Managing the medical oxygen supply chain in India
The requirement for LMO grew multiple times than the standard usage leaving many stranded due to an inadequate supply of this essential product. What makes the whole LMO supply chain so complex and challenging? It appears that a combination of factors interacted in creating a ‘perfect storm’.
These factors range from the contextual environment surrounding LMO supply chain in India, the unique set of bottlenecks created by the prevailing demand and supply situation, the need for additional resource commitments, and the approach adopted towards allocations. It is important to reflect on these aspects to come up with a road map for averting the crisis and being prepared for future needs.
The LMO supply chain context in India is relatively structured on the upstream production end but is highly fragmented in the downstream end where the produced LMO needs to reach the point of use at hospitals. The first bottleneck occurs at the point of production where there is insufficient capacity to cover the needs of heightened demand created by Covid-19.
Production capacity
The production capacity of LMO in India is currently at around 7,000-8,000 tonnes per day. With demand approaching 9,000-11,000 tonnes per day, there is a capacity shortage of available LMO in the country. A major portion of production of LMO (about 2,000-2,500 tonnes per day) occurs in captive units within large steel plants that need oxygen to enrich the blast furnace. Currently, 33 steel plants in India supply LMO. Out of the total gaseous oxygen produced by these steel plants, only about 5-10 per cent can be converted into LMO that is meant for the health sector.
The LMO is transported in cryogenic tankers to the bottling plant where cylinders are filled with oxygen that then can be distributed to the hospitals. In some cases, tankers from steel plants are directly sent to the hospital. The point of intersection between the supply chain of LMO and the supply chain of cylinders presents the instance of second bottleneck. The mismatch between the cycle time, and hence the capacity, of LMO and cylinders results in constraints that inhibit the ability to address the demand.
As compared to the capacity shortage of LMO production, there is an even greater shortage of cylinders. Inventories of cylinders are running at extremely low levels (1/5th of demand days in comparison to LMO stocks). This is particularly evident in tier-2 and tier 3 cities where several of the bottling units are operated by ‘micro’ units in the unorganised sector that have very less filling capacity per day.
Our conversation with professionals in this domain indicates that cylinder manufacturers are completely booked (in terms of their production capacity) and import of cylinders is being explored as an option to fulfill the demand. The closed loop supply chain of cylinders is witnessing a turnaround of 3 times per month, which will need to be increased to 10-15 times a month.
The allocation of LMO to States also acted as a bottleneck and may not have considered the volume of infections, among many others, in the estimates. In addition to these bottlenecks, the ground realities also revealed a shortage of skilled personnel who could administer LMO to patients.
Lack of infrastructure
Since LMO is administered in hospitals, the lack of infrastructure such as beds within hospitals and healthcare facilities acted as additional constraint in the LMO supply chain. Reports also surfaced about trading of LMO cylinders in the gray markets at higher than usual price points and allocation of LMO to patients that was prioritised based on monetary favours. These behavioural factors also presented themselves as major bottlenecks in the supply of LMO to needy individuals.
To address this multifaceted problem, it is important to devise a short-term and long-term strategy. In the short term, it will be necessary to supplement the LMO produced in the country with imports to address the impending demand situation.
The bottleneck created by the intersection of LMO and cylinder supply chains need to be managed by more effectively coordination –
(i) the supply chain of LMO from the point of production to the point of bottling and then from the bottling unit to the point of use,
(ii) the forward and reverse supply chain of gas cylinders used for bottling.
To do so, innovative logistical processes such as consolidation centres, cross docking, and hub and spoke network management need to be explored for increasing the turnaround time of cylinders.
Possibilities of converting industrial cylinders to cylinders that can be used in the healthcare context need to be explored. Our conversations with industry professional suggest that currently, 50,000 industrial cylinders have been converted with another 80,000 being converted, which seem to be steps in the right direction to ease the capacity constraint.
The LMO cylinders used in India are made of steel alloys or aluminium and there might be potential short-term solutions of using alternative material to address the capacity shortfall. The ability to use the line flexibility of some of the sites to manufacture cylinders could be investigated. For addressing the bottleneck of allocations, the recent special taskforce comprised of doctors and policy makers can help in setting up an equitable distribution of oxygen to various states. Involving business leaders and supply chain experts could further strengthen the mission.
Skilled personnel shortage could potentially be addressed by cross training and uptraining some of the personnel currently operating in the healthcare sector who may not currently be directly involved in patient care. Additionally, possibility of utilising volunteers to manage logistical issues could also be explored.
Hospital bed capacity shortage could be alleviated by allocating dedicated Covid wards and by establishing make-shift hospitals (e.g., schools, community centres etc.) to address the surge in demand.
In the longer term, radical innovation options need to be considered. For instance, novel technologies that can help in converting gaseous plants into LMO plants should be considered. Infrastructural investments should be made so that LMO can be transported via pipelines from the point of manufacturing at plants to the point of use at hospitals.
(Debjit Roy is a professor at IIM Ahmedabad and Anand Nair, a professor at Michigan State University)