How life science and health care supply chains can adapt to disruption

Robert Handfield, Ph.D. is a distinguished professor of Supply Chain Management at North Carolina State University and Director of the Supply Chain Resource Cooperative. In an episode of the Health Pulse Podcast, Handfield gave his views regarding the challenges health care and life science companies have encountered over the past two years as a result of several unforeseen disruptions.

COVID-19, the China trade wars, climate change and the Russia-Ukraine war have been constantly disrupting global supply chains. We are going to continue encountering periodic disruptions beyond 2022 into 2023 and possibly beyond.

As a result, companies will need to learn how to become more agile by coming up with more interesting solutions through double sourcing, redundancies, nearshoring and using new technologies like supply chain digital twins.

Rethinking just-in-time (JIT) delivery practices  

Companies are rethinking their overall health care supply chain systems as the result of the supply shortages caused by COVID-19. Everyone agrees that we need to have better national stockpiles, alignment, agility, and training to better understand how to handle future disruptions, as it is very likely another is on the horizon.

All of the supplies the US needed to deal with the pandemic, including ventilators, were sourced in one region, Asia. China and other Asian countries shut down during the pandemic and halted all their exports to the US. As a result, the US was totally dependent on a global supply chain that we thought was built based on a just-in-time (JIT) supply chain system.

But when you have manufacturing facilities and suppliers that are located around the world and you don’t have enough inventory, that’s not just-in-time. That’s the opposite. It’s only JIT if you have manufacturing facilities strategically placed around the world supported by local suppliers. The true definition of JIT requires that you have local suppliers that are in close proximity to your manufacturing facilities that deliver on a daily basis, as well as multiple times a day. The manufacturing facilities are also in direct communication with the local suppliers. A good example happened in 2020 when Pfizer partnered with more than 300 suppliers and added 44 qualified and capable small businesses, significantly increasing diversity within their supply chain and making it more resilient.

After two years of disruptions, what have we learned?        

Healthcare providers have gone in the opposite direction where they are now leasing warehouses and stuffing them with six months of inventory. Over time the inventory could expire if demand subsides. This is what happened to the national stockpile.

Handfield mentioned his concerns about shortages of N95 masks during the pandemic, which was related to the fact that most of those masks were produced in China. In fact, all of 3M’s masks are produced in China. What’s even more interesting, during the pandemic a number of US manufacturers started to make masks domestically. As the pandemic began to wind down many of those manufacturers went bankrupt as their prices were higher than masks made in China. As China began to reenter the US market, the US health care providers returned to purchasing lower-cost Chinese-produced masks.

Who has been able to adapt and build supply chain resilience?      

We’re starting to see a lot more collaboration within supply chains. I’ve always been a big fan of collaboration, and that’s something that makes me feel good. This is what brings us all together.  - Dr. Robert Handfield     

Although there haven’t been numerous updates in the health care or life sciences industries, there are many changes in motion to improve their overall supply chain resilience. One organization, the Cleveland Clinic, has created innovative models that help hospitals forecast patient volume, bed capacity, ventilator availability and more with SAS technology using predictive analytics and scenario planning. That’s a real game-changer to be able to use analytical technologies to run those real-time scenarios to uncover bottlenecks and choke points in the supply chain. Using predictive analytics to better understand what could happen and how to plan better to prepare for the next disruption.

As we come out of this latest wave of the perfect supply chain storm many organizations are asking “what can we do differently?" Those same organizations are now contemplating how to connect the physical supply chain to the digital supply to run real-time simulations to circumvent future disruptions.

What can companies do immediately to sure up their supply chain? 

Companies are realizing the benefits of advanced analytics and machine learning by connecting their physical supply chain to a digital supply chain replica to create real-time simulations to determine bottlenecks and choke points before they occur using digital twin technology.

Digital twins are replicas ranging from physical objects to complex ecosystems. A digital twin replicates an organization's ever-evolving functions, including physical entities, financial assets, human resources, processes, workflows and constraints. Using digital twin simulation technology, companies can test unlimited scenarios that demonstrate the impacts of different decisions on operational efficiency and KPIs across their supply chain network.

SAS and Cosmo Tech innovations build resilient global supply chains. Uniting analytics with digital twin simulation strengthens future performance in uncertain times.

A supply chain digital twin can be used for:

• Understanding supply chain dynamics and behavior.
• Bottleneck and choke point discovery.
• Testing supply chain design changes and development.
• Monitoring risk and testing contingencies.
• Transportation planning
• Inventory optimization, replenishment, and allocation.
• Forecasting and testing operations planning over the coming days and weeks.

An agile supply chain is a competitive advantage and represents a powerful use case for digital twins. Health care and life science companies can use digital twins to apply machine learning across numerous data streams to simulate the real-time movement of goods, material flows, inventory positions and warehouse operations.

Is globalization over? 

Are companies going to onshore more of their manufacturing and supply chain capabilities locally by country Supply chains are not all the same or can be interchanged or moved around the world. There are certain types of products that we must continue to rely on China to produce and manage. We’ve outsourced so much to China because they are much more efficient in producing certain categories of goods and services. What we are seeing now is something called “nearshoring,” or in some cases, double shoring where companies use a secondary supplier.

One nearshoring supplier for North America is Mexico. Mexico is a truck drive away, has an excellent workforce, and its labor costs are now lower than China. When you consider the cost of transportation (China container costs are roughly $8,000—Shanghai to LA) the savings are much lower, which is significant. Plus, the US has free trade agreements with Mexico and Canada.

Handfield feels companies will start to see a movement toward a Pan-North American supply chain. There’s lots of capital, labor and energy in North America, making it a great combination to build a more efficient and effective supply chain. He believes this will result in more “resilient adaptable supply chains”.

The Health Pulse, part of the SAS Analytics Exchange podcast series, explores fresh perspectives on digital transformation in health care and life sciences.