COVID-19 and the Healthcare Supply Chain

The COVID-19 situation resulted in a sudden and unprecedented peak in global demand. This led to inventory shortages and capacity constraints. Healthcare organizations experienced congestion and resorted to demand substitution. The supply chain for pharmaceuticals and medical devices were impacted by disruptions. Pharmaceutical manufacturing companies get their supplies from more than 2000 active pharmaceutical ingredient suppliers as well as from other suppliers. Several of these inbound supplies were constrained during the pandemic. Close to 6,800 branded, generic, and biologic pharmaceutical manufacturers supply to traditional and specialty distributors who account for about 92% of sales. Distributors supply to retail and non-retail pharmacies amounting to more than 180,000 in numbers. The link from pharmaceutical manufacturers to distributors and retail pharmacies also experienced disruptions resulting in shortage of several medicines. The globally dispersed medical devices supply chain is very complex involving several to-and-fro cross border movement of supplies.

 

 

In 2019 the global annual demand of ventilators was 77,000 new ventilators. However, 2020 saw an unprecedented increase in the demand for ventilators. 5000-7000 ventilators were required per week in April and May of 2020. Some ventilator manufacturers boosted their production by 30-50% but, by themselves, could’t deliver the 500 or 1000% growth in production required. Top ventilator manufacturers in this tightly regulated market include Becton Dickinson, (Vyaire Medical), Philips, Hamilton Medical, Fisher & PaykelHealthcare, Dräger, Medtronic, GE Heathcare, Gelinge, Mindray, Löwenstein, and Hill-Rom. About 700 parts go into making a typical ventilator and these ventilators cost about $25,000 to $50,000 each. Some innovative inter-industry tie-ups (e.g. GM and Ventec Life Systems; Ford and GE Healthcare) helped in alleviating some of the pain. Under Defense Production Act, an order was issued to help U.S. ventilator manufacturers by removing "obstacles" to their accessing parts and materials needed to ramp up production of the breathing devices in response to the coronavirus crisis.

The root causes of disruption within the healthcare supply chain are a result of the global dispersion of supply base, supply chain complexity, lack of visibility and delayed response. To address the situation it is important to manage capacity (including labor), understand lead-times for suppliers, and be aware of the interdependencies (e.g. interdependence between testing capability and hospital capacity). Cross-industry collaborations by involving industry partners in automotive, consumer goods and cosmetics was helpful, but more of such collaboration will be needed to address the future needs. Developing new products and finding substitutes is critical to effectively manage the 'bottleneck' supply market. The process of creating private-public partnerships should be streamlined so that quick response to disruptions can be achieved. COVID-19 had taught an important lesson of developing responsive/adaptable supply chains, assessing current allocation/coordination approaches in response to the pandemic, and considering possible supply chain structural and/or regulatory changes.