Managing Strategic Supplies & PPE- A Plan for Every Part

The COVID-19 pandemic has totally disrupted the healthcare industry, leaving it grasping for straws as to how to approach the management of critical supplies and Personal Protective Equipment (PPE). Earlier this week, PBS’s Frontline series aired an episode entitled “America’s Medical Supply Crisis”. The episode focused on a myriad of challenges brought to daylight by the pandemic, including:

  • Shortcomings of the traditional distributor-based system for acquiring supplies
  • Free for all for acquiring supplies when demand goes from 1X to 15X
  • Shortfalls in quality product from secondary sources
  • Impact on Low Unit of Measure (LUM) and “Just In Time” (JIT) inventory management strategies to keep expenses down
  • Impact of Group Purchasing Organizations (GPOs) on the process
  • Effectiveness or ineffectiveness of governmental agencies and policies

While the episode was good in many respects,. It was looking at a situation from the outside in. From the inside, however, the situation is no less complicated nor no less challenging. At the outset, Supply Chain Leaders were overwhelmed and began struggling immediately. Previous relationships and agreements meant little. Since the vast proportion of key PPE items are manufactured in China, and since China diverted production output to handle the demands in its own country, U. S. healthcare organizations were left to scramble and were often forced to implement less than optimal solutions. Disposable items were reused, run through ultraviolet sanitizing machines or just used until they fell apart. Garbage bags became protective gowns.

People panicked…

… and people died.

When the first wave of the pandemic tapered down, organizations began to take a look at the future- both near and far. There was much discussion about “The New Normal” and what that would look like. The newest catch phrase was the “Resilient Supply Chain”.

And what was the next great strategy that most systems settled on?

We need to protect ourselves – Get more stuff.

Supply chain leaders were instructed by their C-suites to build up giant caches (3 to 6 to 9 months’ worth) of key PPE items. Almost immediately, we at St. Onge were contacted by current, former and prospective clients to help them find space for their key items.

Amidst all the frenzy associated with COVI-19, life continued to go on.

Systems dealing with growth and consolidation were forced to face the problems of integration with acquired organizations along with meeting the demands of the pandemic.

One such system demonstrates the issues organizations are dealing with. In July, we were contacted by a system on the East Coast that was dealing with two problems simultaneously. They had been selected by their state to coordinate the management of the Safety Stock of PPE items (90 days) for a group of 244 non-acute care organizations. At the same time, the system was faced with the growth of its own footprint- the acquisition of two hospitals and the impending construction of a third.

St. Onge was asked to help with a strategy- first to identify possible locations for PPE warehouses and secondly to look at what it might look like to fold the PPE mission into the growth challenge.

Conversations with the system leaders were held to establish the scope- how many SKUs would be included (the number ranged from 750 to 2000), and whether there would be a Pandemic-specific warehouse or whether the PPE would be folded into the system’s existing structures.

With all the focus on the “where”. The “how” and the “how much”, one big question was left unanswered: what happens if, with all your planning, you can’t get the stuff?

A Few Clarifications

When the pandemic struck and demand skyrocketed for key items, there was much unfounded criticism aimed at the management and operation of the healthcare supply chain. Strategies that had been developed over the years came under fierce scrutiny and took hits- often partly or totally .unwarranted. Most of the practices under assault came about in an effort to keep costs under control.

  • Distribution based on a major intermediary: Healthcare organizations use thousands of disparate products from hundreds of sourcing points. Major distributors such as Cardinal, Medline and Owens and Minor offer the opportunity to be a one-stop-shop to acquire most of its commodity items and many of its specialty one as well. By using GPO contracts for pricing, the distributors become in effect a mega-warehouse and a sole-source source for inbound transportation for as much as 60-75% of the items coming into the facility, saving costs in contracting & sourcing, warehouse operations, and inventory dollars.
  • GPO involvement: GPOs exist to aggregate demand and contract with suppliers to improve pricing on thousands of items. While GPOs have their areas of weakness, especially on Physician Preference Items (PPI), they have proven to be extremely valuable to get excellent pricing on commodity items. In doing so, they have greatly reduced the costs that are involved with having to create contracts with hundreds of suppliers.
  • Just In Time Inventory: Just In Time Inventory (JIT) management is a term that originated in the automotive industry. The term stems from the concept that in a controlled process, it is possible to predict (and schedule delivery for) the exact point where supplies will be needed and have them delivered at that moment, eliminating the need to build and hold unnecessary inventories. In the early 1990’s, healthcare organizations began working with their suppliers to implement the concept. This was done in an effort to reduce inventories and their associated costs, including cash outlay and warehousing costs.
  • Low Unit of Measure Distribution: A further refinement of the JIT concept, LUM allows organizations to completely eliminate their storeroom or warehouse. In return for an upcharge to pull orders, the major distributors will receive orders directly from the using departments, pull them in each quantities, place them in plastic totes labelled with the name of the destination department and deliver them to the receiving dock, where the facility staff will receive, deliver and put away at the point of use. This strategy has allowed organizations to completely eliminate their formal warehouse and replace it with a much smaller “safety stock room”, largely eliminating warehouse inventories and freeing space for revenue-producing departments to occupy the vacated space.

While some of the strategies mentioned above are long-standing, the JIT inventory management and LUM distribution strategies are relatively new. All were done with good intentions and an expectation of measurable savings, the fact is, when the pandemic hit, these and other strategies left healthcare organizations vulnerable and unprepared.

Early Response and Initial Solutions: The early response was panic. Across the country it was every organization for itself. People did what they could to get stuff. They paid exorbitant pricing for what heretofore had been considered commodity items. They made deals with local businesses to make masks and hand sanitizer. They turned garbage bags into gowns and reused disposable supplies until they disintegrated. They hustled.

They implemented the concept of Heroic intervention.

And somehow, they made it past the initial onslaught, regrouped and began to devise strategies for the future.

And the predominant strategy was: Buy more stuff and store it somewhere.

A Better Way- A Plan for Every Part

There are several problems with the “buy more stuff” approach, the first of which is: How much do you need to buy? “Ninety days’ worth,” you answer. “Ninety days at what demand level,” I would ask. “At the normal demand level, or at the 15X pandemic demand level?” Ninety days’ level at the normal consumption rate would amount to six days at the pandemic consumption rate. Ninety days at the pandemic consumption rate would be fifteen months at the normal rate.

Either way, you can’t afford it.

And two years after the crisis passes, you will have a warehouse filled with rotting product and a CFO on your back asking, “How come we have so much inventory?” Why would the CFO ask that question? Because the more distance you put between the crisis and you, the more likely leadership is to forget it ever happened and want to return to the “Old Normal”, leaving you vulnerable to the next pandemic- which is guaranteed to happen at some time in the future.

There is a better way. The same auto industry that contributed the concept of JIT inventory management, contributed another: A Plan for Every Part. JIT is an at risk concept. It depends on perfect planning and [perfect timing. If one thing goes wrong, the assembly line stops. To counter that possibility, the industry hit upon the idea of identifying critical items and developing specific plans to insure their availability when needed.

This is an approach healthcare organizations should adopt. It requires significant analysis of SKU usage coupled with the employment of alternative approaches such as replacing disposable product with reusable product, contracting with local or regional suppliers and paying a higher price, or finding totally alternative products to fill the need. It requires the establishment of an infrastructure composed of clinical and supply chain personnel and it requires continual review and revision.

Buying more stuff is a lame approach. Putting an infinite number of monkeys at an infinite number of typewriters may lead to the production of every great work of literature ever written, but putting an infinite number of supplies in an infinite number of warehouses will only lead to financial ruin.

Let us help

Through our design process, we perform an intensive level of due diligence to learn our clients’ needs. Site tours, detailed interviews and data drive the models and simulations we use to develop a thorough understanding of our client’s day-to-day activity from an efficiency perspective. This process validates our understanding of the client’s issues and provides the foundation for developing the relationships required to create innovative solutions.

St. Onge Company has grown steadily and developed a client list that includes many Fortune 500 companies and several world-renowned institutions. We have completed approximately 5,000 assignments for over 1,000 clients located through- out the United States, Canada, Mexico, the United Kingdom, Europe, the Middle East, the Far East, China and South America.

Our past projects cover a wide variety of Institutional, Commercial and Industrial applications for clients such as Johns Hopkins Hospital, Dana Farber Cancer Institute, MD Anderson Cancer Center, Rush University Medical Center, Duke University Medical Center, St. Jude Children’s Research Hospital and King Saud Abdul Aziz Hospital, as well as with their architecture firms. For these clients, we have developed a strong familiarity with the challenging logistics and related real-time issues associated with hospital operations, including campus supply chain strategies, materials management master plans, departmental optimization, facility designs and information systems to plan, direct and coordinate the movement of materials. Some of these solutions are highly automated; all are highly effective.

If you find yourself interested in developing a pandemic supply management strategy, please contact St. Onge. Our experts stand ready to take a look at your operation and find the opportunities you may have overlooked. You can reach me at fcrans@stonge.com or call me at 563-503-1847.

 

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