Although the visible bottlenecks in the healthcare supply chains are getting calmer, volatility will remain high. From the impacts of increasing interest rates and bank failures to labor and material shortages to global conflicts, risks in the healthcare supply chain will skyrocket. This situation will create as many opportunities as challenges, and so the proactive, resilient, and innovative companies will thrive while the rest diminish. The key will be deliberately making that choice and ensuring your end-to-end supply chain partners are on that same trajectory.
Current Status
Since the supply chain is an interlinked series of suppliers, manufacturers, and logistics partners, the bottleneck moves from one link to the next as demand and supply are out of alignment. During the pandemic, the visible signs were abundant with ships stacked up at the ports. Fast-forward to post-pandemic and much of China was locked down for almost a year, the Russia-Ukraine region has been in a war, and the Great Resignation has grown across the world (reducing the number of people in the workforce to lower than pre-pandemic levels), severely limiting supply while demand increased as people started to spend money, catch up on medical appointments, and live life again.
Thus, critical shortages and extended lead times remain while there is a glut of inventory of the “wrong” products in the “wrong” place at the “wrong” time, leading to continued disruption, inflation caused by limited supply, and recessionary signals caused by the cost of capital and the oversupply of “wrong” products throughout the supply chain. To make matters more challenging, global tensions are on the rise with China and several other countries that supply essential medical devices, key materials, and active pharmaceutical ingredients, as well as other critical commodities and components.
Added Volatility
Inflation, workforce issues, and labor shortages are further disrupting healthcare supply chains. The country faces a shortage of up to 124,000 physicians by 2034, including 48,000 primary care physicians, according to the Association of American Medical Colleges. Of immediate significance, according to The American Hospital Association, 136 rural hospitals closed from 2010 to 2021 alone. And, according to its chief healthcare executive, the Texas Hospital Association has warned that one in 10 hospitals in that state is at risk of closure, with nearly half of that state’s hospitals projecting negative operating margins. As these medical professional shortages persist and closures occur, patients still require attention. Healthcare is on the move, and the supply chains will have to catch up. Thus, more of the “wrong” items will be in the “wrong” places at the “wrong” time, creating additional disruption, inflation to move and/or transfer them (from one owner to the next), and inventory stockpiles in the “wrong” place.
Successful Path Forward
There will be more opportunity than ever before for proactive, resilient, and innovative companies to gain market share during these volatile times. The successful companies will take control. Starting by targeting their ideal customers, they will focus limited resources on what provides the most value to these key customers, including providing value-add services such as vendor-managed inventory so that their customers have the “right” products in the “right” place at the “right” time with minimal resources and risk.
They will go further into their supply chain to assess risk and mitigate shortages of critical components and supplies due to resolvable issues such as delays in transportation and material and labor issues at a third-tier supplier. Reliability will be prioritized over cost, and additional suppliers will be qualified even though the cost and time required is high. Backup suppliers will be scalable to mitigate issues such as those that occurred in the baby formula market. And taking control of essential healthcare supply chains will become a priority as reshoring and nearshoring production gains momentum. For example, Costa Rica and Mexico are building strong medical device manufacturing clusters to support healthcare supply chains. And the successful will deploy technology to support the sustainability and scalability of these initiatives.
It is no longer sufficient to leave manufacturing and supply chain reliability to chance. The proactive, resilient, and innovative will thrive and gain the opportunity to grab market share from those remaining on the roller coaster of volatility. Think ahead, be proactive, and be willing to invest in supply chains of the future to support your ideal customers and be uniquely positioned to grow and thrive.
For more information, contact the author at landerson@lma-consultinggroup.com or visit www.lma-consultinggroup.com.
