Nations across the world could see a second wave of the COVID-19 pandemic as they have started relaxing lockdown, travel, and social distancing restrictions, in the backdrop of declining cases. The disruption in the first wave brought out many weaknesses in how businesses operate, especially in their supply chain strategy. After evaluating their shortcomings, many critical upstream players, especially in the healthcare supply chain, have put in action plans to deal with future disruptions. Despite this, the future wave of COVID-19 is poised to bring a unique set of supply chain challenges and make existing challenges much worse.
Before the pandemic, China was responsible for half the world’s supply of surgical masks and was the only place capable of mass-producing clinical gowns. The outbreak there caused its supply to decline while creating a surge in domestic demand. To meet their rising demand, countries had to look for alternative means.
One such problem could be suppliers intentionally hoarding up on PPE stocks to create an artificial shortage to drive up prices. On similar lines, PPE suppliers could indulge in procuring counterfeit versions of PPEs such as N95 masks and supplying it to hospitals. This situation becomes exacerbated and painful when the genuine and counterfeit stocks are mixed and delivered as part of a co-mingled consignment to the hospitals. A lot of hospitals would have developed action plans to source from alternative suppliers in case of a second wave. A re-occurrence would mean many alternative sources would be under stress as a significantly higher number of firms would activate their action plans. In the absence of additional capacity or newer suppliers, hospitals would be affected by a much worse PPE shortage.
What can PPE manufacturers & distributors do to ensure their supply chain is not disrupted again?
Manufacturers can negotiate long-term contracts with their upstream and downstream members, respectively, to get the benefit of price discounts on bulk purchase of raw material and to assure orders from hospitals to help plan production runs better.
They would have to revisit their strategic sourcing requirements and opt for raw material suppliers closer to home or within their borders (Supply Chain Regionalisation). This could reduce not only the complexity of the supply chain but also reduce the time to get products to consumers and increase supply chain visibility. Manufacturers could train them in improving the quality of the processing involved in the raw materials. While scouting for suppliers, they must vet them properly by assessing their credit risk & liquidity, ability to deliver on-time, etc.
The Kraljic Portfolio Matrix can be utilized for the screening of suppliers and making strategic sourcing decisions based on the supply risk and profit impact of the goods or services.
For additional capacity, manufacturers could enter into agreements with businesses that can be quickly retooled to produce PPEs, such as automotive giant Ford which manufactured PPEs for 3M. To deal with counterfeit PPEs manufacturers can opt for RFID tagging of packages, which would allow them to track the journey of the package throughout the supply chain.
While dealing with their customers, such as hospitals, distributors must exercise caution as the higher volumes in the replenishment orders for PPE could be a result of panic buying. Instead, by insisting on Vendor Managed Inventory of the hospital’s stock, they get better access to information such as the Burn rate of PPE and support existing needs of the hospital with higher efficiency & service levels, without causing the Bull-whip effect. VMI can be achieved by enabling EDI at both the distributor and hospital end.
How can Hospitals ensure their supply chain is prepared for any eventualities?
In the initial days of PPE shortage, hospitals postponed their elective surgeries to conserve. Such successful strategies must be documented in a playbook and implemented in case of future waves to ensure supply chain resilience.
Having an effective Inventory Management System would also be beneficial by ensuring PPEs nearing the end of their shelf-life are provided first to the healthcare workers to minimize monetary and material losses.
Single supplier situations can be overcome by hospitals by incorporating multiple redundancies into their supply chain by diversifying their supplier base. One way is the hospitals can reach out to other organizations such as MNCs that might have additional PPE stocks that were bought at the height of the pandemic to be used for their employees. Another innovative solution could be developing a cloud-based portal such as SearchPPE.com that could provide buyers access to the small businesses that can retool to provide PPEs. Hospitals in less-affected cities could assist the hospitals in hotspots by sharing their PPEs and other equipment, by once again leveraging technology. FLOOW2, an online B2B sharing marketplace, enabled hospitals to share idle medical equipment, staff & services.
Besides this, cultivating stronger supplier relationships is essential for hospitals’ functioning. Transactional relations should be replaced with a long-term and mutually beneficial one. SMEs might struggle to finance to support their fulfillment of PPE orders. These businesses are financially squeezed between hospitals having a longer payment term and their upstream suppliers like raw material providers demanding early payment for highly desirable goods. By investing in them, hospitals can be assured of steady delivery of PPE orders, as a disruption there would have a catastrophic effect on the front line healthcare workers.
Furthermore, sustainability issues could also arise in the supply chain. There are issues such as that of used plastic and biowaste disposal.
Though the COVID-19 crisis exposed glaring supply chain shortcomings on a scale many have never previously contemplated, it presented itself with opportunities. It provided valuable lessons to learn and innovate and never to become complacent. Firms are forming partnerships to share their expertise while others are repurposing their production line and inventory to manufacture medical equipment. To be successful requires a high level of co-operation between various players, and the world is witnessing it on an unprecedented scale.