This Supply Chain Matters editorial commentary provides highlights of added developments specifically related to U.S. supplies of medical PPE and how government and private industry actions still appear not to be aligned.
It is indeed time for new thinking and new approaches in ensuring that a domestic national economic and security includes solutions to domestic medical PPE supply chain capabilities.
Since the global COVID-19 pandemic made its presence in 2020, Supply Chain Matters has placed a special emphasis on analysis of pharmaceutical, drug and medical personal protective equipment (PPE) supply network challenges. While so many multi-industry supply networks have been since disrupted, by our lens, medical and protective equipment supply networks were the most vulnerable and most impacted. That were and remain a critical weak link for economic and social good. Learnings and new thinking are especially important in this area.
Indeed, at the height of the initial spread of coronavirus among global populations, The World Health Organization (WHO) had estimated that healthcare workers would require upwards of 89 million medical masks a month in order to respond to medical care needs. This equated to over one trillion masks on an annual basis. In those early days, national governments, individual states and local healthcare delivery facilities were collectively competing with one another for any available supply, regardless of cost. It was a lucrative but highly constrained supply environment. That situation has to be avoided going forward.
Specifically addressing supply chain strategies and challenges related to PPE, Supply Chain Matters as featured three prior blogs relative to U.S. based manufacturers marshalling capabilities to boost domestic production capabilities. They were:
Bloomberg Businessweek published a report at the end of July, One Year Later, America’s Mask Supply Chain is Still Vulnerable (Paid subscription or metered view). The report indicates that amid the resurgence of infections now attributed to the more contagious Delta virus variant, some U.S. domestic producers of N95 surgical masks “are struggling to stay in business”. Several smaller producers have reportedly curtailed production and thousands of workers have been let go.
The U.S. government estimated in May than domestic manufacturers produced N95 surgical masks in excess of existing needs while the U.S. Strategic National Stockpile now has adequate inventories. Larger mask providers such as 3M have the ability to scale-up or scale-down production while smaller suppliers are reportedly sitting on 300 million unsold surgical masks. The report further observes that once again, PPE manufacturers seek committed supply contracts from both government and healthcare providers while hospitals remain reluctant to switch from global based suppliers such as China because of the higher costs of domestic produced supplies.
Last week, nationwide drug and medical supplies distributor Cardinal Health reported the firm’s latest quarterly financial performance indicating that PPE stockpiles were a reported 40 percent drag on performance. According to reporting by The Wall Street Journal, Cardinal has a $197 million inventory reserve of PPE. This distributor which exhausted its inventories in the early phases of the pandemic outbreak is now catering to hospital chain needs in stocking additional weeks or months of safety stock PPE supplies to the point where Cardinal is now added supplemental warehouse space along with inventory management services.
Supply Chain Matters Perspectives
The obvious question is what is the stumbling block that consistently comes to the forefront in respect to having adequate PPE inventory during times of a national health emergency.
As noted in our last blog revisiting Shawmut Corporation’s domestic production presence, there remains a sense that there needs to be some basis of a supplemental U.S. domestic supply chain capability for PPE needs during times of spiked emergency demand.
The Biden Administration is expected to issue a report to the President regarding a more comprehensive PPE supply chain strategy. According to Bloomberg, as part of the American Rescue Plan legislation, the administration has invested over $400 million among domestic producers of gloves, gowns, masks and other supplies. In June, the Senate passed the U.S. Innovation and Competition Act that includes a requirement that certain government agencies must issue longer-term supply contracts to domestic PPE producers.
But there is another persistent problem which is foreign suppliers such as those in China continuing to provide PPE supplies at below landed cost pricing in order to protect existing market share. Another persistent problem is the existence of counterfeit or non-specification products in the supply network.
Hospital buying groups, which continue to be focused on lowest cost, add to the conflicting interests. As the overall costs of drugs and healthcare services delivery continue to rise, procurement teams look to cut costs wherever they can.
On the one hand, lobbying groups shun any government intervention in private enterprise and seek the natural forces of market demand and supply to adjust supply chains. On the other hand, this is about the adequate safety of healthcare workers and patients during health emergencies. At the same time, some smaller specialty producers of PPE are again subject to the imbalances of a bullwhip affect at times of emergency. The industry has again traversed from supply crisis causing unnecessary sickness and death to that of oversupply, as least for now. What will happen if another pandemic occurs?
We believe that there has to be a solution and it must involve some form of governmental policy under the umbrella of national security.
Certainly, a forum of production and supply chain experts can come up with a process that addresses the need for allocating national demand among domestic or foreign producers for normalized PPE supply needs and address the needs for required surge capability at times of national emergency. The latter could include production equipment at the ready among a certain number of domestic producers strategically located across the U.S. Technology has a role to play in manufacturing automation, in overall gauging of nationwide supplies and in artificial intelligence algorithms that can forecast PPE demand on a far more-timely basis predicated on the most available public health information.
Added months of safety stock remains the placebo of healthcare supply chains in times of extraordinary demand as is the sole quest for lowest cost supply. If there is any brute lesson from the ongoing global transportation crisis it is the factoring of risk and consequent needs for supply network resiliency.
Surely there are solutions and government has a role in oversight. Industry and supplier lobbyists are not the solution, they are the distraction and basis of breeding former thinking, incentives and stakeholder conflicts. Consider the reality that in times of national health emergencies, experienced medical professionals supplemented by required PPE and responsive healthcare supply networks determine the outcomes of all other industry supply networks. That reality continues to play out.
It is indeed time for new thinking and new approaches and we urge the supply chain management community to add your voices and your expertise in coming up with a workable proactive strategy that assures domestic supplies of needed medical PPE.
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