Guarding Against the Weaponization of Supply Chain Resilience in Healthcare Purchasing
Since the pandemic, hospital systems have gathered together to address the issue of supply chain resilience. The Healthcare Industry Resilience Collaborative (HIRC) is the broadest organization for driving this, led by some of the foremost health systems in the country. The collaborative addresses the need for suppliers to map their suppliers and create redundancies in their supply chain, to provide efficient communication about supply chain disruptions, to have a business continuity plan in place, to provide service level reports, addressing backorders and recalls, and more. The collaborative works under the assumption that standards in these areas will go a long way towards ensuring service disruptions in healthcare are avoided or at least ensuring that their impact is minimized.
Supply chain resilience has become a key concept in healthcare purchasing because the pandemic (and the post-pandemic) realities of securing necessary supplies have proven to be problematic. More and more often, hospital purchasing professionals are experiencing backorders or limited availability for key devices used in procedures – and service line leaders are experiencing disruptions in their ability to provide proper patient care.
How did healthcare end up in such a terrible spot? And how can the situation be repaired? For years, healthcare facilities have been under cost pressure, as suppliers have increased prices and introduced new technologies, often of proprietary designs that do not allow switching to other suppliers’ products. Efforts to improve delivery models through staff reductions and cost efficiency changes have proven to be insufficient to offset these. Many healthcare facilities have been successful in reducing costs in the supply chain, but it has come at a significant cost in terms of the resilience of the supply chain.
Most efficient supply chains are not built to be resilient; they have been built to minimize costs. According to Douglas Hannah in Harvard Business Review, “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.” There is a trade-off between cost reduction and supply chain resilience – a trade-off that shows itself in times of disruption, such as the pandemic. And health systems carry a substantial part of the blame for the fragile nature of the supply chain – because they have leaned it out in their search for cost reductions.
There is a trade-off between cost reduction and supply chain resilience...
Standards for healthcare supply chain resilience are necessary to ensure healthcare providers can provide continuous care to their patients. And most healthcare suppliers have taken initiatives to improve their ability to deliver consistently and reliably. However, health systems keep pushing for higher standards, and most Request for Proposals (RFPs) today contain long sections with demands for supply chain resilience measures.
Demands on suppliers for healthcare supply chain resilience have gotten to a point where they become problematic. When providers in their RFPs demand that suppliers have mapped their suppliers and their suppliers’ suppliers and created complex demand management monitoring practices for all their product lines, a large part of the market is excluded from participating in the RFP. Not because their operations are risky in terms of resiliency, but, in the case of small suppliers, because they don’t have the resources to put such systems in place – and, for large suppliers, because the complexity and sheer size of their product portfolio make this an impossible task. There is a real risk that with higher supply chain resilience standards, health systems will end up selecting suppliers not because they offer the best products at the best price, but because they meet formal resilience standards.
At the same time, exceedingly strict and, arguably, unnecessary standards (resilience standards for the sake of standards alone) increase operational costs considerably, and this is a problem across all suppliers, large and small. Additionally, resilience standards have a tendency to include demands that suppliers expose information that is considered proprietary and critical to the competitiveness of the organization. This increases business risk across all suppliers.
Resilience standards are important to balance the supply chain goals of cost savings and resilience. But both suppliers and providers share responsibility for the fragile nature of the healthcare supply chain, and both parties must compromise in the creation of a better balance. Health systems must actively listen, and they must beware of the dangers of creating resilience measuring systems that favor certain suppliers over others for the wrong reasons.
Resilience standards are important to balance the supply chain goals of cost savings and resilience.
When health systems constantly drive up demands to their suppliers for supply chain transparency, supplier mapping, supply risk mapping, business continuity, disruption responses, demand planning, etc., they are seemingly protecting their ability to avoid disruptions in patient care through supply chain management. However, they are effectively weaponizing “supply chain resilience” against certain suppliers - and increasing business risk and costs for all suppliers. As healthcare purchasing grapples with how to select suppliers that help hospitals reduce the impact of supply disruptions, new standards for supply chain resilience are emerging, but these need to be balanced with what can be considered reasonable in terms of demands placed on suppliers. The Healthcare Industry Resilience Collaborative can play a key role in creating this balance.