Managing global supply chain disruptions

What healthcare supply chain leaders need to know and how distributors & manufacturers are responding

Disruptions up and down the global supply chain are everywhere in the news today:

• Manufacturing sites in Asia shutting down because of COVID-19 Delta variant outbreaks
• Container ships piling up in U.S. ports due to lack of workers and equipment to offload them
• Products sitting in warehouses as the nation faces a growing truck driver labor shortage

对医疗行业的影响已经提婆tating. The computer chip shortage has left hospitals waiting months for CT scanners, telemetry monitors, defibrillators and other life sustaining and saving products.¹材料的成本上升用于医疗一口plies — 60% price increase in steel for wheelchairs and hospital beds and 100% for polycarbonate plastics used for oxygen tubing, nebulizers, canisters and oxygen masks — add significant financial pressures to the equation.²

These problems aren't going away anytime soon. Experts say supply chain congestion and elevated costs are predicted to last into 2023.³

Healthcare supply chain stakeholders — manufacturers, distributors, group purchasing organizations (GPO) and healthcare organizations — are struggling with these ongoing challenges. The Healthcare Industry Distributors Association (HIDA) stresses the need for greater transparency, collaborative information sharing and ongoing communication among these parties.⁴

During a Health Connect Partners October 2021 virtual roundtable facilitated by McKesson Medical-Surgical, supply chain leaders shared what they need from distributors and manufacturers to successfully navigate the crisis. In turn, we shared how we're addressing those needs, both through our own resources and together with supply manufacturers.

The pandemic has seen a rise in the cost of materials used for medical supplies:
• 60% price increase in steel for wheelchairs & hospital beds
• 100% price increase for polycarbonate plastics used for oxygen tubing, nebulizers, canisters & oxygen masks

Experts say supply chain congestion and elevated costs are predicted to last into 2023.

Moving products: The need for internalized logistics

Supply chain leaders want to know how products get from manufacturers to their facilities and what distributors and manufacturers are doing to overcome logistical challenges that lead to product shortages.

A supply chain director in the northeast noted that their team has daily calls with supply manufacturers to ask when products will arrive, all while seeing on the news ports that are backed with ships still sitting in the water.

"Transportation bottlenecks are a real issue that go beyond our industry and likely won't settle down until late 2022-2023, but there are several things we are doing to help mitigate the disruptions," commented Will Benton, head of manufacturer solutions, McKesson Medical-Surgical.

We've internalized many global and domestic logistics within its team, rather than outsourcing them to third parties. This includes the processes of product brokerage, customs clearance, ocean partner negotiations and freight vessel booking.

Other steps we're taking to speed up the flow of supplies is routing shipping containers to less congested U.S. ports, then using our ground fleet to transport products to regional distribution centers and on to healthcare facilities more quickly.

Sourcing products: The need for greater visibility

The COVID-19 crisis has taught a valuable lesson on product sourcing — the importance of not only knowing product suppliers, but the suppliers' suppliers of raw materials that go into manufacturing items.

"When we talk about transparency, I look at other industries and it seems healthcare supply chain has so much catching-up to do around understanding the global supply chain," said Sean Poellnitz, vice president of supply chain for Mosaic Life Care. "From a raw materials base, can we understand what's happening in that market over the next five years that could impact us?"

For example, the impact of global chip shortages continues to impact industries around the world. How will these shortages affect the healthcare supply chain and what can distributors and suppliers do to adjust their product portfolios in response?

We're taking a calculated view across our product portfolio, tightly monitoring 41,000 products critical to care delivery, considering country of origin, the suppliers of raw materials, lead times and availability to determine whether to expand our supplier base in a specific product category.

Selecting suppliers: The need for diversification and domestic production

The move toward sole-source contracts to lower costs backfired when the pandemic hit. Organizations that had standardized to one supplier for critical items were left scrambling to find alternatives if their sole supply source was disrupted. Health systems were desperate for supplies and some alternate manufacturers took advantage of the situation, pushing low-quality products into the U.S. under the Emergency Use Authorization (EUA).

Across the board, we've been diversifying our supplier base so that we have multiple sources for as many product categories as possible, setting a high bar to ensure that we're providing legitimate, quality products to our customers.

There's industry-wide support around efforts to source more medical supplies from companies that manufacture near shore (e.g., Mexico, Canada, South America) or onshore in the U.S. The challenge is reestablishing a manufacturing base that was long ago pushed overseas by the desire for lower costs, and whether healthcare organizations will pay more for products that are more easily accessible and at less risk for supply chain disruption. One supply chain executive at the roundtable suggested that their organization, at least, would be willing to pay more for products if it reduced the red tape and sequestering involved in sourcing products manufactured in other countries.

We're working with manufacturers that are aggressively making investments to expand their manufacturing footprint. This is another strategic push across the our product portfolio to help ensure customers have access to suppliers with broad capacity moving forward.

"We're fully engaged with credible manufacturers on discussions to source domestically, but it's a real balancing act where they want us to commit to volume while we're still trying to gauge volume," said Benton. "We're having conversations with our customers to gauge the importance of having a certain share of our portfolio with domestic suppliers, which will be very doable moving forward, but comes with a price disparity."

One supply chain executive at the roundtable suggested that their organization, at least, would be willing to pay more for products if it reduced the red tape and sequestering involved in sourcing products manufactured in other countries.

Empowering health systems: The need for data and analytics

An executive director of supply chain at the roundtable asked whether McKesson had thoughts on using technology for early signaling to get insight into potential disruptions and allow for proactive decision making.

We recently began using technology that allows us to understand how future shortages would impact product availability throughout our network to reduce the impact of those issues as they arise. By applying artificial intelligence (AI) and machine learning (ML) to historic data, we're also performing predictive analytics to gauge future risks.

“我们已经收到从cust增加请求omers for new types of data around country-of-origin and geographic sourcing, which we're working to address," said Greg Colizzi, vice president of health systems marketing, McKesson, who led the roundtable. "This work is helping us be nimbler in how we manage our supply chain."

Most recently, we added a new product concentration by country-of-origin enhancement to ourMcKesson Business Analytics^SMtool that helps health systems gain a global view of where they're purchasing products by geographic area.

"We're developing predictive analytics and risk measurement around the products customers are purchasing so when shortages happen and they incur cost increases based on country-of-origin, they can direct those higher-cost supplies to essential facilities," said Tracy Crowley, product manager, McKesson Business Analytics.

When asked what type of metrics were of interest, a senior vice president of supply chain management services said their system is interested in mapping out fill rates by country of origin to identify categories they should purchase from domestic sources. Another supply chain director noted that they want to understand McKesson's fill rate to their facility, but also manufacturers' fill rates to McKesson, to have a clear view of potential disruptions.

Crowley described other reporting and analytics available to McKesson customers, including GPO compliance, Rx growth, formulary compliance, spend by site (e.g., surgery center, medical practice or post-acute) and efficiency measures, such as frequency of orders, size of orders and frequency of small orders. Healthcare organizations can access their own measurements and benchmark against others similar in size and scope.

Conclusion

While many market sectors are being impacted by global supply chain issues, from retail to construction, the challenges to healthcare supply chain management present the greatest risks as they impact patient lives.

Manufacturers, distributors, GPOs and healthcare organizations all play a role in delivering supplies to the point of care; therefore, they must be involved in efforts to address the delays of the current crisis and prepare for future disruptions.

In closing the virtual roundtable, Colizzi stated:

"Healthcare wouldn't function without the supply chain and the important work the participants of this roundtable do. We truly appreciate what you've been through in the past year and a half. We urge you to continue sharing your perspectives on the situation and what you need from us to better serve your clinicians and patients. In turn, as we use technology and manufacturer relationships to better understand the current challenges and gauge future risks, we'll continue sharing this information with you. Together as an industry, we can pave a stronger path forward, but it requires us working closely together."

Global events are impacting how the healthcare industry ships and receives necessary medical products. Although domestic and global manufacturing is generally healthy, transportation delays and shipping challenges continue to disrupt the supply chain. We're adjusting to better support our customers, and we're committed to sharing thelatest news and our action planto help mitigate disruptions.

---

1: Medical device makers plead for computer chips in global shortage: 6 things to know, Becker's Hospital Review, October 6, 2021,https://www.beckershospitalreview.com/healthcare-information-technology/medical-devicemakers-plea-for-computer-chips-in-global-shortage-6-things-to-know.html
2: Supply Disruptions Are Hitting Home-Based Medical Care, InsideSources, October 6, 2021,https://insidesources.com/supply-disruptions-are-hitting-home-based-medical-care/
3: How supply chain chaos and sky-high costs could last until 2023, FreightWaves, October 4, 2021,https://www.freightwaves.com/news/how-supply-chain-chaos-and-sky-high-costs-could-last-until-2023
4: Allocations: Best Practices For Conserving Medical Supplies During Shortages, HIDA, October 5, 2021,https://www.hida.org/distribution/news/press-releases/Healthcare-Supply-Chain-Stakeholders-Develop-Allocation-Best-Practices.aspx

© 2021 McKesson Medical-Surgical Inc.