more U.S. CFOs plan to change their supply
chain range, because of the current pandemic, and about
one-third of those surveyed said supply chain issues are
one of the top-three concerns. However, cost containment
is still their top priority.
"We will eventually get through this. But if we don’t learn
after this, we’re in trouble," Sanders said.
