Aptive Insights: Rethinking and Reinforcing the Health Care Supply Chain

Rethinking and Reinforcing the Health Care Supply Chain

By Anne Wright


The COVID-19 pandemic highlighted the importance and deficiencies of the health care supply chain, which had a major impact on hospitals, pharmacies, health care providers and patients. Aptive’s Chief Health Care Officer, Jason Ormsby, sat down with Dr. Eugene Schneller, a national supply chain expert, to talk about what we learned from the pandemic, what changes are needed and what the future holds for health care supply chain management.

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What is supply chain? 

Supply chain is an organization’s links to the variety of processes, companies and activities that generate value along that pipeline through products and services that meet the expectations of customers. In health care, those customers are sometimes clinicians, doctors and nurses who can’t do their work without supplies, as we found during COVID, but also the patients themselves.

What kind of insights has the COVID-19 pandemic provided into the health care supply chain? 

It really challenged a lot of the principles we’ve been teaching students for many years about sole sourcing and single sourcing and just-in-time. Quite frankly, hospitals and health care organizations, both on the commercial side as well as the government side, had really emphasized “lean,” had emphasized cost reduction, and they had emphasized just-in-time.

One of the things we found is that we really didn’t build up stockpiles and we really didn’t think about backups. We had some early warnings. One can go back a number of years to Hurricane Maria in Puerto Rico, when a large manufacturing company making virtually all of the bags for sterile injectables was wiped out.

Another interesting observation people don’t talk about is the extent to which we had “de-bedded” the American hospital in terms of our supply. If we go back 20 years,15 years, we had well over a million and a half hospital beds in the United States, and now we’ve reduced ourselves to only about 900,000 beds. So we took a significant number of beds out of the active supply chain. And we found ourselves with a pandemic that demanded putting many people into hospitals, and that was really a problem.

What other supply chain vulnerabilities were exposed by the COVID-19 pandemic?

One of the things we learned is that we really didn’t focus on stockpiles, the ability to keep reserves of products. We had relied in many instances on the strategic national stockpile, which is run by government, and we saw that that stockpile was really insufficient and not well-managed. There had been a lot of criticisms over the decades across administrations on the health of that strategic national stockpile. There’s a good deal of relooking at it and understanding it, but I think it’s important to point out that the strategic national stockpile has always been seen as a backup and that it’s really important for systems themselves and communities to think about how they’re going to deal with this issue. One of the areas that we’ve been doing a good deal of research on is what we call common pool resource organizations — how organizations in a community can come together to be able to protect themselves and be resilient going forward.

What is resilience as it relates to the health care supply chain? 

Resilience is an organization’s ability to sustain itself during periods of disruption. The mantra in health care has been cost, quality and outcomes. We’d like organizations to think about cost, quality, outcomes and resilience — and how you fund that. If we reduce supply chain to a point where it doesn’t have resilience — the ability to really come back from a disruption — it’s going to hurt the organization, it’s going to hurt employees and certainly it’s going to hurt patients.

Can you explain the three aspects of resilience in the supply chain?

Resilience has three major components. One is proactive — being able to anticipate, to resist and prepare for disruptions. I think organizations did not do a great job of that. Many of them had business interruption plans. Those things frequently have sat on the shelf and not done well.

The second part after proactive is really having a reactive component so that you can contain the damage, that you know what to do, that you can recover quickly from the disruption. And we saw some amazing innovation. Banner Health Care here, for example, in Arizona, went very quickly from using paper gowns to being able to acquire cloth — bringing in people who could sew gowns — and moved quickly from having paper gowns to cloth gowns.

The third aspect of resilience is its ability to transform the organization. Here’s where you’ve really learned from those disruptions, you’ve been able to adapt to that new environment. Think about telemedicine. Telemedicine really brought health care to where the patient was and we’re continuing to talk about the hospital at home. We’ve even talked about the ICU at home. Well, if we’re going to do those kinds of things, that’s very transformative. It brings health care to patients where they are. Are we going to keep doing those things? Are those things sustainable? Are hospitals going to be reimbursed well for doing those things? All of those things are really important as we think about resilience and the ability to sustain the kinds of advances we made during a period of time.

Can you explain what the FISCO model is? 

FISCO stands for fully integrated supply chain organization. It’s a concept we developed at Arizona State University and our new book, Strategic Management of the Healthcare Supply Chain, is designed around the FISCO model.

Important in the FISCO model are 17 different elements, which include supply chain management processes such as sourcing, standardization and contracting, and the technology tools that are very important aspects of a fully integrated supply chain. And then, of course, the organization support, the training, the structure, the governance — all of those things go into the FISCO.

What does the future hold for the health care supply chain?

I think one is acceleration of the clinically integrated supply chain — bringing clinical data to identify the best products for the best patient for the best outcome. If you think of AI for that, that’s a great way to be able to look at large data sets and begin to identify some of that information.

Secondly, we’re seeing a great deal more automation of the supply chain. A lot of it’s been manual. I think we see new entrants coming into the supply chain. Obviously, we’ve seen Amazon come in, we’ve seen FedEx come in. We’ve seen Walmart is very active in supply chain and sees health care as an area for strategic advantage. And their advantage obviously is the automation of the processes they’ve done and to be able to bring products directly to the customer.

I think we’ll see much more of a focus in 2023 going forward to looking at resilience and as things move into the cloud. I’m very concerned that unless systems take on a good deal of the resilience piece themselves, we’ll have increased regulation in the system. And so I think there should be a relatively high level of motivation to be sure that the systems themselves, whether you’re a provider system or you’re a manufacturer, don’t drop the resilience issue. You have to be able to not just be responsive to your customers over time, but also protect yourself in terms of where you sit within the marketplace.

What resources will be helpful to listeners who want more information about the health care supply chain?

The Association for Healthcare Resources and Materials Management, AHRMM, provides a variety of outlets and an annual meeting for supply chain. A second great resource in terms of a publication is Healthcare Purchasing News. HPN is a great way to know what’s going on within the environment. Other publications include the Journal of Healthcare Contracting, a journal called Resilience and Repertoire, a very interesting journal that looks at health care issues. The Strategic Marketplace initiative is a group of suppliers, as well as hospitals, that have come together to be able to collaboratively solve problems. They do surveys and provide many, many tools on their website to be able to carry out processes that are so important in supply chain, such as value analysis.


Eugene Schneller is a professor in the Department of Supply Chain Management at Arizona State University’s W. P. Carey School of Business. He is also an author of Strategic Management of the Health Care Supply Chain, Second Edition, which offers a big-picture overview and proven strategic framework for health care supply chain management. Dr. Schneller can be reached at Gene.Schneller@asu.edu.



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