Why healthcare needs a product safety net
Over a year into the COVID-19 pandemic, the entire world looks and feels very different than ever before. This is certainly evident in our personal and professional lives; however, this crisis has resulted in much more than disrupted lifestyles and working from home. COVID-19 has also revealed the fragility of our supply chains, specifically in the healthcare sector.
The medical products supply chain can rapidly destabilize from external events that happen with little to no time to prepare, leaving health systems stranded when it comes to the invaluable materials they use on a daily basis.
In the next few blogs, we examine how to build what’s called a “healthcare product safety net,” which is a system that provides transparency of supply and demand of product throughout the supply chain. However, before we begin to establish the healthcare product safety net, we need to first understand the facts that can destabilize the medical supply chain.
Leaning out inventory
Over the years, distributors and raw material suppliers have leaned out their inventories. Essentially, these companies do not keep more materials on hand than is needed to satisfy historical demand, which reduces the amount of safety stock that is available to satisfy sudden increases in demand. When we experience a crisis that causes a surge in demand, the distributors and suppliers simply cannot keep up.
Panic buying
When there is a limited number of materials for consumers to order, they go into panic buying mode to keep themselves stocked with all the necessities. This of course puts further strain and pressure on the market to keep up with supply. The production schedules of modern supply chains are typically designed to respond precisely to demand. When health systems panic buy medical products they are triggering a vicious cycle of inconsistent demand that puts the substantial pressure on suppliers and distributors which leads to inconsistent supply.
Complexities of pricing dynamics
The medical supply chain pricing dynamics operate very differently from a typical consumer based supply chain. In most industries, a shortage of supply directly increases the price of products to reflect the increase in demand. In the medical supply chain, most pricing is locked in by contracts for significant lengths of time. When a supplier is unable to increase prices to regulate demand, the manufacturer is put in a difficult position which results in a rapid destabilization of the supply chain. For more information on how to build a healthcare product safety net, click here.
Health Product Xchange (HPX) has produced an extensive white paper, “Building a Healthcare Product Safety Net” that explores the need for a product safety net, as well as how the industry can build one. To download your copy of “Building a Healthcare Product Safety Net,” visit Healthcare Product Safety Net