December 2021 | John Strong
In this season of reflection, it seems appropriate to assess how the healthcare supply chain has changed during the past 20 months of global pandemic. Folks seem to have many villains they like to point to, but what we have experienced is really a reflection of many different economic and supply chain forces at work.
About 10 years ago, I had occasions where I would take the Amtrak Acela between Philadelphia and New York City. Month after month I couldn’t help but notice out the train window what offshoring of industries, jobs and hope had done to a wide swath of northeast Philadelphia shortly after we left Union Station. For several miles the train passed through neighborhoods with ghosts of factories and stores that had undoubtedly thrived in the last century—but were no more. It spoke volumes about the intertwined nature of our economy.
Critics of the healthcare supply chain have opined that we outsourced “too much” in our never-ending quest for better prices. But the same can be said for virtually every industry in America—and now we are feeling the effects on all those supply chains, including those beyond healthcare.
Many different solutions have been proposed and implemented for ensuring a secure healthcare supply chain—though none of them alone can do the job. Why should hospitals (and in some cases their GPOs) have to manufacture (formerly) common products such as examination gloves, disposable PPE, and pharmaceuticals? The warning signs have been developing for years—and only brought to the fore by the global pandemic. Are these real and meaningful solutions across the healthcare supply chain? Likely not.
Is it possible, in our quest for the absolute rock-bottom price, we are driving both manufacturers and distributors of healthcare products out of business or offshore? Perhaps.
In its December 2003 issue, “Fast Company Magazine 1” looked at Walmart’s relationship with a few of its suppliers. Walmart, long known for being tough negotiators, excellent at logistics and masters of “process”, as well as the largest volume retailer in America, provides some insight into what might be occurring in the healthcare supply chain.
Perhaps most famous, and subject of a number of case studies, is the gallon jar of Vlasic pickles. Walmart wanted a gallon of dill pickles priced under $3.00. A “statement item” in Walmart’s terms. Pickle makers don’t make much selling whole pickles, and, in fact, both Vlasic and Walmart were likely making only a few cents each on the gallons of pickles that were being sold. Vlasic reluctantly agreed, and the gallons went into more than 3,000 Walmart stores where they were featured prominently. Each store began selling 80 jars a week. Doesn’t sound like much? Do the math. It works out to 240,000 gallons of pickles a week. Initially, Vlasic asked for some relief and didn’t get it, even though Vlasic’s buyers were struggling to find enough jars, cucumbers, and materials to fill demand. In short, Vlasic’s entire supply chain got changed during this period. The business was indispensable to Vlasic however, and their customer simply said if you don’t keep producing, we are going to stop buying all your (more profitable) smaller jars of pickles. Finally, at the end of 2000, Vlasic got some relief: half a gallon of pickles for $2.79. Sound familiar?
This illustration and others demonstrate the contradiction of margin and volume which can be driven by large purchasers, especially when foreign-made products come into play. The same article also notes that MasterBrand Industries (MasterLocks) was a big supplier to Walmart. Until January 1997, most MasterLocks were made in Milwaukee, Wisconsin. The issue in the late 1990’s was foreign locks could be imported for $6 each, versus a cost of $9 for the ones made in Milwaukee. By 2003, only 10 to 15% of MasterLocks were made in Milwaukee.
Randall Larrimore, former president of MasterBrand noted that perhaps it is the customer themselves causing the conundrum. In search for the lowest possible price, large buyers ignored domestically produced products at the expense of jobs and product accessibility. People were willing to pay more for a MasterLock—but how much more? Even their own employees, shopping at Walmart, accelerated the need to move production and sourcing offshore. Has this phenomenon been playing out for years in healthcare as well?
All of this occurred along supply chains that are far more transparent and collaborative than those found in healthcare. Walmart forces insightful suppliers to re-examine their entire process of producing and shipping product to get them to reduce cost. Have we reached a point where more of our onshore manufacturers need to look at their supply chain efficiency—right along with their provider customers?
What do we do now? In healthcare, we need to continue to think through what the optimal process is to ensure what we have experienced over the past 20+ months never happens again. That includes to stop looking at “quick fixes” and instead concentrate on solving our own set of supply chain issues and problems. It involves collaboration among all players along the supply chain to keep prices reasonable and inventory plentiful.
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1 Fishman, Charles, “Fast Company” December 1, 2003
