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Rob Handfield on the Perilous State of Healthcare Supply Chain

Robert Handfield, executive director of Supply Chain Resource Cooperative and Bank of America University distinguished professor of operations and supply chain management at Poole College, explains the impact of COVID-19 on the global supply chain of the healthcare industry.

Why is the healthcare system so unprepared for the COVID-19 pandemic? During the last pandemic in 2010 (SARS), executives swore up and down that they wouldn’t let this happen again and government bureaucrats assured everyone that a strategic stockpile would be maintained. Nine years went by and people somehow lost track of the impact of a major health epidemic sweeping the world. The problem today is that organizations forgot to replenish and prepare stockpiles for one of the world’s worst epidemics  – one that is for the history books.  

This is a function of a couple of different factors.

Stockpiling supplies and/or creating redundant sources of supply is one of the most often cited strategies associated with pre-emergency planning. The cost of stockpiling is not insignificant and requires an investment in products that go into inventory and which may or may not be utilized in the short term. Typical inventory holding costs are in the range of 18 to 25 percent of the value of a good on an annual basis and include opportunity costs, storage, interest, insurance, shrinkage and obsolescence.  

But, as you can imagine, executives aren’t rewarded for holding inventory. In fact, it shows up as a penalty in the form of lower working capital. So, guess what? Nobody stockpiled.

Questions executives need to ask themselves surrounding supply chain stockpiling of goods include the following:

  • What types of supplies are required?
  • What other types of redundancies can be identified (e.g., second source of supply, multiple transportation routes, etc.)?
  • Who are the critical individuals requiring access to stockpiles?
  • What is the right quantity of supply and redundancy?
  • What is the relative cost of supply and redundancy?

In the current panic, no one has answers to these questions, and there is no centralized task force planning and creating insights into how to deploy assets. Worse yet, there are few sources of supply market intelligence to identify where the production of these goods is going to come from. 

Read the long-form version of this story here.